EL PASO NATURAL GAS CO, 10-K, 1996-03-15

EL PASO NATURAL GAS CO
10-K, 1996-03-15
NATURAL GAS TRANSMISSION

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

------------------------

FORM 10-K
(MARK ONE)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR

[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

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 OF
INCORPORATION OR ORGANIZATION)

ONE PAUL KAYSER CENTER
100 NORTH STANTON STREET, EL PASO, TEXAS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

74-0608280
(I.R.S. EMPLOYER
IDENTIFICATION NO.)

79901
(ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (915) 541-2600

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

COMMON STOCK, PAR VALUE $3 PER SHARE

PREFERRED STOCK PURCHASE RIGHTS

9.45% Notes due 1999
8 5/8% Debentures due 2012

THE ABOVE SECURITIES ARE REGISTERED ON THE NEW YORK STOCK EXCHANGE.

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT.

Aggregate market value of the voting stock (which consists solely of shares
of common stock) held by non-affiliates of the registrant as of February 29,
1996, computed by reference to the closing sale price of the registrant's common
stock on the New York Stock Exchange on such date: $1,190,527,503.

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

Class: common stock, par value $3 per share. Shares outstanding on February
29, 1996: 35,274,889

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the
part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: El Paso Natural Gas Company's definitive Proxy Statement for the
1996 Annual Meeting of Stockholders, to be filed not later than 120 days after
the end of the fiscal year covered by this report, is incorporated by reference
into Part III.

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EL PASO NATURAL GAS COMPANY

TABLE OF CONTENTS

ITEM NO. CAPTION PAGE
- -------- ------- ----
<S> <C> <C>
Glossary................................................................................. ii

PART I

1. and 2. Business and Properties.................................................... 1
3. Legal Proceedings.......................................................... 12
4. Submission of Matters to a Vote of Security Holders........................ 12

PART II

5. Market for Registrant's Common Equity and Related Stockholder Matters...... 13
6. Selected Financial Data.................................................... 14
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 15
(a) Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995................. 24
8. Financial Statements and Supplementary Data................................ 26
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................... 54

PART III

10. Directors and Executive Officers of the Registrant......................... 54
11. Executive Compensation..................................................... 54
12. Security Ownership of Certain Beneficial Owners and Management............. 54
13. Certain Relationships and Related Transactions............................. 54

PART IV

14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............ 55
Signatures................................................................. 60
</TABLE>

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GLOSSARY

The following abbreviations, acronyms, or defined terms used in this Form
10-K are defined below:

<TABLE>
<CAPTION>
ABBREVIATIONS,
ACRONYMS, OR DEFINED TERMS TERMS
-------------------------- -----
<S> <C>
Amoco........................................ Amoco Production Company
APB.......................................... Accounting Principles Board Opinion
Bcf.......................................... Billion cubic feet
Bcf/d........................................ Billion cubic feet per day
Board........................................ Board of directors of El Paso Natural Gas
Company
BR........................................... Burlington Resources Inc.
CAAA......................................... Clean Air Act Amendments of 1990
CFE.......................................... Comision Federal de Electricidad, the Mexican
government-owned electric utility
Company...................................... El Paso Natural Gas Company and its
subsidiaries
Court of Appeals............................. United States Court of Appeals for the
District of Columbia Circuit
CPUC......................................... California Public Utilities Commission
Dth.......................................... Decatherm
Eastex....................................... Eastex Energy Inc., a wholly owned subsidiary
of El Paso Natural Gas Company
EIS/EIR...................................... Environmental Impact Statement/Environmental
Impact Report
EPA.......................................... United States Environmental Protection Agency
EPED......................................... El Paso Energy Development Company, a wholly
owned subsidiary of El Paso Natural Gas
Company
EPFS......................................... El Paso Field Services Company, a wholly
owned subsidiary of El Paso Natural Gas
Company
EPG.......................................... El Paso Natural Gas Company, unless the
context otherwise requires
EPGM......................................... El Paso Gas Marketing Company, a wholly owned
subsidiary of El Paso Natural Gas Company
EPNC......................................... El Paso New Chaco Company, a wholly owned
subsidiary of El Paso Natural Gas Company
FERC......................................... Federal Energy Regulatory Commission
Holding Company.............................. A new Delaware corporation, which is proposed
to be formed to become the holding company
parent of the Company
ICA.......................................... Empresas ICA Sociedad Controladora, S.A. de
C.V.
IRS.......................................... Internal Revenue Service
Merger....................................... Proposed merger of El Paso Natural Gas
Company with a direct subsidiary of Holding
Company to implement the reorganization of
the Company into a holding company structure
MFV.......................................... Modified Fixed Variable
MMbtu........................................ Million British thermal units
MMcf/d....................................... Million cubic feet per day
MPC.......................................... Mojave Pipeline Company, a wholly owned
subsidiary of El Paso Natural Gas Company
MPOC......................................... Mojave Pipeline Operating Company, a wholly
owned subsidiary of Mojave Pipeline Company
</TABLE>

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<TABLE>
<CAPTION>
ABBREVIATIONS,
ACRONYMS, OR DEFINED TERMS TERMS
-------------------------- -----
<S> <C>
MSG.......................................... Merchant Services Group, comprised of Eastex
Energy Inc. and subsidiaries, and El Paso Gas
Marketing Company
NGL.......................................... Natural gas liquids
NOx.......................................... Nitrogen oxides
NYMEX........................................ New York Mercantile Exchange
Odd-Lot Holders.............................. Shareholders of El Paso Natural Gas Company
owning beneficially fewer than 100 shares of
El Paso Natural Gas Company's common stock
OPEB......................................... Other Postretirement Employee Benefits
OTC.......................................... Over-The-Counter
PCB.......................................... Polychlorinated biphenyl
PG&E......................................... Pacific Gas & Electric Company
Plan......................................... Dividend Reinvestment and Common Stock
Purchase Plan
Premier...................................... Premier Gas Company, a wholly owned
subsidiary of Eastex Energy Inc.
Program...................................... Continuous Odd-Lot Stock Sales Program
PRP(s)....................................... Potentially Responsible Party(ies)
Restructuring Rules.......................... A series of orders directing a number of
significant changes to the structure of the
services provided by interstate natural gas
pipelines
RI/FS........................................ Remedial Investigation/Feasibility Study
SAR(s)....................................... Stock Appreciation Right(s)
SEC.......................................... Securities and Exchange Commission
SFAS......................................... Statement of Financial Accounting Standards
SFV.......................................... Straight Fixed Variable
SoCal........................................ Southern California Gas Company
SOP.......................................... Statement of Position
Tcf.......................................... Trillion cubic feet
TEPCO........................................ The El Paso Company, formerly the parent
company of El Paso Natural Gas Company
Transwestern................................. Transwestern Pipeline Company
</TABLE>

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PART I

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

EL PASO NATURAL GAS COMPANY

Business

EPG, incorporated in Delaware in 1928, owns and operates one of the
nation's largest mainline natural gas transmission and gathering systems,
connecting natural gas supply regions in New Mexico, Texas, Oklahoma, and
Colorado to markets in California, Nevada, Arizona, New Mexico, Texas, and
northern Mexico. At December 31, 1991, EPG was a wholly owned subsidiary of BR.
In March 1992, EPG completed an initial public offering of approximately 15
percent of its common stock in the form of newly issued shares. In June 1992, BR
distributed all of the EPG common shares it held to BR shareholders, the effect
of which was to place all of EPG's common stock in public ownership.

EPG's natural gas transmission system consists of approximately 17,000
miles of pipeline. In 1995, EPG transported 1.3 Tcf of gas, equivalent to
roughly 6 percent of the nation's total gas consumption. California is the
largest single market served by EPG and is the second largest natural gas market
in the nation. EPG is also the primary transporter to the growing
East-of-California markets in Arizona (particularly Phoenix and Tucson); Las
Vegas, Nevada; New Mexico; and El Paso, Texas.

EPG's natural gas transmission system is connected to one of the most
prolific supply basins in the nation, the San Juan Basin of northern New Mexico
and southern Colorado. Since 1992, production of gas from the San Juan Basin has
more than doubled. EPG added 1 Bcf/d of capacity out of the San Juan Basin
between December 1991 and April 1992. In December 1995, EPG added an additional
300 MMcf/d of new capacity which brought its total capacity out of the San Juan
Basin to 2.9 Bcf/d. The expansion virtually eliminated the capacity constraints
on EPG's San Juan Triangle facilities that were experienced during 1995. The
dramatic growth of production in the San Juan Basin, combined with the decrease
in demand for San Juan Basin supplies in California, has caused San Juan Basin
producers to seek new markets off the east end of EPG's natural gas transmission
system. EPG has been accommodating such off-system demand through displacement
transportation, as well as through the redirection of gas flow over a
bi-directional portion of the pipeline. In addition to having access to
substantial gas supplies, EPG is uniquely positioned to serve developing markets
along the northern border of Mexico including Ciudad Juarez, Cananea, and
Hermosillo.

In addition to its own pipeline operations, the Company has a one-third
interest in the TransColorado Gas Transmission Company. For a further discussion
see Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Regulatory Environment

EPG's pipeline facilities, services, and rates are regulated by FERC in
accordance with the Natural Gas Act of 1938 and the Natural Gas Policy Act of
1978. The primary change in EPG's operating environment is due to FERC's
increasing reliance on market forces as a substitute for cost-of-service
regulation. This change in policy has allowed the construction of significant
excess pipeline capacity into California.

In the mid-1980's, FERC began a series of actions designed to replace
strict cost-of-service regulation with market forces. The first significant
change was to eliminate a pipeline's obligation to hold supply and to allow
shippers to transport their own gas across an interstate pipeline system rather
than depend on the pipeline's merchant function. One of the obstacles to this
transition was the renegotiation of gas purchase contracts between pipelines and
producers. These negotiations reduced the pipeline's purchase obligations,
reformed the contract pricing provisions, and/or settled take-or-pay claims. EPG
has completed the renegotiation of its purchase contracts and expects no further
significant liability in this area. For a further

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discussion of EPG's take-or-pay matters see, Note 5 of Item 8, Financial
Statements and Supplementary Data.

The second effort, which began in April 1992, was a series of orders
commonly known as the Restructuring Rules. These rules mandated significant
changes to the structure of the services provided by interstate natural gas
pipelines and were intended principally to assure "comparability" (i.e., that
pipeline and non-pipeline gas merchants were placed on an equal footing in
competing for sales), to provide a mechanism for the allocation of pipeline
capacity, and to eliminate competitive distortions arising from rate design
differences between United States and Canadian pipelines. The most significant
of these rules for EPG was the rate design change. Under the Restructuring Rules
SFV rate design, all fixed pipeline costs (including return on equity and
related income taxes) are recovered through reservation charges which do not
vary with actual throughput. Under the previously required MFV rate design,
return on equity and related taxes were excluded from reservation charges but
were recovered along with variable costs through volumetric rates (rates
collected based on the actual volumes transported on the pipeline). Generally,
under SFV rate design, volumetric rates are considerably lower than under MFV
rate design and pipeline earnings are less sensitive to variations in actual
throughput; however, as discussed in the following sections, it is anticipated
that EPG's future rates will be more sensitive to pipeline throughput.

California Markets

EPG maintains a strong competitive position in the California market by
virtue of the fact that its pipeline is currently the lowest-cost transporter
of, and the principal means of moving, natural gas from the San Juan Basin to
the California border. EPG's current capacity to deliver natural gas to
California is approximately 3.3 Bcf/d. EPG currently delivers about 48 percent
of the total interstate pipeline capacity serving that state. In addition, gas
shipped to California across the EPG system represented about 36 percent of the
gas consumed in the state in 1995.

Interstate pipeline capacity utilization to California is currently about
65 percent and is not expected to reach 100 percent until sometime in the next
decade, assuming no new interstate pipeline construction. Currently, EPG has
firm transportation contracts covering 89 percent of its 3.3 Bcf/d of capacity
to California. By 1998, that figure has the potential to drop to approximately
53 percent. EPG's largest contracts for interstate capacity to California are
with SoCal and PG&E. Both SoCal and PG&E have exercised options in their
contracts to relinquish certain capacity rights. For a further discussion of the
SoCal and PG&E capacity relinquishments, see Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations.

EPG is seeking to offset the effects of these and other future reductions
in existing firm capacity commitments by actively seeking new markets, pursuing
attractive opportunities to increase traditional market share, and controlling
costs.(1) The new markets EPG has targeted include various natural gas users in
California who are now served indirectly through SoCal and PG&E, as well as new
markets off the east end of its system. EPG's efforts to obtain new markets in
California at full tariff rates is adversely impacted by the current excess
interstate pipeline capacity to California.

East-of-California Markets

EPG's current delivery capacity to East-of-California markets is
approximately 1.3 Bcf/d. EPG is the principal interstate natural gas
transmission system serving Arizona, including the cities of Phoenix and Tucson;
southern Nevada, including Las Vegas; New Mexico; and El Paso, Texas. EPG also
serves the cities of Ciudad Juarez, Cananea, and Hermosillo in northern Mexico.
In addition, EPG has filed an application with FERC to expand its system in
order to provide natural gas service to the proposed Samalayuca II Power Plant
near Ciudad Juarez. For a further discussion of the Samalayuca II Power Plant,
see Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations.

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(1) The previous statement(s) may be considered forward-looking. See
page 24 for a description of the
important factors that may affect actual results.

2
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Markets off the East End of EPG's System

Since the late 1980's, in response to changing market demands, EPG has been
delivering substantial quantities of gas from the San Juan, Permian, and
Anadarko Basins to interconnecting pipelines for re-delivery to off-system
markets on the Gulf Coast and in the Midwest.

The alternate routing of the San Juan Basin gas was originally effectuated
by back-hauls between EPG's system and an interconnecting pipeline. Volumes of
gas, which the interconnecting pipeline is otherwise scheduled to deliver to EPG
for re-delivery in EPG's traditional markets, are traded for like volumes of San
Juan Basin gas which EPG has accepted for delivery to the interconnecting
pipeline. With EPG's 1992 completion of a system modification, which made an
existing pipeline segment linking the San Juan Basin and Permian Basin
bi-directional, physical forward-haul deliveries are also being made.

Permian Basin and Anadarko Basin gas is delivered to these new markets both
by displacement and through forward-haul transactions. A segment of pipeline in
the Texas panhandle that has been modified to allow for re-directed gas flow
allows EPG to physically transport San Juan Basin or Permian Basin gas to
delivery points in the Anadarko Basin. New interconnects were constructed with
NorAm Gas Transmission Company and TransOK Inc. to exploit this additional
capability. Similarly, a segment of pipeline between the Cornudas and Waha
stations in Texas has been modified to allow for additional capacity to move gas
to the Texas intrastate pipelines in the Permian Basin. As a result of these
system modifications, total deliveries to off-system markets east of EPG's
system were as high as 1.5 Bcf/d during 1995.

Although the contributions to revenues and earnings are still comparatively
small, off-system deliveries represent a strategic long-term diversification of
EPG's market base. Presently, EPG is the largest provider of access to
off-system markets for San Juan Basin producers. To maintain this position,
during 1995 EPG constructed a new interconnect with Transwestern near Window
Rock, Arizona that allows EPG to move an additional 300 MMcf/d of San Juan Basin
gas to Transwestern for re-delivery to these new markets.

In addition, based on the results of an "open season" which concluded on
February 29, 1996, EPG believes that sufficient market demand exists to support
the addition of new capacity to move additional San Juan Basin gas to east end
markets. For a further discussion of EPG's proposed expansion, see Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

Summary of Historical Throughput

Set forth below is a breakdown of EPG's natural gas deliveries by market
area for the years ended December 31:

<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
(MMCF/D)
<S> <C> <C> <C>
California.................................................. 1,791 2,257 2,288
East-of-California.......................................... 550 630 599
Off-system.................................................. 1,103 747 691
----- ----- -----
Total Throughput.................................. 3,444 3,634 3,578
===== ===== =====
</TABLE>

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Competition

EPG faces significant competition from three other companies which
transport natural gas to the California market. Competition generally occurs on
the basis of delivered price. The combined capacity of the four pipelines
transporting natural gas to the California market is 6.9 Bcf/d. In 1995, the
demand for interstate pipeline capacity to California averaged 5.0 Bcf/d. EPG's
California competitors can be summarized as follows:

Transwestern -- has the capacity to deliver approximately 1.1 Bcf/d to
California from Permian, Anadarko, and San Juan Basin supply sources.

Kern River Gas Transmission -- has the capacity to deliver approximately
700 MMcf/d to California from Rocky Mountain supply sources. In 1992, Kern River
Gas Transmission applied to FERC for permission to expand its system capacity by
452 MMcf/d and held an open season to solicit market support for that effort.
Market demand will determine whether or not the project will be built.

Pacific Gas Transmission Company -- has the capacity to deliver
approximately 1.8 Bcf/d to California from Canadian gas supply sources after
completion, in November 1993, of its 755 MMcf/d expansion. This project was
supported by Canadian marketers and producers seeking a new market for their
supplies. While the impact of the expansion project on EPG's operating revenues
was minimal in 1994 due to an overall increase in demand for natural gas in the
California market, which occurred due to a decrease in the availability of
hydroelectric power, the impact of the expansion project on EPG's operating
revenues has been more significant in 1995. See Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations.

EPG faces varying degrees of competition from alternative energy sources,
such as electricity, hydroelectric power, coal, and oil. The potential
consequences of the proposed restructuring of the electric power industry, which
both the CPUC and FERC are supporting, are currently unclear. It may benefit the
natural gas industry by creating more demand for gas turbine generated electric
power, or it may hamper demand by allowing more effective use of surplus
electric capacity through increased wheeling as a result of open access. At this
time, EPG is not projecting a significant increase in gas demand as a result of
such restructuring, particularly in the California market.

Future Outlook

In June 1995, EPG made a filing with FERC for approval of new system rates
for mainline transportation to be effective January 1, 1996. In July 1995, FERC
accepted and suspended EPG's filing to be effective January 1, 1996, subject to
refund and certain other conditions. FERC also set EPG's rates for hearing.

This settlement would mitigate the revenue reductions expected as a
consequence of the various contract demand step-downs and the PG&E contract
termination at year-end 1997.

MOJAVE PIPELINE COMPANY

Business

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for the purpose of constructing, owning, and operating a federally regulated
interstate natural gas pipeline to serve the enhanced oil recovery operations
and associated cogeneration projects in the heavy oil fields in central
California. MPOC, a wholly owned subsidiary of MPC, is a Texas corporation,
which serves as MPC's agent in the management of MPC's pipeline facilities and
the design and construction of future MPC pipeline expansions.

MPC's pipeline facilities, services, and rates are regulated by FERC in
accordance with the Natural Gas Act of 1938 and the Natural Gas Policy Act of
1978. MPC's system connects at Topock, Arizona with EPG's and Transwestern's
interstate pipeline systems. MPC's only business is natural gas transportation
and related hub services.

Set forth below are MPC's natural gas deliveries for the years ended
December 31:

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(MMCF/D)
<S> <C> <C> <C>
Total MPC Throughput............................................ 328 247 231
=== === ===
</TABLE>

Regulatory Environment

MPC filed a service and rate design restructuring plan in November 1992
which was essentially approved by FERC in March 1993. Several of MPC's customers
have filed petitions with the Court of Appeals for review of the March 1993
order and certain other FERC orders. These petitions are currently pending
before the Court of Appeals. 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. Management believes the Court of
Appeals will uphold SFV rates as applied to MPC.(1)

In February 1995, MPC made a filing with FERC seeking authorization to
maintain its existing rates. In March 1995, FERC accepted the filing and allowed
the rates to become effective as of March 30, 1995, subject to refund. In
September 1995, MPC filed a settlement agreement supported by FERC and the
majority of MPC's firm shippers which would continue rates at existing levels
for a 5-year period. In December 1995, FERC approved the settlement agreement as
it relates to the supporting parties. Contested issues applicable solely to the
minority customer group not supporting the settlement will be resolved following
a hearing before FERC.

System Expansion

In March 1993, MPC filed an application, which was amended in November 1993
and April 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 was estimated to cost approximately $500 million. For a further
discussion of the proposed expansion see Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations.

EL PASO FIELD SERVICES COMPANY

Business

EPFS, incorporated in June 1993, was formed for the purpose of owning,
operating, acquiring, and constructing natural gas gathering, processing, and
other related field facilities. In January 1994 and in May 1995, EPG filed
applications with FERC seeking orders that would terminate, effective January 1,
1996, certificates applicable to certain gathering and processing facilities
owned by EPG on the basis that such facilities are not subject to FERC
jurisdiction. In September 1995, FERC granted the abandonments requested in the
applications, subject to certain conditions, and determined that the facilities
would be exempt from FERC jurisdiction upon transfer to EPFS. In November 1995,
FERC denied rehearing petitions on the

- ---------------

(1) The previous statement(s) may be considered forward-looking. See
page 24 for a description of the important factors that may affect
actual results.

5
<PAGE> 10

September 1995 order. Certain parties have filed petitions for review of the
September 1995 and November 1995 FERC orders with the United States Court of
Appeals for the Fifth Circuit.

Effective January 1, 1996, EPG transferred to EPFS the gathering and
processing facilities which were subject to the January 1994 and May 1995 orders
together with its non-certificated gathering facilities. The following table
provides information concerning the gathering and processing facilities at
January 1, 1996:

<TABLE>
<CAPTION>
GAS PRODUCTS
MILES OF INSTALLED GATHERING EXTRACTION
SYSTEM PIPELINE HORSEPOWER CAPACITY CAPACITY
------ -------- ---------- --------- ----------
(MMCF/D)
<S> <C> <C> <C> <C>
San Juan Basin............................... 5,500 42,721 1,180 590(a)
Anadarko Basin............................... 667 11,705 425 --
Permian Basin
Carlsbad................................... 800 6,144 150 8
Waha....................................... 160 3,609 250 --
----- ------ ----- ---
Total.............................. 7,127 64,179 2,005 598
===== ====== ===== ===
</TABLE>

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(a) This capacity represents the existing lean oil processing plant which will
be partially replaced by the completion of the 600 MMcf/d cryogenic plant
discussed below. EPFS will retain approximately 325 MMcf/d of lean oil
processing capacity.

EPFS focuses on providing its customers innovative, reliable, competitively
priced wellhead-to-mainline field services including gathering, products
extraction, dehydration, purification, and compression. With the formation of
MSG, EPFS is able to offer its customers fully bundled natural gas services with
a broad range of pricing options including innovative financial risk management
products. EPFS also provides well tie-ins and state-of-the-art, cost effective,
near real-time information services including electronic wellhead gas flow
measurement.

EPFS provides services on a variety of fee structures including fixed fee
per Dth, floating fee per Dth indexed to the applicable local area price of gas,
or by taking NGL in kind. EPFS's leverage to gas and liquid prices increased in
1995 as a result of the completion of numerous long-term gathering, processing,
and compression contracts for services in the San Juan Basin. These contracts
represent approximately 77 percent of EPFS's San Juan Basin throughput which
totaled 1,012 MMcf/d in 1995 and include dedication of gas production and
drilling acreage with gathering fees indexed to the San Juan Basin price of gas,
and product extraction fees based on a percentage of NGL extracted. The Company
believes that low California gas demand, excess interstate pipeline capacity to
California, continued increases in gas supply availability, and pipeline
constraints to move gas to eastern markets were significant factors that caused
San Juan Basin gas prices to average $1.18 in 1995, the lowest in over 7 years.
EPFS believes it is well positioned to benefit from upswings in gas and NGL
prices. In January and February of 1996, EPFS implemented a hedging strategy
through MSG. This strategy retains upside potential for gas and NGL indexed fees
while mitigating the financial impact should lower gas or NGL prices occur
during 1996.

In 1995 EPFS's gathering throughput was depressed due in large part to low
gas prices, which dampened overall drilling and workover activity, and to
pipeline curtailments on EPG's mainline. The pipeline curtailments resulted from
mainline capacity constraints in the San Juan Basin. In late 1995, EPG
eliminated the constraints by expanding San Juan Basin mainline capacity by 300
MMcf/d and putting into service a 300 MMcf/d interconnect with Transwestern. As
a result, pipeline curtailments in the San Juan Basin are not expected to
negatively impact gathering throughput in 1996.

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<PAGE> 11

Set forth below are the gathered and products extraction volumes for the
years ended December 31:

<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
(MMCF/D)
<S> <C> <C> <C>
Gathered Volumes............................................ 1,284 1,314 1,304
===== ===== =====
Products Extraction Volumes................................. 436 458 446
===== ===== =====
</TABLE>

EPFS plans to increase gathering and processing volumes and profits through
a strategy of project development, acquisitions, and joint ventures.(1) EPFS's
strategies are focused on increasing its ability to offer gathering and
processing services in its traditional services areas, as well as in other
active gas producing areas. EPFS has made significant progress in implementing
these strategies. In September 1995, EPFS acquired the Burton Flats cryogenic
products extraction plant from Amoco for approximately $5.6 million. The plant
and related 14 mile gathering system has a capacity of 7.5 MMcf/d and at year
end 1995 had throughput of about 6.0 MMcf/d. The Burton Flats plant and
gathering system is located in Eddy County, New Mexico and is adjacent to EPFS's
Carlsbad gathering system. This facility will enable EPFS to offer products
extraction services to its existing customers in the Carlsbad gathering system,
as well as to new gas suppliers.

The Hart Canyon compression project was completed in November 1995 and
consists of three field compressor sites with combined horsepower of 7,675 and
loops several sections of gathering lines in the San Juan Basin. The effect of
this project has been to lower gathering line pressures from an average of 280
pounds per square inch gauge to 120 pounds per square inch gauge resulting in
increased production of up to 20 MMcf/d from approximately 280 wells connected
to the system. EPFS charges a compression fee on approximately 80 MMcf/d
compressed by this new horsepower. EPFS believes that similar compression
projects throughout its system hold significant potential as a new revenue
source for EPFS in the future.(1)

In February 1996, EPFS, through its wholly owned subsidiary El Paso
Intrastate Company, acquired the Linc and Pandale gathering systems from Tejas
Power Corporation. For a further discussion of the gathering systems see Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

EPFS is constructing a new 600 MMcf/d cryogenic gas processing plant at its
existing Chaco Plant facility which is expected to cost approximately $80
million. The first 400 MMcf/d of capacity at the Chaco Plant facility is
scheduled to be in service during the first quarter of 1996, with the remaining
200 MMcf/d of capacity expected to be available in the second quarter of 1996.
The efficiency of the plant's high natural gas liquids extraction capability of
50,000 barrels of NGL per day is expected to increase the profitability to the
customers of EPFS, thereby increasing the profit contribution of EPFS's NGL
processing activities. For information on the lease for the plant, which is
unconditionally guaranteed by EPG, see Note 5 of Item 8, Financial Statements
and Supplementary Data.

Competition

EPFS operates in a highly competitive environment that includes independent
gathering and processing companies, interstate and intrastate pipeline
companies, gas marketers, and oil and gas producers. EPFS competes for
throughput primarily based on price, efficiency of facilities, gathering system
line pressures, availability of facilities near drilling activity, service, and
access to favorable downstream markets.

Future Outlook

EPFS is the primary vehicle by which EPG plans to grow its non-regulated
domestic natural gas gathering and processing business. EPFS expects to increase
the profitability of its existing business through aggressive cost control and
expand by adding to its current service offerings through synergies with MSG.(1)
To accelerate that process EPFS will relocate its headquarters to Houston, Texas
during the second quarter of

- ---------------

(1) The previous statement(s) may be considered forward-looking. See
page 24 for a description of the important factors that may affect
actual results.

7
<PAGE> 12

1996. Furthermore, aided by the free cash flow generated by EPG, EPFS plans to
aggressively pursue growth opportunities through acquisition and development of
assets in and outside of its current service area.(1)

MERCHANT SERVICES GROUP

Business

The Company significantly increased its non-regulated natural gas activity
in 1995 through the formation of MSG which consists of Eastex, its subsidiaries,
and EPGM. EPGM was incorporated and commenced operations in late 1992 for the
purpose of conducting all of EPG's new gas marketing business, while also acting
as EPG's agent in winding down its remaining role as a natural gas merchant
predominately in the southwestern region of the United States. Due to the
emerging market for natural gas sales and services in recent years and the
Company's emphasis on developing its non-regulated business, the Company sought
to expand the size and geographical scope of its gas marketing activities to
become a national gas merchant through the acquisition of Eastex, effective
September 1, 1995.

Eastex is a full service natural gas merchant which conducts wholesale gas
marketing and related services on a national basis. To complement its business,
Eastex offers storage and hub services at its Rotherwood Storage Field and
Houston Hub pipeline facility, located in Texas, and direct end user sales in
the eastern United States, principally through Heath Petra Resources, a wholly
owned subsidiary of Eastex. Subsequent to the acquisition by EPG, the operations
of Eastex and EPGM were integrated. On December 7, 1995, Eastex purchased all of
the outstanding stock of Premier, a gas marketing company located in Tulsa,
Oklahoma, specializing in long-term sales to utilities in the Great Lakes region
and industrial and commercial sales to end users in the Mid-continent region.

The consolidation of these regional gas marketing entities into MSG, with
headquarters in Houston, Texas and sales offices throughout the United States,
has created one of the industry's leading natural gas services providers with
year end 1995 sales level exceeding 2 Bcf/d. MSG provides a broad range of
energy products and services to its customers including supply aggregation,
transportation management, integrated price risk management, and storage
inventory optimization services. Due to the emerging deregulation of the
electric power industry, MSG recently formed a power marketing subsidiary to
participate in wholesale power trading and to offer similar products and
services to industrial and commercial end users of electricity.

MSG maintains a diverse natural gas supplier and customer base serving
producers, utilities (including local distribution companies and power plants),
municipalities, and a variety of industrial and commercial end users. In 1995,
MSG served approximately 325 producer/suppliers and 692 sales customers in 37
states with transportation of gas supplies on 45 pipelines.

Set forth below are marketed gas volumes for the years ended December 31:

<TABLE>
<CAPTION>
1995 1994(A) 1993(A)
---- ------- -------
(MMCF/D)
<S> <C> <C> <C>
Marketed Gas Volumes....................................... 750 345 362
=== === ===
</TABLE>

- ---------------

(a) Volumes represent EPGM activity only.

Demand for natural gas products and services has primarily resulted from
the deregulation effects of FERC Order 636, the commercialization of natural
gas, and the intense gas-to-gas competition within the industry. Volatility in
the physical and financial gas markets has compounded the effects of these
changes creating greater service opportunities. MSG's marketing strategy is to
focus on customer driven solutions for fully bundled natural gas services
through its capability to provide reliable physical deliveries and innovative
financial risk management products. MSG expects to benefit from a lower cost
structure through the consolidation of operations, price competitive supplies
due to its expanded nationwide scope, lower credit costs

- ---------------

(1) The previous statement(s) may be considered forward-looking. See
page 24 for a description of the important factors that may affect
actual results.

8
<PAGE> 13

due to the financial strength of its parent, and new customers and business
opportunities through its relationships with EPFS and EPED.(1)

In the course of its business, MSG trades and develops a market in natural
gas in both the physical and financial markets, and purchases or sells swaps and
options in the OTC markets with major gas merchants. MSG seeks to maintain a
balanced portfolio of supply and demand contracts and utilizes the NYMEX and OTC
financial markets to hedge against price and basis risk which may affect those
obligations. To support these activities, MSG employs centralized corporate risk
management and hedging strategies. See Note 4 of Item 8, Financial Statements
and Supplementary Data.

Competition

MSG's primary competitors include: (i) marketing affiliates of major oil
and gas producers, (ii) marketing affiliates of large local distribution
companies, (iii) marketing affiliates of other interstate and intrastate
pipelines, and (iv) independent natural gas marketers with varying scopes of
operations and financial resources. To effectively compete, MSG must expand
existing customer relationships as market conditions change, develop new
customers in emerging markets, and remain a low cost provider of a broad array
of natural gas and other energy related services.

Future Outlook

MSG believes there is opportunity for significant growth from its gas
marketing activities and expansion into related business lines such as power
marketing, producer settlement services, small end user sales, and demand side
management. Average daily volumes for 1996 are projected to be over 2.5 Bcf/d.
Further, MSG is expected to add value to EPG through its earnings contributions,
from synergies with the Company's natural gas transmission business, and by
benefiting EPFS through greater producer services and expanded gathering and
processing opportunities.(1) As the deregulation of the electric power industry
and the expansion of business opportunities in Mexico and Latin America
continues, MSG will seek opportunities to work with EPED in the joint
development of natural gas and energy related projects.

EL PASO ENERGY DEVELOPMENT

Business

EPED was incorporated in June 1991 for the purpose of investing in energy
projects with an emphasis on projects involving the development of
infrastructure to gather, transport, and utilize natural gas in northern Mexico
and Latin America. EPED is especially interested in those projects in northern
Mexico that present opportunities to utilize EPG's existing mainline
transmission system. EPED invests in projects outside of the United States which
possess a higher potential rate of return, as well as a higher degree of risk,
than similar projects in the United States.

Future Outlook

Currently, EPED is actively working on two projects: the Samalayuca II
Power Plant and the Aguaytia Energy Project and is evaluating several other
projects. For a further discussion of the current projects see Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

GAS SUPPLY

During 1995, approximately 188 wells first delivered gas into the Company's
system. The total gas well availability physically connected to the Company's
gathering systems was approximately 1.4 Bcf/d, with total reserves estimated at
11.2 Tcf. During 1995, an average of 2.8 Bcf/d was received from physical points
interconnected with other pipelines or from receipt points pursuant to
transportation and exchange

- ---------------

(1) The previous statement(s) may be considered forward-looking. See
page 24 for a description of the important factors that may affect
actual results.

9
<PAGE> 14

agreements. EPG's maximum mainline system capacity is 4.7 Bcf, and MPC's
designed mainline system capacity is 400 MMcf/d.

SIGNIFICANT CUSTOMERS

In 1995, natural gas deliveries to SoCal and PG&E accounted for 17 percent
and 12 percent, respectively, of the Company's consolidated operating revenues.
No other customer accounted for 10 percent or more of the Company's consolidated
operating revenues.

ENVIRONMENTAL

The Company is subject to extensive federal, state, and local laws and
regulations governing environmental quality and pollution control. These laws
and regulations require the Company to remove or remedy the effect on the
environment of the disposal or release of specified substances at ongoing and
former operating sites. As of December 31, 1995, EPG had a reserve of
approximately $35 million to cover these remediation activities. EPG estimates
that it will have capital expenditures for environmental matters of
approximately $10 million from 1996 through 2005. EPG has spent approximately
$33 million through 1995 for remediation projects of a capital nature. Details
regarding specific environmental contingencies are presented in Note 5 of Item
8, Financial Statements and Supplementary Data.

ENCUMBRANCES

Substantial portions of the Company's pipeline systems are constructed and
maintained pursuant to rights-of-way, easements, permits, and licenses or
consents on and across properties owned by others. Compressor stations, related
facilities, storage facilities, and two NGL extraction plants are located in
whole or in part upon land owned by the Company or upon sites held under leases
or under permits issued or approved by public authorities.

COMPANY RESTRUCTURING

In response to changes in the natural gas industry, increased competition,
recent and future firm capacity contract step-downs and terminations, the
Company has initiated an extensive review of its business processes. As a result
of this review, the Company has adopted a program to restructure its businesses
and reduce operating costs through work force reductions and improved work
processes.

In addition, the Company intends to realign itself into a holding company
structure. For a further discussion of the company restructuring and holding
company structure see Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.

EMPLOYEES

The Company had 2,393 and 2,403 full-time employees on December 31, 1995,
and 1994, respectively. The Company has no collective bargaining arrangements.

10
<PAGE> 15

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of EPG as of February 29, 1996, were as follows:

<TABLE>
<CAPTION>
OFFICER
NAME OFFICE SINCE AGE
---- ------ ------- ---
<S> <C> <C> <C>
William A. Wise Chairman of the Board, President, and 1983 50
Chief Executive Officer
H. Brent Austin Executive Vice President and Chief 1992 41
Financial Officer
Richard Owen Baish Executive Vice President 1987 49
Michael C. Holland Senior Vice President 1982 54
Robert G. Phillips Senior Vice President 1995 41
Joel Richards III Senior Vice President 1990 49
John W. Somerhalder II Senior Vice President 1990 40
Larry R. Tarver Senior Vice President 1988 52
Britton White, Jr. Senior Vice President and General 1991 52
Counsel
</TABLE>

Mr. Wise has been Chairman of the Board of EPG since January 1994. He has
been Chief Executive Officer since January 1990 and President since April 1989.
From March 1987 until April 1989, Mr. Wise was an Executive Vice President of
EPG. From January 1984 to February 1987, he was a Senior Vice President of EPG.
Mr. Wise is a member of the Board of Directors of Battle Mountain Gold Company.

Mr. Austin has been Executive Vice President of EPG since May 1995. He has
been Chief Financial Officer of EPG since April 1992. He was Senior Vice
President of EPG from April 1992 to April 1995. He was Vice President, Planning
and Treasurer of BR from November 1990 to March 1992 and Assistant Vice
President, Planning of BR from January 1989 to October 1990.

Mr. Baish has been Executive Vice President of EPG since September 1994. He
was Senior Vice President from November 1990 to August 1994. He was General
Counsel and Corporate Secretary from November 1990 to December 1990 and Vice
President and Associate General Counsel from March 1987 to October 1990.

Mr. Holland has been Senior Vice President of EPG since January 1991. He
was a Vice President from June 1982 to December 1990. He has also been President
and Chief Executive Officer of MPOC since October 1989. Mr. Holland has
announced his intention to retire in 1996.

Mr. Phillips has been Senior Vice President of EPG since September 1995. He
has been Chief Executive Officer of Eastex since March 1983.

Mr. Richards has been Senior Vice President of EPG since January 1991. He
was Vice President from June 1990 to December 1990. He was Senior Vice
President, Finance and Human Resources of Meridian Minerals Company, a wholly
owned subsidiary of BR, from October 1988 to June 1990.

Mr. Somerhalder has been Senior Vice President of EPG since August 1992. He
was Vice President from January 1990 to July 1992.

Mr. Tarver has been Senior Vice President of EPG since September 1994. He
was Vice President from December 1988 to August 1994. Mr. Tarver has announced
his intention to retire in 1996.

Mr. White has been Senior Vice President and General Counsel of EPG since
March 1991. From March 1991 to April 1992, he was also Corporate Secretary of
EPG. For more than five years prior to that time, Mr. White was a partner in the
law firm of Holland & Hart.

11
<PAGE> 16

Luino Dell'Osso, Jr. retired in May 1995 as Vice-Chairman, Chief Operating
Officer, and a Director of EPG after 22 years of service with EPG, BR, and
Burlington Northern Inc.

Executive officers hold offices until their successors are elected and
qualified, subject to their earlier removal.

ITEM 3. LEGAL PROCEEDINGS

In November 1993, TransAmerican Natural Gas Corporation filed a complaint
in a Texas state court against various parties, including EPG, alleging fraud,
tortious interference with contractual relationships, economic duress, civil
conspiracy, and violation of state antitrust laws arising from a settlement
agreement entered into by EPG, TransAmerican Natural Gas Corporation and others
in 1990 to settle litigation then pending and other potential claims. The
complaint, as amended, seeks unspecified actual and exemplary damages. EPG is
defending the matter, and the parties have stipulated to transfer this case to
the State District Court of Dallas County, Texas. Based on information available
at this time, management believes that the claims made by TransAmerican Natural
Gas Corporation have no factual or legal basis and that the ultimate resolution
of this matter will not have a materially adverse effect on the Company's
financial condition.

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 currently does not expect these
matters to have a materially adverse effect on the Company's financial
condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of 1995 no matters were submitted to a vote of
security holders.

12
<PAGE> 17

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

EPG's common stock is traded on the New York Stock Exchange. As of February
29, 1996, the approximate number of holders of record of common stock was
19,843. This does not include individual participants on whose behalf a clearing
agency or its nominee holds EPG's common stock.

The following table reflects the high and low sales prices for, and cash
dividends declared on, EPG's common stock based on the daily composite listing
of stock transactions for the New York Stock Exchange.

<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------- ------- ---------
(PER SHARE)
<S> <C> <C> <C>
1995

First Quarter............................... $32.500 $28.000 $0.3300
Second Quarter.............................. $29.875 $26.875 $0.3300
Third Quarter............................... $29.500 $24.750 $0.3300
Fourth Quarter.............................. $31.625 $26.500 $0.3300

1994

First Quarter............................... $41.875 $35.250 $0.3025
Second Quarter.............................. $39.000 $31.500 $0.3025
Third Quarter............................... $35.375 $31.625 $0.3025
Fourth Quarter.............................. $34.750 $29.875 $0.3025
</TABLE>

In January 1996, the Board declared a quarterly dividend of $0.3475 per
share on EPG's common stock, payable on April 1, 1996, to shareholders of record
on March 8, 1996. The declaration of future dividends will be dependent upon
business conditions, earnings, the cash requirements of EPG, and other relevant
factors.

EPG has made available the Program, in which Odd-lot Holders are offered a
convenient method of disposing of all 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.

EPG has made available the Plan, which provides all shareholders of record
a convenient and economical means of increasing their holdings in EPG's common
stock. A shareholder who owns shares of common stock in street name or broker
name and who wishes to participate in the Plan will need to have his or her
broker or nominee transfer the shares into the shareholder's name. The Plan is
strictly voluntary, and no shareholder of record is obligated to participate in
the Plan. A brochure and related materials describing the Plan were sent to
shareholders of record in November 1994. The Plan currently does not have a
termination date, but EPG may suspend the Plan at any time. Inquiries regarding
the Plan should be directed to The First National Bank of Boston.

13
<PAGE> 18

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993(E) 1992 1991
--------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Operating revenues.............. $1,037,997 $869,872 $908,928 $802,812 $735,196
Depreciation, depletion, and
amortization................. 72,077 65,037 54,051 73,229 61,300
Litigation special charge(a).... -- 15,062 -- -- --
Operating income................ 212,411 222,295 229,245 184,910 184,919
Income from continuing
operations before income
taxes........................ 132,976 148,076 150,826 123,289 140,500
Income taxes.................... 47,613 58,463 59,153 46,963 51,956
Income from continuing
operations................... 85,363 89,613 91,673 76,326 88,544
Earnings per common share --
continuing operations........ 2.47 2.45 2.46 2.12 2.82
Cash dividends declared per
common share(b).............. 1.32 1.21 1.10 0.75 --
Average common shares
outstanding.................. 34,495 36,632 37,212 36,049 31,422
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1995 1994 1993(E) 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Total assets................... $2,434,625 $2,331,771 $2,269,663 $2,050,729 $2,301,932
Payable to BR, including
current portion............. -- -- -- -- 624,804
Long-term debt(c).............. 771,892 779,097 795,783 637,074 249,942
Stockholders' equity(d)........ 712,155 709,636 707,548 668,992 814,878
</TABLE>

- ------------

(a) Charge related to the Amoco litigation (see Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations). The
settlement payment was made in the first quarter of 1995.

(b) Represents dividends declared subsequent to the Company's March 1992
initial public offering.

(c ) Excludes current maturities.

(d) In May 1991, EPG declared and paid a dividend of $175 million to TEPCO. In
September 1991, EPG declared a dividend of all its Oil and Gas Operations
Segment to TEPCO. The total amount of that dividend was $925 million. In
addition, EPG declared and paid dividends to BR totaling $55 million in
1991 and $274 million prior to the Company's March 1992 initial public
offering.

(e) MPC was consolidated for May 1993 through December 1993.

14
<PAGE> 19

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

Year Ended December 31, 1995, Compared to Year Ended December 31, 1994

Operating revenues for the year ended December 31, 1995, were $168 million
higher than for the same period of 1994. The consolidation of Eastex and net
reserve reversals contributed $257 million and $12 million to the increase,
respectively. Higher gathering and processing rates and return on take-or-pay
receivables of $3 million, and $2 million, respectively, also contributed to the
increase. Partially offsetting the increase in operating revenues were lower gas
sales volumes, gas sales rates, transportation rates, transportation volumes,
gathering and processing volumes, and reservation revenues of $46 million, $33
million, $10 million, $6 million, $2 million, and $3 million, respectively.

Operating charges for the year ended December 31, 1995, were $178 million
higher than for the same period of 1994. The consolidation of Eastex, increases
in operation and maintenance expense, and depreciation contributed $247 million,
$16 million, and $7 million, respectively, to the increase in operating charges.
The increase in operation and maintenance expense was due primarily to higher
stock related benefits, higher consultant fees, and higher severance accruals.
Offsetting the increase in operating charges were lower gas purchase volumes,
lower average cost of gas, a 1994 litigation special charge, and net reserve
reversals of $48 million, $29 million, $15 million, and $5 million,
respectively.

Interest and debt expense for the year ended December 31, 1995, was $7
million higher than for the same period of 1994 due to increased short-term
borrowings.

Allowance for funds used during construction was $2 million higher for the
year ended December 31, 1995, than for the same period of 1994 due primarily to
an increase in the average construction work in progress balance.

EPG's mainline throughput for the year ended December 31, 1995, was 1,257
Bcf compared to 1,326 Bcf for the same period of 1994. The lower throughput was
primarily due to a decrease in deliveries to the California market resulting
from an increase in the availability of hydroelectric power. The decrease in
California deliveries was partially offset by higher off-system deliveries,
resulting from producers and marketers seeking alternative markets for their
gas.

Year Ended December 31, 1994, Compared to Year Ended December 31, 1993

Operating revenues for the year ended December 31, 1994, were $39 million
lower than for the same period of 1993. New system rates that became effective
January 1, 1994, resulted in lower reservation revenues of $28 million and lower
transportation revenues of $28 million. Additionally, lower gas sales rates,
lower gas sales volumes, and the 1993 sale of gas in storage contributed $25
million, $12 million, and $18 million, respectively, to the decrease to
operating revenues. The decrease due to the 1993 sale of gas in storage is
offset in operating charges. Lower accruals for regulatory issues, the
consolidation of MPC, and higher rates for gathering and processing offset the
decrease in operating revenues by $41 million, $18 million, and $15 million,
respectively.

Operating charges were $32 million lower for the year ended December 31,
1994, than for the same period of 1993. Lower gas purchase volumes and the 1993
sale of gas in storage contributed $11 million and $18 million, respectively, to
the decrease in operating charges. The decrease due to the 1993 sale of gas in
storage is offset in operating revenues. Additionally, operation and maintenance
expense decreased primarily due to a 1993 accrual for estimated take-or-pay
undercollections, a 1993 litigation settlement, lower plant and pipeline
maintenance, 1994 adjustments to the 1993 take-or-pay undercollections accrual,
and lower environmental cleanup expenses. Offsetting the decrease in operating
charges was a litigation special charge of $15 million related to the litigation
brought by Amoco, alleging breaches of certain gas purchase, gathering

15
<PAGE> 20

and transportation agreements. In addition, higher average cost of gas, an
increase in depreciation expense, and the consolidation of MPC further offset
the decrease in operating charges by $15 million, $8 million, and $9 million,
respectively.

Interest and debt expense for the year ended December 31, 1994, was $3
million higher than for the same period of 1993 due primarily to the
consolidation of MPC.

Allowance for funds used during construction was $5 million lower for the
year ended December 31, 1994, than for 1993 due primarily to a decrease in the
average construction work in progress balance.

Other -- net income was $13 million higher for the year ended December 31,
1994, than for the same period of 1993. Contributing to the higher other income
in 1994 were $14 million related to the recovery of EPG's investment in its
underground storage facility and lower environmental cleanup expenses. The
increase in other income was partially offset by interest expense related to the
Amoco litigation special charge of approximately $4 million, and a reduction in
partnership earnings due to the consolidation of MPC.

EPG's mainline throughput for the year ended December 31, 1994, was 1,326
Bcf compared to 1,306 Bcf for the same period of 1993. Throughput was higher due
to an increase in deliveries to off-system and East-of-California markets. The
increase in throughput was partially offset by lower deliveries to the
California market due to higher storage withdrawals and increased competition.
Gathered volumes for the year ended December 31, 1994, were relatively unchanged
compared to the same period of 1993.

LIQUIDITY, FINANCIAL POSITION, AND CAPITAL RESOURCES

Net cash provided by operating activities was $203 million for 1995,
compared with $253 million for the same period of 1994. The decrease from the
previous year was primarily due to lower net insurance reimbursements, the Amoco
litigation payment, the timing of insurance premium payments, lower cash
received on gas imbalance settlements, lower net tax refunds, higher interest
payments, and timing differences in other working capital disbursements. The
decrease was partially offset by 1994 take-or-pay refunds to customers, lower
net tax payments, lower take-or-pay payments, and timing differences in other
working capital receipts.

Net cash provided by operating activities was $253 million for 1994,
compared with $236 million for the same period of 1993. The increase from the
previous year was primarily due to net insurance reimbursements, lower net tax
payments, lower insurance prepayments, higher collections of EPG's investment in
its underground storage facility, and timing differences in working capital
receipts and disbursements, partially offset by lower reserves for regulatory
issues and take-or-pay refunds to customers.

Rates and Regulatory Matters

EPG -- On January 1, 1996, SoCal exercised an option in its contract to
relinquish 300 MMcf/d of capacity. SoCal's demand quantity will remain at the
1,150 MMcf/d level for a primary term ending August 31, 2006. In addition, PG&E
has a contract for 1,140 MMcf/d of firm capacity rights on EPG's system with a
primary term ending December 31, 1997. In June 1995, PG&E notified EPG that it
intends to terminate the contract as of December 31, 1997. EPG's reservation
revenues from PG&E during 1995 were approximately $128 million. At February 29,
1996, known reductions in existing firm capacity commitments totaled
approximately 1,614 MMcf/d.

EPG is seeking to offset the effects of these reductions in existing firm
capacity commitments by actively seeking new markets, pursuing attractive
opportunities to increase traditional market share, and controlling costs.(1)
The new markets EPG has targeted include various natural gas users in California
who are now served indirectly through SoCal and PG&E, as well as new markets off
the east end of its system. EPG's efforts to obtain new markets in California at
full tariff rates is adversely impacted by the current excess interstate
pipeline capacity to California, which is estimated to continue into the next
decade.

- ---------------

(1) The previous statement(s) may be considered forward-looking. See
page 24 for a description of the important factors that may affect
actual results.

16
<PAGE> 21

In March 1996, EPG filed a comprehensive offer of settlement which, if
approved by FERC, would resolve issues related to the above mentioned rate case
and issues surrounding certain contract reductions and expirations which occur
from January 1, 1996 through December 31, 1997. The settlement provides for,
among other things: (i) a long term rate stability plan which establishes base
rates, for a 10-year period from January 1, 1996, through December 31, 2005,
subject to annual escalation after 1997; (ii) payments, over 8 years, or less,
to EPG by its customers totaling $255 million prior to interest, representing
approximately 35 percent of the revenues associated with the contract reductions
and expirations; (iii) the sharing between EPG (65 percent) and its customers
(35 percent) of revenues in excess of a threshold which are attributable to
unsubscribed capacity sales during the period 1996 through 2003; and (iv) a
mechanism to reflect in the base rate increases or decreases resulting from laws
or regulations which impact costs at a level in excess of $10 million a year.

In January 1994, EPG filed an application with FERC seeking an order that
would terminate, effective January 1, 1996, certificates applicable to certain
gathering and processing facilities owned by EPG on the basis that such
facilities are not subject to FERC jurisdiction. In May 1995, EPG filed an
application with FERC seeking an order that would terminate, effective January
1, 1996, certificates applicable to certain offshore gathering facilities owned
by EPG on the basis that such facilities are not subject to FERC jurisdiction.
In September 1995, FERC granted the abandonments requested in the January 1994
and May 1995 applications, subject to certain conditions, and determined that
the facilities would be exempt from FERC jurisdiction upon transfer to EPFS. In
November 1995, FERC denied rehearing petitions on the September 1995 order.
Certain parties have filed petitions for review of the September 1995 and
November 1995 FERC order with the United States Court of Appeals for the Fifth
Circuit.

Effective January 1, 1996, EPG transferred to EPFS the gathering and
processing facilities which were subject to the January 1994 and May 1995 orders
together with its non-certificated gathering facilities. The net assets
transferred to EPFS totaled approximately $236 million.

EPG has filed to recover $1.1 billion of its buy-out and buy-down costs
under FERC cost recovery procedures. The collection period for such costs
extends through March 1996. Through December 31, 1995, EPG recovered
substantially all of the $1.1 billion. EPG has established a reserve, based on
throughput projections, for that portion of the receivables balance which is
unlikely to be collected over the period through March 1996. The balances of
this reserve were $1 million and $9 million at December 31, 1995, and 1994,
respectively. Under FERC procedures, take-or-pay cost recovery filings may be
challenged by pipeline customers on prudence and certain other grounds. In
October 1992, FERC issued an order resolving all but one of the outstanding
issues regarding EPG's take-or-pay proceedings. The issue unresolved by FERC
involved the claim by several customers that EPG 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. Following a hearing on this
issue, in June 1994, FERC affirmed a decision of an Administrative Law Judge
which found that the valuation proposed by EPG was excessive and required EPG to
refund to its customers the costs found to be ineligible for take-or-pay
recovery. In accordance with FERC decision, EPG refunded $34 million, inclusive
of interest, to its customers in September 1994. In December 1994, EPG filed a
petition with the Court of Appeals for review of FERC decision, which petition
is currently pending. In addition, certain of EPG's customers sought review of
certain aspects of the October 1992 order in the Court of Appeals. In January
1996, the Court of Appeals remanded the order to FERC with a direction to
clarify the distinction between take-or-pay buydown or buyout costs which were
ineligible for recovery and those which were imprudently incurred and,
therefore, not recoverable. FERC has not yet taken action on the Court of
Appeals remand.

17
<PAGE> 22

MPC -- MPC filed a service and rate design restructuring plan in November
1992 which was essentially approved by FERC in March 1993. Several of MPC's
customers have filed petitions with the Court of Appeals for review of the March
1993 order and certain other FERC orders. These petitions are currently pending
before the Court of Appeals. 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. Management believes the Court of
Appeals will uphold SFV rates as applied to MPC.(1)

Environmental Matters

The Company is subject to extensive federal, state, and local laws and
regulations governing environmental quality and pollution control. These laws
and regulations require the Company to remove or remedy the effect on the
environment of the disposal or release of specified substances at ongoing and
former operating sites. As of December 31, 1995, the Company had a reserve of
approximately $35 million for the following environmental contingencies: (i) PCB
remediation costs estimated to range between $3 million and $4 million over the
next 4 years and (ii) remediation of groundwater and soil contamination costs
estimated to range between $30 million and $43 million over a 30-year period.
Management believes the amount reserved as of December 31, 1995, is sufficient
to cover these and other small environmental assessments and remediation
activities.(1)

EPG has analyzed the CAAA and believes the impact to the Company's
operations will be 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) compliance
assurance monitoring of air emissions. EPG anticipates capitalizing the
equipment costs associated with complying with CAAA and estimates that
approximately $10 million will be spent from 1996 through 2005. However, EPA
proposed compliance assurance monitoring rules, when finalized, could
potentially impose greater costs on the Company than currently estimated.
Additionally, EPG has spent approximately $33 million through 1995 for
additional remediation projects of a capital nature. For a further discussion of
specific environmental matters see Note 5 of Item 8, Financial Statements and
Supplementary Data.

Legal Proceedings

See Item 3, Legal Proceedings.

Derivative Financial Instruments

See Note 4 of Item 8, Financial Statements and Supplementary Data for
information regarding the Company's use of derivatives and risks associated
therewith.

Acquisitions

In connection with the September 1995 acquisition of Eastex, Eastex
shareholders received either $4.50 in cash or .1601 shares of EPG common stock
for each share of Eastex common stock. The purchase price of approximately $32
million, exclusive of acquisition costs, was financed by the Company through
approximately $13 million of available cash and the issuance of approximately
0.7 million shares of treasury stock at a market value of approximately $19
million. Acquisition costs of approximately $2 million have been

- ---------------

(1) The previous statement(s) may be considered forward-looking. See
page 24 for a description of the
important factors that may affect actual results.

18
<PAGE> 23

capitalized. Total cash consideration paid, net of cash received, was
approximately $3 million. In December 1995, Eastex acquired all of the issued
and outstanding capital stock of Premier for approximately $20 million. The
acquisition was funded by the Company through internally generated funds and
short-term borrowings. The cost of each acquisition has been allocated on the
basis of the estimated fair market value of the assets acquired and the
liabilities assumed. These allocations resulted in goodwill of approximately $17
million and $19 million related to the Eastex and Premier acquisitions,
respectively, and will be amortized over 40 years using the straight-line
method. The acquisitions have each been individually accounted for as a
purchase, and the Company has utilized the "push down" method of accounting. For
a further discussion of the Eastex and Premier acquisitions, see Note 6 of Item
8, Financial Statements and Supplementary Data.

Project Investments

Samalayuca II Power Plant (Mexico)

The Company is a member of a consortium that plans to build the proposed
Samalayuca II Power Plant near Ciudad Juarez, Chihuahua, Mexico. In December
1992, an award for construction was granted to the consortium by the CFE. The
consortium will construct the plant, which is projected to cost approximately
$645 million, and lease it to CFE for a term of 20 years. The Company presently
has a 20 percent interest in the consortium and plant and will make an initial
equity investment of approximately $26 million.

CFE and the consortium are negotiating a trust agreement, which is
substantially complete. The consortium has recently received approval for
non-recourse senior debt funding of up to 80 percent of the capital requirements
from the United States Export/Import Bank and Inter-American Development Bank.
The project is expected to reach financial close and construction is expected to
begin in the first half of 1996.(1)

Aguaytia Energy Project (Peru)

In August 1995, the Company became a member of a consortium that plans to
build a $200 million integrated gas and power project near Pucallpa, in central
Peru, called the Aguaytia Energy Project. The Company presently has a 24 percent
interest in the project, and its equity investment is estimated to be $35
million. The consortium will sell electricity, propane, and natural gas to meet
the growing demand for energy in Peru. Initially, the project will be funded 65
percent with equity. Negotiations are currently underway with a major lender to
provide non-recourse senior debt financing for 35 percent of the project during
construction and operation. Additional debt funding is anticipated. In December
1995, the project received approval from the Overseas Private Investment
Corporation for full political risk insurance coverage for the project.
Construction is expected to begin in the first half of 1996, and operations are
expected to commence in late 1997.(1)

ICA Agreement

In July 1995, the Company entered into an agreement with ICA for the joint
development, construction, operation, and ownership of natural gas pipelines and
other infrastructure projects in Mexico and Latin America. Management believes
that ICA's international engineering and construction experience, combined with
the Company's energy, natural gas marketing, and operating experience enables
the two companies to offer a uniquely qualified partnership for Latin American
development.

TransColorado Pipeline Project

In the third quarter of 1995, the Company purchased a one-third interest in
TransColorado Gas Transmission Company from Public Service Company of Colorado
for approximately $4 million. The Company paid approximately $2 million in cash.
The balance of approximately $2 million is due upon

- ---------------

(1) The previous statement(s) may be considered forward-looking. See
page 24 for a description of the important factors that may affect
actual results.

19
<PAGE> 24

commencement of the pipeline project. KN Energy, Inc. and Questar Pipeline
Company also each own a one-third interest in TransColorado Gas Transmission
Company.

In November 1994, TransColorado Gas Transmission Company received FERC
authorization to build a 292 mile pipeline with a capacity of 300 MMcf/d, from
northwest Colorado to the Blanco Hub area in the San Juan Basin. The project is
estimated to cost approximately $194 million. The proposed pipeline will provide
an alternative outlet for natural gas produced in the Rocky Mountain region and
is expected to enhance the Company's overall flexibility to meet market demands.
Construction of the proposed pipeline has not yet begun.

Common Stock and Other Stockholders' Equity

For the years ended December 31, 1995, 1994, and 1993, EPG paid
approximately $45 million, $43 million, and $40 million in dividends. In January
1996, the Board declared a quarterly dividend of $0.3475 per share on EPG's
common stock, payable on April 1, 1996, to shareholders of record on March 8,
1996.

In November 1994, the Board authorized the repurchase of up to 3.5 million
shares of EPG's outstanding common stock from time to time in the open market.
This authorization is in addition to a 2 million share authorization received in
October 1992. Shares repurchased are held in EPG's treasury and are expected to
be used in conjunction with EPG stock option compensation plans and for other
corporate purposes. Pursuant to the foregoing authorizations, the Company has
purchased 4.7 million shares as of December 31, 1995. On September 20, 1995, EPG
issued approximately 0.7 million shares of treasury stock in connection with the
Eastex acquisition. See Note 8 of Item 8, Financial Statements and Supplementary
Data.

Financing Facilities

As of December 31, 1995, and 1994, approximately $203 million and $107
million, respectively, of commercial paper was outstanding. As of December 31,
1995, there was $75 million outstanding under the Company's $400 million
revolving credit facility, which is considered support for commercial paper
borrowings. As of December 31, 1994, there were no borrowings outstanding under
this facility. As of December 31, 1995, and 1994, there were no borrowings
outstanding under an additional $30 million line of credit facility established
in October 1994. On January 19, 1996, the Board increased short-term borrowing
limits from $400 million to $500 million.

Eastex's credit facility of approximately $20 million expired October 31,
1995. On September 12, 1995, EPG retired $9 million of Eastex long-term debt.

In January 1992, EPG completed a sale of substantially all of its remaining
take-or-pay buy-out and buy-down receivables. In the third quarter of 1995, EPG
prepaid the outstanding $17 million take-or-pay financing liability.

EPG filed a shelf registration statement in August 1994, pursuant to which
EPG may offer up to $400 million of unsecured debt securities, preferred stock,
and common stock from time to time as determined by market conditions. On March
10, 1995, the registration statement was declared effective by the SEC. There
were no securities issued pursuant to the shelf registration statement as of
December 31, 1995, and 1994.

20
<PAGE> 25

EPG's available shelf registration and lines of credit as of December 31,
1995, as discussed above, are summarized as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Short-term borrowings.......................... $121,800
Shelf registration............................. 400,000
--------
Available Financing Facilities............... $521,800
========
</TABLE>

Capital Expenditures

The Company's planned capital expenditures for 1996 of $175 million are
primarily for maintenance of business, system expansion, and system enhancement.
Capital expenditures for 1995 were $166 million compared to $173 million for
1994. The decrease was due primarily to lower maintenance offset by a system
expansion in the San Juan Basin, installation of various compression projects,
including the Hart Canyon compression project, and the purchase of the Burton
Flats cryogenic processing plant and related gathering system.

On February 29, 1996, an open season for shippers interested in EPG's
proposed 180 MMcf/d expansion of the Havasu Crossover Line concluded. EPG has
sent transportation service agreements to those shippers who expressed an
interest in the expansion for the purpose of securing definitive contracts. The
expansion would involve the construction of additional compression on the Havasu
Crossover Line at an estimated cost of approximately $17 million. EPG
anticipates that, in the near future, it will be seeking FERC certificate
authority for the proposed expansion.(1)

In June 1994, EPG filed an application with FERC for a certificate of
public convenience and necessity to expand its existing mainline system in the
San Juan Basin by approximately 300 MMcf/d at a cost of about $29 million. In
August 1995, FERC authorized the expansion project, conditioned on EPG's
compliance with various environmental conditions. In addition, FERC authorized
the inclusion of the project costs in EPG's rates. EPG commenced construction in
October 1995, and the project was completed and placed into service in December
1995.

In April 1994, EPG filed an application with FERC for a certificate of
public convenience and necessity to build the North/South Transfer Project. 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 and to move gas to markets off the east end of the system.
The project was expected to cost approximately $62 million. In January 1996, EPG
filed a letter and notice of withdrawal of its application, stating that it had
reviewed the timing and necessary activities related to the completion of the
project and had determined that the North/South Transfer Project should be
withdrawn without prejudice to EPG for future refiling.

In March 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.
The proposed expansion, as filed, would provide an additional 300 MMcf/d of
capacity at a cost of approximately $57 million. In November 1993, FERC issued
an order that approved the proposed border crossing facility south of Clint,
Texas that would connect EPG's facilities with facilities in Mexico. In December
1993, PG&E, SoCal, and the CPUC jointly filed a motion with FERC seeking
clarification or rehearing of the November 1993 order, which motion is currently
pending. In November 1994, FERC required EPG to provide the executed long-term
contracts or binding agreements for a substantial amount of the firm capacity of
the proposed facilities by January 1995. EPG advised FERC that although there
were presently no such contracts or agreements, EPG believed the project
remained viable and that the application should therefore not be dismissed. EPG
is in the process of evaluating the project and its related capital costs.

- ---------------

(1) The previous statement(s) may be considered forward-looking. See
page 24 for a description of the important factors that may affect
actual results.

21
<PAGE> 26

In March 1993, MPC filed an application, which was amended in November 1993
and April 1994, for a certificate of public convenience and necessity to build
and operate a 475 MMcf/d expansion of its existing system at an estimated cost
of approximately $500 million. FERC issued a series of orders from 1994 to 1995
related to the proposed expansion and, in December 1995, issued a final order
which denied rehearing on certain remaining issues. In February 1996, MPC filed
a notice to decline acceptance of the certificate of public convenience and
necessity issued by FERC stating that it had determined that the proposed
expansion was economically infeasible under current market circumstances.

In February 1996, EPFS, through its wholly owned subsidiary El Paso
Intrastate Company, acquired the Linc gathering system and the Pandale gathering
system from Tejas Power Corporation for approximately $12 million. The combined
throughput of the two systems is expected to contribute 45 MMcf/d on an annual
basis to EPFS's total throughput. The Linc gathering system is located in the
Waha area of the Permian Basin and should increase EPFS's market share in that
area. The Pandale gathering system is located in the Texas counties of Crockett
and Val Verde, and should give EPFS a base from which to grow in this active
drilling area.(1)

Financing Requirements

Future funding for capital expenditures, acquisitions, long-term debt
retirements, dividends, and other expenditures will be provided by internally
generated funds, debt/equity issuances, and/or available credit facilities.

OTHER

Company Restructuring

On January 12, 1996, the Company announced a reduction of its work force.
The reduction is expected to be accomplished through a voluntary early
retirement incentive program, a voluntary severance program, and an involuntary
reduction in work force program. The Company, which had 2,393 employees at
December 31, 1995, expects to reduce its total work force by approximately 600
to 800 employees.

The Company expects that a majority of the work force reductions will occur
by the end of the first quarter of 1996. In addition, the Company is initiating
changes to the pension plan and other benefit plans by January 1997. The details
of the changes have not yet been finalized; however, it is expected that these
changes will result in lower operating charges. The Company anticipates
recording a charge between $34 million and $37 million, net of income taxes.
These restructuring efforts should position the Company to more effectively
address the changes occurring in the natural gas industry.

Change in Corporate Structure

The Board has approved, subject to certain conditions, the adoption of a
holding company structure whereby the Company would become direct and indirect
subsidiaries of a Holding Company. Holders of shares of common stock of EPG
would become, by virtue of the Merger, holders on a share-for-share basis, of
shares of common stock of Holding Company with the result that Holding Company
would replace EPG as the publicly-held corporation, and all stockholders of EPG
immediately prior to the Merger would own the same number of shares of Holding
Company common stock immediately after the Merger as the EPG common stock held
immediately before the Merger. The change to a holding company structure would
be tax

- ---------------

(1) The previous statement(s) may be considered forward-looking. See
page 24 for a description of the important factors that may affect
actual results.

22
<PAGE> 27

free for federal income tax purposes to stockholders of EPG. The change to a
holding company structure may be effected without a vote of stockholders under
applicable Delaware law.

At the time of the Merger, EPG would assign all of its rights under its
shareholder rights agreement to Holding Company, and Holding Company would
assume and agree to perform EPG's obligations thereunder. The presently
outstanding rights to purchase Company preferred stock, provided for by the
shareholders rights agreement, would, upon effectiveness of the Merger, be
converted to rights to purchase, in accordance with and subject to the terms and
provisions of the shareholder rights agreement, shares of the preferred stock of
Holding Company. The designation, rights and preferences of the preferred stock
of Holding Company would be identical to the preferred stock of EPG. The Holding
Company preferred stock purchase rights would, after the Merger, be deemed to be
attached to the Holding Company common stock certificates.

Immediately prior to the effectiveness of the Merger, EPG intends, subject
to receipt of a favorable IRS ruling and SEC no-action response, to transfer and
contribute to Holding Company as a capital contribution all of the outstanding
capital stock of the principal non-regulated subsidiaries of EPG. The
subsidiaries would be transferred as part of the planned separation of the
present regulated and non-regulated businesses of EPG under the holding company
structure. Following the Merger, EPG would continue to hold all of the assets of
EPG held immediately prior to the Merger, except for the stock of the
subsidiaries transferred to the Holding Company and certain other assets, not
material in amount, held immediately prior to the Merger.

All business and operations conducted by the Company prior to the Merger
would, after the Merger, continue to be conducted by the Company as direct and
indirect subsidiaries of Holding Company, and the consolidated assets and
liabilities of Holding Company and subsidiaries immediately after the Merger
would be the same as the consolidated assets and liabilities of the Company
immediately before the Merger.

The directors of the Holding Company immediately after the Merger would be
those persons who are the directors of EPG immediately prior to the Merger. All
officers of Holding Company would consist of persons who are currently officers
of EPG. In addition, the restated certificate of incorporation and by-laws of
EPG immediately prior to the Merger and the certificate of incorporation and
by-laws of the Holding Company immediately after the Merger would be identical,
with the exception that Holding Company's name would be different than EPG.

EPG expects to complete the restructuring by early 1997, subject to the
satisfaction of certain conditions, including among other things: (i) approval
of Holding Company common stock and preferred stock purchase rights for trading
on the New York Stock Exchange, (ii) a favorable no-action ruling from the SEC
concerning the absence of requirement for registration under the Securities Act
of 1933 of the Holding Company common stock to be issued in the Merger and
certain other securities law issues, (iii) a favorable private letter ruling
from the IRS, and (iv) consents from certain third parties. The Company
believes, but there can be no assurance, that the conditions to forming the
holding company structure will be satisfied. It is possible that certain of the
terms of the structure described above may be modified or dispensed with and
additional new terms of structure may be adopted, in response to conditions
imposed by IRS and SEC in their rulings or otherwise adopted by the Board in
on-going consideration of the holding company structure.

Management believes that the holding company structure will provide the
framework that allows for and accommodates future growth from internal
operations (including the separation of regulated and non-regulated businesses),
acquisitions, and joint ventures. This structure will also broaden the
alternatives available for future financing, as well as generally provide for
greater administrative and operational flexibility.

SFAS No. 71, Accounting for the Effects of Certain Types of Regulation

EPG and MPC are subject to the regulations and accounting of FERC, and
therefore continue to follow the reporting and accounting requirements of SFAS
No. 71. The Consolidated Balance Sheets contain assets and liabilities related
to operations which have been recorded pursuant to SFAS No. 71. If these
accounting

23
<PAGE> 28

principles should no longer be applied, an amount would be charged to earnings
as an extraordinary item. At December 31, 1995, this amount was estimated to be
approximately $46 million, net of income taxes. While management believes that
EPG and MPC remain "regulated" as the term is used in the relevant accounting
literature, changes in the regulatory and economic environment may, at some
point in the future, create circumstances in which the application of regulatory
accounting principles is no longer appropriate. Any potential charge would be
non-cash and would have no direct effect on EPG's and MPC's ability to seek
recovery of the underlying deferred costs in their future rate proceedings or on
their ability to collect the rates set thereby. For a further discussion of SFAS
No. 71 issues see Note 1 of Item 8, Financial Statements and Supplementary Data.

Effective January 1, 1996, EPG transferred certain gathering and processing
facilities to EPFS. FERC had determined that, upon the transfer to EPFS, the
facilities would be exempt from FERC jurisdiction. Accordingly, the provisions
of SFAS No. 71 do not apply to EPFS's transactions and balances effective
January 1, 1996. The discontinuance of the application of SFAS No. 71 to EPFS
will not have a material impact on the Company's financial condition or results
of operations.

SFAS No. 121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be
Disposed Of

The Company anticipates adopting SFAS No. 121 in the first quarter of 1996.
As a result of the adoption, the Company will reduce property, plant, and
equipment by a charge to earnings of approximately $19 million, net of income
taxes. In addition, management expects to write-off an impaired regulatory asset
of approximately $5 million, net of income taxes, in the first quarter of 1996.
See Note 2 of Item 8, Financial Statements and Supplementary Data.

SFAS No. 123, Accounting for Stock-Based Compensation

The Company adopted SFAS No. 123 in the first quarter of 1996, and elected
to continue to apply the accounting rules contained in APB No. 25. This election
requires the Company to disclose pro forma net income and earnings per share
based on the fair value methodology in SFAS No. 123; however, there is no impact
to the Company's financial condition or results of operations.

SOP 94-6, Disclosure of Certain Significant Risks and Uncertainties

The Company adopted SOP 94-6 effective January 1, 1995. There is no impact
to the Company's financial condition or results of operations.

For a further discussion of SFAS No. 121, SFAS No. 123, and SOP 94-6 see
Note 14 of Item 8, Financial Statements and Supplementary Data.

Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995

EPG is including the following cautionary statement in this Annual Report
on Form 10-K to make applicable and take advantage of the new "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 for any
forward-looking statement made by, or on behalf of, the Company. The factors
identified in this cautionary statement are important factors (but not
necessarily all important factors) that could cause actual results to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, the Company. Forward-looking statements are identified with a
footnote on the page in which they appear.

Where any such forward-looking statement includes a statement of the
assumptions or basis underlying such forward-looking statement, the Company
cautions that, while it believes such assumptions or basis to be reasonable and
makes them in good faith, assumed facts or basis almost always vary from actual
results, and the differences between assumed facts or basis and actual results
can be material, depending upon the

24
<PAGE> 29

circumstances. Where, in any forward-looking statement, the Company, or its
management, expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished.

Taking into account the foregoing, the following are identified as
important factors that could cause actual results to differ materially from
those expressed in any forward-looking statement made by, or on behalf of, the
Company:

1 -- The ability to increase transmission, gathering, processing, and
sales volumes can be subject to the impact of future weather conditions,
including those that favor hydroelectric generation; price; drilling
activity; and service competition, especially due to excess pipeline
capacity into California.

2 -- Growth strategies through acquisitions and investments in joint
ventures may face legal and regulatory delays and other unforeseeable
obstacles beyond the Company's control.

3 -- Future profitability will be effected by the Company's ability to
compete with the services offered by other energy enterprises which may be
larger, offer more services, and possess greater resources.

4 -- Cost control efforts may be effected by the timing of related
work force reductions and might be further offset by unusual and unexpected
items resulting from such events as, but not limited to, litigation
settlements, adverse rulings or judgments, and unexpected environmental
remediation costs in excess of reserves.

5 -- Rates for certain services are related to natural gas prices such
that variations in natural gas prices may result in corresponding variances
in operating revenues.

6 -- Future operating results and success of business ventures in the
United States, Mexico, and Latin America may be subject to the effects of
and changes in United States and foreign trade and monetary policies, laws
and regulations, political and governmental changes, inflation and exchange
rates, taxes, and operating conditions.

25
<PAGE> 30

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

EL PASO NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Operating revenues
Reservation............................................. $ 503,455 $506,122 $483,471
Transportation.......................................... 23,262 41,102 59,631
Natural gas and liquids................................. 403,428 225,857 280,839
Gathering and processing................................ 72,477 66,581 51,427
Other................................................... 35,375 30,210 33,560
---------- -------- --------
1,037,997 869,872 908,928
---------- -------- --------
Operating charges
Operation and maintenance............................... 311,639 295,182 340,818
Natural gas and liquids................................. 402,279 233,823 249,484
Depreciation, depletion, and amortization............... 72,077 65,037 54,051
Litigation special charge............................... -- 15,062 --
Taxes, other than income taxes.......................... 39,591 38,473 35,330
---------- -------- --------
825,586 647,577 679,683
---------- -------- --------
Operating income.......................................... 212,411 222,295 229,245
---------- -------- --------
Other (income) and income deductions
Interest and debt expense............................... 86,297 78,850 75,429
Allowance for funds used during construction............ (2,419) (485) (5,438)
Other, net.............................................. (4,443) (4,146) 8,428
---------- -------- --------
79,435 74,219 78,419
---------- -------- --------
Income before income taxes................................ 132,976 148,076 150,826
Income taxes.............................................. 47,613 58,463 59,153
---------- -------- --------
Net income................................................ $ 85,363 $ 89,613 $ 91,673
========== ======== ========
Earnings per common share................................. $ 2.47 $ 2.45 $ 2.46
========== ======== ========
Average common shares outstanding......................... 34,495 36,632 37,212
========== ======== ========
</TABLE>

The accompanying Notes and Supplemental Schedules are an integral part of
these Consolidated Financial Statements.

26
<PAGE> 31

EL PASO NATURAL GAS COMPANY

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNT)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Current assets
Cash and temporary investments................................... $ 39,373 $ 27,636
Accounts and notes receivable, net............................... 214,796 131,650
Inventories...................................................... 37,108 34,666
Take-or-pay buy-outs, buy-downs, and prepayments, net............ 10,477 33,356
Other regulatory assets.......................................... 11,740 12,000
Deferred income tax benefit...................................... 22,631 41,257
Other............................................................ 32,467 18,594
----------- -----------
Total current assets..................................... 368,592 299,159
----------- -----------
Property, plant, and equipment, net................................ 1,977,624 1,861,589
Intangible assets, net............................................. 47,878 4,308
Take-or-pay buy-outs, buy-downs, and prepayments, net.............. 1,017 14,502
Other regulatory assets............................................ 51,878 59,021
Other.............................................................. 87,636 93,192
----------- -----------
2,166,033 2,032,612
----------- -----------
Total assets............................................. $ 2,534,625 $ 2,331,771
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable
Trade......................................................... $ 200,984 $ 117,575
Other......................................................... 74,690 111,781
Short-term borrowings............................................ 278,200 106,800
Take-or-pay financing liability.................................. -- 36,700
Current maturities on long-term debt............................. 7,590 6,824
Accrued interest................................................. 32,552 31,236
Accrued taxes, other than income taxes........................... 29,793 27,373
Other............................................................ 18,833 13,766
----------- -----------
Total current liabilities................................ 642,642 452,055
----------- -----------
Long-term debt, less current maturities............................ 771,892 779,097
Deferred income taxes, less current portion........................ 314,143 304,918
Deferred credits................................................... 39,514 40,325
Other.............................................................. 54,279 45,740
----------- -----------
1,179,828 1,170,080
----------- -----------
Commitments and contingent liabilities (See Note 5.)

Stockholders' equity
Common stock, par value $3 per share; authorized 100,000 shares;
issued 37,351 shares.......................................... 112,054 112,053
Additional paid-in capital....................................... 454,713 454,705
Retained earnings................................................ 240,101 202,558
Less: Treasury stock of 3,127 and 1,799 shares................... 94,713 59,680
----------- -----------
Total stockholders' equity............................... 712,155 709,636
----------- -----------
Total liabilities and stockholders' equity............... $ 2,534,625 $ 2,331,771
=========== ===========
</TABLE>

The accompanying Notes and Supplemental Schedules are an integral part of
these Consolidated Financial Statements.

27
<PAGE> 32

EL PASO NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income................................................ $ 85,363 $ 89,613 $ 91,673
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation, depletion, and amortization.............. 72,077 65,037 54,051
Deferred income taxes.................................. 29,939 49,394 8,550
Net take-or-pay recoveries............................. 36,364 31,932 60,799
Net costs recovered (recoverable) through insurance.... (1,736) 22,969 (22,578)
Other working capital changes
Accounts and notes receivable........................ (11,433) 862 34,877
Inventories.......................................... 1,240 (2,527) 11,530
Other current assets................................. (10,714) 4,684 10,209
Accrual for regulatory issues........................ -- (34,903) 1,210
Accounts payable..................................... (9,871) 33,322 (38,644)
Accrued taxes, other than income taxes............... 2,322 4,132 5,291
Other current liabilities............................ 2,349 (4,037) 3,609
Other..................................................... 7,211 (7,276) 14,975
--------- --------- ---------
Net cash provided by operating activities............ 203,111 253,202 235,552
--------- --------- ---------
Cash flows from investing activities
Capital expenditures...................................... (166,323) (173,252) (164,333)
Proceeds from disposal of property........................ 3,951 7,299 1,674
Net cash flow impact of acquisitions...................... (23,303) -- (35,695)
Other..................................................... (30,134) (23,381) (7,553)
--------- --------- ---------
Net cash used in investing activities................ (215,809) (189,334) (205,907)
--------- --------- ---------
Cash flows from financing activities
Net commercial paper borrowings........................... 96,400 105,500 1,300
Revolving credit borrowings............................... 75,000 -- --
Long-term debt retirements................................ (15,543) (16,174) (2,871)
Repayment of volumetric take-or-pay receivable............ (36,700) (43,808) (35,313)
Acquisition of treasury stock............................. (56,528) (43,994) (18,001)
Dividends paid............................................ (44,922) (43,491) (39,935)
Other..................................................... 6,728 5,735 16,537
--------- --------- ---------
Net cash provided by (used in) financing
activities........................................ 24,435 (36,232) (78,283)
--------- --------- ---------
Increase (decrease) in cash and temporary investments....... 11,737 27,636 (48,638)
Cash and temporary investments
Beginning of period....................................... 27,636 -- 48,638
--------- --------- ---------
End of period............................................. $ 39,373 $ 27,636 $ --
========= ========= =========
</TABLE>

The accompanying Notes and Supplemental Schedules are an integral part of
these Consolidated Financial Statements.

28
<PAGE> 33

EL PASO NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
----------------- PAID-IN RETAINED --------------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
------ -------- -------- -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1993.................. 37,304 $111,913 $454,480 $108,025 (184) $ (5,426) $ 668,992
Net income..................... 91,673 91,673
Issuance of common stock, net
of related costs............ 46 138 1,016 1,154
Common stock dividend
($1.10 per share)........... (40,904) (40,904)
Acquisition of treasury
stock....................... (509) (18,001) (18,001)
Issuance of treasury stock..... (1,288) 207 5,922 4,634
------ -------- -------- -------- ------ -------- ---------
December 31, 1993................ 37,350 112,051 455,496 157,506 (486) (17,505) 707,548
Net income..................... 89,613 89,613
Issuance of common stock, net
of related costs............ 1 2 24 26
Common stock dividend
($1.21 per share)........... (44,179) (44,179)
Acquisition of treasury
stock....................... (1,363) (43,994) (43,994)
Issuance of treasury stock..... (382) 50 1,819 1,437
Other.......................... (815) (815)
------ -------- -------- -------- ------ -------- ---------
December 31, 1994................ 37,351 112,053 454,705 202,558 (1,799) (59,680) 709,636
Net income..................... 85,363 85,363
Issuance of common stock, net
of related costs............ 1 7 8
Common stock dividend
($1.32 per share)........... (45,390) (45,390)
Acquisition of treasury
stock....................... (2,020) (56,528) (56,528)
Issuance of treasury stock for
acquisition of Eastex....... (2,128) 656 20,977 18,849
Issuance of treasury stock..... (300) 36 518 218
Other.......................... 1 (2) (1)
------ -------- -------- -------- ------ -------- ---------
December 31, 1995................ 37,351 $112,054 $454,713 $240,101 (3,127) $(94,713) $ 712,155
====== ======== ======== ======== ======= ======== =========
</TABLE>

The accompanying Notes and Supplemental Schedules are an integral part of
these Consolidated Financial Statements.

29
<PAGE> 34

EL PASO NATURAL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Presentation and Principles of Consolidation

The consolidated financial statements include the accounts of the Company.
All significant intercompany transactions are accounted for at market prices and
have been eliminated in consolidation. The financial statements for previous
periods include certain reclassifications that were made to conform to the
current presentation. Such reclassifications have no impact on reported income
or stockholders' equity.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

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. This acquisition gave the Company 100 percent ownership of MPC. The
operating results of MPC are included in the Company's consolidated results of
operations for the twelve months ended December 31, 1995, and 1994, and the
months of May 1993 through December 1993. The Company's previously owned 50
percent equity interest in MPC is included in other-net in the Consolidated
Statements of Income.

Effective September 1, 1995, Eastex was merged with and into El Paso
Acquisition Company, a wholly owned subsidiary of EPG. The name of El Paso
Acquisition Company was changed to Eastex at the time of the merger. On December
7, 1995, Eastex purchased all of the issued and outstanding capital stock of
Premier. The Eastex operating results for the months of September through
December 1995 (including Premier for the month of December) are included in the
Company's consolidated results of operations for the year ended December 31,
1995.

Accounting for Regulated Operations

EPG and MPC are subject to the regulations and accounting procedures of
FERC, and therefore continue to follow the reporting and accounting requirements
of SFAS No. 71, Accounting for the Effects of Certain Types of Regulation.
Accounting methods for companies subject to cost-of-service regulation may
differ from those used by non-regulated companies. However, when the accounting
method prescribed by the regulatory authority is used for rate-making, such
accounting conforms to the generally accepted accounting principle of matching
costs against the revenues to which they apply.

Transactions which EPG has recorded differently than a non-regulated entity
include the following: (i) take-or-pay payments recoverable from customers,
based upon transportation volumes, have been recorded as an asset, net of
allowance; (ii) losses on reacquired debt have been recorded in other assets and
are being amortized over the life of the original or replacement debt; (iii)
revenue related to the implementation of SFAS No. 109 has been recorded as a
deferred credit and is being amortized into income; (iv) an adjustment to
reflect the increase in the federal income tax rate has been recorded in other
regulatory assets to be recovered in future rates; (v) OPEB costs that differ
from the amounts funded are recorded either as a regulatory asset or liability
to be included in future rates; (vi) postemployment benefit costs have been
recorded in other regulatory assets to be recovered in future rates; (vii) a
portion of EPG's investment in its underground storage facility has been
recorded as an asset and is being recovered in accordance with the settlement
agreement; (viii) the cost of equity funds used during construction has been
capitalized; and (ix) certain environmental costs have been recorded as
adjustments to accumulated depreciation.

Transactions which MPC has recorded differently than a non-regulated entity
include the following: (i) the cost of equity funds used during construction has
been capitalized, (ii) excess amounts due to

30
<PAGE> 35

straight-line depreciation rates have been recorded as other regulatory assets
to be recovered in future rates, and (iii) deferred taxes on the equity portion
of allowance for funds used during construction have been recorded in other
regulatory assets to be recovered in future rates.

While management believes that EPG and MPC remain "regulated" as the term
is used in the relevant accounting literature, changes in the regulatory and
economic environment may, at some point in the future, create circumstances in
which the application of regulatory accounting principles is no longer
appropriate. If these accounting principles should no longer be applied, an
amount would be charged to earnings as an extraordinary item. At December 31,
1995, this amount was estimated to be approximately $46 million, net of income
taxes. Any potential charge would be non-cash and would have no direct effect on
EPG's and MPC's ability to seek recovery of the underlying deferred costs in
their future rate proceedings or on their ability to collect the rates set
thereby.

In September 1995, FERC authorized EPG to abandon certificates applicable
to certain gathering and processing facilities, subject to certain conditions.
This order was reaffirmed in November 1995. These facilities were transferred to
EPFS effective January 1, 1996. FERC had determined that, upon the transfer to
EPFS, the facilities would be exempt from FERC jurisdiction. Accordingly, the
provisions of SFAS No.71 do not apply to EPFS's transactions and balances
effective January 1, 1996. The discontinuance of the application of SFAS No. 71
to EPFS will not have a significant impact on the Company's financial condition
or results of operations.

Cash and Temporary Investments

Short-term investments purchased with an original maturity of three months
or less are considered cash equivalents.

Accumulated Provision for Uncollectible Accounts Receivable

The Company has established a provision for losses on trade accounts
receivable which may become uncollectible. Collectibility of trade receivables
is reviewed regularly, and the allowance for bad debts is adjusted as necessary
under the specific identification method. The balances of this provision at
December 31, 1995, and 1994, were $2.6 million and $6.2 million, respectively.

Gas Imbalances

The Company currently accounts for gas imbalances due to or due from
shippers and operators. Gas imbalances are valued at the appropriate index
price.

The Company has established a provision for gas imbalances which may become
uncollectible. Collectibility of gas imbalances is reviewed regularly, and the
provision is adjusted as necessary under the specific identification method. The
balances of this provision at December 31, 1995, and 1994, were $7.4 million and
$8.8 million, respectively.

Inventories

Materials and supplies and gas in storage are valued at the lower of cost
or market with cost determined using the average cost method.

Take-or-Pay Settlements

Assets resulting from the resolution of take-or-pay obligations include
recoupable take-or-pay prepayments and take-or-pay buy-out and buy-down
receivables. Recoupable prepayments result when EPG pays for, but does not
physically receive, gas and retains the right to take such gas in the future,
generally over 5 years. Take-or-pay buy-outs and buy-downs represent costs paid
to natural gas producers for the termination or modification of gas purchase
contracts. In exchange for EPG's agreement to absorb 25 percent of its
take-or-pay buy-out and buy-down costs, FERC regulations provide for the direct
billing of 25 percent of such costs to EPG's customers. In addition, such
regulations allow EPG to recover the remaining 50 percent of its

31
<PAGE> 36

buy-out and buy-down costs through a surcharge added to its transportation
rates. The collection period for the surcharge extends through March 1996.

Property, Plant, and Equipment

Included in the Company's property, plant, and equipment is construction
work in progress of approximately $74 million and $78 million at December 31,
1995, and 1994, respectively. An allowance for both debt and equity funds used
during construction is included in the cost of the Company's property, plant,
and equipment.

EPG's properties are depreciated using the composite method. The
straight-line depreciation rate for transmission facilities was 1.6 percent in
1995, 1994, and 1993. The depreciation rate for gathering facilities was 3.5
percent for 1995, 1994, and 1993.

MPC's depreciation rates reflect a levelized cost-of-service approach and a
25-year depreciable life. MPC's depreciation rate for its plant during the first
15 years increases gradually from 1.48 percent in 1992 to 8.76 percent in 2007.
The depreciation rates are designed to recover approximately 80 percent of MPC's
plant balance by March 1, 2007. The depreciation rate related to years 16
through 25 will be determined in future rate proceedings.

Additional acquisition cost assigned to utility plant represents EPG's
portion of the excess of allocated acquisition cost over historical cost that
resulted from the 1983 acquisition of EPG's former parent, TEPCO, by BR's former
parent, Burlington Northern Inc. These costs are being amortized on a
straight-line basis over the estimated remaining life of the properties.

Costs of properties that are not operating units, as defined by FERC, which
are retired, sold, or abandoned are charged or credited, net of salvage, to
accumulated depreciation and amortization. Gains or losses on sales of operating
units are credited or charged to income.

Intangible Assets

Goodwill resulting from the acquisitions of Eastex and Premier is being
amortized over a 40-year period using the straight-line method. Other intangible
assets are valued at cost and are being amortized over a period ranging between
5 years and 25 years using the straight-line or composite method.

The Company periodically reviews the value of its goodwill to determine if
an impairment has occurred. The Company measures the potential impairment of
recorded goodwill by the undiscounted value of expected future operating cash
flows in relation to its net capital investment in the subsidiary. Based on its
review, the Company does not believe that an impairment of its goodwill has
occurred.

Environmental Costs

Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to existing conditions
caused by past operations and that do not contribute to current or future
revenue generation are expensed. Reserves for estimated costs are recorded when
environmental remedial efforts are probable and the costs can be reasonably
estimated. The most current information available, including similar past
experiences, available technology, regulations in effect, the timing of
remediation, and cost-sharing arrangements are used in determining the reserves.
The environmental reserves are based on management's estimate of the most likely
cost to be incurred and are reviewed periodically and adjusted as additional or
new information becomes available. Reserves for expenditures expected to be made
within 1 year are classified as current, and the remainder are classified as
non-current in the Consolidated Balance Sheets.

Financial Instruments With Off-Balance-Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to reduce its exposure to fluctuations in
interest rates and the price of natural gas. These financial instruments include
interest rate swaps, price swap agreements, futures, and options.

32
<PAGE> 37

Gains or losses on futures and options contracts are deferred until the
hedged commodity transaction occurs. The difference paid or received under the
interest rate swap agreements is charged or credited to interest expense. Gains
or losses on price swaps, futures, and options are recognized and reported as a
component of the related transaction. Any cash flow recognition resulting from
holding these financial instruments are treated in the same manner as the
underlying transaction.

Income Taxes

Income taxes are based on income reported for tax return purposes along
with a provision for deferred income taxes. Deferred income taxes are provided
to reflect the tax consequences in future years of differences between the
financial statement and tax bases of assets and liabilities at each year end.
Tax credits are accounted for under the flow-through method, which reduces the
provision for income taxes in the year the tax credits first become available.

Pursuant to a tax sharing agreement between EPG and BR covering periods
prior to July 1992, EPG is responsible for its tax liabilities and those of its
subsidiaries. EPG is required to pay BR its allocable portion of the
consolidated federal tax liability and combined state income tax liability for
such periods.

Treasury Stock

Treasury stock is accounted for using the cost method and is shown as a
reduction to stockholders' equity in the Consolidated Balance Sheets. Treasury
stock sold or issued is valued on a first-in first-out basis. Included in
treasury stock at December 31, 1995, and 1994, were 680,000 shares and 430,000
shares, respectively, that were reserved to secure benefits under certain of the
Company's benefit plans.

Earnings Per Share

Earnings per share of common stock is based on the weighted average number
of shares of common stock outstanding during the year. The weighted average
shares of common stock outstanding for 1995, 1994, and 1993 were 34,495,422,
36,632,236, and 37,212,192, respectively. Stock options are the only common
stock equivalents issued by the Company and are currently not dilutive.

2. EMPLOYEE BENEFITS

Pensions

The Company maintains a defined benefit pension plan covering all employees
of the Company, except employees of Eastex and its subsidiaries and leased
employees. In general, benefits are based on years of credited service and final
5-year average compensation, and have maximum limitations as defined in the
pension plan.

The Company's funding policy is to make annual contributions to the pension
plan. These contributions are limited to amounts currently deductible for tax
purposes. The amounts are calculated using the projected unit credit method, to
provide the pension plan with assets sufficient to meet the benefits to be paid
to pension plan participants. The objective under this method is to fund each
participant's benefits under the pension plan as they accrue, taking into
consideration future salary increases.

The following table reflects the components of net periodic pension cost
for the years ended December 31:

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the period.... $ 8,470 $ 9,345 $ 7,568
Interest cost on projected benefit obligation........ 41,076 39,458 38,786
Actual (return) loss on plan assets.................. (85,952) 4,721 (43,850)
Net amortization and deferral........................ 49,143 (39,669) 10,724
-------- -------- --------
Net periodic pension cost............................ $ 12,737 $ 13,855 $ 13,228
======== ======== ========
</TABLE>

33
<PAGE> 38

The following table sets forth the qualified pension plan's funded status
and amounts recognized in the Company's Consolidated Balance Sheets at December
31:

<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefits............................................ $508,676 $430,499
Nonvested benefits......................................... 691 818
-------- --------
Accumulated benefit obligation............................... $509,367 $431,317
======== ========
Projected benefit obligation for service rendered to date.... $587,248 $489,121
Plan assets at fair value, primarily listed stocks and
government securities...................................... 473,472 407,620
-------- --------
Projected benefit obligation in excess of plan assets........ $113,776 $ 81,501
======== ========
Unrecognized net loss........................................ $ 75,828 $ 36,686
Unrecognized net transition obligation....................... 16,601 19,305
Recognized pension liability................................. 21,347 25,510
Minimum liability adjustment included in recognized pension
liability.................................................. -- --
-------- --------
$113,776 $ 81,501
======== ========
</TABLE>

The accumulated vested benefit obligation is the actuarial present value of
the vested benefits to which the employee is currently entitled, but it is based
on the employee's expected date of termination.

The following table reflects the actuarial assumptions used in the
valuation of the projected benefit obligation at December 31:

<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Weighted average discount rate.................................. 7.25% 8.75%
Rate of increase in future compensation levels.................. 5.00% 5.00%
Weighted average expected long-term rate of return on plan
assets....................................................... 9.25% 9.25%
</TABLE>

Retirement Savings Plan

The Company maintains a defined contribution plan covering all employees of
the Company, except employees of Eastex and its subsidiaries. During 1995, 1994,
and 1993, the Company made matching contributions equal to a participant's basic
contributions of up to 6 percent where the participant has fewer than 10 years
of employment with the Company, or up to 8 percent where the participant has 10
or more years of employment with the Company. Amounts expensed under the plan
were approximately $8 million for each of the years ended December 31, 1995,
1994, and 1993.

Postretirement Benefits, Other than Pensions

The Financial Accounting Standards Board issued SFAS No. 106, Employers'
Accounting for Post Retirement Benefits Other Than Pensions, which requires
companies to account for OPEB (principally retiree medical costs) on an accrual
basis versus the pay-as-you-go basis traditionally followed by most United
States companies. The Company adopted SFAS No. 106 effective January 1, 1993.

The Company provides a non-contributory defined benefit postretirement
medical plan that covers employees who retired on or before March 1, 1986, and
limited postretirement life insurance for employees who retire after January 1,
1985. As such, the Company's obligation to accrue for OPEB is primarily limited
to the fixed population of retirees who retired on or before March 1, 1986. The
medical plan is funded to the extent employer contributions are recoverable
through rates.

34
<PAGE> 39

EPG began recovering through its rates the OPEB costs included in the
January 1993 settlement agreement. To the extent actual OPEB costs differ from
the amounts funded, a regulatory asset or liability is recorded.

The following table reflects the components of net periodic postretirement
benefit cost for the years ended December 31:

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest cost on accumulated postretirement benefit
obligation............................................ $ 6,767 $ 6,983 $ 9,377
Actual (return) loss on plan assets..................... (5,041) 472 (254)
Net amortization and deferral........................... 10,436 6,585 9,062
------- ------- -------
Net periodic postretirement benefit cost................ $12,162 $14,040 $18,185
======= ======= =======
</TABLE>

The following table sets forth the postretirement plan's funded status and
amounts recognized in the Company's Consolidated Balance Sheets at December 31:

<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation................... $ 90,795 $ 86,656
Plan assets at fair value, primarily U.S. stocks and U.S.
bonds......................................................... 30,102 16,758
-------- --------
Accumulated postretirement benefit obligation in excess of plan
assets........................................................ $ 60,693 $ 69,898
======== ========
Unrecognized net gain........................................... $(22,809) $(26,441)
Unrecognized transition obligation.............................. 88,179 96,987
Prepaid postretirement benefit cost............................. (4,677) (648)
-------- --------
$ 60,693 $ 69,898
======== ========
</TABLE>

A 9.0 percent annual rate of increase in the per capita costs of covered
health care benefits was assumed for 1996, gradually decreasing to 6.0 percent
by the year 1999. Increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation at December 31, 1995, by approximately $9 million and
increase the interest cost component of net periodic postretirement benefit cost
for 1995 by approximately $1 million. A discount rate of 7.25 percent and 8.75
percent was used to determine the accumulated postretirement benefit obligation
at December 31, 1995, and 1994, respectively. The weighted average expected
long-term rate of return for 1995 was 7.6 percent.

Postemployment Benefits Other Than Pension

The Financial Accounting Standards Board issued SFAS No. 112, Employers'
Accounting for Postemployment Benefits, which requires companies to account for
benefits to former or inactive employees after employment but before retirement
(referred to in SFAS No. 112 as "postemployment benefits"). SFAS No. 112 is
effective for the fiscal years beginning after December 15, 1993. These
postemployment benefits include every form of benefit provided to former or
inactive employees, their beneficiaries and covered dependents. Benefits
include, but are not limited to, salary continuation, supplemental unemployment
benefits, severance benefits, disability-related benefits (including workers'
compensation), job training and counseling, and continuation of benefits such as
health care benefits and life insurance coverage. Effective January 1, 1994, the
Company adopted SFAS No. 112. The Company has recorded a liability for
postemployment benefit costs of approximately $8 million, in addition to a
regulatory asset for the same amount, to reflect the initial adoption of SFAS
No. 112. In accordance with the offer of settlement filed with FERC in March
1996, management expects to write-off the regulatory asset established at the
adoption of SFAS No. 112. The regulatory asset of $5 million, net of income
taxes, will be written off in the first quarter of 1996. For a further
discussion, see Note 14, Recent Pronouncements.

35
<PAGE> 40

3. LONG-TERM DEBT AND OTHER FINANCING

Long-term debt outstanding at December 31, 1995, and 1994, consisted of the
following:

<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt
EPG
6.90% Notes, due January 1997............................. $100,000 $100,000
9.45% Notes, due September 1999........................... 47,452 47,447
7 3/4% Notes, due January 2002............................ 214,678 214,624
8 5/8% Debentures, due March 2012......................... 16,832 16,811
8 5/8% Debentures, due January 2022....................... 258,479 258,420
Other..................................................... 26 35

MPC
Project financing loan, due March 2007, average interest
rates of 8.8% and 8.0%.................................. 141,768 148,584

Eastex
Promissory note, due April 1, 1998, interest rate of
floating prime rate plus 1%............................. 247 --
-------- --------
779,482 785,921
Less current maturities................................... 7,590 6,824
-------- --------
Total long-term debt................................. $771,892 $779,097
======== ========
</TABLE>

The following are aggregate maturities of long-term debt for the next 5
years and in total thereafter:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996................................................................ $ 7,590
1997................................................................ 108,379
1998................................................................ 18,165
1999................................................................ 65,380
2000................................................................ 11,105
Thereafter.......................................................... 568,863
--------
Total long-term debt, including current maturities........ $779,482
========
</TABLE>

EPG must comply with various restrictive covenants contained in its debt
agreements which include, among others, maintaining a consolidated debt and
guaranties to capitalization ratio no greater than 70 percent. In addition, EPG
subsidiaries on a consolidated basis (as defined in the agreements) may not
incur debt obligations which would exceed $75 million in the aggregate. As of
December 31, 1995, EPG's consolidated debt and guaranties to capitalization
ratio was 56 percent and debt obligations of EPG subsidiaries did not exceed $75
million on a consolidated basis.

In September 1991, MPC entered into a credit agreement with a group of
banks which provided a 15-year project financing loan to MPC of up to $180
million. Total outstanding loan balances under the credit agreement were $142
million and $149 million at December 31, 1995, and 1994, respectively. The loan
is repayable in semiannual installments through March 2007. Interest on the loan
is payable quarterly.

Borrowings under the credit agreement are collateralized by a priority
interest in the Company's partnership interests and certain other distributed
and undistributed partnership property. The credit agreement also contains
covenants relating to, among other things, partnership distributions and
additional indebtedness.

36
<PAGE> 41

Financing Transactions

Short-term borrowings are principally commercial paper with weighted
average interest rates of 6.0 percent and 4.6 percent at December 31, 1995, and
1994, respectively. As of December 31, 1995, and 1994, approximately $203
million and $107 million, respectively, of commercial paper was outstanding. In
February 1992, EPG established a $300 million revolving credit facility with a
group of banks which would have expired in March 1996. This facility was
replaced in August 1994 when EPG established with a group of banks a revolving
credit facility of $400 million that expires August 1999. This facility was
established primarily as a liquidity facility for the Company's commercial paper
program. As of December 31, 1995, there was $75 million outstanding under this
facility. There were no borrowings outstanding under this facility as of
December 31, 1994. In October 1994, EPG established an additional $30 million
line of credit facility. As of December 31, 1995, and 1994, there were no
borrowings outstanding under this line of credit facility. On January 19, 1996,
the Board increased short-term borrowing limits from $400 million to $500
million. Eastex had available a credit facility of approximately $20 million
which expired October 31, 1995. On September 12, 1995, EPG retired Eastex
long-term debt in the amount of $9 million.

4. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

The following disclosure of the estimated fair value of financial
instruments is presented in accordance with the requirements of SFAS No. 107.
The estimated fair value amounts have been determined by the Company using
available market information and valuation methodologies.

As of December 31, 1995, and 1994, the carrying amounts of certain
financial instruments employed by the Company, including cash, cash equivalents,
short-term borrowings and investments, and trade receivables and payables are
representative of fair value because of the short-term maturity of these
instruments. The fair value of the long-term debt has been estimated based on
quoted market prices for the same or similar issues. The fair value of the
project financing is representative of the carrying amount due to the short-term
nature of the interest rates. The fair value of all derivative financial
instruments is the amount at which they could be settled, based on quoted market
prices or estimates obtained from dealers.

37
<PAGE> 42

The following table reflects the carrying amount and estimated fair value
of the Company's financial instruments at December 31:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1995 1994
---------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance sheet financial instruments:
Long-term debt................................... $637,714 $ 710,460 $637,337 $ 621,400
Project financing................................ 141,768 141,768 148,584 148,584
Other financial instruments:
Non-Trading
Interest rate swap agreements................. -- 15,497 -- 2,144
Futures contracts............................. -- 1,050 -- 84
Option contracts.............................. -- (12,494) -- --
Swap agreements............................... -- 22,545 -- 1,190
Trading
Futures contracts............................. -- (6,200) -- --
Option contracts.............................. -- 6,891 -- --
Swap contracts................................ -- 1,454 -- --
-------- --------- -------- ---------
Total.................................... $779,482 $ 880,971 $785,921 $ 773,402
======== ========= ======== =========
</TABLE>

Derivative Financial Instruments

In prior years, the Company used derivative instruments to principally
manage well-defined interest rate price risks and had limited involvement in
financial derivative instruments to manage commodity price risks. Subsequent to
the acquisition of Eastex in September 1995, the Company has broadened its
utilization of natural gas futures, options and swap contracts to hedge higher
levels of volumetric fixed price purchase and sale commitments. In the ordinary
course and conduct of its business, MSG utilizes futures and option contracts
traded on the NYMEX and OTC options and price and basis swaps with major gas
merchants and financial institutions to hedge its price risk exposure related to
inventories and fixed price commitments to purchase and sell natural gas. It is
MSG's policy to seek to maintain a balanced portfolio of supply and demand
contracts, utilizing the NYMEX and OTC financial markets to hedge against price
volatility which may effect those obligations. In addition to its hedging
activities, MSG also engages in selective trading of these financial
instruments.

Non-Trading

1. Interest Rate Swap Agreements

MPC

MPC has entered into interest rate swap agreements which effectively
converted $114.3 million of floating-rate debt to fixed-rate debt (see Note 3,
Long-Term Debt and Other Financing). MPC makes payments to counterparties at
fixed rates and in return receives payments at floating rates. Substantially all
of the remaining loan principal had interest rates ranging from 6.8 percent to
7.3 percent during 1995. The two swap agreements were entered into in March 1992
and have remaining terms of approximately 4 years and 6 years, respectively.

EPNC

In February 1995, EPNC entered into a 7.75-year lease agreement (see Note
5, Commitments and Contingencies). To moderate the exposure to interest rates,
EPNC entered into an interest rate swap arrangement effective July 31, 1995,
whereby approximately 50 percent of the current lease financing was converted
from a London Interbank Offered Rate (LIBOR) based floating rate to a 5.9
percent fixed rate.

38
<PAGE> 43

The effective dates and notional amounts subject to the swap arrangement
are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
July 31, 1995 -- October 31, 1995................................ $ 12,500
October 31, 1995 -- April 30, 1996............................... $ 25,000
April 30, 1996 -- December 31, 1997.............................. $ 35,000
</TABLE>

The primary risks associated with interest rate swaps are the exposure to
movements in interest rates and the ability of the counterparties to meet the
terms of the contracts. Based on review and assessment of counterparty risk,
neither MPC nor EPNC anticipates non-performance by the other parties.

2. Futures contracts

Natural gas futures contracts are traded on the NYMEX, with each contract
equivalent to 10,000 MMbtu. MSG purchases and sells futures contracts to
partially reduce the effects of price volatility characteristics of the cash or
spot market of natural gas. Realized and unrealized changes in the market value
of futures contracts are deferred until the hedged transaction is recognized. At
December 31, 1995, MSG had deferred gains from realized and unrealized positions
of approximately $6.2 million, which will be offset by losses from MSG's
obligations to purchase and sell natural gas in future periods. At December 31,
1994, EPGM had a deferred loss of approximately $1.2 million. These deferred
gains (losses) were included in the Consolidated Balance Sheets at December 31,
1995, and 1994. At December 31, 1995, MSG had 869 net contracts open (1,540 long
contracts and 671 short contracts), representing aggregate notional volumes of
8.7 Bcf (15.4 Bcf related to long contracts and 6.7 Bcf related to short
contracts) expiring through January 1997. At December 31, 1995, the aggregate
notional value of the net open futures contracts was $16.1 million ($29.5
million related to long contracts and $13.4 million related to short contracts).
At December 31, 1994, EPGM held 25 futures contracts, representing an aggregate
notional volume of 0.2 Bcf and a notional value of $0.5 million.

3. Option contracts

Natural gas option contracts provide the holder the right, but not the
obligation, to buy or sell natural gas at a predetermined price during a
specific period. MSG contemporaneously purchases and sells option contracts to
hedge certain price risks associated with contracts whereby MSG has provided to
its counterparty a pre-determined floor (minimum) and/or ceiling (maximum) price
under the contract. MSG receives premiums from the counterparty for options
contracts sold and pays premiums to the counterparty for option contracts
purchased. MSG had net premiums deferred of $2.9 million included in the
Consolidated Balance Sheets at December 31, 1995. These premiums will be
amortized over the remaining term of the contracts, which correspond with the
recognition of the underlying hedged commitment. As of December 31, 1995, MSG
held 3,390 net option contracts (180 long contracts and 3,570 short contracts),
representing net notional volumes of 33.9 Bcf, ranging from terms of 1 to 10
months. At December 31, 1994, EPGM had no option contracts open.

4. Price and basis swap contracts

MSG utilizes swap contracts to hedge inherent price risks resulting from
(i) the varying price characteristics of the Company's monthly physical and
financial portfolios of purchase and sales transactions and (ii) locational
pricing differences between various published price indices and the NYMEX
futures contracts which may have been utilized as a hedge component. These swap
agreements include (i) transactions in which one party agrees to pay a fixed
price while the other party agrees to pay a price based on a published index
(referred to as price swaps) and (ii) transactions in which the parties agree to
pay based on different indices (referred to as basis swaps). At December 31,
1995, MSG held price swap agreements, ranging in terms from 1 month to 4 years,
representing net notional volumes of 18.6 Bcf. Under these price swap
agreements, MSG will pay a fixed price and receive a variable price for notional
quantities of 34.4 Bcf and pay a variable and receive a fixed price for notional
quantities of 15.8 Bcf. At December 31, 1995, MSG

39
<PAGE> 44

held basis swap agreements ranging in terms from 1 to 32 months, representing
net notional volumes of approximately 33.7 Bcf. At December 31, 1994, EPGM had
price swap agreements with broker-dealers to exchange monthly payments on
notional quantities amounting to 17.0 Bcf. During 1994, EPGM realized a pretax
loss of approximately $1.4 million pertaining to price swap agreements. At
December 31, 1994, EPGM had no basis swaps. At December 31, 1995, MSG had
deferred gains (losses) from realized and unrealized price and basis swap
positions of approximately $22.5 million. These gains (losses) will be offset by
gains (losses) from MSG's obligations to purchase and sell natural gas in future
periods. As of December 31, 1994, EPGM had deferred gains (losses) of
approximately $1.2 million. These deferred gains (losses) were included in the
Consolidated Balance Sheets at December 31, 1995, and 1994.

Trading

In late 1995, MSG also utilized financial instruments for purposes other
than hedging its physical obligations. In the conduct of these trading
activities, MSG primarily bought and sold option contracts and utilized futures
contracts and price swap agreements to manage its exposure to market risks. At
December 31, 1995, MSG held option futures, and price swap contracts with net
notional quantities of approximately 19.8 Bcf, 13.8 Bcf, and 8.5 Bcf,
respectively. At December 31, 1995, the mark-to-market value of the trading
activity portfolio was approximately $2.9 million and is included in the
Consolidated Balance Sheets and Statements of Income. As a result of the
proximity of the trading activity to year end, the average fair value of the
financial instruments related to the trading activity and the gains arising from
the trading activities during the reporting period approximate their fair value
at December 31, 1995.

Credit and Price Risk Management

The Company's credit risk relates to the risk of loss as a result of
non-performance by its counterparties. The Company periodically reviews and
assesses counterparty risk to limit any material impact to its financial
position or results of operations; consequently, the Company does not anticipate
non-performance by the other parties. The Company sets credit limits prior to
entering into transactions and did not obtain collateral or other security to
support financial instruments subject to credit risk during 1995. MPC's
objective in entering into the interest rate swap agreements was to avoid the
interest rate risk associated with the floating rate debt. MSG's objective in
entering into futures, options, and swap agreements is to primarily hedge
against adverse changes in the price of natural gas. MSG's credit risk is
specifically related to NYMEX futures and option contracts and is limited to the
in the money value of its contracts and is minimized through the daily
settlement of its cash deposit accounts, credit standings of the Company's
brokers, and the NYMEX. The primary credit risks related to OTC option and price
swap agreements is non-performance by its counterparties and is limited to the
in the money value of the contracts. While the notional amounts reflect the
extent of involvement in the futures, option, and swap contracts, the amounts
potentially at risk, in the event of non-performance by the other parties, are
substantially smaller.

A designated committee oversees the credit and price risk management
activities of the Company to ensure that specific credit and price risk
management strategies have been developed, reviewed, and implemented that comply
with the stated objectives approved by management.

5. COMMITMENTS AND CONTINGENCIES

Rates and Regulatory Matters

El Paso Natural Gas Company

General Rate Filings and Other -- In July 1992, EPG filed for FERC approval
of new rates to recover increased costs and return on rate base associated with
EPG's expansion and modernization projects. These rates became effective on
February 1, 1993, subject to refund. EPG made its compliance filing in December
1992, in accordance with the Restructuring Rules. In January 1993, EPG, certain
of its customers, and FERC staff reached a settlement agreement which led to the
resolution of the above mentioned rate and restructuring proceedings. The
settlement agreement was effective October 1, 1993. Under the settlement

40
<PAGE> 45

agreement, EPG refunded a total of approximately $56 million, inclusive of
interest, in the fourth quarter of 1993. EPG had provided for these rate refunds
as revenues were collected.

The 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 $57 million plus interest which
began accruing February 1, 1993, at the FERC allowed rate, which approximates
the prime rate. In March 1994, EPG received a final FERC letter order approving
recovery of the $57 million of underground storage facility costs. Such costs
are being recovered through December 31, 1996, by a demand charge mechanism. The
amount recovered through December 31, 1995, was $45 million. The outstanding
balances at December 31, 1995, and 1994, were $12 million and $24 million,
respectively, of which $12 million is reflected in the current portion of other
regulatory assets for both periods and $12 million is included in other
regulatory assets in the Consolidated Balance Sheets at December 31, 1994.

In June 1995, EPG made a filing with FERC for approval of new system rates
for mainline transportation to be effective January 1, 1996, subject to refund.
In March 1996, EPG filed a comprehensive offer of settlement which, if approved
by FERC, would resolve issues related to its pending rate case and issues
surrounding certain contract reductions and expirations which occur between
January 1, 1996, and December 31, 1997. For a further discussion of the March
1996 offer of settlement see Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations.

Producer Settlement and Cost Recovery -- Since 1987, EPG has made, or has
committed to make, buy-out and buy-down payments totaling $1.5 billion 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. These payments resolved virtually
all the outstanding producer claims asserted against EPG and terminated or
prospectively reformed substantially all of EPG's remaining gas purchase
contracts, with the result that EPG no longer has any material take-or-pay
exposure. In certain cases, EPG resolved claims by making recoupable
prepayments. At December 31, 1995, and 1994, the recoupable prepayment balances
were $3 million and $6 million, respectively.

Under FERC procedures, take-or-pay cost recovery filings may be challenged
by pipeline customers on prudence and certain other grounds. In October 1992,
FERC issued an order resolving all but one of the outstanding issues regarding
EPG's take-or-pay proceedings. The issue unresolved by FERC involved the claim
by several customers that EPG 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. Following a hearing on this issue, in
June 1994, FERC affirmed a decision of an Administrative Law Judge which found
that the valuation proposed by EPG was excessive and required EPG to refund to
its customers the costs found to be ineligible for take-or-pay recovery. In
accordance with FERC decision, EPG refunded $34 million, inclusive of interest,
to its customers in September 1994. In December 1994, EPG filed a petition with
the Court of Appeals for review of FERC decision, which petition is currently
pending. In addition, certain of EPG's customers sought review of certain
aspects of the October 1992 order in the Court of Appeals. In January 1996, the
Court of Appeals remanded the order to FERC with a direction to clarify the
distinction between take-or-pay buydown or buyout costs which were ineligible
for recovery and those which were imprudently incurred and, therefore not
recoverable. FERC has not yet taken action on the Court of Appeals remand.

In January 1992, EPG completed a sale of substantially all of its remaining
take-or-pay buy-out and buy-down receivables. The receivables sold in this
transaction included $104 million which was recovered through direct bill and
$221 million to be recovered through a volumetric surcharge. The volumetric
surcharge portion of the sale has been accounted for as a financing transaction
because EPG is subject to certain

41
<PAGE> 46

recourse provisions related to such receivables. Amounts collected related to
the take-or-pay receivables sold were remitted to the purchasers of the
receivables. In the third quarter of 1995, EPG prepaid the outstanding $17
million take-or-pay financing liability.

Mojave Pipeline Company

General Rate Filings and Other -- MPC filed a service and rate design
restructuring plan in November 1992 which was essentially approved by FERC in
March 1993. Several of MPC's customers have filed petitions with the Court of
Appeals for review of the March 1993 order and certain other FERC orders. These
petitions are currently pending before the Court of Appeals. 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. Management
believes the Court of Appeals will uphold SFV rates as applied to MPC.

Environmental Matters

As of December 31, 1995, EPG had a reserve of approximately $35 million for
the following environmental contingencies with income statement impact:

1 -- EPG has been conducting remediation of PCB contamination at certain of
its facilities. The majority of the required PCB remediation has been
completed. For the year ended December 31, 1995, EPG has incurred
approximately $3 million in PCB remediation costs. Future PCB remediation
costs are estimated to range between $3 million and $4 million over the
next 4 years.

2 -- In June 1993, EPG executed an Administrative Order on Consent with EPA
to conduct a RI/FS for a site located in Statesville, North Carolina that
has been identified for cleanup. EPG and the other PRP have entered into an
agreement to jointly fund the RI/FS for the site. Total remediation costs
are estimated to be between $16 million and $29 million over a 30-year
period. EPG and the other PRP are engaged in negotiations over the
appropriate allocation of the remediation costs.

3 -- In November 1993, in accordance with an EPA order, EPG and Atlantic
Richfield Company submitted work plans for remediation of the Prewitt
Refinery site in McKinley County, New Mexico. EPG and Atlantic Richfield
Company have a cost sharing agreement to each pay one-half of any
remediation costs at this site. EPG's share of future remediation costs is
estimated to be approximately $8 million over a 29-year period. Remediation
began in May 1995 and for the year ended December 31, 1995, EPG has
incurred approximately $2 million in remediation costs.

4 -- In December 1993, EPA issued EPG a Notice of Potential Liability for
the Colorado School of Mines Research Institute site in Golden, Colorado
ordering EPG and eleven other PRPs to clean up the site. EPA has determined
that the volume of hazardous substances sent to the site by EPG represents
less than 2.5 percent of the total volumes sent by all PRPs. Based on this
percentage, EPG's share of the potential remediation costs is estimated to
be less than $0.4 million. Remediation of the site is expected to be
completed during 1996.

5 -- EPG and another PRP have been notified about potential groundwater and
soil contamination at various sites in southeastern Utah. EPG and the other
PRP have been conducting environmental assessments at certain of these
sites and are engaged in negotiations over the appropriate allocation of
the remediation costs. Based upon currently available information, EPG
estimates its costs for remediation will be approximately $5 million over a
5-year period.

42
<PAGE> 47

6 -- In August 1992, EPG received a notice from the current owner of a site
in Etowah, Tennessee requesting compensation for remediation expenses
associated with the site. EPG negotiated a settlement agreement effective
August 10, 1995. In accordance with the agreement, EPG paid approximately
$0.6 million in the third quarter of 1995.

7 -- EPG and other PRPs entered into an agreement to conduct a RI/FS for a
site located in Fountain Inn, South Carolina. The RI/FS was completed in
October 1994, and EPA issued a Record of Decision in September 1995, under
which the proposed remediation and EPA oversight costs are estimated to be
$1.6 million. The allocation of these costs between EPG and the other PRPs
is currently being negotiated. EPG's share of the costs is estimated to be
approximately $0.8 million over a 5-year period.

Management believes the amount reserved as of December 31, 1995, is
sufficient to cover these and other small environmental assessments and
remediation activities.

The State of Tennessee has asserted a claim that EPG is a liable party
under state environmental laws for cleanup costs associated with a site in
Elizabethton, Tennessee. The State of Tennessee and EPA are in the preliminary
stages of investigating the nature and extent of contamination, as well as
identifying other PRPs. Since investigation is in the initial stages, EPG is
unable to estimate its potential share of any remediation costs.

EPG also has potential expenditures, of a capital nature, for the following
environmental projects:

1 -- EPG has analyzed the CAAA, and believes that the impact to the
Company's operations will be 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) compliance assurance monitoring of air emissions. EPG
anticipates capitalizing the equipment costs associated with complying with
CAAA and estimates that approximately $10 million will be spent from 1996
through 2005. When finalized, EPA's proposed compliance assurance
monitoring rules could potentially impose greater costs to the Company.

2 -- EPG conducted remediation of mercury contamination at various mercury
meter sites located within the gathering system since May 1990. As of
December 1995, EPG has remediated approximately 9,000 sites in the San Juan
Basin. The project was completed in December 1995 at a total project cost
of approximately $21 million. Since March 1994, EPG has identified
approximately 2,325 earthen siphon/dehydration pits in the San Juan Basin
for remediation and closure as required by environmental regulations. As of
December 31, 1995, approximately 2,190 pits have been remediated at a total
project cost of $12 million. These mercury and pit closure costs have been
recorded as adjustments to accumulated depreciation, as permitted by
regulatory accounting principles.

The remaining 135 earthen siphon/dehydration pits which have not been
remediated at December 31, 1995, were transferred to EPFS effective January 1,
1996. Based upon currently available information, EPFS estimates its costs for
remediation will be approximately $3.1 million over a 5-year period. EPFS has
established adequate reserves to cover these remediation activities.

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 becomes available or developments occur, related accrual
amounts will be adjusted accordingly.

Legal Proceedings

See Item 3, Legal Proceedings.

43
<PAGE> 48

Operating Leases

Company Office Space -- Minimum annual rental commitments at December 31,
1995, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, OPERATING LEASES
------------------------ ----------------
(IN THOUSANDS)
<S> <C>
1996.......................................................... $ 10,175
1997.......................................................... 10,543
1998.......................................................... 10,964
1999.......................................................... 11,411
2000.......................................................... 11,912
Thereafter.................................................... 82,957
--------
Total............................................... $137,962
========
</TABLE>

Rental expense for operating leases for 1995, 1994, and 1993 was $9
million, $9 million, and $8 million, respectively.

EPG has a lease agreement for approximately 391,207 square feet of space
which is currently used as the Company headquarters and its gas control center
in El Paso, Texas. The lease expires in May 2007, and grants EPG two 10-year
options to extend the term of the lease.

Chaco -- In February 1995, EPNC entered into a 7.75 year lease for an NGL
extraction plant which is being constructed in the San Juan Basin. The lease is
an unconditional "triple net" lease with the trustee of a special purpose trust.
The trust obtained financing for construction of the plant from a consortium of
financial institutions. The total amount financed via the operating lease will
not exceed $80 million, and the annual lease obligation will be a function of
the amount financed, a variable interest rate, and commitment and other fees.
EPNC has an option at the end of the lease term, and has an obligation upon the
occurrence of certain events, to purchase the plant for a price sufficient to
pay the entire amount financed, interest, and certain expenses. If EPNC does not
purchase the plant at the end of the lease term, it has an obligation to pay a
residual guaranty amount equal to approximately 87 percent of the amount
financed, plus interest. EPG unconditionally guaranteed all obligations of EPNC
under the lease. Construction of the plant began in April 1995. The first 400
MMcf/d of capacity at the plant is scheduled to be in service during the first
quarter of 1996, with the remaining 200 MMcf/d of capacity expected to be
available in the second quarter of 1996.

The estimated minimum rental commitments at December 31, 1995, assuming an
amount financed of $75 million and an interest rate of 6.0 percent, are as
follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, OPERATING LEASE
- ------------------------ ---------------
(IN THOUSANDS)
<S> <C>
1996......................................................... $ 4,000
1997......................................................... 4,500
1998......................................................... 4,500
1999......................................................... 4,500
2000......................................................... 4,500
Thereafter................................................... 8,250
-------
Total.............................................. $30,250
=======
</TABLE>

Management is not aware of other commitments or contingent liabilities
which would have a materially adverse effect on the Company's financial
condition or results of operations.

6. ACQUISITIONS

Eastex Energy Inc.

Effective September 1, 1995, Eastex was merged with and into El Paso
Acquisition Company, a wholly owned subsidiary of EPG. At the time of the
merger, the name of El Paso Acquisition Company was changed to Eastex.

44
<PAGE> 49

Pursuant to the merger, Eastex shareholders received either $4.50 in cash
or .1601 shares of EPG common stock for each share of Eastex common stock. The
purchase price of approximately $32 million, exclusive of acquisition costs, was
financed by the Company through approximately $13 million of available cash and
the issuance of approximately 0.7 million shares of treasury stock at a market
value of approximately $19 million. Acquisition costs of approximately $2
million have been capitalized. Total cash consideration paid, net of cash
received, was approximately $3 million. In December 1995, Eastex acquired all of
the issued and outstanding capital stock of Premier for approximately $20
million. The acquisition was funded by the Company through internally generated
funds and short-term borrowings. The cost of each acquisition has been allocated
on the basis of the estimated fair market value of the assets acquired and the
liabilities assumed. These allocations resulted in goodwill of approximately $17
million and $19 million related to the Eastex and Premier acquisitions,
respectively, and will be amortized over 40 years using the straight-line
method. Eastex had previous goodwill of approximately $5 million. The
acquisitions have each been individually accounted for as a purchase and the
Company has utilized the "push down" method of accounting.

Assets acquired, liabilities assumed, and consideration paid for each
acquisition are as follows:

<TABLE>
<CAPTION>
EASTEX PREMIER
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Fair value of assets acquired, including goodwill........ $121,689 $20,412
Cash acquired............................................ (12,992) --
Liabilities assumed...................................... (86,957) --
Issuance of treasury stock at market value............... (18,849) --
-------- -------
Net cash consideration paid.................... $ 2,891 $20,412
======== =======
</TABLE>

The following consolidated net assets for Eastex are included in the
Company's December 31, 1995, Consolidated Balance Sheets:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash.............................................................. $ 20,210
Accounts receivable............................................... 116,443
Inventory......................................................... 6,754
Property, plant, and equipment, net............................... 5,977
Intangible assets, net............................................ 42,148
Other assets...................................................... 12,800
Accounts payable
Trade........................................................... (107,474)
Other........................................................... (774)
Other liabilities................................................. (5,276)
---------
Total net assets........................................ $ 90,808
=========
</TABLE>

The consolidated operating results for Eastex for the months of September
1995 through December 1995 (including Premier for the month of December) are
included in the Company's consolidated results of operations for the year ended
December 31, 1995.

Mojave Pipeline Company

On June 1, 1993, the Company acquired from a wholly owned subsidiary of
Enron Corp., that subsidiary's 50 percent interest in MPC for approximately $40
million in cash, representing the approximate book value of the investment. The
acquisition, which was funded by internally generated cash flow, gave the
Company 100 percent ownership of MPC. The acquisition was accounted for using
the purchase method.

45
<PAGE> 50

In conjunction with the acquisition, the following liabilities were
assumed:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fair value of assets acquired...................................... $145,643
Cash paid.......................................................... 39,396
--------
Liabilities assumed................................................ $106,247
========
</TABLE>

The operating results of MPC are included in the Company's consolidated
results of operations for 1995, 1994, and May 1993 through December 1993. The
Company's previously owned 50 percent equity interest in MPC is included in
other-net in the Consolidated Statements of Income.

7. INCOME TAXES

The following table reflects the components of income tax expense for the
periods ended December 31:

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal........................................... $13,170 $14,678 $42,112
State............................................. 4,505 (5,609) 8,491
------- ------- -------
17,675 9,069 50,603
------- ------- -------
Deferred
Federal........................................... 30,699 35,062 7,506
Change in enacted tax rate........................ -- -- 503
State............................................. (761) 14,332 541
------- ------- -------
29,938 49,394 8,550
------- ------- -------
Total tax expense......................... $47,613 $58,463 $59,153
======= ======= =======
</TABLE>

The following table reflects the components of deferred tax expense for the
periods ended December 31:

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation, depletion, and amortization.......... $34,612 $33,363 $ 7,355
Financial accruals and reserves.................... (3,835) 28,176 (13,001)
Alternative minimum tax............................ (607) (15,134) 2,103
Gas cost settlements and recovery.................. 31 3,904 17,633
Change in enacted tax rate......................... -- -- 503
Other.............................................. (262) (915) (6,043)
------- -------- --------
Total deferred tax expense............... $29,939 $49,394 $ 8,550
======= ======== ========
</TABLE>

46
<PAGE> 51

The following table reflects the components of the net deferred tax
liabilities at December 31:

<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities
Property, plant, and equipment............................... $290,211 $275,214
Regulatory and other assets.................................. 85,309 62,168
-------- --------
Total deferred tax liability......................... 375,520 337,382
-------- --------
Deferred tax assets
Take-or-pay buy-outs, buy-downs, and prepayments............. 3,542 2,509
Accrual for regulatory issues................................ -- --
Other liabilities............................................ 63,213 55,740
Other........................................................ 17,253 15,472
-------- --------
Total deferred tax asset............................. 84,008 73,721
-------- --------
Net deferred tax liability..................................... $291,512 $263,661
======== ========
</TABLE>

Tax expense of the Company differs from the amount computed by applying the
statutory federal income tax rate to income before taxes. The following table
outlines the reasons for the differences for the periods ended December 31:

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense at the statutory federal rate of 35% for
1995, 1994 and 1993................................. $46,541 $51,827 $52,789
Increase (decrease)
State income tax, net of federal income tax
benefit.......................................... 2,434 5,670 5,871
Change in enacted tax rate.......................... -- -- 503
Other............................................... (1,362) 966 (10)
------- ------- -------
Income tax expense.................................... $47,613 $58,463 $59,153
======= ======= =======
Effective tax rate.................................... 36% 39% 39%
======= ======= =======
</TABLE>

As of December 31, 1995, approximately $17 million of alternative minimum
tax credits were available to offset future regular tax liabilities. These
alternative minimum tax credit carryovers have no expiration date.

Deferred credits, in the Consolidated Balance Sheets, include excess
deferrals resulting from the reduction of the statutory federal tax rate from 46
to 34 percent on July 1, 1987. Regulatory assets in the Consolidated Balance
Sheets include expected future recoveries resulting from the increase of the
statutory federal rate from 34 to 35 percent on January 1, 1993. Such amounts
have been included in EPG's offer of settlement filed with FERC in March 1996.

8. CAPITAL STOCK

Stock Options

Under EPG's employee stock option plans, options may be granted to officers
and key employees at fair market value on the date of grant, exercisable in
whole or part by the optionee after completion of 1 to 5 years of continuous
employment from the grant date. Options are also granted to non-employee members
of the Board at fair market value on the date of grant and are exercisable
immediately. Under the terms of these plans, EPG may grant SARs to certain
holders of stock options. SARs are subject to the same terms and conditions as
the related stock options. The stock option holder who has been granted tandem
SARs can elect to exercise either an option or a SAR. SARs entitle an option
holder to receive a payment equal to the difference between the option price and
the fair market value of the common stock of EPG at the date of exercise of the
SAR. To the extent a SAR is exercised, the related option is canceled, and to
the extent an option is exercised, the related SAR is canceled.

47
<PAGE> 52

Activity in EPG's stock option plans for 1993, 1994, and 1995 was as
follows:

<TABLE>
<CAPTION>
EXERCISE
PRICE PER
OPTIONS SARS SHARE
--------- -------- -----------------
<S> <C> <C> <C>
Balance, January 1, 1993................... 1,063,261 105,203 $13.51 to $25.69
Granted.................................. 575,000 -- 30.81 to 38.19
Exercised................................ 247,143 35,049 13.51 to 22.91
Canceled................................. 41,382 -- 19.00 to 30.81
--------- --------
Balance, December 31, 1993................. 1,349,736 70,154 $13.51 to $38.19
Granted.................................. 663,100 -- 36.88 to 39.56
Exercised................................ 50,162 22,000 13.51 to 30.81
Canceled................................. 29,983 -- 19.00 to 36.88
--------- --------
Balance, December 31, 1994................. 1,932,691 48,154 $18.14 to $39.56
Granted.................................. 709,000 -- 28.88 to 30.88
Converted in connection with Eastex
acquisition........................... 40,025 -- 15.62
Exercised................................ 38,761 -- 18.14 to 22.91
Canceled................................. 39,000 -- 29.94
--------- --------
Balance, December 31, 1995................. 2,603,955 48,154 $15.62 to $39.56
========= ========
</TABLE>

At December 31, 1995, 1,938,953 stock options and 48,154 SARs were
exercisable at prices ranging from $15.62 to $39.56 per share.

Stock options shown as canceled in the table above may be a result of the
tandem SAR being exercised. SARs shown in the table above will be canceled when
the underlying stock options are exercised.

From April 1993 through December 1993, EPG issued 43,394 shares of common
stock in connection with EPG's employee stock option plans.

In January 1996, a grant of 1,461,500 stock options at an exercise price
per share of $31.375 was made. The options become exercisable after a period of
1 to 5 years.

The maximum number of shares for which stock options may be granted under
EPG's current stock option plans is approximately 7 million shares of common
stock, to be issued from shares held in EPG's treasury, or out of authorized but
unissued shares of EPG's common stock, or partly out of each, as determined by
the Board.

Restricted Stock

In January 1996, a grant of 133,868 restricted shares of EPG's common stock
was granted to certain officers pursuant to EPG's 1995 Incentive Compensation
Plan. These shares vest 4 years from the date of grant and have a market value
of approximately $4 million at grant date. In addition, in January 1996, a grant
of 795,000 restricted shares of EPG's common stock was granted to certain
officers pursuant to EPG's 1995 Omnibus Compensation Plan. The majority of these
shares vest only upon the attainment of certain performance measures and lapse
of time (ranging from 1 to 5 years), and have a market value of approximately
$25 million at grant date.

A total of 300, 800, and 2,300 restricted shares of EPG's common stock were
granted to certain employees during 1995, 1994, and 1993, respectively. The
market value of such shares awarded was approximately $8,250, $26,000, and
$76,000 in 1995, 1994, and 1993, respectively.

Treasury Stock

Shares repurchased are held in EPG's treasury and are expected to be used
in connection with EPG employee stock option plans and for other corporate
purposes. In October 1992, the Board authorized the

48
<PAGE> 53

repurchase of up to 2 million shares of EPG's outstanding shares of common stock
from time to time in the open market. During 1992, EPG acquired 812,773 shares
of its common stock for an aggregate value of $24 million and issued, in
connection with EPG's employee stock option plans, 628,258 shares of common
stock out of treasury stock for an aggregate value of $11 million. The 184,515
remaining shares were issued through April 1993, in connection with employee
stock option plans, for an aggregate value of $5 million.

During 1993, EPG acquired 509,095 shares of its common stock for an
aggregate value of $18 million and subsequently issued, in connection with
employee stock option plans, 22,734 shares of its common stock out of treasury
stock for an aggregate value of $0.5 million. As of December 31, 1993, EPG had
486,361 shares of treasury stock.

In November 1994, the Board authorized the repurchase of an additional 3.5
million shares of EPG's outstanding common stock from time to time in the open
market. During 1995 and 1994, EPG acquired 2,020,000 and 1,362,937 shares of its
common stock for an aggregate value of $57 million and $44 million,
respectively. In 1995 and 1994, 36,000 and 50,162 shares of EPG's common stock
were issued out of treasury stock in connection with employee stock option plans
for an aggregate value of $0.5 million and $1.8 million, respectively. In
addition, 680,000 shares of treasury stock have been used to secure benefits
under certain of the Company's benefit plans. These shares are subject to
certain restrictions. In September 1995, EPG issued approximately 656,000 shares
of treasury stock in connection with the Eastex acquisition. As of December 31,
1995, and 1994, EPG held 3,127,000 and 1,799,136 shares of treasury stock,
respectively.

Other

EPG has 25,000,000 shares of authorized preferred stock, par value $0.01
per share, none of which have been issued.

9. INVENTORIES

Inventories consisted of the following at December 31:

<TABLE>
<CAPTION>
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Materials and supplies...................................... $ 30,354 $ 34,666
Gas in storage.............................................. 6,754 --
---------- ----------
$ 37,108 $ 34,666
========== ==========
</TABLE>

10. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Property, plant, and equipment, at cost..................... $3,042,516 $2,968,220
Less accumulated depreciation and depletion................. 1,158,486 1,205,637
---------- ----------
1,884,030 1,762,583
Additional acquisition cost assigned to utility plant, net
of accumulated amortization............................... 93,594 99,006
---------- ----------
Total property, plant, and equipment, net......... $1,977,624 $1,861,589
========== ==========
</TABLE>

49
<PAGE> 54

11. INTANGIBLE ASSETS

Intangible assets consisted of the following at December 31:

<TABLE>
<CAPTION>
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Goodwill.................................................... $ 42,261 $ --
Other intangibles........................................... 14,890 11,148
-------
57,151 11,148
Less accumulated amortization............................... 9,273 6,840
-------
Total intangible assets, net........................... $ 47,878 $ 4,308
=======
</TABLE>

12. NATURE OF OPERATIONS AND SIGNIFICANT CUSTOMERS

The Company is engaged in the transportation, gathering and processing, and
marketing of natural gas. For the year ended December 31, 1995, the Company's
operating revenues were predominately derived from the transportation of natural
gas. California is the Company's principal market for the transportation of
natural gas.

The Company had gross revenues equal to, or in excess of, 10 percent of
consolidated operating revenues from the following customers for the years ended
December 31:

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Southern California Gas Company.................... $176,460 $190,989 $238,885
Pacific Gas & Electric Company..................... 128,155 154,674 168,246
Southwest Gas Corporation.......................... --(a) --(a) 95,188
</TABLE>

- ---------------

(a) Less than 10 percent of consolidated operating revenues.

13. SUPPLEMENTAL CASH FLOW INFORMATION

The following table contains supplemental cash flow information for the
years ended December 31:

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest........................................... $ 76,707 $ 70,906 $ 66,773
Income taxes, net of refunds....................... 9,575 31,231 38,993
</TABLE>

See Note 6, Acquisitions, for a discussion of the non-cash investing
transaction related to the acquisition of Eastex.

14. RECENT PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Certain long-lived assets
and certain identifiable intangibles to be disposed of must be reported at the
lower of carrying amount or fair value less cost to sell. SFAS No. 121 also
requires that a rate-regulated enterprise recognize an impairment for the amount
of costs that a regulator excludes from the enterprise's rate base. SFAS No. 121
must be adopted no later than the fiscal year beginning after December 15, 1995.
The Company anticipates adopting SFAS No. 121 in the first quarter of 1996. As a
result of the adoption, the Company will reduce property, plant, and equipment
by a charge to earnings of approximately $19 million, net of income taxes. In
addition, in accordance with the offer of settlement filed with FERC in March
1996, management expects to write-off an impaired regulatory asset which was

50
<PAGE> 55

established at the adoption of SFAS No. 112. The regulatory asset of $5 million,
net of income taxes, will be written off in the first quarter of 1996.

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation. SFAS No. 123 encourages entities
to adopt a fair value based method of accounting for all employee stock
compensation, as well as transactions in which an entity issues its equity
instruments to acquire goods or services from nonemployees. Those transactions
must be accounted for based on the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reasonably
determinable. SFAS No. 123 allows an entity to continue measuring compensation
cost for a plan using the accounting principles prescribed by APB Opinion No.
25, Accounting for Stock Issued to Employees. In that case, however, companies
must also include pro forma disclosures of net income and earnings per share, as
if the fair value based method of accounting defined in SFAS No. 123 had been
applied. SFAS No. 123 is effective for fiscal years beginning after December 15,
1995. The Company adopted SFAS No. 123 in the first quarter of 1996, and elected
to continue to apply the accounting rules contained in APB No. 25.

The American Institute of Certified Public Accountants issued SOP 94-6,
Disclosure of Certain Significant Risks and Uncertainties which requires
reporting entities to include in their financial statements disclosures about
the nature of their operations, and the use of estimates in the preparation of
financial statements. In addition, if specific disclosure criteria are met, it
requires entities to include in their financial statements disclosures about
certain significant estimates and current vulnerability due to certain
concentrations. The provisions of SOP 94-6 are effective for financial
statements issued for fiscal years ending after December 15, 1995. The Company
adopted SOP 94-6 effective January 1, 1995.

15. SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Financial information by quarter is summarized below. In the opinion of
management, all adjustments necessary for a fair presentation have been made.

<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ -------- --------
(IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995
Operating revenues...................... $ 408,525 $240,191 $185,150 $204,131
Operating income........................ 50,651 52,690 52,857 56,213
Net income.............................. 22,904 20,289 20,200 21,970
Earnings per common share............... 0.67 0.60 0.58 0.62
1994
Operating revenues...................... $ 227,698 $209,424 $210,805 $221,945
Operating income........................ 58,881 56,019 59,598 47,797
Net income.............................. 23,391 21,096 24,011 21,115
Earnings per common share............... 0.65 0.58 0.65 0.57
</TABLE>

51
<PAGE> 56

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
El Paso Natural Gas Company

We have audited the consolidated financial statements and the financial
statement schedule of El Paso Natural Gas Company listed in Item 14(a) of this
Form 10-K. These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of El Paso Natural
Gas Company as of December 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.

COOPERS & LYBRAND L.L.P.

El Paso, Texas
March 15, 1996

52
<PAGE> 57

SCHEDULE II

EL PASO NATURAL GAS COMPANY

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------- ---------- -------------------- ---------- ----------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE
BEGINNING AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- -------------------------------------------- ---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1995
Allowance for bad debts................... $ 6,155 $ 1,819 $ 440 $ 5,776(a) $ 2,638
Allowance for gas imbalances.............. 8,840 -- 1,502 2,911(c) 7,431
Allowance for take-or-pay receivables..... 9,326 -- -- 8,326 1,000
1994
Allowance for bad debts................... $ 3,868 $ 2,029 $ 734 $ 476 $ 6,155
Allowance for gas imbalances.............. 5,597 -- 3,243 -- 8,840
Allowance for take-or-pay receivables..... 19,387 -- -- 10,061 9,326
1993
Allowance for bad debts................... $ 5,084 $ -- $ 145 $ 1,361(a) $ 3,868
Allowance for gas imbalances.............. 12,097 -- -- 6,500(b) 5,597
Allowance for take-or-pay receivables..... -- 19,387 -- -- 19,387
</TABLE>

(a) Primarily accounts charged off.

(b) Primarily accounts recovered.

53
<PAGE> 58

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information appearing under the caption "Proposal No. 1 -- Election of
Directors" in the Company's proxy statement for the 1996 Annual Meeting of
Stockholders is incorporated herein by reference. Information regarding
executive officers of the Company is presented in Items 1 and 2 of this Form
10-K under the caption "Executive Officers of the Registrant."

ITEM 11. EXECUTIVE COMPENSATION

Information appearing under the caption "Executive Compensation" in the
1996 proxy statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information appearing under the caption "Security Ownership of Beneficial
Owners and Management" in the 1996 proxy statement is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

54
<PAGE> 59

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:

1. Financial statements.

The following consolidated financial statements of the Company are included
in Part II, Item 8 of this report:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated statements of income..................................... 26
Consolidated balance sheets........................................... 27
Consolidated statements of cash flows................................. 28
Consolidated statements of stockholders' equity....................... 29
Notes to consolidated financial statements............................ 30
Report of independent accountants..................................... 52

2. Financial statement schedules and supplementary information required to
be submitted.

Schedule II - Valuation and qualifying accounts....................... 53
Schedules other than that listed above are omitted because they are
not applicable

3. Exhibit list.......................................................... 56
</TABLE>

(B) REPORTS ON FORM 8-K:

No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 1995.

55
<PAGE> 60

EL PASO NATURAL GAS COMPANY

EXHIBIT LIST
DECEMBER 31, 1995

<TABLE>
<S> <C>
3(i) -- Restated Certificate of Incorporation of EPG dated January 22, 1992.
(Form 10-K, No. 1-2700, filed January 29, 1992); Certificate of
Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock of EPG, dated July 7, 1992, (Form 10-K, No. 1-2700,
filed February 3, 1993).

3(ii) -- By-laws of EPG, as amended September 1, 1994. (Form 10-K, No. 1-2700,
filed January 26, 1995).

4.B.1 -- Indenture, dated as of March 1, 1987, between EPG and Citibank, N.A.,
Trustee, with respect to EPG's 8 5/8% Debentures due 2012 (Form S-3,
No. 33-34284, filed April 20, 1990); Supplemental Indenture, dated
December 24, 1991, (Form 10-K, No. 1-2700, filed January 29, 1992).

4.B.2 -- Indenture, dated as of August 1, 1987, between EPG and Citibank,
N.A., Trustee, with respect to EPG's 9.45% Notes due 1999 (Form S-3,
No. 33-34284, filed April 20, 1990); Supplemental Indenture, dated
December 24, 1991, (Form 10-K, No. 1-2700, filed January 29, 1992).

4.B.3 -- Indenture, dated as of January 1, 1992, between EPG and Citibank,
N.A., Trustee, with respect to EPG's 6.90% Notes due 1997, 7 3/4%
Notes due 2002 and 8 5/8% Debentures due 2022 (Form 10-K, No. 1-2700,
filed January 29, 1992).

4.C -- Shareholder Rights Plan (Form 10-Q, No. 1-2700, filed November 12,
1992).

10.A -- Mojave Pipeline General Partnership Agreement by and among El Paso
Mojave Pipeline Co., HNG Mojave, Inc., and Pacific Interstate Mojave
Company, dated as of March 26, 1985, (Form 10-Q, No. 1-2700, filed
May 15, 1985); Amendment No. 1 to General Partnership Agreement dated
as of September 29, 1986, (Form 10-Q, No. 1-2700, filed May 13,
1988); Amendment No. 2 to General Partnership Agreement dated as of
September 30, 1991, (Form 10-Q, No. 1-2700, filed November 14, 1991).

10.B -- Lease, dated May 27, 1982, between EPG and First Capital Kayser
Center (Form 10-Q, No. 1-2700, filed November 14, 1991).

10.C -- Transportation Service Agreement as Amended and Restated, effective
November 1, 1993, between EPG and Pacific Gas and Electric Company.
(Form 10-K, No. 1-2700, filed January 26, 1995).

10.D -- Transportation Service Agreement as Amended and Restated, effective
July 16, 1993, between EPG and Southern California Gas Company. (Form
10-K, No. 1-2700, filed January 26, 1995).

10.E -- Transportation Service Agreement, dated August 9, 1991, and effective
September 1, 1991, between EPG and Southwest Gas Corporation for
service to Arizona; Transportation Service Agreement, dated August 9,
1991, and effective September 1, 1991, between EPG and Southwest Gas
Corporation for service to Nevada (Form 10-Q, No. 1-2700, filed
November 14, 1991); Amendatory Agreement and replacement of Exhibit B
to Transportation Service Agreement dated August 9, 1991, and
effective May 8, 1992, between EPG and Southwest Gas Corporation for
service to Nevada. (Form 10-K, No. 1-2700, filed February 3, 1993).
Exhibit B to the Transportation Service Agreement dated August 9,
1991, and effective March 1, 1994, between EPG and Southwest Gas
Corporation for service to Arizona. (Form 10-K, No. 1-2700, filed
January 26, 1995).
</TABLE>

56
<PAGE> 61

<TABLE>
<S> <C>
10.F -- Credit Agreement among Mojave Pipeline Company and Deutsche Bank AG,
New York Branch, and Swiss Bank Corporation, New York Branch,
individually and as Agents, and the Banks named therein, dated as of
September 30, 1991, and the following documents related thereto:
Sponsor Performance Agreement among EPG and Deutsche Bank AG, New
York Branch, as Collateral Agent and Deutsche Bank AG, New York
Branch and Swiss Bank Corporation, New York Branch, as Agents, dated
as of September 30, 1991; Partner Performance Agreement among El Paso
Mojave Pipeline Co. and Deutsche Bank AG, New York Branch, as
Collateral Agent and Deutsche Bank AG, New York Branch and Swiss Bank
Corporation, New York Branch, as Agents, dated as of September 30,
1991; Pledge Agreement made by El Paso Mojave Pipeline Co. with and
to Deutsche Bank AG, New York Branch (as Collateral Agent) for the
Secured Creditors, dated as of September 30, 1991; $90,000,000 Note
dated September 30, 1991, executed by Mojave Pipeline Company and
payable to Deutsche Bank AG, New York Branch; $90,000,000 Note dated
September 30, 1991, executed by Mojave Pipeline Company and payable
to Swiss Bank Corporation, New York Branch (Form 10-Q, No. 1-2700,
filed November 14, 1991); Syndication and replacement of Notes with a
$52,750,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Swiss Bank Corporation, New York
Branch; a $40,000,000 Note dated September 30, 1991, executed by
Mojave Pipeline Company and payable to Deutsche Bank AG, New York
Branch; a $30,000,000 Note dated September 30, 1991, executed by
Mojave Pipeline Company and payable to Banque Indosuez; a $20,000,000
Note dated September 30, 1991, executed by Mojave Pipeline Company
and payable to the Sumitomo Bank, Limited, Houston Agency; a
$20,000,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to the Bank of Nova Scotia; a
$17,250,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Credit Lyonnais Cayman Islands Branch
(Form 10-K, No. 1-2700, filed January 29, 1992). First Amendment to
Credit Agreement dated as effective December 23, 1992, among Mojave
Pipeline Company and Deutsche Bank AG, New York Branch and Swiss Bank
Corporation, New York Branch; Amendment to Sponsor and Partner
Performance Agreements entered into effective as of December 23,
1992; Syndication and replacement of Note for $52,750,000 payable to
Swiss Bank Corporation, New York Branch and Note for $17,250,000
payable to Credit Lyonnais Cayman Islands Branch with a $40,000,000
Note dated September 30, 1991, executed by Mojave Pipeline Company
and payable to Swiss Bank Corporation, New York Branch; and a
$30,000,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Credit Lyonnais Cayman Islands
Branch, Second Amendment to Credit Agreement dated as effective June
1, 1993, among Mojave Pipeline Company and Deutsche Bank AG, New York
Branch and Swiss Bank Corporation, New York Branch; Amended and
Restated Sponsor Performance Agreement dated as effective June 1,
1993, among El Paso Natural Gas Company and Deutsche Bank AG, New
York Branch and Swiss Bank Corporation, New York Branch; Amendment
and Ratification of Partner Documents dated as effective June 1,
1993, among EPNG Mojave, Inc. and El Paso Mojave Pipeline Co. and
Deutsche Bank AG, New York Branch and Swiss Bank Corporation, New
York Branch (Form 10-Q, No. 1-2700, filed August 16, 1993).
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. (Form 10-Q, No.
1-2700, filed May 13, 1994).

10.G -- Master Separation Agreement and documents related thereto dated
January 15, 1992, by and among Burlington Resources Inc., EPG and
Meridian Oil Holding Inc., including Exhibits (Form 10-K, No. 1-2700,
filed January 29, 1992).

10.H -- Revolving Credit and Competitive Advance Facility Agreement dated as
of August 10, 1994 between EPG, Chemical Bank and certain other banks
(Form 10-Q, No. 1-2700, filed November 14, 1994).

+10.I -- Omnibus Compensation Plan dated as of January 1, 1992, (Amendment No.
1 to Form S-2, No. 33-45369, filed February 27, 1992).
</TABLE>

57
<PAGE> 62

<TABLE>
<S> <C>
+10.J -- 1995 Incentive Compensation Plan effective as of January 13, 1995
(Form S-8, No. 33-57553, filed February 2, 1995); Amendment No. 1 to
EPG's 1995 Incentive Compensation Plan, effective as of July 1, 1995
(Form 10-Q, No. 1-2700, filed July 21, 1995).
*+10.J.1 -- Amendment No. 2 to the 1995 Incentive Compensation Plan effective
January 1, 1996.
+10.K -- 1995 Compensation Plan for Non-Employee Directors effective as of
January 13, 1995 (Form S-8, No. 33-57553, filed February 2, 1995).
+10.L -- Stock Option Plan for Non-Employee Directors dated as of January 1,
1992, (Amendment No. 1 to Form S-2, No. 33-45369, filed February 27,
1992).
+10.M -- 1995 Omnibus Compensation Plan effective as of January 13, 1995 (Form
S-8, No. 33-57553, filed February 2, 1995); Amendment No. 1 to EPG's
1995 Omnibus Compensation Plan, effective as of July 21, 1995 (Form
10-Q, No. 1-2700, filed July 21, 1995).
+10.N -- Supplemental Benefits Plan, Amended and Restated Effective as of
January 13, 1995 (Form 10-K, No. 1-2700, filed January 26, 1995).
+10.O -- Senior Executive Survivor Benefit Plan effective January 1, 1992,
(Amendment No. 1 to Form S-2, No. 33-45369, filed February 27, 1992).
+10.P -- Deferred Compensation Plan, Amended and Restated Effective as of
January 13, 1995 (Form 10-K, No. 1-2700, filed January 26, 1995).
+10.Q -- Retirement Income Plan for Non-Employee Directors, Amended and
Restated Effective as of January 13, 1995 (Form 10-K, No. 1-2700,
filed January 26, 1995).
+10.R -- Key Executive Severance Protection Plan, Amended and Restated
Effective as of January 13, 1995 (Form 10-K, No. 1-2700, filed
January 26, 1995).
+10.S -- Director Charitable Award Plan, Amended and Restated Effective as of
January 13, 1995 (Form 10-K, No. 1-2700, filed January 26, 1995).
*+10.S.1 -- Amendment No. 1 to the Director Charitable Award Plan effective as of
January 22, 1996.
10.T -- Receivables Purchase and Sale Agreement dated as of January 14, 1992,
between EPG, CIESCO L.P., Corporate Asset Funding Company, Inc. and
Citicorp North America, Inc. (Form 10-K, No. 1-2700, filed February
3, 1993).
+10.U -- Employment Agreement dated July 31, 1992, between EPG and William A.
Wise (Form 10-K, No. 1-2700, filed February 3, 1993).
*+10.U.1 -- Amendment to Employment Agreement dated January 29, 1996 between EPG
and William A. Wise.
*10.V -- Amended and Restated Limited Liability Company Agreement of Aguaytia
Energy, LLC entered into November 30, 1995, by and among The Maple
Gas Corporation del Peru Ltd, The Maple Gas Corporation, P.I.D.C.
Aguaytia, L.L.C., EPED Aguaytia Company, IGC Aguaytia Partners,
L.L.C., Scudder Latin American Power I-P L.D.C., and PMDC Aguaytia,
Ltd.
+10.W -- Letter Agreement dated February 22, 1991, between EPG and Britton
White, Jr. (Form 10-K, No. 1-2700, filed February 3, 1993).
+10.X -- Letter Agreement dated January 13, 1995, between EPG and William A.
Wise (Form 10-K, No. 1-2700, filed January 26, 1995).
</TABLE>

58
<PAGE> 63

<TABLE>
<S> <C>
10.Y -- Participation and Credit Agreement dated as of February 9, 1995,
among EPG, El Paso New Chaco Company, State Street Bank and Trust
Company, Chemical Bank, as Agent, the Note Holders Signatories and
the Certificate Holders Signatories (without exhibits and schedules,
except for the schedule of defined terms), and the following
documents related thereto: Lease Agreement dated as of February 9,
1995, between State Street Bank and Trust Company and El Paso New
Chaco Company, Support Agreement between El Paso New Chaco Company
and State Street Bank and Trust Company dated as of February 9, 1995;
Guaranty Agreement by EPG in favor of Chemical Bank, as Agent, and
Each of the Participants as of February 9, 1995; Sponsor Agreement by
EPG in favor of State Street Bank and Trust Company, as of February
9, 1995; Mortgage, Assignment, Security Agreement and Financing
Statement, executed February 7, 1995, between State Street Bank and
Trust Company (Mortgagor) and Chemical Bank (Mortgagee); Security
Agreement among State Street Bank and Trust Company and Chemical
Bank, as Agent, dated February 9, 1995 (Form 10-Q, No. 1-2700, filed
April 28, 1995).
*+10.Z -- Letter dated February 4, 1992 between EPG and Michael C. Holland.
*11 -- Computation of Earnings per Common Share.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
*21 -- Subsidiaries of the Registrant.
*23 -- Consent of Experts.
*27 -- Financial Data Schedule.
</TABLE>

Each exhibit identified on this Exhibit List 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. Exhibits designated with a "+"
constitute a management contract or compensatory plan or arrangement required to
be filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K.

59
<PAGE> 64

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, El Paso Natural Gas Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

EL PASO NATURAL GAS COMPANY
Registrant

By /s/ WILLIAM A. WISE
William A. Wise
Chairman of the Board,
President, and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of El Paso
Natural Gas Company and in the capacities and on the date indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------- ---------------
<C> <S> <C>
/s/ WILLIAM A. WISE Chairman of the Board, March 15, 1996
(William A. Wise) President, Chief
Executive Officer, and
Director

/s/ H. BRENT AUSTIN Executive Vice President March 15, 1996
(H. Brent Austin) and Chief Financial
Officer

/s/ THOMAS E. RICKS Vice President, March 15, 1996
(Thomas E. Ricks) Controller, and Chief
Accounting Officer

/s/ BYRON ALLUMBAUGH Director March 15, 1996
(Byron Allumbaugh)

/s/ EUGENIO GARZA LAGUERA Director March 15, 1996
(Eugenio Garza Laguera)

/s/ JAMES F. GIBBONS Director March 15, 1996
(James F. Gibbons)

/s/ BEN F. LOVE Director March 15, 1996
(Ben F. Love)

/s/ KENNETH L. SMALLEY Director March 15, 1996
(Kenneth L. Smalley)

/s/ MALCOLM WALLOP Director March 15, 1996
(Malcolm Wallop)
</TABLE>

60
<PAGE> 65

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------
<C> <S> <C>
3(i) -- Restated Certificate of Incorporation of EPG dated January 22, 1992.
(Form 10-K, No. 1-2700, filed January 29, 1992); Certificate of
Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock of EPG, dated July 7, 1992, (Form 10-K, No. 1-2700,
filed February 3, 1993).
3(ii) -- By-laws of EPG, as amended September 1, 1994. (Form 10-K, No. 1-2700,
filed January 26, 1995).
4.B.1 -- Indenture, dated as of March 1, 1987, between EPG and Citibank, N.A.,
Trustee, with respect to EPG's 8 5/8% Debentures due 2012 (Form S-3,
No. 33-34284, filed April 20, 1990); Supplemental Indenture, dated
December 24, 1991, (Form 10-K, No. 1-2700, filed January 29, 1992).
4.B.2 -- Indenture, dated as of August 1, 1987, between EPG and Citibank,
N.A., Trustee, with respect to EPG's 9.45% Notes due 1999 (Form S-3,
No. 33-34284, filed April 20, 1990); Supplemental Indenture, dated
December 24, 1991, (Form 10-K, No. 1-2700, filed January 29, 1992).
4.B.3 -- Indenture, dated as of January 1, 1992, between EPG and Citibank,
N.A., Trustee, with respect to EPG's 6.90% Notes due 1997, 7 3/4%
Notes due 2002 and 8 5/8% Debentures due 2022 (Form 10-K, No. 1-2700,
filed January 29, 1992).
4.C -- Shareholder Rights Plan (Form 10-Q, No. 1-2700, filed November 12,
1992).
10.A -- Mojave Pipeline General Partnership Agreement by and among El Paso
Mojave Pipeline Co., HNG Mojave, Inc., and Pacific Interstate Mojave
Company, dated as of March 26, 1985, (Form 10-Q, No. 1-2700, filed
May 15, 1985); Amendment No. 1 to General Partnership Agreement dated
as of September 29, 1986, (Form 10-Q, No. 1-2700, filed May 13,
1988); Amendment No. 2 to General Partnership Agreement dated as of
September 30, 1991, (Form 10-Q, No. 1-2700, filed November 14, 1991).
10.B -- Lease, dated May 27, 1982, between EPG and First Capital Kayser
Center (Form 10-Q, No. 1-2700, filed November 14, 1991).
10.C -- Transportation Service Agreement as Amended and Restated, effective
November 1, 1993, between EPG and Pacific Gas and Electric Company.
(Form 10-K, No. 1-2700, filed January 26, 1995).
10.D -- Transportation Service Agreement as Amended and Restated, effective
July 16, 1993, between EPG and Southern California Gas Company. (Form
10-K, No. 1-2700, filed January 26, 1995).
10.E -- Transportation Service Agreement, dated August 9, 1991, and effective
September 1, 1991, between EPG and Southwest Gas Corporation for
service to Arizona; Transportation Service Agreement, dated August 9,
1991, and effective September 1, 1991, between EPG and Southwest Gas
Corporation for service to Nevada (Form 10-Q, No. 1-2700, filed
November 14, 1991); Amendatory Agreement and replacement of Exhibit B
to Transportation Service Agreement dated August 9, 1991, and
effective May 8, 1992, between EPG and Southwest Gas Corporation for
service to Nevada. (Form 10-K, No. 1-2700, filed February 3, 1993).
Exhibit B to the Transportation Service Agreement dated August 9,
1991, and effective March 1, 1994, between EPG and Southwest Gas
Corporation for service to Arizona. (Form 10-K, No. 1-2700, filed
January 26, 1995).
</TABLE>
<PAGE> 66

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------
<C> <S> <C>
10.F -- Credit Agreement among Mojave Pipeline Company and Deutsche Bank AG,
New York Branch, and Swiss Bank Corporation, New York Branch,
individually and as Agents, and the Banks named therein, dated as of
September 30, 1991, and the following documents related thereto:
Sponsor Performance Agreement among EPG and Deutsche Bank AG, New
York Branch, as Collateral Agent and Deutsche Bank AG, New York
Branch and Swiss Bank Corporation, New York Branch, as Agents, dated
as of September 30, 1991; Partner Performance Agreement among El Paso
Mojave Pipeline Co. and Deutsche Bank AG, New York Branch, as
Collateral Agent and Deutsche Bank AG, New York Branch and Swiss Bank
Corporation, New York Branch, as Agents, dated as of September 30,
1991; Pledge Agreement made by El Paso Mojave Pipeline Co. with and
to Deutsche Bank AG, New York Branch (as Collateral Agent) for the
Secured Creditors, dated as of September 30, 1991; $90,000,000 Note
dated September 30, 1991, executed by Mojave Pipeline Company and
payable to Deutsche Bank AG, New York Branch; $90,000,000 Note dated
September 30, 1991, executed by Mojave Pipeline Company and payable
to Swiss Bank Corporation, New York Branch (Form 10-Q, No. 1-2700,
filed November 14, 1991); Syndication and replacement of Notes with a
$52,750,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Swiss Bank Corporation, New York
Branch; a $40,000,000 Note dated September 30, 1991, executed by
Mojave Pipeline Company and payable to Deutsche Bank AG, New York
Branch; a $30,000,000 Note dated September 30, 1991, executed by
Mojave Pipeline Company and payable to Banque Indosuez; a $20,000,000
Note dated September 30, 1991, executed by Mojave Pipeline Company
and payable to the Sumitomo Bank, Limited, Houston Agency; a
$20,000,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to the Bank of Nova Scotia; a
$17,250,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Credit Lyonnais Cayman Islands Branch
(Form 10-K, No. 1-2700, filed January 29, 1992). First Amendment to
Credit Agreement dated as effective December 23, 1992, among Mojave
Pipeline Company and Deutsche Bank AG, New York Branch and Swiss Bank
Corporation, New York Branch; Amendment to Sponsor and Partner
Performance Agreements entered into effective as of December 23,
1992; Syndication and replacement of Note for $52,750,000 payable to
Swiss Bank Corporation, New York Branch and Note for $17,250,000
payable to Credit Lyonnais Cayman Islands Branch with a $40,000,000
Note dated September 30, 1991, executed by Mojave Pipeline Company
and payable to Swiss Bank Corporation, New York Branch; and a
$30,000,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Credit Lyonnais Cayman Islands
Branch, Second Amendment to Credit Agreement dated as effective June
1, 1993, among Mojave Pipeline Company and Deutsche Bank AG, New York
Branch and Swiss Bank Corporation, New York Branch; Amended and
Restated Sponsor Performance Agreement dated as effective June 1,
1993, among El Paso Natural Gas Company and Deutsche Bank AG, New
York Branch and Swiss Bank Corporation, New York Branch; Amendment
and Ratification of Partner Documents dated as effective June 1,
1993, among EPNG Mojave, Inc. and El Paso Mojave Pipeline Co. and
Deutsche Bank AG, New York Branch and Swiss Bank Corporation, New
York Branch (Form 10-Q, No. 1-2700, filed August 16, 1993).
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. (Form 10-Q, No.
1-2700, filed May 13, 1994).
</TABLE>
<PAGE> 67

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------
<C> <S> <C>
10.G -- Master Separation Agreement and documents related thereto dated
January 15, 1992, by and among Burlington Resources Inc., EPG and
Meridian Oil Holding Inc., including Exhibits (Form 10-K, No. 1-2700,
filed January 29, 1992).
10.H -- Revolving Credit and Competitive Advance Facility Agreement dated as
of August 10, 1994 between EPG, Chemical Bank and certain other banks
(Form 10-Q, No. 1-2700, filed November 14, 1994).
+10.I -- Omnibus Compensation Plan dated as of January 1, 1992, (Amendment No.
1 to Form S-2, No. 33-45369, filed February 27, 1992).
+10.J -- 1995 Incentive Compensation Plan effective as of January 13, 1995
(Form S-8, No. 33-57553, filed February 2, 1995); Amendment No. 1 to
EPG's 1995 Incentive Compensation Plan, effective as of July 1, 1995
(Form 10-Q, No. 1-2700, filed July 21, 1995).
*+10.J.1 -- Amendment No. 2 to the 1995 Incentive Compensation Plan effective
January 1, 1996.
+10.K -- 1995 Compensation Plan for Non-Employee Directors effective as of
January 13, 1995 (Form S-8, No. 33-57553, filed February 2, 1995).
+10.L -- Stock Option Plan for Non-Employee Directors dated as of January 1,
1992, (Amendment No. 1 to Form S-2, No. 33-45369, filed February 27,
1992).
+10.M -- 1995 Omnibus Compensation Plan effective as of January 13, 1995 (Form
S-8, No. 33-57553, filed February 2, 1995); Amendment No. 1 to EPG's
1995 Omnibus Compensation Plan, effective as of July 21, 1995 (Form
10-Q, No. 1-2700, filed July 21, 1995).
+10.N -- Supplemental Benefits Plan, Amended and Restated Effective as of
January 13, 1995 (Form 10-K, No. 1-2700, filed January 26, 1995).
+10.O -- Senior Executive Survivor Benefit Plan effective January 1, 1992,
(Amendment No. 1 to Form S-2, No. 33-45369, filed February 27, 1992).
+10.P -- Deferred Compensation Plan, Amended and Restated Effective as of
January 13, 1995 (Form 10-K, No. 1-2700, filed January 26, 1995).
+10.Q -- Retirement Income Plan for Non-Employee Directors, Amended and
Restated Effective as of January 13, 1995 (Form 10-K, No. 1-2700,
filed January 26, 1995).
+10.R -- Key Executive Severance Protection Plan, Amended and Restated
Effective as of January 13, 1995 (Form 10-K, No. 1-2700, filed
January 26, 1995).
+10.S -- Director Charitable Award Plan, Amended and Restated Effective as of
January 13, 1995 (Form 10-K, No. 1-2700, filed January 26, 1995).
*+10.S.1 -- Amendment No. 1 to the Director Charitable Award Plan effective as of
January 22, 1996.
10.T -- Receivables Purchase and Sale Agreement dated as of January 14, 1992,
between EPG, CIESCO L.P., Corporate Asset Funding Company, Inc. and
Citicorp North America, Inc. (Form 10-K, No. 1-2700, filed February
3, 1993).
+10.U -- Employment Agreement dated July 31, 1992, between EPG and William A.
Wise (Form 10-K, No. 1-2700, filed February 3, 1993).
*+10.U.1 -- Amendment to Employment Agreement dated January 29, 1996 between EPG
and William A. Wise.
</TABLE>
<PAGE> 68

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------
<C> <S> <C>
*10.V -- Amended and Restated Limited Liability Company Agreement of Aguaytia
Energy, LLC entered into November 30, 1995, by and among The Maple
Gas Corporation del Peru Ltd, The Maple Gas Corporation, P.I.D.C.
Aguaytia, L.L.C., EPED Aguaytia Company, IGC Aguaytia Partners,
L.L.C., Scudder Latin American Power I-P L.D.C., and PMDC Aguaytia,
Ltd.
+10.W -- Letter Agreement dated February 22, 1991, between EPG and Britton
White, Jr. (Form 10-K, No. 1-2700, filed February 3, 1993).
+10.X -- Letter Agreement dated January 13, 1995, between EPG and William A.
Wise (Form 10-K, No. 1-2700, filed January 26, 1995).
10.Y -- Participation and Credit Agreement dated as of February 9, 1995,
among EPG, El Paso New Chaco Company, State Street Bank and Trust
Company, Chemical Bank, as Agent, the Note Holders Signatories and
the Certificate Holders Signatories (without exhibits and schedules,
except for the schedule of defined terms), and the following
documents related thereto: Lease Agreement dated as of February 9,
1995, between State Street Bank and Trust Company and El Paso New
Chaco Company, Support Agreement between El Paso New Chaco Company
and State Street Bank and Trust Company dated as of February 9, 1995;
Guaranty Agreement by EPG in favor of Chemical Bank, as Agent, and
Each of the Participants as of February 9, 1995; Sponsor Agreement by
EPG in favor of State Street Bank and Trust Company, as of February
9, 1995; Mortgage, Assignment, Security Agreement and Financing
Statement, executed February 7, 1995, between State Street Bank and
Trust Company (Mortgagor) and Chemical Bank (Mortgagee); Security
Agreement among State Street Bank and Trust Company and Chemical
Bank, as Agent, dated February 9, 1995 (Form 10-Q, No. 1-2700, filed
April 28, 1995).
*+10.Z -- Letter dated February 4, 1992 between EPG and Michael C. Holland.
*11 -- Computation of Earnings per Common Share.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
*21 -- Subsidiaries of the Registrant.
*23 -- Consent of Experts.
*27 -- Financial Data Schedule.
</TABLE>

<PAGE> 1
EXHIBIT 10.J.1

AMENDMENT NO. 2 TO THE
1995 INCENTIVE COMPENSATION PLAN

Pursuant to Section 9.12 of the El Paso Natural Gas Company 1995
Incentive Compensation Plan (the "Plan"), the Plan is hereby amended as
follows, effective January 1, 1996:

Section 7.1 is amended to add subsection (d), to read as follows:

(d) Notwithstanding subsections (a) and (b) above, the Plan
Administrator or Management Committee, as appropriate, may determine
that a Participant must receive a greater amount of his or her award
in Restricted Stock, up to and including the entire award in
Restricted Stock. (For purposes of the Plan, such required shares
shall be treated as being awarded pursuant to Section 7.1 (a)(ii) or
Section 7.1 (b)(ii), as applicable.) In such event, a Participant
shall be entitled to the additional shares of Restricted Stock,
awarded pursuant to Section 7(c) above.

IN WITNESS WHEREOF, El Paso, Natural Gas Company has caused this
amendment to be duly executed on this 10th day of January 1996.

EL PASO NATURAL GAS COMPANY

By: /s/ JOEL RICHARDS
Attest: --------------------------

/s/ STACY J. JAMES Title: Senior Vice President
- ------------------- ------------------------

<PAGE> 1
EXHIBIT 10.S.1

AMENDMENT NO. 1 TO THE
DIRECTOR CHARITABLE AWARD PLAN,
AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 13, 1995

Pursuant to Section 3.1 of the El Paso Natural Gas Company Director
Charitable Award Plan, Amended and Restated Effective as of January 13, 1995
(the "Plan"), the Plan is hereby amended as follows, effective January 22,
1996:

Section 5.2 is amended to read as follows:

5.2 Designation of Donees

Each Participant shall nominate Charitable Organizations to
receive Charitable Awards by providing formal notice of such
nominations to the Committee. Following the receipt of the nominations
of organizations, the Committee will approve the nomination or
recommend to the Board that the nomination be denied. In the event the
Committee does not recommend to the Board that the nomination be
denied within six months of receipt of such nomination, the nomination
shall be deemed accepted by the Committee. Further if the Participant
should die before the Committee, or the Board in the case of denials,
acts on the nominations, such nomination shall be deemed accepted
provided the nominee is a qualified Charitable Organization, as
defined herein. The Board of Directors, by majority vote, shall have
the authority to deny status as a Qualified Donee to any organization
nominated by a Participant. In the event one or more organizations
nominated by a Participant for status as a Qualified Donee are denied
such status by the Board of Directors, the Participant may nominate
additional organizations to receive a Charitable Award, subject to the
approval of the Committee (or the denial by the Board, as
applicable). If a Participant fails to designate a Qualified Donee,
the Charitable Award to be made on behalf of such Participant shall
lapse.

All nominations of organizations to receive Charitable Awards
shall be made on a Charitable Award Nomination Form, which shall
specify the following: (i) the name of the nominated organization;
(ii) the amount desired by the Participant to be donated to the
organization; (iii) the name under which the donation is to be made;
and (iv) any other terms and provisions deemed necessary by the Board
of Directors or the Committee. Each completed Charitable Award
Nomination Form shall be submitted to the Senior Vice President, Human
Resources and Administration.

IN WITNESS WHEREOF, El Paso Natural Gas Company has caused this
amendment to be duly executed on this 1st day of February, 1996.

EL PASO NATURAL GAS COMPANY

Attest: By: /s/ JOEL RICHARDS
-------------------------

/s/ STACY J. JAMES Title: Senior Vice President
------------------------- ----------------------

<PAGE> 1

AMENDMENT TO EMPLOYMENT AGREEMENT

THIS AMENDMENT, made and entered into the 29th day of January, 1996, by
and between EL PASO NATURAL GAS COMPANY, a Delaware corporation (the "Company")
and WILLIAM A. WISE of El Paso, Texas (the "Executive").

WHEREAS, the Company and Executive entered into an Employment Agreement
dated July 31, 1992 (the "Employment Agreement"). Any capitalized term not
separately defined herein shall have the same meaning as it has under the
Employment Agreement;

WHEREAS, the Compensation Committee of the Company's Board of Directors
has determined that it is the best interest of the Company to have the
Executive's compensation more closely aligned to the interests of the Company's
stockholders by providing Executive with exclusively stock-based compensation;
and

WHEREAS, it is understood that the provisions of Section 3(b) and new
Section 3(d) of the Employment Agreement constitute benefit formula adjustments
required by the Employment Agreement for purposes of Section 5.1(c) of the
Company's Supplemental Benefits Plan, as amended and restated effective January
15, 1995 (the "New SBP"); and

WHEREAS, references in the Employment Agreement to Section 4.1 of
the SBP shall now refer to Section 5.1 of the New SBP; and

WHEREAS, both the Company and the Executive (the "Parties") now desire to
amend the Employment Agreement.

NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, and for other consideration mutually acknowledged, the
Parties agree as follows:

1
<PAGE> 2
1. This Amendment shall be effective on February 1, 1996 and
shall remain in effect for five (5) years thereafter (the "Amendment Term"). In
no event shall this Amendment have any effect on the Letter Agreement between
the Company and the Executive, dated January 13, 1995, except that shares of
Company restricted stock which vest based upon the achievement of certain
established performance targets shall vest only to the extent such performance
targets have been achieved.

2. Section 3(a), which currently refers to Section 3(b), is
amended to refer to Sections 3(b), 3(c) and 3(d), and a new Section 3(d) is
added to read as follows:

Executive hereby agrees to forego his right to receive payment
of his base salary until the earlier of (i) the occurrence of
a Change in Control, or (ii) the end of the Amendment Term
(the "Election"); provided however, that

(a) base salary, at the current level or as adjusted as
described in clause (b) below, shall remain in effect,
notwithstanding the Election, for purposes of
calculating all the Executive's other compensation and
benefits under any Company plans and arrangements,
including, but not limited to, the Company's 1995
Incentive Compensation Plan, the SBP and the Company's
Senior Executive Survivor Benefit Plan (as such plans
may be amended from time to time) and any Company
successor plans thereto.

(b) the Compensation Committee shall continue to
review the Executive's annual salary level for
increase in the ordinary course, provided any
increased salary shall continue to be subject to the
Election as provided herein, and

2
<PAGE> 3
(c) in applying Section 5.1 of the SBP, the Pension Plan
benefit formula shall be applied as if the Executive
had actually been paid, on a timely basis, any amounts
of base salary covered by the Election and such
amounts had been includable in the calculation of
Final Average Monthly Earnings, it being intended that
the Executive's pension benefits as otherwise
determined under the Employment Agreement shall be the
same as if the Election had not been made,

3. Clause (A) of Section 4(b)(i) is amended to read as follows:

Salary, at the rate in effect on the date of termination of
employment, but only for the period, if any, from the end of
the Amendment Term, to the end of the Term.

4. Clauses (i) through (iii) of Section 4(c) are renumbered as
clauses (ii) through (iv), and a new clause (i) is added to read as follows:

Executive shall be entitled to salary under Section 4(b)(i)(A)
from the date of termination of employment through the end of
the Term, without regard to the Election or the Amendment
Term.

5. The Executive agrees that the Election does not constitute
"Good Reason" for purposes of the SPP, so long as the Election does not result
in a diminution in any of the Executive's other rights to compensation and
benefits during his employment.

6. Pursuant to Section 3(a) of the Employment Agreement, the
Executive hereby gives written consent the changes in the Company's
compensation and benefit plans in connection with the Company's restructuring
and cost-cutting efforts.

3
<PAGE> 4

7. This Amendment shall be governed by and construed and
interpreted in accordance with the laws of the State of Texas without reference
to the principles of conflicts of law thereunder.

8. This Amendment may be executed in counterparts.

IN WITNESS WHEREOF, the undersigned have executed this Amendment on
the date first written above.

EL PASO NATURAL GAS COMPANY

/s/ BEN F. LOVE
-----------------------------------
Ben F. Love, Chairman,
Compensation Committee

/s/ JOEL RICHARDS III
-----------------------------------
Joel Richards III
Senior Vice President

WILLIAM A. WISE

/s/ WILLIAM A. WISE
-----------------------------------

<PAGE> 1

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

AGUAYTIA ENERGY, LLC

November 30, 1995
(Aguaytia Project)
<PAGE> 2

LIMITED LIABILITY COMPANY AGREEMENT
OF
AGUAYTIA ENERGY, LLC
A DELAWARE LIMITED LIABILITY COMPANY

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
ARTICLE 1
DEFINITIONS

ARTICLE 2
ORGANIZATIONAL MATTERS

2.1 FORMATION AND CONTINUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 NAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 REGISTERED OFFICE, REGISTERED AGENT, PRINCIPAL OFFICE, OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . 2
2.4 PURPOSES AND BUSINESS; POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 FOREIGN QUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.7 NO POWER TO BIND COMPANY OR OTHER MEMBERS; NO PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.8 GENERAL COVENANT REGARDING DEVELOPMENT OF PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 AGREEMENT REGARDING ASSOCIATION BETWEEN MAPLE PERU AND LIMITADA . . . . . . . . . . . . . . . . . . . . . . . 4

ARTICLE 3
MATTERS RELATING TO MEMBERS

3.1 ADMISSION OF MEMBERS, SPECIAL PURPOSE REQUIREMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 MAPLE OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 ISSUANCE OF ADDITIONAL UNITS OR OTHER SECURITIES; PREEMPTIVE RIGHTS; FUNDING OF COST
OVERRUNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 RESIGNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.5 INFORMATION; CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 LIABILITY TO THIRD PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.7 EXPULSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE 4
CAPITAL CONTRIBUTIONS
AND RELATED MATTERS;
FINANCING ARRANGEMENTS

4.1 INITIAL CONTRIBUTIONS AND INITIAL ISSUANCE OF UNITS, USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . 10
4.2 SUBSEQUENT CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>

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<PAGE> 3
<TABLE>
<S> <C> <C>
4.3 TIMING OF SUBSEQUENT CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.4 CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.5 FAILURE TO FUND CLOSING DATE CAPITAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.6 FAILURE OF CLOSING TO OCCUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7 RETURN OF CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.8 CAPITAL ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.9 FINANCING ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.10 AGREEMENT REGARDING CERTAIN TRANSMISSION FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE 5
ALLOCATIONS AND DISTRIBUTIONS

5.1 DISTRIBUTIONS OF NET CASH FLOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.2 DISTRIBUTIONS OF NET CAPITAL PROCEEDS ATTRIBUTABLE TO PROJECT FINANCING TRANSACTION . . . . . . . . . . . . 23
5.3 DISTRIBUTIONS ON DISSOLUTION AND WINDING UP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.4 ALLOCATIONS OF PROFIT AND LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.5 ALLOCATIONS FOR U.S. TAX PURPOSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.6 WITHHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.7 VARYING INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ARTICLE 6
MANAGEMENT AND OPERATION OF BUSINESS

6.1 MANAGEMENT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.2 MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.3 NATURE OF THE RELATIONSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.4 DEADLOCK RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

ARTICLE 7
INDEMNIFICATION

7.1 RIGHT TO INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.2 ADVANCE PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.3 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.4 NONEXCLUSIVITY OF RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.5 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

ARTICLE 8
TAXES

8.1 TAX RETURNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.2 TAX ELECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>

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<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 9
DISPOSITION OF COMPANY INTERESTS

9.1 DISPOSITIONS AND ENCUMBRANCES OF COMPANY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.2 DISPOSITIONS OF INTERESTS IN A MEMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

ARTICLE 10
BUYOUT OPTION

10.1 BUYOUT EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.2 PROCEDURE FOR MEMBER-RELATED BUYOUT EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.3 PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.4 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.5 RELATIONSHIP OF BUY-OUT, DISSOLUTION AND DISPOSITION PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 41

ARTICLE 11
ARBITRATION

11.1 SUBMISSION OF DISPUTES TO ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.2 SELECTION OF ARBITRATOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.3 CONDUCT OF ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.4 EXCLUSIVITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

ARTICLE 12
DISSOLUTION, WINDING UP AND TERMINATION

12.1 DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.2 WINDING UP AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.3 DEFICIT CAPITAL ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.4 CERTIFICATE OF CANCELLATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

ARTICLE 13
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS

13.1 MAINTENANCE OF BOOKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.2 REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.3 ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

ARTICLE 14
GENERAL PROVISIONS

14.1 OFFSET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.2 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.3 ENTIRE AGREEMENT; SUPERSEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
14.4 EFFECT OF WAIVER OR CONSENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>

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<PAGE> 5
<TABLE>
<S> <C> <C>
14.5 AMENDMENT OR RESTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
14.6 BINDING EFFECT; NO THIRD-PARTY BENEFICIARIES; REMEDIES NOT EXCLUSIVE . . . . . . . . . . . . . . . . . . . 48
14.7 GOVERNING LAW; SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
14.8 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
14.9 WAIVER OF CERTAIN RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
14.10 LANGUAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
14.11 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
14.12 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
14.13 DIRECTLY OR INDIRECTLY; WITHOUT LIMITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
14.14 REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.15 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.16 OBSERVANCE OF LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.17 DISCLOSURE OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.18 COMMUNICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.19 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>

LIST OF EXHIBITS:

<TABLE>
<S> <C> <C>
Attachment I - Defined Terms
Exhibit A - Initial Members
Exhibit 2.8(a) - Summary Plans and Specifications for Project
Exhibit 2.8(b) - Capital and Operating Budgets
Exhibit 4.1 (b) - Items Callable as Advanced Amounts
Exhibit 4.1 (d) - Form of Guaranty Letter
Exhibit 4.2 - Form of Maple Assignment Agreement
Exhibit 4.4(b) - Certain Permits
Exhibit 4.4(j)-l - Letter of Intent for Gas Project EPC Agreement
Exhibit 4.4(j)-2 - Form of Power Plant EPC Agreement
Exhibit 4.4(j)-3 - Letter of Intent for Transmission Facilities EPC Agreement
Exhibit 4.4(j)-4 - Term Sheet for Gas Project O&M Agreement
Exhibit 4.4(j)-5 - Term Sheet for Administrative Services Agreement
Exhibit 4.4(j)-6 - Term Sheet for Natural Gasolines Purchase Agreement
Exhibit 4.4(k) - Amendments to License
Exhibit 4.4(q) - Tenn Sheet for TCW Financing
Exhibit 6.3(b)(ii) - Description of Ucayali Basin
Exhibit 14.15(a)(iv) - Litigation
</TABLE>

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<PAGE> 6

AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
AGUAYTIA ENERGY, LLC

This AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF AGUAYTIA
ENERGY, LLC. (this "Agreement") is made and entered into as of November 30,
1995, by and among The Maple Gas Corporation del Peru Ltd., a British Virgin
Islands corporation ("Maple"), The Maple Gas Corporation, a Delaware
corporation ("Organizational Member"), P.I.D.C. Aguaytia, L.L.C., a Delaware
limited liability company ("Panhandle"), EPED Aguaytia Company, a Cayman
Islands company ("El Paso"), IGC Aguaytia Partners, L.L.C., a Cayman Islands
limited liability company ("Illinova"), Scudder Latin American Power I-P
L.D.C., a Cayman Islands limited duration company ("Scudder"), and PMDC
Aguaytia, Ltd., a Cayman Islands limited life company ("PMDC").

RECITALS

The Maple Gas Corporation del Peru, Sucursal Peruana, a Peruvian branch of
Maple ("Maple Peru"), is "Contractor", under that certain License Contract for
the Exploitation of Hydrocarbons for Block 31-C dated March 30, 1994, among
Maple Peru, PeruPetro S.A., Maple Resources Corporation and The Central Reserve
Bank of Peru (the "License").

Maple desires to cause Maple Peru to contribute its rights and obligations
under the License to an entity indirectly owned and controlled by Maple,
Panhandle, El Paso, Illinova, Scudder and PMDC, and such parties desire to
cause such entity to, directly or indirectly, develop, construct, own, manage,
maintain and operate a project consisting of (i) the development of the
Aguaytia Gas Field located near Aguaytia, Peru, pursuant to the rights granted
to the "Contractor" under the License, which rights include the right to all
natural gas, natural gas liquids ("NGL") and other hydrocarbons produced from
the geographic area covered by the License, the drilling of additional gas
wells in such field in furtherance of such development efforts and the use,
reinjection or marketing of any natural gas, NGL and other hydrocarbons
produced as a result of such development efforts, (ii) the construction,
ownership and operation of certain gas processing facilities, approximately 224
km of gas pipeline and 105 km of NGL pipelines and certain NGL fractionation,
storage and barging facilities, and (iii) the construction, ownership and
operation of a gas-fired thermoelectric power plant with a net output of over
140 megawatts (at base load conditions), as well as related electric
substations, and approximately 398 km of transmission facilities (such project,
as described in greater detail herein, in Exhibit 2.8(a) and in the License,
being herein referred to as the "Project, " and the portion of such Project
described in clauses (i) and (ii) being herein referred to as the "Gas Project
" andin clause (iii) as the "Power Project").

In anticipation of such joint development and pursuant to that certain
Limited Liability Company Agreement dated October 30, 1995, between Maple and
the Organizational Member (the "Original L.L.C Agreement"), Maple and the
Organizational Member formed a limited liability company known as "Aguaytia
Energy, L.L.C." (such limited liability company being herein referred to as the
"Company") by filing a Certificate of Formation (as amended, supplemented or
restated from time to
<PAGE> 7
time, "Certificate of Formation") under and pursuant to the provisions of the
Delaware Limited Liability Company Act (as amended from time to time, the
"Act").

Maple and the Organizational Member, together with each of Panhandle, El
Paso, Illinova, Scudder and PMDC, desire to amend and restate the Original
L.L.C. Agreement in its entirety and continue the Company as a Delaware limited
liability company subject to and in accordance with the provisions of this
Agreement.

AGREEMENT

NOW, THEREFORE, FOR AND IN CONSIDERATION OF the mutual covenants, rights
and obligations set forth herein, the benefits to be derived therefrom, and
other good and valuable consideration, the receipt and the sufficiency of which
each party hereto acknowledges and confesses, the parties hereto agree as
follows:

ARTICLE I
DEFINITIONS

Each capitalized term used herein shall have the meaning given such term
in Attachment 1.

ARTICLE 2
ORGANIZATIONAL MATTERS

2.1 FORMATION AND CONTINUATION. Maple, the Organizational Member,
Panhandle, El Paso, Illinova, Scudder and PMDC hereby amend and restate the
Original L.L.C. Agreement in its entirety, and subject to the provisions of
this Agreement, hereby continue the Company as a limited liability company
pursuant to the provisions of the Act.

2.2 NAME. The name of the Company is "Aguaytia Energy, LLC" and all
Company business shall be conducted in such name or such other name or names
that comply with applicable law and as the Management Committee may designate
from time to time.

2.3 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE; OTHER OFFICES.
The registered office of the Company in the State of Delaware shall be the
initial registered office designated in the Certificate of Formation or such
other office (which need not be a place of business of the Company) as the
Management Committee may designate from time to time in the manner provided by
law. The registered agent of the Company in the State of Delaware shall be the
initial registered agent designated in the Certificate of Formation or such
other Person or Persons as the Management Committee may designate from time to
time in the manner provided by law. The principal office of the Company shall
be located in Lima, Peru or at such other location outside the United States as
the Management Committee may designate from time to time. The Company may not
have an office (other than its registered office as provided in the Certificate
of Formation) that is located in the United States.

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<PAGE> 8
2.4 PURPOSES AND BUSINESS; POWERS. (a) The purpose and nature of the
business to be conducted by the Company shall be to (i) directly or through one
or more Entities, invest in, own and dispose of interests in the Project and
acquire, construct, own, operate and/or manage assets and facilities in
connection therewith, provided that the natural gas produced in connection with
the Gas Project shall, unless the Management Committee otherwise directs, at
all times be used predominantly in connection with the Power Project, (ii)
engage directly in, or enter into or form any corporation, limited liability
company, partnership, joint venture or other arrangement to engage indirectly
in, any other business activity that is approved by unanimous vote of the
Management Committee and that may lawfully be conducted by a limited liability
company formed under the Act, and (iii) in connection with the business
activities described in clauses (i) and (ii) immediately preceding, to exercise
all of the rights and powers conferred upon the Company pursuant to the
agreements relating to such business activities.

(b) The Company shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described in
Section 2.4(a) and for the protection and benefit of the Company; provided,
that the Company shall not engage in any activities that would cause it to be
treated as engaged in the conduct of a trade or business within the United
States within the meaning of Section 864 of the Code.

2.5 FOREIGN QUALIFICATION. (a) Prior to the Company conducting business in
any jurisdiction, the Management Committee shall cause the Company to comply,
to the extent procedures are available, with all requirements necessary to
qualify the Company as a foreign limited liability company in such
jurisdiction.

(b) With respect to the business to be conducted by the Company that
relates to the Project, the Management Committee shall cause the Company to
conduct such business through a Sociedad Comercial de Responsibilidad Limitada
to be formed under the laws of Peru and to be known as Aguaytia Energy del Peru
S.R. Ltda. (such entity being herein referred to as the "Limitada").

(c) Each Member shall, upon the request of the Management Committee,
execute, acknowledge, swear to and deliver all certificates and other
instruments conforming to this Agreement that are necessary or appropriate to
establish and maintain the Limitada and to qualify, or, as appropriate, to
continue or terminate the qualification of, the Company as a company having
limited liability in all jurisdictions in which the Company may conduct
business.

2.6 TERM. The Company commenced on the filing of the Certificate of
Formation in accordance with the Act and shall continue in existence until the
close of Company business on December 31, 2045, or until the earlier
termination of the Company in accordance with the terms of this Agreement.

2.7 NO POWER TO BIND COMPANY OR OTHER MEMBERS; NO PARTNERSHIP. (a) A
Member or Affiliate of a Member may not take any action purporting to bind
the Company, any other Member, or its Affiliates, except as provided in this
Agreement or the Project Agreements. All actions undertaken by the Members and
their Affiliates, or any of them, are at their sole risk and expense except to
the extent, if any, that the Company assumes those obligations by executing
Project Agreements or other documents in accordance with this Agreement. By
virtue of its execution of this Agreement and

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<PAGE> 9
participation in the Project as the owner of a Company Interest, none of the
Members is an agent, employee, contractor, vendor, representative, or partner
of any other Member or its Affiliates, and a Member may not hold itself out as
such; provided, however, that Members and their Affiliates may be parties to
Project Agreements.

(b) The Members intend that the Company not be a partnership, limited
partnership or joint venture and that, by virtue of its execution of this
Agreement and participation in the Project as the owner of a Company Interest,
no Member shall be a partner or joint venturer of any other Member for any
purposes other than United States federal, state and local income tax purposes,
and this Agreement shall not be deemed or construed to suggest otherwise.

2.8 GENERAL COVENANT REGARDING DEVELOPMENT OF PROJECT. On and subject to
the terms set forth in this Agreement and the other Project Agreements, the
Members shall reasonably cooperate with one another fully and in good faith to
facilitate the development, construction and operation of the Project in
accordance with (a) the summary plans and specifications attached hereto as
Exhibit 2.8(a), as same may be amended or modified from time to time by the
Management Committee and (b) the capital and operating budgets attached hereto
as Exhibit 2.8(b), as same may be amended or modified from time to time by the
Management Committee (the capital budget in effect from time to time being
herein referred to as the "Capital Budget," the operating budget in effect
from time to time being herein referred to the "Operating Budget" and the
Capital Budget and the Operating Budget being herein collectively referred to
as the "Budget").

2.9 AGREEMENT REGARDING ASSOCIATION BETWEEN MAPLE PERU AND LIMITADA. The
Members further acknowledge that, in order to facilitate the qualification of
the Limitada under the General Hydrocarbons Law of Peru and any regulations
relating thereto, the Limitada and Maple Peru will enter into an "association"
under Peruvian Law, which "association" relationship will entitle Maple Peru to
certain rights and benefits in respect of the License and exposes it to joint
and several liability for liabilities and obligations of the "Contractor" under
the License. The Members desire hereunder to enter into such agreements as may
be necessary to (a) vest in the Management Committee control over any rights of
Maple Peru with respect to the License that arise by virtue of such
"association" relationship, (b) reduce the amount of any economic benefits to
be received by Maple hereunder in respect of its Company Interest by the amount
of any economic benefits derived by Maple Peru by virtue of such"
association" relationship and (c) without limiting or affecting Maple Peru's
obligations under the Gas Project O&M Agreement or the Administrative Services
Agreement, cause the Company to reimburse Maple, Maple Peru or Maple Resources
Corporation, as applicable, for any liabilities and obligations of the
"Contractor" under the License that are required to be paid by such Person as a
result of such "association" relationship (such reimbursement obligation to be
net of any tax benefits received by such Person as a result of the making by
such Person of such payments). Accordingly, the Members agree as follows:

(i) with respect to any ownership rights in and to the License that
Maple or Maple Peru is entitled by virtue of such "association"
relationship, Maple shall, and shall at all times cause Maple Peru to,
refrain from taking any action with respect thereto, unless and until
directed to do so by the Management Committee (at which time Maple shall,
and shall cause Maple Peru to, promptly follow and comply with any such
directions);

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(ii) to the extent Maple or Maple Peru receives any distributions
or is allocated any income, gain, loss, deduction or credit by virtue of
such "association" relationship, the amount of distributions and
allocations of income, gain, loss, deduction and credit to which Maple is
entitled in respect of its Company Interest hereunder shall be adjusted as
necessary to cause the overall economic effect to Maple and Maple Peru of
distributions, and allocations of income, gain, loss, deduction and credit,
made to Maple with respect to its Company Interest, and Maple Peru by
virtue of such "association" relationship, to be equivalent to the amount
of distributions, and allocations of income, gain, loss deduction and
credit, that Maple would have been entitled to if such "association"
relationship between Maple Peru and the Limitada did not exist; and

(iii) if as a result of its "association" relationship with the
Limitada Maple, Maple Peru or Maple Resources Corporation (as corporate
guarantor under the License) is required to pay any liabilities or
obligations of the "Contractor" under the License (other than liabilities
and obligations for which it is responsible under the Gas Project O&M
Agreement or the Administrative Services Agreement), the Members agree to
cause the Company to reimburse Maple, Maple Peru or Maple Resources
Corporation, as applicable, for any amounts so paid (such reimbursement
obligation to be net of any tax benefits received by such Person as a
result of the making by such Person of such payments).

The Members agree to take such further actions as may be necessary to give full
effect to the terms and provisions of this Section 2.9; provided, however, that
nothing in this Section 2.9 shall be construed as imposing an obligation on any
Member to make any Capital Contributions over and above those it is required to
make pursuant to Sections 4.1 and 4.2. In addition, prior to or promptly
following the Commencement of Commercial Operations, the Members agree to
determine the feasibility of having the Limitada qualify under the General
Hydrocarbons Law of Peru and any regulations thereunder without relying on such
"association" with Maple Peru, and if same is determined to be feasible, to
cause the Company to effect such qualification.

ARTICLE 3
MATTERS RELATING TO MEMBERS

3.1 ADMISSION OF MEMBERS; SPECIAL PURPOSE REQUIREMENT. (a) Each of
Panhandle, El Paso and Illinova is hereby admitted to the Company as a Member,
and Maple's status as a Member is hereby confirmed and continued, in each case
effective contemporaneously with the execution by such Person of this
Agreement. Each of Scudder and PMDC shall be admitted to the Company as a
Member effective immediately upon the occurrence of (i) the receipt by such
Person of Board Approval, (ii) the making by such Person of the Capital
Contributions required of it pursuant to the first sentence of Section 4.1(a)
and (iii) the furnishing by such Person to the Management Committee of (A) in
the case of PMDC, its Guaranty Letter and (B) in the case of Scudder, a legal
opinion from the law firm of Winthrop, Stimson, Putnam & Roberts addressed to
the Company and containing such opinions as may be reasonably required by the
Management Committee in order for the Management Committee to conclude that
upon the receipt by Scudder of Board Approval, the members of Scudder will be
obligated to provide funds to Scudder sufficient to permit Scudder to satisfy
its Capital Contribution obligations hereunder, subject only to such
restrictions and conditions as may be reasonably acceptable to the

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Management Committee (such legal opinion being herein referred to as the
"Scudder Legal Opinion"). Except for the right to be admitted to the Company
as a Member in accordance with the immediately preceding sentence and, in
connection therewith, the right to receive Units as provided in the last
sentence of Section 4.1(a), neither Scudder nor PMDC shall, by virtue of its
execution of this Agreement, be entitled to any of the rights of a Member
hereunder or any other rights and benefits expressly granted to such Person
hereunder, unless and until it shall have been admitted to the Company as a
Member in accordance with the terms of the immediately preceding sentence; it
being agreed that in the event Scudder or PMDC, as applicable, is not so
admitted on or before 5 p.m. Central Standard Time on December 7, 1995, in the
case of Scudder, and December 8, 1995, in the case of PMDC, such Person shall
have no further rights or obligations whatsoever under this Agreement. In
addition, effective contemporaneously with the execution of this Agreement by
the Organizational Member, the Organizational Member shall be deemed to have
resigned from the Company and shall not be entitled to any distribution in
connection therewith.

(b) Except as set forth in Section 3.1(a), no Person shall be admitted
to the Company as a Member without the prior written consent of the Management
Committee and, in connection with a Disposition, compliance with the provisions
of Section 9.1(b). In addition, only Entities may be admitted to the Company
as a Member.

(c) Unless the Management Committee agrees otherwise, each Member will not
engage at any time in any business activities other than (i) the ownership of
its Company Interest or the conduct of activities reasonably related thereto or
otherwise contemplated hereunder, it being agreed that the incurrence by a
Member of indebtedness for borrowed money shall be deemed not to be "reasonably
related" to the ownership by such Member of its Company Interest or "otherwise
contemplated hereunder" unless such indebtedness was incurred for the sole
purpose of funding such Member's Capital Contribution obligations hereunder and
the repayment in full of such indebtedness is supported by a Qualifying
Security Arrangement or (ii) the ownership of limited liability equity
interests (i.e., equity interests such as limited partnership interests or
limited liability company interests wherein the owner of such interest is not
generally liable for the debts and other obligations of the Entity that issues
such equity interest) in Entities that have no indebtedness for borrowed money
the repayment of which is recourse to the owners of such equity interests;
provided, however, that until such time as Maple shall have effected a
Disposition of its entire Company Interest to a direct or indirect wholly owned
subsidiary of Maple (but in no event beyond the Closing Date), Maple shall be
deemed not to be in breach of the foregoing restriction by virtue of its
conduct of business activities that do not meet the requirements set forth in
clause (i) or (ii) immediately preceding.

3.2 MAPLE OPTION. During the period of time between the Closing Date and
the Commencement of Commercial Operations, Maple shall have a non-transferable
one-time option to purchase from the Cash Members, on a pro rata basis, a
portion of their respective Company Interests that, in the aggregate,
represents up to 10% of all Units that are Outstanding as of the Closing Date
(the maximum number of Units of each Cash Member that could be purchased by
Maple pursuant to the option set forth in this Section 3.2 is set forth on
Exhibit A) at a price per Unit equal to the quotient obtained by dividing
$149,333,000 by the total number of Units that are Outstanding on the Closing
Date and owned by the Cash Members (such price per Unit being herein referred
to as the "Buy-In Price"), plus interest for the period from the Closing Date
through the date on which the option price is paid at a rate equal to 29%

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per annum, compounded annually. The total consideration payable by Maple to
each selling Cash Member in connection with the exercise of such option shall
equal the sum of (a) the appropriate pro rata share of the interest payment
referenced in the first sentence of this Section 3.2 and (b) the portion of
such Cash Member's Commitment that is attributable to the Company Interest
being sold by it to Maple and that has been contributed to the Company by such
Cash Member through the date of such sale. In addition to such payment to the
selling Cash Members, Maple shall execute and deliver to the Company a
Qualifying Security Arrangement and such documents and instruments as the
Management Committee may deem to be reasonably necessary to evidence the
assumption by Maple of all obligations attributable to the Company Interest
being purchased by it, including the obligation to contribute cash to the
Company in an amount equal to the aggregate Commitment attributable to the
Company Interest purchased (with credit for amounts previously contributed to
the Company by the selling Cash Members in respect of such Company Interest) on
the same basis as the agreement of the Cash Members to contribute such amount.
Maple shall, upon receipt of an invoice from each Cash Member, reimburse such
Cash Member for any reasonable out-of-pocket costs and expenses incurred by
such Cash Member in connection with the exercise by Maple of its rights under
this Section 3.2. Upon the payment of such amounts and delivery of such
documents by Maple, the Commitments of the selling Cash Members shall be deemed
to have been reduced, on a pro rata basis, by an aggregate amount equal to the
total Commitment assumed by Maple. To the extent Maple (a) is required to make
cash Capital Contributions pursuant to Section 4.1 or (b) exercises its option
under this Section 3.2 and complies with the terms of this Section 3.2, Maple
shall be deemed to be a Cash Member, and shall have all of the rights and be
subject to all of the duties and obligations of a Cash Member, in each case
with respect to the Company Interest acquired by it pursuant to Section 4.1 and
this Section 3.2.

3.3 ISSUANCE OF ADDITIONAL UNITS OR OTHER SECURITIES; PREEMPTIVE RIGHTS;
FUNDING OF COST OVERRUNS. (a) The Management Committee shall have the authority
to cause the Company to issue, in addition to the Units issued pursuant to
Section 4.1, such additional Units or classes or series thereof, or options,
rights, warrants or appreciation rights relating thereto, or any other type of
equity security that the Company may lawfully issue, any unsecured or secured
debt obligations of the Company convertible into any class or series of equity
securities of the Company (collectively, "Company Securities"), for any
Company purpose at any time or from time to time, to the Members or other
Persons, in each case for such consideration and on such terms and conditions
as shall be established by the Management Committee in its sole discretion.
Additional Company Securities to be issued by the Company pursuant to this
Section 3.3 shall be issuable in one or more classes, or one or more series of
such classes, with such designations, preferences and relative, participating,
optional or other special rights, powers and duties as shall be determined by
the Management Committee. The Management Committee may reflect the creation of
any new class or group in an amendment to this Agreement indicating the
different rights, powers, and duties. Any such admission is effective only
after the new Member has executed and delivered to the Members an instrument
containing the notice address of the new Member, the new Member's ratification
of this Agreement and agreement to be bound by it, and its confirmation that
the representations and warranties in Section 14.15(a) are true and correct
with respect to it. The provisions of this Section 3.3 shall not apply to
Dispositions of a Company Interest or the admission of Assignees in connection
therewith, such matters being governed by Article 9.

(b) If the Management Committee elects to cause the Company to issue
additional Units or other Company Securities, each Member shall have the
preemptive right to purchase any such Units or

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<PAGE> 13
Company Securities on the same terms and conditions as those on which they are
to be issued by the Company (provided, however, that if the Management
Committee elects to cause the Company to issue Units or other Company
Securities for non-cash consideration, the Management Committee shall establish
a cash equivalent price for purposes of such preemptive right, which cash
equivalent price shall be based on the Management Committee's determination of
the fair market value of the non-cash consideration to be received for such
Units or Company Securities), to the extent necessary to maintain its Sharing
Ratio as in effect immediately prior to such issuance (provided, however, that
if any Member elects not to exercise its preemptive right to the fullest extent
available, the other Members shall have the pro rata right to purchase any
Units or Company Securities not being purchased by such Member).

(c) If the Company incurs or expects to incur costs that are in excess of
the amounts provided in the Budget, or that are not contemplated by the Budget,
and such increased costs cannot, in the opinion of the Management Committee, be
funded through third party sources or, after the Commencement of Commercial
Operations, from operating cash flow or third party sources, each Member shall
have the pro rata right (but not the obligation) to purchase newly issued Units
at a price per Unit equal to 50% of the Buy-In Price, to the extent necessary
to fund such shortfall.

3.4 RESIGNATION. Except as provided in Section 3.1(a) with respect to
the Organizational Member, a Member does not have the right to Resign;
provided, however, a Member shall have the power to Resign at any time in
violation of this Agreement. If a Member exercises such power in violation of
this Agreement, (a) such Resigning Member shall be liable to the Company and
the other Members for all monetary damages suffered by them as a result of such
Resignation (including indirect and incidental damages); (b) such other Members
shall, in addition thereto, have the rights set forth in Article 10; and (c)
such Resigning Member shall not have any rights under Section 18-604 of the
Act. In no event shall the Company or any Member have the right, through
specific performance or otherwise, to prevent a Member from Resigning in
violation of this Agreement.

3.5 INFORMATION; CONFIDENTIALITY. (a) In addition to the other rights
specifically set forth in this Agreement, each Member is entitled to all
information to which that Member is entitled to have access pursuant to Section
18-305 of the Act under the circumstances and subject to the conditions therein
stated.

(b) With respect to any and all data, plans, proposals, or other material
related to the design, construction, configuration, operation, or financing of
the Project, and any seismic data and other geological and geophysical data
relating to the area covered by the License or any adjacent areas, in each case
that has been or is hereafter developed by or provided to a Member or any of
its Affiliates by or on behalf of another Member or Affiliate of a Member in
connection with the Project ("confidential information"), each Member shall,
and shall cause its Affiliates to, use any such confidential information only
with regard to the Project and not for any other purpose and to hold such
confidential information in strict confidence and not disclose same to any
third party without the written consent of the Management Committee.
Notwithstanding the foregoing, the obligation to hold such confidential
information in strict confidence and not disclose same to any third party (as
opposed to the obligation to use such confidential information only with regard
to the Project and not for any other purpose) shall not apply to any
disclosure:

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(i) of information that is in or enters the public domain through
no fault of the receiving Person;

(ii) of information that was in the possession of the receiving
Person prior to its receipt of similar information from the Member or
another Member (or an Affiliate of a Member) in connection with the
Project;

(iii) required by law, regulation, legal process, or order of any
court or governmental body having jurisdiction;

(iv) to a Member or a prospective party to a Project Agreement,
lender, or direct or indirect prospective purchaser of interests in the
Company, in each case provided that such Person has agreed in writing to be
bound by use and confidentiality restrictions at least as restrictive
as those set forth in this Section 3.5(b);

(v) to directors, officers, employees or representatives of such
Member if such persons have been informed of the obligations set forth in
this Section 3.5(b) and the Member has agreed to cause such persons to use
and maintain the confidentiality of such confidential information only in
accordance with the terms of this Section 3.5(b); or

(vi) to governmental authorities in connection with obtaining
permits for the Project or the Member or the investment by the Members in
the Company.

The Members acknowledge that the harm that would be caused by a breach of this
Section 3.5(b) would be difficult to calculate and would cause irreparable
harm, and accordingly the Company, each Member, and its Affiliates shall be
entitled to injunctive relief to compel compliance with the provisions of this
Section 3.5(b). The provisions of this Section 3.5(b) are intended to benefit,
and to be enforceable by, the Company, each Member and its Affiliates. If a
Member ceases to be a Member and in connection therewith a Continuation
Election is made, the provisions of this Section 3.5(b) shall continue to be
binding upon such Member for a period of 2 years following the date on which
such Member ceased to be a Member.

3.6 LIABILITY TO THIRD PARTIES. No Member shall be liable for the debts,
obligations or liabilities of the Company solely by reason of being a Member.

3.7 EXPULSION. A Member may not be Expelled, except as expressly set forth
in Section 10.5(d).

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ARTICLE 4
CAPITAL CONTRIBUTIONS
AND RELATED MATTERS;
FINANCING ARRANGEMENTS

4.1 INITIAL CONTRIBUTIONS AND INITIAL ISSUANCE OF UNITS, USE OF PROCEEDS.
(a) Contemporaneously with the execution of this Agreement, in consideration of
the Maple Assignment described in Section 4.2, the Company shall be deemed to
have issued to Maple 20,000 Units. In addition, contemporaneously with (i) the
execution of this Agreement in the case of Panhandle, El Paso and Illinova,
(ii) the receipt by such Cash Member of Board Approval in the case of Scudder
and PMDC, and (iii) the furnishing to the Company of a Qualifying Security
Arrangement in the case of Maple, such Cash Member shall make a cash Capital
Contribution in an amount equal to such Cash Member's "Initial Advanced Amount"
as specified in Exhibit A. In consideration of such Capital Contributions and
the agreement of such Persons to make subsequent Capital Contributions as
herein provided, upon the admission of each such Person to the Company as a
Member pursuant to Section 3.1(a), the Company shall be deemed to have issued
to such Person the number of Units designated in Exhibit A as being issued to
such Person upon its admission as a Member; provided, however that (A) the
Units designated on Exhibit A as being issued to Maple in respect of its
Commitment shall not be issued to Maple unless and until such time as Maple has
both contributed its Initial Advanced Amount and provided the Management
Committee with a Qualifying Security Arrangement and (B) if Maple fails to
satisfy such requirements Maple's right to receive the Units designated on
Exhibit A as being issued to Maple in respect of its Commitment shall terminate
and Maple shall have no further rights or obligations with respect thereto.

(b) From time to time during the period beginning on the date each Cash
Member has paid its Initial Advanced Amount and ending on the Closing Date,
upon receipt of a written request from Maple that is supported by invoices or
other evidence satisfactory to the Management Committee (which request may be
made by Maple no more frequently than monthly through the Closing Date), each
Cash Member shall make additional cash Capital Contributions to the Company, on
a pro rata basis, which funds, together with the Initial Advanced Amounts,
shall be contributed by the Company to the Limitada and used by the Limitada to
either (i) reimburse Maple Peru for certain expenditures paid by it for the
benefit of the Project or (ii) pay directly to third parties certain amounts
owed by Maple Peru or the Limitada to such third parties in respect of
expenditures that have been incurred (but not yet paid) by Maple Peru or the
Limitada for the benefit of the Project (it being agreed that the Management
Committee may elect to cause Maple Peru to pay any amounts covered by clause
(ii) and get reimbursed under clause (i) if such would be more tax efficient
without imposing a tax detriment on Maple), in each case to the extent such
expenditures are included in the Capital Budget (except in the case of the one
item noted on Exhibit 4.1(b) as not being included in the Capital Budget),
relate to a category of expenditure identified on Exhibit 4.1(b) under the
column entitled "Type of Expenditure" and do not exceed, in the aggregate, the
applicable dollar amount for such "Type of Expenditure" set forth on Exhibit
4.1(b) under the column entitled "Maximum Amount". With respect to each Cash
Member, its Initial Advanced Amount plus any cash Capital Contributions made by
it pursuant to this Section 4.1(b) shall be referred to herein as such Cash
Member's "Advanced Amount."

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(c) Unless and until the Company notifies a Cash Member to the contrary,
all cash Capital Contributions made to the Company from time to time shall be
delivered to the Company by means of a wire transfer of immediately available
funds to the Company's account No. 1010656675 located at The Bank of Bermuda
Limited in Hamilton, Bermuda, via wire transfer to such bank's correspondent
bank, Bank of Bermuda (New York) Ltd. (ABA No. 026009946), for the benefit of
Bank of Bermuda (Account No. 80008).

(d) As security for the obligations of the Cash Members to make all cash
Capital Contributions required to be made by them hereunder, (i) each Cash
Member (other than Scudder, PMDC and Maple) has, on even date herewith,
provided the Company with a Guaranty Letter in substantially the form attached
hereto as Exhibit 4.1(d),(ii) on or before 5 p.m. Central Standard Time on
December 7, 1995, and subject to the terms of Section 3.1(a), Scudder agrees
to provide the Company and every Member with the Scudder Legal Opinion, (iii)
on or before 5 p.m. Central Standard Time on December 8, 1995, and subject to
the terms of Section 3.1(a), PMDC agrees to provide the Company with a
Guaranty Letter in substantially the form attached hereto as Exhibit 4.1(d)
from Power Markets Development Company and (iv) on or before 5 p.m. Central
Standard Time on December 8, 1995, and subject to the terms of Section 4.1(a),
Maple agrees to provide the Management Committee with a Qualifying
Security Arrangement.

4.2 SUBSEQUENT CONTRIBUTIONS. Without creating any rights in favor of any
third party, and in addition to the Capital Contributions contemplated by
Section 4.1, the Members agree to make the following Capital Contributions:

(a) subject to the terms and conditions set forth herein, each of the
Cash Members hereby agrees to contribute an amount of cash to the Company
that, together with the Capital Contribution made by such Cash Member
pursuant to Section 4.1, equals the Commitment for such Cash Member as
specified in Exhibit A; and

(b) subject to the terms and conditions set forth herein, Maple hereby
agrees to assign, and to cause Maple Peru to assign, all of its right, tide
and interest in and to the License, the Project and any properties, assets,
permits, rights-of-way, agreements or instruments relating to the Project
to the Company's designee pursuant to an Assignment Agreement in the form
attached hereto as Exhibit 4.2(b) (the "Maple Assignment Agreement") (the
assignment to be effected pursuant to the Maple Assignment Agreement being
herein referred to as the "Maple Assignment"). The Company hereby
designates the Limitada as the party to whom the Maple Assignment should be
made.

Except for the Capital Contributions required of the Members pursuant to
Sections 4.1, 4.2 and 4.3, no Member shall be required to make any further
Capital Contributions to the Company (it being the intent of the Members that
no Cash Member shall be obligated to make any Capital Contributions to the
Company that are in excess of such Cash Member's Commitment).

4.3 TIMING OF SUBSEQUENT CONTRIBUTIONS. The Capital Contributions required
to be made by the Members pursuant to Section 4.2 shall be made in accordance
with the following terms and provisions:

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(a) Capital Contributions to be Made on Closing Date. On or before the
first Day following the date on which the Limitada has been legally and validly
formed under Peruvian Law, Maple shall, and shall cause Maple Peru to, execute
and deliver the Maple Assignment Agreement to the Company's designee, together
with such other endorsements, assignments and title documents as may be
required by the Cash Members in order to effect such contribution. Subject to
the satisfaction of the conditions set forth in Section 4.4, on the later to
occur of (i) December 22, 1995, and (ii) the fifth Business Day following the
date on which all of the conditions to Closing set forth in Section 4.4 have
been satisfied to the reasonable satisfaction of the Management Committee as
specified in Section 4.4, the Cash Members shall contribute cash to the Company
in an amount equal to their respective Closing Date Capital Contributions (the
occurrence of such event being herein referred to as "Closing"). The "Closing
Date Capital Contributions" of the Cash Members shall be based on the amount of
capital costs projected to be incurred during the first thirty Days immediately
following Closing as provided in the then applicable Capital Budget less the
proceeds of the TCW Financing available on the Closing Date, which amounts
shall be calculated by the Management Committee and specified in a written
notice delivered by the Management Committee to each Cash Member at least ten
Days prior to the Closing Date. The Closing shall be held at such location as
may be determined by the Management Committee. The date on which Closing occurs
is herein referred to as the "Closing Date." The Members agree to cause the
Company to contribute such portion of the proceeds of the Closing Date Capital
Contributions to the Limitada as may be necessary to cause the Limitada to pay
$5,000,000 to Maple as partial consideration for the Maple Assignment. In
addition, the Members agree to cause the Company to apply such portion of the
proceeds of the Closing Date Capital Contributions (by direct payment or
through the Limitada) as may be necessary to pay The Chase Manhattan Bank N.A.
the $5,000,000 financial services fee contemplated by the Capital Budget.

(b) Capital Contributions to be Made Following the Closing Date. From and
after Closing but prior to the close of Company business on the 180th Day
following the Commencement of Commercial Operations, each Cash Member shall be
obligated to make contributions from time to time (but no more frequently than
monthly) towards the satisfaction of its respective Commitment. Such
contributions shall be made on or before the 11th Day following the receipt by
the Cash Members of a written "Request for Capital Contribution" from the
Management Committee (which request must be made on a pro rata basis) that sets
forth the Capital Contribution requested of each Cash Member and briefly
describes the Budget items to which such request relates. The obligation of
each Cash Member to make any such Capital Contributions shall be subject to the
requirement that the Management Committee shall have determined that each of
the following conditions has been satisfied or should, under the circumstances,
be waived (and each Member agrees to use commercially reasonable efforts to
cause any such conditions within its control to be satisfied):

(i) the aggregate amount to be contributed by the Cash Members,
together with the proceeds of the TCW Financing, shall be commensurate with
the progress through such date of the construction of the facilities
comprising the Project, consistent with the terms of the then applicable
Budget and any applicable Project Agreements, and the Management Committee
shall have determined that there is no unauthorized

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delay in the construction of the facilities comprising the Project that
could reasonably be expected to have a material adverse effect on the
Company's ability to complete the Project on schedule;

(ii) no circumstance or event shall exist or have occurred that has
had or could reasonably be expected to have a material adverse effect on
the value, feasibility or prospects for success of the Project;

(iii) all permits, licenses, certificates, approvals, concessions
and authorizations, and easements and other surface, air and/or subsoil
rights, that are necessary for the continued ownership, construction,
testing and/or operation of the Project shall have been obtained and shall
not have been rescinded, revoked, withdrawn or limited or qualified in a
materially adverse way;

(iv) each of the Project Agreements shall remain in full force and
effect and no default shall exist under any then existing Project Agreement
that could have a material adverse effect on the value, feasibility or
prospects for success of the Project;

(v) the representations or warranties of the Members set forth in
Section 14.15(a) and in any other Project Agreements shall remain true and
correct in all material respects on the date of such contribution as though
made on and as of that date (and the Management Committee shall be entitled
to presume that such is the case unless a Member notifies it in writing to
the contrary), and the Members shall not have discovered that the
representations and warranties of Maple set forth in Section 14.15(b) were
not true and correct in all material respects as of the date hereof or the
Closing Date;

(vi) each Member shall have performed in all material respects the
obligations required to be performed by such Member prior to the date of
such contribution under this Agreement and any of the Project Agreements
(and the Management Committee shall be entitled to presume that such is the
case unless a Member notifies it in writing to the contrary) and the
Company and the Limitada shall be in compliance with all material laws and
regulations applicable to it and to its assets and/or business;

(vii) there shall exist no suit, action or other proceeding against
the Company, the Limitada, any Member or any Affiliate of a Member that, if
successful, could have a material adverse effect on the value, feasibility
or prospects for success of the Project, and no order or statement shall
have been made by or received from any governmental agency stating that any
work being performed in connection with the Project is in violation of any
applicable law, regulation, permit, license, certificate, approval,
concession or authorization;

(viii) the expenditures to be made with the proceeds of such
contributions shall not result in the violation of any of the Project
Agreements or any agreement,

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<PAGE> 19

instrument, note or contract to which the Company, the
Limitada or any Member is a party or any law applicable to
the Company, the Limitada, any Member or the Project;

(ix) with respect to any Capital Contributions
requested of the Cash Members at any time from and after
the 90th Day following Closing, the Limitada and one of
the Persons approved by the Members as referenced in
Section 4.4(n)(ii) shall have executed an Operations and
Maintenance Agreement (the "Power Project O&M Agreement")
with respect to the Power Project that is consistent with
the scope of services approved by the Members as
referenced in Section 4.4(n)(i), and such agreement shall
remain in full force and effect; and

(x) all conditions to the funding of advances
under the TCW Financing shall remain satisfied.

(c) Failure to Make Required Contributions. If all of the
requirements set forth immediately above have been satisfied and a
Member fails to make a required contribution, the following provisions
shall apply:

(i) Maple shall notify each Member in writing as
to the identity of the defaulting Member and the amount of
the contribution that is in default (such notice being
herein referred to as the "Default Notice");

(ii) the portion of such defaulting Member's
Commitment that has not been paid shall bear interest
until paid at a rate per annum equal to the Default Rate;

(iii) if such default continues for a period of 15
Days following the date on which such defaulting Member
received the Default Notice, the Management Committee
shall so notify the non-defaulting Members and, without
prejudice to any other rights and remedies available to
the Company and the non-defaulting Members, the
non-defaulting Members shall have the pro rata right (but
not the obligation), exercisable by the delivery of
written notice to every other non-defaulting Member on or
before the 15th Day following the date of such notice from
the Management Committee, to fund the amount of such
defaulted payment (excluding any interest owed thereon as
provided in clause (ii) immediately above) by purchasing
newly issued Units at a price per Unit equal to 50% of the
Buy-In Price (or 25% of the Buy-In Price if Maple is the
defaulting Member and the Qualifying Security Arrangement
provided by Maple is of the type described in clause
(iii)(A) of such definition); and

(iv) upon the receipt by the Company of funds
from any non-defaulting Members pursuant to the provisions
of clause (iii) immediately above, the Commitment of the
defaulting Member shall be deemed to have been reduced by
an amount equal to the aggregate amount of such proceeds;
provided, however, that such defaulting Member shall
continue to remain liable to the Company for the interest
referenced in clause (ii) immediately above and to the
Company and the non-defaulting Members for any damages
suffered by them as a result of such default.

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<PAGE> 20
4.4 CONDITIONS TO CLOSING. The obligation of each of the Cash Members
to make their respective Closing Date Capital Contributions shall be subject to
the reasonable satisfaction of or waiver, on or before the Closing Date, by (x)
the Management Committee in the case of the conditions set forth in Sections
4.4(a)(q) and (y) such Cash Member in the case of the condition set forth in
Section 4.4(r); it being agreed that the Representative appointed by Maple
shall not be entitled to vote on the satisfaction or waiver of any of the
Closing Conditions referenced in clause (x) immediately preceding and that each
Member shall use commercially reasonable efforts to cause any such conditions
within its control to be satisfied:

(a) Maple and Maple Peru shall have executed the Maple
Assignment and all governmental and third party consents, authorizations
and approvals required for the consummation of the Maple Assignment
shall have been obtained and shall not have been rescinded, revoked or
withdrawn, or limited or qualified in a materially adverse way;

(b) all permits, licenses, certificates, approvals,
concessions and authorizations, and all easements and other surface, air
and/or subsoil rights, that are required to be obtained from third
parties or from governmental authorities prior to the commencement of
construction of the Project or that are customarily obtained prior to
the commencement of construction of projects similar to the Project,
including those described in Exhibit 4.4(b), shall have been obtained
(or in the case of fee sites to be obtained for use in connection with
the Project, options to acquire same shall have been obtained on terms
acceptable to the Management Committee) and shall not have been
rescinded, revoked or withdrawn, or limited or qualified in a materially
adverse way;

(c) the collateral of Maple securing the $1,550,000 bank
guarantee provided for under the License shall have been replaced with
credit of the Limitada or Company (and not that of the Members);

(d) no circumstance or event shall exist or shall have
occurred that has had or could reasonably be expected to have a material
adverse effect on the value, feasibility or prospects for success of the
Project;

(e) (i) each Member shall have performed in all material
respects the obligations required to be performed under this Agreement
and any of the Project Agreements by such Member prior to the Closing
Date, (ii) all of the representations and warranties of such Member set
forth in Section 14.15 hereof and under any of the Project Agreements
shall be true and correct in all material respects on the date hereof
and on the Closing Date as though made on and as of that date and (iii)
each Member shall have furnished every other Member with a certificate
executed by a corporate officer or other authorized Person acting on
behalf of such Member, which certificate shall be dated the Closing Date
and shall contain a certification by such officer or other Person to the
effect that the conditions set forth in clauses (i) and (ii) immediately
preceding have been satisfied;

(f) pursuant to agreements in form and substance acceptable to
the Management Committee, the Company shall have taken such steps as may
be necessary to cause (i) the

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<PAGE> 21
Limitada to be established in accordance with Peruvian law and (ii) the
Limitada, on its own or in "association" with Maple Peru, to become
officially qualified under the General Hydrocarbons Law of Peru (and any
regulations relating thereto) as necessary to permit it to hold the
License and conduct the activities contemplated to be conducted by it in
connection with the Project;

(g) the Company and the Limitada shall have received all
material permits, licenses, certificates, approvals, concessions and
authorizations, including those set forth in Exhibit 4.4(b), that are
required to be, or customarily would be, obtained from third parties or
from governmental authorities prior to the Closing Date in connection
with (i) the conduct by the Company or the Limitada of the business of
the Company and/or the Limitada as it is then being conducted or as it
is thereafter contemplated to be conducted, (ii) the investment by the
Company in the Limitada, (iii) the ownership or operation of the Project
and (iv) the execution, delivery and performance of each of the Project
Agreements;

(h) there shall exist no suit, action or other proceeding
against the Company, the Limitada, any Member or any Affiliate of a
Member that, if successful, could have a material adverse effect on the
value, feasibility or prospects for success of the Project;

(i) the Management Committee shall have received legal
opinions addressed to the Company and each Member from counsel
acceptable to the Management Committee regarding (i) the formation,
authorization to do business and limited liability of the Company and
the Limitada, (ii) the classification of the Company and the Limitada as
partnerships for United States federal income tax purposes, (iii) the
enforceability of the EPC Agreements, this Agreement, the organizational
agreement for the Limitada, the Gas Project O&M Agreement, the
Administrative Services Agreement and the Natural Gasolines Purchase
Agreement, and (iv) such other matters as the Management Committee may
require or determine to be appropriate for closings of the type
contemplated hereunder;

(j) the Limitada and the applicable counterparty or
counterparties shall have executed and delivered each of the following
agreements, and each of such agreements shall remain in full force and
effect and no default shall exist under any of them (the agreements
referenced in clauses (i), (ii) and (iii) below, to the extent same have
been entered into or replacements therefor approved by the Management
Committee, being herein collectively referred to as the "EPC
Agreements"):

(i) an agreement between the Limitada and a consortium
formed by Constructora Norberto Odebrecht S.A., Grana y Montero
S.A. and J.J.C. Contratistas Generales S.A. (or if agreement
cannot be reached with such consortium, with one or more other
companies acceptable to the Management Committee) pursuant to
which such consortium agrees to design, engineer, construct and
procure equipment for the Gas Project, other than with respect to
the drilling of wells (the "Gas Project EPC Agreement"), which
agreement shall contain the terms and provisions described in
Exhibit 4.4(j)-1, such terms and provisions as may be customary
for similar agreements

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<PAGE> 22
and such other terms and provisions as may be approved by the
Management Committee;

(ii) an agreement between the Limitada and one or more
companies acceptable to the Management Committee pursuant to
which such company agrees to design, engineer, construct and
procure equipment for the power plant comprising a part of the
Power Project (the "Power Plant EPC Agreement"), which agreement
shall contain the terms and provisions described in Exhibit
4.4(j)-2 and such other terms and provisions as may be approved
by the Management Committee;

(iii) an agreement between the Limitada and Asea Brown
Boveri Ltda. (or if agreement cannot be reached with such
company, with one or more companies acceptable to the Management
Committee) pursuant to which such company agrees to design,
engineer, construct and procure equipment for the transmission
facilities and related electric substations constituting a part
of the Power Project (the "Transmission Facilities EPC
Agreement"), which agreement shall contain the terms and
provisions described in Exhibit 4.4(j)-3, such terms and
provisions as may be customary for similar agreements and such
other terms and provisions as may be approved by the Management
Committee;

(iv) Maple Peru and the Limitada shall have executed (A)
an association contract in a form reasonably acceptable to the
Management Committee, which association contract shall provide
that Maple Peru shall have a 1% interest and the Limitada a 99%
interest and (B) an Operations and Maintenance Agreement pursuant
to which Maple Peru shall agree to provide certain services to
the Limitada with respect to the Gas Project (the "Gas Project
O&M Agreement"), which agreement shall contain the terms and
provisions described in Exhibit 4.4(j)-4 and such other terms and
provisions as may be approved by the Management Committee;

(v) Maple Peru and the Limitada shall have executed an
Administrative Services Agreement pursuant to which Maple Peru
has agreed to provide certain administrative support services to
the Limitada with respect to the Gas Project and the Power
Project (the "Administrative Services Agreement"), which
agreement shall contain the terms and provisions described in
Exhibit 4.4(j)-5 and such other terms and provisions as may be
approved by the Management Committee;

(vi) Maple Peru and the Limitada shall have executed a
Natural Gasoline Purchase Agreement pursuant to which Maple Peru
has agreed to purchase, and the Limitada has agreed to sell, 100%
of the natural gasoline derived from hydrocarbons produced from
the area subject to the License (the "Natural Gasoline Purchase
Agreement"); and

(vii) Legal stability agreements shall have been executed
by Comision Nacional de Inversiones y Tecnologia Extranjera
(CONITE), on the one hand, and each of the Company, the Limitada
and Peru Energy Holdings, L.L.C., a Delaware limited

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<PAGE> 23
liability company, on the other hand (such agreements being
herein referred to as the "Legal Stability Agreements");

(k) PeruPetro S.A. shall have (i) confirmed in writing its
agreement that the time period during which the "Contractor" under the
License is required to complete the "Minimum Work Program" thereunder
has been extended by the two-year extension provided for in the first
sentence of Section 3.4 of the License and (ii) consented to the
assignment by Maple Peru of the License to the Limitada on terms
acceptable to the Management Committee, which terms shall include, at a
minimum, the agreement of PeruPetro S.A. to amend the License in all
material respects as set forth in Exhibit 4.4(k), together with such
conforming changes as may be necessary to allow for the "association"
relationship to be created between Maple Peru and the Limitada and such
other changes as may be requested by the Management Committee (to the
extent such requests relate to (A) technical amendments required to
conform the "Minimum Work Program" under the License to the intended
scope of the Project or (B) amendments that the Management Committee
reasonably requires to facilitate the TCW Financing or any other Project
Financing Transaction;

(l) (i) all information submitted to the United States
Overseas Private Investment Corporation ("OPIC") in connection with the
Project shall have been true, correct and complete in all material
respects as of the date submitted and on and as of the Closing Date,
(ii) the Company shall have made no waiver of diplomatic espousal, and
(iii) OPIC shall have delivered to the Company a firm commitment to
issue a contract of insurance against expropriation, political violence
and inconvertibility risks relating to the Project, the terms of which
contract of insurance shall be reasonably acceptable to the Management
Committee;

(m) the Company and the Limitada shall be in compliance with
all material laws and regulations applicable to it and to its assets
and/or business as being conducted on the Closing Date or contemplated
to be conducted thereafter;

(n) the Members shall have approved (i) a statement of the
scope of operations and maintenance services that will be required by
the Limitada with respect to the Power Project and (ii) a list of
Persons that would be acceptable providers of such operations and
maintenance services;

(o) the Guaranty Letter provided by Affiliates of each of
Panhandle, El Paso, Illinova and PNDC to the Company, and the Qualifying
Security Arrangement provided by Maple to the Company, shall remain in
full force and effect and there shall have been no material adverse
change in the financial condition of the Person executing such Guaranty
Letter or Qualifying Security Arrangement, as applicable;

(p) no facts or circumstances shall exist that would prevent
the issuer of the Scudder Legal Opinion from being able to restate the
opinions set forth therein effective as of the Closing Date and there
shall have been no material adverse change in the financial condition of
any such owner of an equity interest in Scudder;

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<PAGE> 24
(q) (i) the Company and/or the Limitada shall have received
binding commitments for equity and/or debt that, in the aggregate, is
sufficient in amount to cover all capital costs that are reflected in
the Capital Budget attached hereto as Exhibit 2.8(b), and (ii) the
financing transaction contemplated by that certain draft term sheet
dated November 16, 1995, between the Company and TCW Asset Management
Co. shall have been consummated contemporaneously with Closing on terms
substantially similar to those set forth in such term sheet (such
financing being herein referred to as the "TCW Financing"); and

(r) the capital costs that are, as of the Closing Date,
reasonably expected to be incurred in connection with the Project shall
not exceed by more than $5,000,000 the capital costs that are reflected
in the Capital Budget attached hereto as Exhibit 2.8(b).

4.5 FAILURE TO FUND CLOSING DATE CAPITAL CONTRIBUTIONS. If all of the
conditions to Closing set forth in Section 4.4 have been satisfied or waived
and a Cash Member fails to make all or any part of its Closing Date Capital
Contribution as required hereunder, the following provisions shall apply:

(a) Maple shall notify each Member in writing (each such
notice being herein referred to as the "Initial Funding Default Notice")
as to the identity of the defaulting Member, the amount of the Closing
Date Capital Contribution that was required to be made by such
defaulting Member and such defaulting Member's Advanced Amount through
the date of such default;

(b) the amount of the Closing Date Capital Contribution
required to be made by such Member shall bear interest until paid at a
rate per annum equal to the Default Rate;

(c) the non-defaulting Members, on a pro rata basis, shall
have the right (but not the obligation), exercisable by delivery of
written notice to every other non-defaulting Member, on or before the
30th day following the date of the Initial Funding Default Notice, to
purchase all of the Company Interest of the defaulting Member in
exchange for (i) the payment to the defaulting Member of such Member's
Advanced Amount through the date of such default, (ii) the payment to
the Company of the Closing Date Capital Contribution that was required
to be paid by such defaulting Member, including any interest payable
pursuant to clause (b) immediately above and (iii) the execution by such
purchasing Members of such documents and instruments as may be deemed
necessary by the Management Committee to evidence the assumption by such
purchasing Members of the obligation of such defaulting Member to
contribute its Commitment to the Company;

(d) the defaulting Member agrees to execute (or if it fails or
refuses to do so, hereby grants the Management Committee's designee a
limited power of attorney for the purposes of executing on its behalf)
such documents and instruments as may be reasonably necessary to effect
the transfer of ownership of such Member's Company Interest to any
purchasing Members pursuant to this Section 4.5, which documents and
instruments shall contain customary representations, warranties and
covenants, including, at a minimum, representations and warranties from
the defaulting Member to the effect that it is the owner of the Company
Interest being sold, free and clear of any liens, pledges, security
interests or other encumbrances created by such Member

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(other than those that may have been created in connection with the
financing arrangements contemplated by Article 6); and

(e) if the non-defaulting Members purchase all of the Company
Interest of the defaulting Member, such defaulting Member shall be
relieved of its obligation to make Capital Contributions to the Company;
provided, however, that such defaulting Member shall continue to remain
liable to the Company for the interest referenced in clause (b) above
and to the Company and the non-defaulting Members for any damages
suffered by them as a result of such default.

4.6 FAILURE OF CLOSING TO OCCUR. (a) If Closing does not occur on or
before the date that is six months following the date of this Agreement due to
the non-satisfaction of the condition set forth in Section 4.4(d) or (h), then
after the expiration of such six-month period any Member desiring to proceed
with Closing may notify every other Member of such fact and request that such
other Members notify it whether they desire to proceed with Closing (the Member
sending such notice being herein referred to as the "Notifying Party"). The
Members receiving such notice shall, within 15 Days following the receipt of
such notice, notify the Notifying Party whether they desire to proceed with
Closing. If a Member fails to respond to the Notifying Party within such time
period, such Member shall be deemed to have elected not to proceed with
Closing. The Notifying Party and any other Members that have timely notified
the Notifying Party of their desire to proceed with Closing shall have the pro
rata right to acquire all of the Company Interest of any Members that have
elected not to proceed with Closing in exchange for (i) the payment to the
selling Members of such Member's Advanced Amount through the date of such sale,
(ii) the payment to the Company of the Closing Date Capital Contributions
required to be made at Closing by such selling Members and (iii) the execution
by such purchasing Members of such documents and instruments as may be deemed
necessary by the Management Committee to evidence the assumption by such
purchasing Members of the obligation of such selling Members to contribute
their respective Commitments to the Company. Any acquisition by one or more
Members of the Company Interests of one or more other Members pursuant to this
Section 4.6(a) shall be consummated as soon as is reasonably practicable
following the date on which all Members have elected to either proceed or not
proceed with Closing (but in no event later than 15 Days thereafter). In
connection with any such acquisition, the selling Members agree to execute (or
if they fail or refuse to do so, hereby grant the Management Committee's
designee a limited power of attorney for the purpose of executing on their
behalf) such documents and instruments as may be reasonably necessary to effect
the transfer of ownership of such selling Member's Company Interest to the
purchasing Members pursuant to this Section 4.6(a), which documents and
instruments shall contain customary representations, warranties and covenants,
including, at a minimum, representations and warranties from the selling
Members to the effect that they are the owner of the interests being sold, free
and clear of any liens, pledges, security interests or other encumbrances
created by such selling Member (other than those that may have been created in
connection with the financing arrangements contemplated by Article 6). In
addition, the acquiring Members, subject to the satisfaction of the conditions
in Section 4.4 (other than the conditions set forth in Sections 4.4(d) or (h))
shall cause the Closing to occur within 15 Days following such acquisition.

(b) If the Closing has not occurred on or before the date that is six
months following the date of this Agreement and a notice has not been sent by a
Member invoking the provisions of Section 4.6(a),

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any Member (other than Maple) may, by the delivery of written notice to Maple
and every other Member, put its Company Interest to Maple in exchange for the
payment by Maple to such Member of all Advanced Amounts paid by such Member to
the Company through the date of such notice. Within 10 Days following the
receipt by Maple of any such notice from a Member, such Member shall execute
and deliver to Maple an assignment of its Company Interest (the form of which
shall be consistent with the form of assignment contemplated by Section 4.6(a))
and Maple shall pay such Member the purchase price therefor as specified in the
immediately preceding sentence.

4.7 RETURN OF CONTRIBUTIONS. Although each Member has the right to
receive distributions in accordance with the terms of this Agreement, a Member
is not entitled to the return of any part of its Capital Contributions or to be
paid interest in respect of either its capital account or its Capital
Contributions. An unrepaid Capital Contribution is not a liability of the
Company or of any Member. A Member is not required to contribute or to lend any
cash or property to the Company to enable the Company to return any Member's
Capital Contributions.

4.8 CAPITAL ACCOUNTS. A capital account shall be established and
maintained for each Member in accordance with Treasury Regulation Section
1.704-1(b).

4.9 FINANCING ARRANGEMENTS. (a) It is contemplated that, in addition
to the TCW Financing, the Company will, or will cause the Limitada to, seek
financing for a portion of the costs of developing, constructing, and equipping
the Project on a non-recourse, project-financed basis (i.e., recourse only to
the interest of the Members in the Company, the Company in the Limitada or the
Limitada in the Project, as applicable) through one or more international or
other financing sources at such time as the Management Committee deems it
advisable (any such financing transaction, other than the TCW Financing, being
herein referred to as a "Project Financing Transaction"). If obtained, the
proceeds of any Project Financing Transaction would be applied as provided in
Section 5.2. All Management Members shall be consulted on a regular basis and
shall have the opportunity to participate in any material discussions, strategy
sessions and negotiating sessions relating to any Project Financing
Transaction. The funding of the TCW Financing and/or any Project Financing
Transaction shall have no effect on the relative Sharing Ratios of any of the
Members.

(b) If required in connection with any Project Financing Transaction,
the Company may collaterally assign its rights under the Project Agreements to
the applicable lenders.

(c) Each Member whose Affiliate is a party to a Project Agreement
shall cause that Affiliate to execute and deliver customary consents,
acknowledgments, pledges of interests directly or indirectly related to the
Project, and opinions in connection with any such financing and provide all
financial and credit information about that Affiliate that is customary for
such financings.

4.10 AGREEMENT REGARDING CERTAIN TRANSMISSION FACILITIES. If the
Limitada enters into a contract with a third party pursuant to which such third
party would construct, own and operate a substantial portion of the
transmission facilities comprising a part of the Power Project for the benefit
of the Project, then, unless otherwise agreed between Maple and the Limitada,
at the earlier of (i) such time as is approved by the Management Committee (as
provided in Section 6.1(b)(iii)) or (ii) Commencement of Commercial Operations:

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(a) the Commitments of the Cash Members shall be reduced, on a
pro rata basis, by an amount equal to the resulting reduction in the
amount of capital costs to be incurred by the Company or the Limitada
(the amount of such reduction being herein referred to as the "Subject
Amount");

(b) subject to the terms of Section 2.9, the Cash Members
shall, on a pro rata basis, contribute to the Company, which in turn
shall contribute to the Limitada, which in turn shall pay to Maple, as
compensation (deductible or amortizable by the Limitada for Peruvian
income tax purposes) for its services to be performed outside of Peru in
connection with the Power Project, an aggregate amount (the "Maple
Amount") equal to the percentage of the Subject Amount that Maple would
have been entitled to in respect of its Subject Interest had an amount
equal to the Subject Amount been contributed to the Company by the Cash
Members and immediately thereafter distributed to the Members on a pro
rata basis.

If no such contract is entered into by the Limitada and the capital costs
incurred by the Company or the Limitada in connection with the Power Project
include the Subject Amount, the provisions of paragraphs (a) and (b) above
shall not apply, and instead (i) the capital accounts of the Cash Members shall
be increased (on a pro rata basis) by the Subject Amount (in accordance with
the principles of Treasury Regulation Section 1.704-1(b)(2)(iv)(b) and (ii) the
capital account of Maple shall be increased by the Maple Amount to reflect a
revaluation of the License (in accordance with the principles of Treasury
Regulation Section 1.704-1(b)(2)(iv)(f)).

ARTICLE 5
ALLOCATIONS AND DISTRIBUTIONS

5.1 DISTRIBUTIONS OF NET CASH FLOW. (a) Except as provided in
Sections 2.9, 5.1(b) and 5.1(c), Net Cash Flow with respect to each month
during the term hereof shall be distributed to the Members on a pro rata basis
on or before the 20th Day following the end of such month.

(b) The Members acknowledge that the Cash Members' Capital
Contributions will be contributed or loaned by the Company to the Limitada
("Limitada Contributions"), that the Limitada will use the Limitada
Contributions to acquire property or make expenditures that may generate
depreciation, amortization or other deductions, losses, credits or benefits for
Peruvian tax purposes ("Peruvian Tax Benefits") and that the Peruvian Tax
Benefits will result in the reduction of Peruvian tax imposed on the Limitada.
As soon as practicable following the close of each fiscal year of the Limitada
(which fiscal year shall be the same as the calendar year), the Management
Committee shall cause to be determined for such fiscal year the amount of the
Peruvian tax savings ("Peruvian Tax Savings") to the Limitada because of the
availability of the Peruvian Tax Benefits attributable to the Limitada
Contributions. As soon as practicable following the determination of the
Peruvian Tax Savings for each fiscal year and subject to the terms of Section
2.9, the Company shall adjust the amounts otherwise distributable under Section
5.1(a) by increasing pro rata the Net Cash Flow distributable to the Cash
Members, and decreasing the Net Cash Flow distributable to Maple, by an amount
(the "Tax Savings Distribution") equal to a percentage of the Peruvian Tax
Savings that corresponds to the Sharing Ratio attributable to the Subject
Interest, until the cumulative Net Cash Flow has been adjusted by the
cumulative amounts of the Tax Savings Distributions for all fiscal years. For
purposes of

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computing Peruvian Tax Savings, the Management Committee shall assume that with
respect to each dollar of Peruvian Tax Benefits resulting from acquisitions of
property or expenditures made with proceeds of the Limitada Contributions or
proceeds (the "Debt Proceeds") of the TCW Financing or any other Project
Financing Transaction, the portion thereof that is attributable to the Limitada
Contributions shall correspond to the ratio that the aggregate amount of
Limitada Contributions bears to the sum of the amount of such Limitada
Contributions and the amount of all Debt Proceeds.

(c) Sections 5.1(a) and (b), as well as the terms of Sections 5.2 and
5.3, shall not require any distribution of cash if and to the extent such
distribution would be prohibited by applicable law or by any loan agreement,
security agreement, mortgage, debt instrument or other agreement or obligation
to which the Company is a party or by which it is bound or to which its assets
are subject. No Member shall be entitled to interest on any amounts that would
have, but for the provisions of this Section 5.1(c), been distributable by the
Company to the Members pursuant to the terms of this Agreement.

5.2 DISTRIBUTIONS OF NET CAPITAL PROCEEDS ATTRIBUTABLE TO PROJECT
FINANCING TRANSACTION. Within 10 Days of the Company's receipt of proceeds from
a Project Financing Transaction and subject to the terms of Section 2.9, the
Net Capital Proceeds therefrom shall be distributed and applied by the Company
in the following order of priority:

(a) first, such proceeds shall be retained by the Company and
applied towards the satisfaction of any remaining capital costs of the
Project to the extent that the projected remaining capital costs of the
Project as of the date of receipt of such loan proceeds exceeded the sum
of (i) the aggregate unfunded portion of the Commitments of the Cash
Members at such time, (ii) the aggregate unfunded portion of the TCW
Financing and any prior Project Financing Transactions at such time and
(iii) the amount of any cash reserves maintained by the Company or the
Limitada for the purpose of satisfying any such projected remaining
capital costs; and

(b) second, all remaining proceeds (the "Excess Financing
Proceeds") shall be distributed to the Members on a pro rata basis;

provided, however, that if and to the extent the lenders for such Project
Financing Transaction do not permit the Excess Financing Proceeds to be applied
in the manner specified in clause (b) immediately above (the amount of any such
Excess Financing Proceeds that are not permitted by such lenders to be so
applied being herein referred to as the "Restricted Financing Proceeds"), then
(i) the Commitments of the Cash Members shall be reduced, on a pro rata basis,
by an aggregate amount equal to the amount of such Restricted Financing
Proceeds and (ii) subject to the terms of Section 2.9, the Cash Members shall,
on a pro rata basis, pay Maple an aggregate amount equal to the percentage of
such Restricted Financing Proceeds that Maple would have been entitled to in
respect of its Subject Interest had an amount equal to such Restricted
Financing Proceeds (but in no event greater than the reduction in Commitments
pursuant to clause (i) of this sentence) been contributed to the Company by the
Cash Members and immediately thereafter distributed to the Members on a pro
rata basis (it being agreed that, for capital account and United States federal
income tax purposes, any amounts paid by the Cash Members to Maple shall be
deemed to have been contributed to the Company by such Cash Members and then
distributed by the Company to Maple); provided, further, however, that if and
to the extent the lenders for such Project Financing Transaction do not allow
the Commitments of the Cash Members to

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be reduced as provided in the immediately preceding proviso, the Cash Members
shall not be required to make such payment to Maple to the extent not allowed
(unless and until such Commitments are reduced).

5.3 DISTRIBUTIONS ON DISSOLUTION AND WINDING UP. Upon the dissolution
and winding up of the Company, subject to the terms of Section 2.9 and after
adjusting the capital accounts for all distributions made under Sections 5.1
and 5.2 and all allocations under this Article 5, all available proceeds
distributable to the Members as determined under Section 12.2 shall be
distributed to all Members on a pro rata basis.

5.4 ALLOCATIONS OF PROFIT AND LOSS. Subject to the terms of Section
2.9, Profit and Loss of the Company for each fiscal year shall be allocated
among the Members on a pro rata basis, except as follows:

(a) Commencing with the first fiscal year of the Company in
which a Tax Savings Distribution is made to the Cash Members in
accordance with Section 5.1(b), Profit shall first be allocated to the
Cash Members on a pro rata basis until the cumulative Profit allocated
pursuant to this Section 5.4(a) through the end of the current fiscal
year equals the cumulative Tax Savings Distributions made to the Cash
Members through the end of such fiscal year.

(b) For the fiscal year or years in which the dissolution and
liquidation of the Company occur, Profit or Loss shall be allocated
among the Members in such shares and proportions as will result in the
positive balances in the Members' capital accounts being pro rata, after
taking into account all Capital Contributions under Article 4 and
Sections 3.3 and 5.2, all distributions under Sections 5.1 and 5.2 and
all other allocations under this Section 5.4.

(c) All items of loss or deduction arising from the
expenditure of cash contributed to the Company by a Cash Member shall be
allocated to the Cash Member contributing such cash.

(d) All items of loss or deduction attributable to the Maple
Assignment shall be allocated to Maple.

5.5 ALLOCATIONS FOR U.S. TAX PURPOSES. (a) Except as provided in
Section 5.5(b), each item of income, gain, loss, deduction and credits
determined for U.S. federal and state income tax purposes shall be allocated
among the Members in the same manner as each corresponding item of Profit and
Loss is allocated among the Members pursuant to Section 5.4.

(b) Income, gain, loss or deduction with respect to property
contributed to the Company by a Member or revalued pursuant to the principles
of Treasury Regulation Section 1.704-1(b)(2)(iv)(f) shall be allocated among
the Members in a manner that takes into account the variation between the
adjusted tax basis of such property and its Book Value, as required by the
principles of section 704(c) of the Code and Treasury Regulation Section
1.704-1(b)(4)(i), using such method permitted by Treasury Regulation Section
1.704-3 as the Management Committee may determine, after taking into account
the allocations provided in Section 5.4(c) and (d).

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5.6 WITHHOLDING. All amounts required to be withheld pursuant to any
tax law shall be treated as amounts actually distributed to the affected
Members for all purposes under this Agreement.

5.7 VARYING INTERESTS. All Profit and Loss (and any item of income,
gain, loss, deduction or credit) shall be allocated, and all distributions
shall be made, to the Persons shown on the records of the Company to have been
Members as of the last calendar day of the period for which the allocation or
distribution is to be made. Notwithstanding the foregoing, if during any fiscal
year there is a change in any Member's interest in the Company, the Members'
allocable shares of the Profit and Loss (or items thereof) for the fiscal year
shall be determined using any method determined by the Management Committee to
be permissible under the principles of Code Section 706 and the related
Treasury Regulations to take account of the Members' varying interests.

ARTICLE 6
MANAGEMENT AND OPERATION OF BUSINESS

6.1 MANAGEMENT COMMITTEE. (a) Makeup of Management Committee. All
power and authority with respect to the management of the business and affairs
of the Company shall be vested in the Members, who shall act through a
committee (the "Management Committee") comprised of six representatives (each a
"Representative"), one appointed by each of Maple, Panhandle, El Paso,
Illinova, Scudder and PMDC (or their respective successors) (the Members having
the right to appoint a Representative to the Management Committee being herein
referred to as the "Management Members"); provided, however, that if any
Management Member (other than Maple) ceases to be a Cash Member that both (i)
owns Units having a value of at least $10,000,000 (assuming for purposes of
this provision that each Unit owned by a Member has a value equal to the Buy-In
Price) and (ii) has a Sharing Ratio that is one of the five largest Sharing
Ratios of all Members other than Maple, then such Cash Member shall no longer
have the right to appoint a Representative to the Management Committee and the
Cash Member (other than Maple) having the greatest Commitment (or Sharing Ratio
if the Commitments have been fully funded at such time) and not then
represented on the Management Committee shall succeed to such right.

(b) Voting; Required Vote for Action. Subject to Section 6.1(j), each
Representative shall have a number of votes that corresponds to the Sharing
Ratio of the Member that appointed such Representative. A Representative shall
not be entitled to vote if the Cash Member appointing such Representative is in
default of its obligation to make Capital Contributions hereunder. In addition,
a Representative shall not be entitled to vote with respect to matters
involving a conflict of interest between the Company, on one hand, and the
Member appointing such Representative or any Affiliate of such Member, on the
other hand. The granting by the Management Committee of any approval or the
taking by the Management Committee of any other action shall require the
affirmative vote of a majority of the total number of votes of all
Representatives participating in such meeting and eligible to vote on such
matter (such vote being herein referred to as a "Majority Vote"), except as
follows:

(i) the following matters shall require unanimous approval of
the Management Committee Representatives:

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(A) any amendment of this Agreement or the
organizational agreements for the Limitada that has a material
adverse tax effect on any Member or any of its Affiliates, or any
amendment of the provisions of Articles 10 or 11 or Sections 2.9,
3.1(c), 3.2, 3.3(b), 3.7, 4.1(a) and (b), 4.3(a), 4.4, 4.6, 4.10,
5.1, 5.2, 6.1(a) and (b), 6.3(b), 6.4, 7.3, 9.1, 9.2 and 14.5;

(B) the merger of the Company or the sale or other
disposition of all or substantially all of the assets of the
Company relating to the Gas Project, the Power Project or the
Project as a whole;

(D) the approval of any commitments for capital costs
that are within the scope of the Project but that are not
included as an item (with substantially the same specifications)
in the Capital Budget (without taking into account any amendment
thereto by the Management Committee following the date hereof)
("Non-Budgeted Capital Items") which individually, or together
with all other Non-Budgeted Capital Items approved during the
preceding 12-month period, exceed $10,000,000;

(E) the release by the Company of any of its OPIC
insurance coverage prior to the date on which the Company has
distributed to the Cash Members an aggregate amount equal to the
sum of their respective Commitments; and

(F) the voting by the Company of its interest in the
Limitada in favor of (A) the merger of the Limitada or the sale
or other disposition by the Limitada of all or substantially all
of the assets of the Limitada relating to the Gas Project, the
Power Project or the Project as a whole, (B) the conduct by the
Limitada of any business other than that which the Company is
permitted to engage in pursuant to Section 2.4(a)(i), and (C) the
liquidation or dissolution of the Limitada; and

(ii) the approval of any commitments for Non-Budgeted Capital
Items that individually, or together with all other Non-Budgeted Capital
Items approved during the preceding 12-month period, exceed $3,000,000,
shall require a Majority Vote and the affirmative vote of at least a
majority of the Representatives on a per capita basis; and

(iii) the following matters shall require a Majority Vote
including the approval of the Representative appointed by one of
Illinova or PMDC:

(A) the elimination from the scope of the Power Project
of the construction of a substantial portion of the transmission
lines currently contemplated as being constructed as a part of
the Power Project;

(B) the timing of the reduction of the Commitments of
the Cash Members pursuant to Section 4.10(a); and

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(C) the voting by the Company of its interest in the
Limitada in favor of an agreement between Maple and the Limitada
with respect to an event of the type covered by Section 4.10,
which agreement is other than as specified in said Section 4.10.

(c) Successors to Representatives; Chairman. Each Representative
serving on the Management Committee shall serve in such capacity until his
successor or replacement shall have been appointed by the Member or Members
that originally appointed such Representative. The appointment of any such
successor or replacement, which decision may be made in the sole discretion of
the appointing Member or Members from time to time, shall become effective upon
the delivery by the appointing Member or Members of written notice to each
other Member. As of the date hereof, the Management Members have notified each
other of their respective initial appointments to the Management Committee.
Maple shall serve as Chairman of the Management Committee until a successor is
selected by Majority Vote. The Chairman shall preside at all meetings of the
Management Committee.

(d) Meetings. At least once each (i) calendar month prior to the
Commencement of Commercial Operations and (ii) calendar quarter thereafter,
regular meetings of the Management Committee shall be held on such date(s) and
at such time(s) as may be determined by the Chairman of the Management
Committee. Written notice stating the place, day and hour of each regular
meeting of the Management Committee, together with an agenda briefly describing
the matters to be considered by the Management Committee at such meeting, shall
be delivered by the Chairman to every other Representative not less than 10 nor
more than 60 Days prior to the date of the meeting. On or before the 21st Day
prior to the delivery of such notice, the Chairman of the Management Committee
shall circulate to the other Representatives an agenda describing the matters
to be considered by the Management Committee at such meeting, and such
Representatives shall have 14 Days following receipt of such initial agenda to
request that additional items be added to such agenda. A copy of the final
agenda for each meeting of the Management Committee (which agenda shall include
such changes as may have been requested by the Representatives and/or proposed
by the Chairman of the Management Committee) shall be delivered to the
Representatives together with the notice of such meeting required above.
Special meetings of the Management Committee may be called by written request
of at least two Representatives, on at least 10 Days prior written notice to
the other Representatives (which notice may be personally delivered or sent by
telecopy, with confirmation of receipt by return telecopy and must contain a
description of the matter or matters to be considered by the Management
Committee at such special meeting). Although any matter or matters may be
considered and discussed at a Management Committee meeting, unless the
Representatives unanimously agree otherwise, only those matters included in the
agenda for such meeting may be voted on at such meeting. Attendance of a
Representative at a meeting shall constitute a waiver of notice of such
meeting, unless such Representative attends for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting was not properly called or convened. If a Representative
intends and in good faith attempts to attend or participate in a meeting of the
Management Committee but is unable to do so for reasons that are beyond the
reasonable control of such Representative or its appointing Member, the voting
on any matters shall be delayed or postponed for a period of one Business Day
or until the attendance or participation of such Representative can be
arranged, whichever occurs first. Unless otherwise agreed upon by all
Representatives, all meetings of the Management Committee shall be held at a
location outside of the United States of America as determined by the
Management Committee.

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(e) Action Without a Meeting; Telephone Conference Meeting. Any
action required or permitted to be taken at any meeting of the Management
Committee may be taken without a meeting, and without prior notice, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by (i) all Representatives, if the action being taken without a meeting
requires unanimous approval of the Representatives, (ii) Representatives
sufficient to meet the approval requirements of Sections 6.1(b)(ii) or (iii),
if the action being taken without a meeting is of the type contemplated by such
Section 6.1(b)(ii) or (iii), as applicable or (iii) Representatives sufficient
to yield a Majority Vote if the action being taken without a meeting is not
covered by either clause (i) or (ii) immediately preceding. Any such consent
shall be filed with the minutes of proceedings of the Management Committee and
shall have the same force and effect as a vote at a meeting. Subject to the
requirement for notice of such meetings, Representatives may participate in a
meeting of the Management Committee by means of a conference telephone or
similar communications equipment, by means of which all persons participating
in the meeting can hear each other, and participation in such meetings shall
constitute presence in person at the meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not properly
called or convened.

(f) Designation; Powers. The Management Committee may delegate to one
or more Persons, or designate one or more committees, that shall have and may
exercise such of the powers and authority of the Management Committee with
respect to the management of the business and affairs of the Company as may be
provided in a written resolution of the Management Committee.

(g) Substitution of Members. Each Representative on the Management
Committee may designate one or more persons to act as its alternate, which
alternate may replace such Representative at any meeting of the Management
Committee.

(h) Compensation of Representatives. The Representatives shall not be
compensated for their services in such capacity.

(i) Member Managed Company. The Members agree that the Company shall
constitute a member managed limited liability company for purposes of the Act.

(j) PUHCA Voting Matters. If at the time the Project commences the
production of electricity for sale, (i) the Project or any Member that requires
an exemption from PUHCA in order to vote fully its interest and to own and
operate the Project (a "PUHCA-Restricted Member") shall have failed to obtain a
determination from the Federal Energy Regulatory Commission of its status as an
"exempt wholesale generator" pursuant to Section 32(a)(1) of PUHCA; or (ii) the
Project shall have failed to qualify as a "foreign utility company" within the
meaning of section 33 of PUHCA, or a PUHCA-Restricted Member shall have failed
to obtain the State commission certification required by section 33(a)(2) of
PUHCA for exemption of the Project as a "foreign utility company" pursuant to
section 33(A)(1) of PUHCA (any such event being hereinafter referred to as a
"PUHCA Exemption Event"), then the voting interest of the Representative
appointed by such PUHCA-Restricted Member with respect to matters before the
Management Committee shall not exceed the voting interest that corresponds to a
4.9% Sharing Ratio (regardless of the actual Sharing Ratio of such
PUHCA-Restricted Member), and the remaining Sharing Ratio of such
PUHCA-Restricted Member shall be voted pro rata

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by the Representatives appointed by the non-PUHCA-Restricted Members of the
Management Committee in their sole discretion. If a PUHCA Exemption Event shall
have occurred, then the PUHCA-Restricted Member and its Representative shall
not take any actions that would constitute a controlling influence with respect
to the Project, either through its interest in the Company or through any
direct relationship with the Company, the Limitada or the Project, so as to
make it necessary or appropriate for the Securities and Exchange Commission to
subject such Member to the obligations, duties, and liabilities imposed by
PUHCA upon "holding companies," as such term is defined in PUHCA.
Notwithstanding the provisions of this Section 6.1(j) relative to voting, the
Economic Interest of a PUHCA-Restricted Member shall equal the actual Economic
Interest of such PUHCA-Restricted Member. At such time as the PUHCA-Restricted
Member is permitted (insofar as PUHCA is concerned) to vote fully its interest
and to own and operate the Project, the voting interest of such Member shall
return to its original full interest and the restrictions on its ability to
take actions that would constitute a controlling influence with respect to the
Project shall no longer apply.

6.2 MANAGEMENT. In connection with the management of the business and
affairs of the Company, the Management Committee, subject to Section 6.1 shall
have full power and authority to do all things and on such terms as it, in its
sole discretion, may deem necessary or appropriate to conduct the business of
the Company, to exercise all powers set forth in Section 2.4(b) and to
effectuate the purposes set forth in Section 2.4(a), including, without
limitation, (i) the making of any expenditures, the lending or borrowing of
money, the assumption or guarantee of, or other contracting for, indebtedness
and other liabilities, the issuance of evidences of indebtedness and the
incurring of any other obligations; (ii) the making of tax, regulatory and
other filings, or rendering of periodic or other reports to governmental or
other agencies having jurisdiction over the business or assets of the Company;
(iii) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any or all of the assets of the Company or the
merger or other combination of the Company with or into another Person; (iv)
the use of the assets of the Company (including, without limitation, cash on
hand) for any purpose consistent with the terms of this Agreement; (v) the
negotiation, execution and performance of any contracts, conveyances or other
instruments; (vi) the distribution of Company cash; (vii) the creation of
offices (such as "President," "Vice-President," "Secretary," etc.) and the
selection and dismissal of officers, employees and agents, outside attorneys,
accountants, consultants and contractors and the determination of their
compensation and other terms of employment or hiring; (viii) the maintenance of
insurance for the benefit of the Company; (ix) the control of any matters
affecting the rights and obligations of the Company, including, without
limitation, the bringing and defending of actions at law or in equity and
otherwise engaging in the conduct of litigation and the incurring of legal
expense and the settlement of claims and litigation; and (x) the
indemnification of any Person against liabilities and contingencies to the
extent permitted by law.

6.3 NATURE OF THE RELATIONSHIP. (a) During the existence of the
Company, each Member (acting through the Representative appointed by such
Member) shall devote such time and effort to the Company business and
operations as shall be necessary to perform its obligations hereunder;
provided, however, it is specifically understood and agreed that no Member's
Representative shall be required to devote full time to Company business, and
except as provided in Section 6.3(b) immediately below, nothing contained in
this Agreement shall be construed as restricting in any way the right and
ability of Affiliates of the Members at any time and from time to time to
engage in and possess interests in other business ventures of any and every
type and description, independently or with others.

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(b) Each Member expressly acknowledges and agrees that its
relationship to the Company and to each other Member, to the extent established
by virtue of its execution of this Agreement and participation in the Project
as the owner of a Company Interest, is strictly contractual in nature and,
except to the extent provided in Section 2.7(b), is not that of partners, joint
venturers or any similarly situated Persons. Accordingly, the Members
acknowledge and agree that no Member owes the Company or any other Member a
fiduciary or other duty as a result of its being a Member, and except with
respect to the Project and as set forth in the proviso below:

(i) neither the Company, any Member nor any other Person shall
have any rights by virtue of this Agreement or the limited liability
company relationship established hereby in any business venture of such
Member or any of its Affiliates, and such Member and its Affiliates
shall have no obligation to offer any interest in any such business
ventures to, or otherwise account to, the Company, any Member or any
other Person,

(ii) the activities of any Affiliates of a Member that are in
direct or indirect competition with the activities of the Company or any
of its Affiliates are hereby approved by the Company and all Members,
except that it is agreed that Maple shall not, and shall cause its
Affiliates not to, (A) compete with the Company or the Limitada with
respect to the sale by the Limitada of natural gas to the thermoelectric
power generation facilities owned by Electro Ucayali S.A. or its
successor located in the District of Yarinacocha, Province of Coronel
Portillo, Department of Ucayali, Republic of Peru unless and to the
extent the Limitada has elected not to pursue such sales (and if such
power generation facilities are not available to the Limitada as a
market for its natural gas, Maple shall, and shall cause its Affiliates
to, give the Limitada priority with respect to purchasers of natural gas
in the Pucallpa area as selected by the Limitada, up to a maximum volume
of 3.6 MMCf per Day) and (B) compete against the Limitada's natural gas
marketing efforts in the Pucallpa area, except that Maple and its
Affiliates may sell refined products in the Pucallpa area to the extent
such refined products are refined at the facilities of Maple or its
Affiliates in the Pucallpa area from hydrocarbon production in the
Ucayali Basin as described on Exhibit 6.3(b)(ii); and

(iii) subject to the terms of Section 6.3(b)(ii), it shall be
deemed not to be a breach of any obligation of any type whatsoever of a
Member for such Member to permit one of its Affiliates to engage in a
business opportunity in preference or to the exclusion of the Company or
any of the Members; provided, however, that:

(A) any projects involving (1) expansions within the
power plant site constituting a part of the Power Project or (2)
oil and gas exploration and production activities (including the
use of the Company's reserves) relating to the Cushabatay Sand
formation within the geographic area covered by the License (the
"Company Projects") may only be undertaken by the Company and not
individually by any Member or its Affiliates, and

(B) with respect to any other projects involving the
use of Gas Project assets (the "Related Gas Projects"), each
Management Member and its Affiliates shall have the right, after
the Commencement of Commercial Operations and provided that such

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<PAGE> 36
Member or Affiliate thereof shall first offer to the other
Management Members an opportunity to participate on a pro rata
basis in such Related Gas Project on the same basis as such
Member or Affiliate thereof, to utilize any Gas Project assets
(to the extent of any excess capacity existing at the time such
utilization commenced and expected to continue to exist) in
exchange for (1) the payment to the Company of the "net
incremental cost" associated with such usage and (2) the
indemnification by such participating Members or their
participating Affiliates of the Company and the Limitada for any
loss, cost, damage or expense suffered or incurred by the Company
or the Limitada as a result of such utilization of any Gas
Project assets.

(c) No Member shall take, or cause or permit its, or its Affiliates',
officers, employees or agents (including its Representative) to take, any
action that would bind or obligate the Company in any manner not expressly
authorized by this Agreement or by the Management Committee. The Representative
designated by each Member, and such Member, may grant or withhold their
consent, approval or vote, in their sole judgment, as directed or otherwise
determined by such Member, without regard to the interests of the other
Members, it being understood that each Representative represents only the
interests of the Member that appointed such Representative and each such Member
shall have no fiduciary duty or other duty to represent or act in the best
interests of any of the other Members.

6.4 DEADLOCK RESOLUTION. In the event the Management Committee has
voted on a matter covered by Section 6.1(b)(ii) and a Majority Vote has been
obtained but the required per capita vote of the Representatives is deadlocked
with three Representatives voting for such matter and three Representatives
voting against such matter (such situation being herein referred to as a
"Deadlock"), any Management Member shall have the right to invoke the following
buy-sell procedures:

(a) any Management Member may, by notice to the other
Management Members, request that the Deadlock be resolved, and the
Management Members shall negotiate in good faith for 30 Days to resolve
such Deadlock or disagreement (it being agreed that if such Deadlock is
not resolved by the Management Members on or before the 20th day of such
30-Day period, the Management Members shall refer such Deadlock to the
appropriate senior management of such Management Members for
resolution); and

(b) if the Management Members shall not have resolved such
Deadlock within such 30-Day period, then

(i) Any Management Member (the "Initiating Member")
shall have the right to initiate the buy/sell procedure described
in this Section 6.4(b) by delivering to the other Management
Members a notice (the "Buy/Sell Notice") designating the price
per Unit at which such Initiating Member would be willing to sell
all, but not less than all, of its Company Interest or buy all,
but not less than all, of the Company Interest of one of the
other Management Members; it being agreed that (A) a Buy/Sell
Notice may not be given with respect to a Deadlock for which a
Buy/Sell Notice has already been given and (B) the Initiating
Member must designate which other Management Member such sale or
purchase would apply to and the other Management Member
designated must be a Management Member whose Company Interest, if
voted by such Member's

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<PAGE> 37

Representative in favor of the Initiating Member's position on
the issue that created the Deadlock, would eliminate the Deadlock
(such other Management Member being herein referred to as the
"Responding Member").

(ii) The Responding Member shall, by delivery of notice
(the "Second Notice") given to the Initiating Member within 30
Days after the giving of the Buy/Sell Notice, elect to either (A)
purchase all, but not a part, of the Company Interest of the
Initiating Member for the designated price, or (B) sell all, but
not a part of, its Company Interest to the Initiating Member for
the designated price; provided, however, that (1) the transaction
resulting from such election shall be subject to the preferential
purchase right provisions set forth in Section 9.1(c) (except
that the selling Member shall not be eligible to participate
therein) and (2) if the Responding Member fails to deliver the
Second Notice prior to the expiration of such 30-Day period, the
Initiating Member shall have the right (but not the obligation)
to notify the Responding Member of its desires to sell its
Company Interest to the Responding Member at the designated price
or purchase the Company Interest of the Responding Member at the
designated price, which notice must be delivered on or before the
60th Day after the giving of the Buy/Sell Notice.

(iii) On the purchase date (which date shall be selected
by the purchasing party but in no event later than 120 Days after
the Buy/Sell Notice) and at a mutually agreeable closing location
located in the Cayman Islands (or such other location as may be
agreed upon by the selling Member and the purchasing Member), the
selling Member shall sell, and the purchasing Member shall
purchase, the selling Member's Company Interest for the
designated price, which shall be payable in cash on such date and
shall be effected pursuant to one or more instruments of the type
contemplated by Sections 10.4 (a)(i) and (ii).

(iv) Notwithstanding anything to the contrary set forth
herein, at any time prior to the 30th Day following the date of
the Buy/Sell Notice, any Member may elect by notice to the other
Management Members to resolve the Deadlock by acquiescing to the
recommendation of the other Management Members, in which event
any ongoing buy/sell transactions arising out of such Deadlock
shall be terminated.

(v) The purchasing and selling Member shall cooperate
with each other with respect to any purchase and sale pursuant to
this Section 6.4, and shall act in a manner so as to effect an
efficient continuation of the business and affairs of the
Company.

(vi) If the purchasing party shall fail to complete its
acquisition of the applicable Company Interest pursuant to this
Section 6.4 for the reasons other than the breach by the selling
Member of any of its obligations hereunder, the selling Member
may elect (A) to purchase the purchasing Member's Company
Interest for a purchase prior equal to 90% of the designated
purchase price, with the closing of the purchase and sale of such
Company Interest to take place within 15 Days after notice is
given by the selling Member to the purchasing Member of its
election to apply this

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provision, which notice must be given within 10 Days of such
failure by the purchasing Member) or (B) to cancel the Buy/Sell
Notice or the Second Notice, as the case may be.

ARTICLE 7
INDEMNIFICATION

7.1 RIGHT TO INDEMNIFICATION. (a) Subject to the limitations and
conditions as provided in this Article 7, each Person (or Affiliate thereof)
who was or is made a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative (a
"Proceeding"), or any appeal in such a Proceeding or any inquiry or
investigation that could lead to such a Proceeding, by reason of the fact that
such Person, or an Affiliate of such Person, (i) is or was a Member of the
Company or (ii) was involved prior to the date hereof in negotiations to become
a Member of the Company and either became a Member itself or had an Affiliate
become a Member on or prior to December 8, 1995, shall be indemnified by the
Company to the fullest extent permitted by the Act, against judgments,
penalties (including excise and similar taxes and punitive damages), fines,
settlements and reasonable expenses (including attorneys' fees) actually
incurred by such Person (or Affiliate thereof) in connection with such
Proceeding, and indemnification under this Article 7 shall continue as to a
Person who has ceased to serve in the capacity which initially entitled such
Person to indemnity hereunder. The foregoing indemnity shall cover the matter
described in Exhibit 14.15(a)(iv). The rights granted pursuant to this Article
7 shall be deemed contract rights, and no amendment, modification or repeal of
this Article 7 shall have the effect of limiting or denying any such rights
with respect to actions taken or Proceedings arising prior to any such
amendment, modification or repeal. It is expressly acknowledged that the
indemnification provided in this Article 7 shall not apply to actions
constituting bad faith, willful misconduct, gross negligence or breach of the
provisions of this Agreement or any other Project Agreement.

7.2 ADVANCE PAYMENT. The right to indemnification conferred in this
Article 7 shall include the right to be paid or reimbursed by the Company the
reasonable expenses incurred by a Person of the type entitled to be indemnified
under Section 7.1 who was, is or is threatened to be made a named defendant or
respondent in a Proceeding in advance of the final disposition of the
Proceeding and without any determination as to the Person's ultimate
entitlement to indemnification; provided, however, that the payment of such
expenses incurred by any such Person in advance of the final disposition of a
Proceeding, shall be made only upon delivery to the Company of a written
affirmation by such Person of its good faith belief that it has met the
standard of conduct necessary for indemnification under this Article 7 and a
written undertaking, by or on behalf of such Person, to repay all amounts so
advanced if it shall ultimately be determined that such indemnified Person is
not entitled to be indemnified under this Article 7 or otherwise.

7.3 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS. The Company,
by adoption of a resolution by the Management Committee, may indemnify and
advance expenses to an officer, employee or agent of the Company to the same
extent and subject to the same conditions under which it may indemnify and
advance expenses to Members under this Article 7; and, the Company may
indemnify and advance expenses to Persons who are not or were not Members,
officers, employees or

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agents of the Company but who are or were serving at the request of the Company
as a member, manager, director, officer, agent or similar functionary of
another foreign or domestic entity against any liability asserted against such
Person and incurred by such Person in such a capacity or arising out of its
status as such a Person to the same extent that the Company may indemnify and
advance expenses to Members under this Article 7.

7.4 NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
advancement and payment of expenses conferred in this Article 7 shall not be
exclusive of any other right which a Member or other Person indemnified
pursuant to Section 7.3 may have or hereafter acquire under any Law, provision
of the Articles or this Agreement, agreement, vote of Members or otherwise.

7.5 INSURANCE. The Company may purchase and maintain insurance, at
its expense, to protect itself and any Person who is or was serving as a
Member, officer, employee or agent of the Company or is or was serving at the
request of the Company as a member, manager, director, officer, agent or
similar functionary of another foreign or domestic entity against any expense,
liability or loss, whether or not the Company would have the power to indemnify
such Person against such expense, liability or loss under this Article 7.

ARTICLE 8
TAXES

8.1 TAX RETURNS. The Company shall prepare and timely file all tax
returns required to be filed by the Company. Each Member shall furnish to the
Company all pertinent information in its possession relating to the Company's
operations that is necessary to enable the Company's tax returns to be timely
prepared and filed. The Company shall deliver a copy of each such Company
return to the Members on or before ten Days prior to the due date of any such
return, together with such additional information as may be required by the
Members in order for the Members to file their individual returns reflecting
the Company's operations. The Company shall bear the costs of the preparation
and filing of its returns.

8.2 TAX ELECTIONS. The Company shall make the following elections on
the appropriate tax returns:

(a) to adopt the calendar year as the Company's fiscal year;

(b) to adopt the accrual method of accounting;

(c) if a distribution of the Company's property as described
in Code Section 734 occurs or upon a transfer of Company Interest as
described in Code Section 743 occurs, on request by notice from any
Member, to elect, pursuant to Code Section 754, to adjust the basis of
Company's properties;

(d) to elect to amortize the organizational expenses of the
Company ratably over a period of 60 months as permitted by Section
709(b) of the Code;

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(e) to elect (if available) to be classified as a partnership
for United States federal and state tax purposes; and

(f) any other election the Management Committee may deem
appropriate and in the best interests of the Members.

Neither the Company nor any Member may make an election for the Company to be
excluded from the application of the provisions of subchapter K of chapter 1 of
subtitle A of the Code or any similar provisions of applicable state law and no
provision of this Agreement shall be construed to sanction or approve such an
election.

ARTICLE 9
DISPOSITION OF COMPANY INTERESTS

9.1 DISPOSITIONS AND ENCUMBRANCES OF COMPANY INTERESTS. (a) General
Restriction. A Member may not Dispose of or Encumber all or any portion of its
Company Interest except in strict accordance with this Section 9.1. Any
attempted Disposition or Encumbrance of all or any portion of its Company
Interest, other than in strict accordance with this Section 9.1, shall be, and
is hereby declared, null and void ab initio. The Members agree that breach of
the provisions of this Section 9.1 may cause irreparable injury to the Company
for which monetary damages (or other remedy at law) are inadequate in view of
(i) the complexities and uncertainties in measuring the actual damages that
would be sustained by reason of the failure of a Member to comply with such
provisions, (ii) the uniqueness of the Company business and the relationship
among the Members. Accordingly, the Members agree that the provisions of this
Section 9.1 may be enforced by specific performance.

(b) Dispositions of Company Interest.

(i) General Restrictions. Subject to the terms of Sections
9.1(b)(ii), (c) and (d), a Member may only Dispose of all or any portion
of its Company Interest with the approval of the Management Committee
(which approval shall not be unreasonably withheld); provided, however,
that the approval requirement set forth in this sentence shall not apply
to the following Dispositions:

(A) Dispositions by a Member of all or any portion of
its Company Interest to another Member or to an Affiliate of the
Member desiring to effect such Disposition; or

(B) Dispositions arising as a result of the death,
dissolution or bankruptcy of a Member, all of which are governed
by Article 10;

(ii) Admission of Assignee as a Member. Each Assignee that
receives a Company Interest and was not theretofore a Member shall only
be admitted to the Company as a Member effective upon the approval of a
majority of the Members (other than the Member from whom the Assignee
acquired its Company Interest) on a per capita basis (which approval may
be

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withheld or granted in the sole discretion of each such Member). If an
Assignee is admitted to the Company as a Member, it shall cease to have
the status of an Assignee. If an Assignee requests admission, but such
request is denied in accordance with this Section 9.1(b)(ii), the
Assignee shall continue to have the status of an Assignee and shall only
have the rights of an assignee under Section 18-702(b)(1) of the Act.

(i) Procedure. Should any Member at any time desire to Dispose
of all or a portion of its Company Interest (except to an Affiliate of
such Member, in which case the provisions of this Section 9.1(c) shall
not apply), such Member (the "Disposing Member") shall promptly give
notice thereof (the "Disposition Notice") to the Company and the other
Members. The Disposition Notice shall set forth all relevant information
with respect to the proposed Disposition, including the name and address
of the prospective acquirer, the purchase price (and any related
information that is required by Section 9.1(c)(ii)), the quantum of
Company Interest that is the subject of the Disposition, and any other
terms and conditions of the proposed Disposition. The Management Members
shall have the preferential right to acquire such Company Interest for
the same purchase price, and on the same terms and conditions, as are
set forth in the Disposition Notice, except as provided otherwise in
this Section 9.1(c). Each Management Member (other than the Disposing
Member if a Management Member) shall have 30 Days following its receipt
of the Disposition Notice in which to notify the Disposing Member
whether such Management Member desires to exercise its preferential
right; provided, however, that, if any Person elects to require
arbitration pursuant to Section 9.1(c)(ii)(B) and Article 11, then the
applicable deadline for all Management Members for delivering such
notice shall be 15 Days following the determination to be made pursuant
to such arbitration. (A notice in which a Member exercises such right is
referred to herein as an "Exercise Notice," and a Member that delivers
an Exercise Notice is referred to herein as a "Purchasing Member"). Any
Member that does not respond during the applicable period shall be
deemed to have waived such right. If there is more than one Purchasing
Member, each Purchasing Member shall participate in the purchase in the
same proportion that its Sharing Ratio bears to the aggregate Sharing
Ratios of all Purchasing Members (or on such other basis as the
Purchasing Members may mutually agree).

(ii) Non-Cash Consideration. If any portion of the purchase
price, as disclosed in the Disposition Notice, is to be paid in a form
other than cash, the following procedures shall be applicable:

(A) If any portion of the purchase price is to be
represented by a promissory note (which term shall include any
form of deferred payment obligation), the Disposition Notice
shall set forth the terms of such promissory note. With respect
to such portion of the purchase price, each Purchasing Member
shall have the option (to be elected in its Exercise Notice),
either (y) to deliver an equivalent promissory note, or (z) to
pay in cash an amount equal to the principal amount of such
promissory note.

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(B) If any portion of the purchase price is to be
payable in a form other than cash or a promissory note, the
Disposition Notice shall set forth the Disposing Member's best
estimate of the fair market value thereof. If one or more
Purchasing Members disagree with such estimate, and if such
disagreement is not resolved within 20 Days following delivery of
the Disposition Notice, any such Person, by notice to the others,
may require the determination of fair market value to be
determined by arbitration pursuant to Article 11. With respect to
such portion of the purchase price, each Purchasing Member shall
have the option, to be elected in its Exercise Notice, either (y)
to make such portion of the price in the same form as is
specified in the Disposition Notice, or (z) to pay in cash the
fair market value of such portion of the price, as so determined
by agreement or arbitration.

(iii) Closing. If the preferential right is exercised in
accordance with Section 9.1(c)(i), the closing of such purchase shall
occur at the principal place of business of the Company on the 30th Day
after the expiration of the preferential right period (or, if later, the
fifth Business Day after the receipt of all applicable regulatory and
governmental approvals to the purchase), unless the Disposing Member and
the Purchasing Members agree upon a different place or date. At the
closing, (A) the Disposing Member and the Purchasing Members shall
execute and deliver to each other (y) an assignment of the Company
Interest described in the Disposition Notice, in form and substance
reasonably acceptable to such Persons and (z) any other instruments
reasonably requested by the Disposing Member or the Purchasing Members
to give effect to the purchase, (B) the Purchasing Members shall deliver
to the Disposing Member the purchase price specified in the Disposition
Notice in immediately available funds, subject to any modifications
thereof required by Section 9.1(c)(ii) and (C) the Purchasing Members
shall, on a pro rata basis, reimburse the prospective acquirer
identified in the Disposition Notice for all costs and expenses incurred
by such prospective acquirer in connection with its due diligence
investigation of the Project, upon presentation of a reasonably detailed
invoice therefor, up to a maximum amount equal to the lesser of (1)
$500,000 and (2) 5% of the purchase price specified in the Disposition
Notice.

(iv) Waiver of Preferential Right. If no Management Members
deliver an Exercise Notice prior to the deadline therefor set forth in
Section 9.1(c)(i), the Disposing Member shall have the right, subject to
compliance with the provisions of this Section 9.1, to Dispose of the
Company Interest described in the Disposition Notice to the proposed
Assignee strictly in accordance with the terms of the Disposition Notice
for a period of 60 Days after the expiration of the preferential right
period. If, however, the Disposing Member fails so to Dispose of the
interest within such 60-Day period, the proposed Disposition shall again
become subject to the preferential right set forth in this Section
9.1(c).

(d) Requirements Applicable to All Dispositions and Admissions. In
addition to the requirements set forth in Section 9.1(b) or (c), as applicable,
any Disposition of a Company Interest or any portion thereof and any admission
of an Assignee as a Member, shall also be subject to the following
requirements, and such Disposition (and admission, if applicable) shall not be
effective unless such requirements are complied with; provided, however, that
the Management Committee may waive any of the following requirements:

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(i) Disposition Documents. The following documents must be
delivered to the Members and must be satisfactory, in form and
substance, to the Management Committee:

(A) Disposition Instrument. A copy of the instrument
pursuant to which the Disposition is effected.

(B) Ratification of Agreement. An instrument, executed
by the Member making the Disposition and its Assignee, containing
the following information and agreements, to the extent they are
not contained in the instrument described in Section
9.1(d)(i)(A):

(1) the notice address of the Assignee;

(2) after giving effect to the Disposition, the
Sharing Ratios and (if the Assignee is to be admitted as a
Member) the Commitments of the Member effecting the
Disposition and its Assignee (which together must total
the Sharing Ratio and the Commitment of the Member
effecting the Disposition before the Disposition);

(3) if the Assignee is to be admitted as a
Member, (aa) the Assignee's ratification of this Agreement
and agreement to be bound by it, and (bb) its confirmation
that the representations and warranties in Section
14.15(a) are true and correct with respect to it;

(4) if the Assignee is not to be admitted as a
Member, an acknowledgment by the Assignee that the Company
Interest acquired by it is subject in all respects to this
Agreement; and

(5) representations and warranties by the Member
and its Assignee (aa) that the Disposition (and admission,
if applicable), is being made in accordance with all
applicable Law, and (bb) that the matters set forth in
Sections 9.1(d)(i)(C) and (D) are true and correct.

(C) Securities Law Opinion. Unless the Company Interest
(or portion thereof) subject to the Disposition is registered
under the Securities Act and any applicable state securities Law,
a favorable opinion of the Company's legal counsel, or of other
legal counsel acceptable to the Management Committee, to the
effect that the Disposition (and admission, if applicable) is
being made pursuant to a valid exemption from registration under
those Laws and in accordance with those Laws.

(D) Restrictions on Disposition of Interests in a
Member. The Company must receive a favorable opinion of the
Company's legal counsel or legal counsel acceptable to the
Management Committee to the effect that the Disposition would not
result in the Company's being considered to have been terminated
within the meaning of Code Section 708.

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(E) OPIC Requirement. The Member effecting such
Disposition shall have proved to the satisfaction of the
Management Committee that such Disposition will not result in the
Company failing to be in compliance with OPIC's United States
percentage ownership requirements.

(ii) Payment of Expenses. The Member effecting a Disposition
and its Assignee shall pay, or reimburse the Company for, all costs and
expenses incurred by the Company in connection with the Disposition (and
admission, if applicable), including the legal fees incurred in
connection with the legal opinions referred to in Section 9.1(d)(i)(C)
and (D), on or before the tenth Day after the receipt by that Person of
the Company's invoice for the amount due. If payment is not made by the
date due, the Person owing that amount shall pay interest on the unpaid
amount from the date due until paid at a rate per annum equal to the
Default Rate.

(iii) Effective Date. Each Disposition (and admission, if
applicable) complying with the provisions of this Section 9.1 is
effective as of the first calendar Day of the month immediately
succeeding the month in which all of the requirements of this Section
9.1(d) have been met.

(e) Encumbrances of Company Interest. A Member may not Encumber all
or any portion of its Company Interest without the consent of the Management
Committee; provided, however, that this Section 9.1(e) shall not apply to
Encumbrances by a Member in favor of one or more lenders providing financing to
the Company as contemplated by Section 4.9, provided that the terms of the
instruments creating such Encumbrance are acceptable to the Management
Committee. If the Management Committee consents to the creation by a Member of
an Encumbrance on its Company Interest (other than in connection with a project
financing of the type contemplated by Section 4.9), the Member effecting such
Encumbrance shall ensure that the applicable secured party (i) acknowledges the
rights of the Members under Section 9.1(c) and Article 10 and (ii) agrees to
allow the exercise of such rights prior to any foreclosure by such secured
party or its assignees on the Company Interest subject to such Encumbrance.

9.2 DISPOSITIONS OF INTERESTS IN A MEMBER. Unless waived by the
Management Committee, no Member may cause or permit an interest, direct or
indirect, in itself to be Disposed of such that, after the Disposition the
Company would be considered to have terminated within the meaning of Code
Section 708.

ARTICLE 10
BUYOUT OPTION

10.1 BUYOUT EVENTS. This Article 10 shall apply to any of the
following events (each a "Buyout Event"):

(a) a Member shall dissolve, Resign or become a Bankrupt
Member; or

(b) a Member shall be the subject of a Change of Control.

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In each case, the Member with respect to whom a Buyout Event has occurred is
referred to herein as the "Affected Member."

10.2 PROCEDURE FOR MEMBER-RELATED BUYOUT EVENTS. If a Member shall
suffer a Buyout Event, the Affected Member (or its representative) shall
promptly give notice thereof to the Company and the other Management Members.
Upon the occurrence of a Buyout Event with respect to a Member, (a) if the
Buyout Event is of the type described in Section 10.1(a), the Company, and to
the extent the Company does not exercise same, the Management Members (other
than the Affected Member) on a pro rata basis and (b) if the Buyout Event is a
Change of Control, the Management Members (other than the Affected Member) on a
pro rata basis, shall have the option to acquire the Company Interest of the
Affected Member. In the case of Buyout Events of the type described in Section
10.1(a), the Company shall have the first right to acquire the Company Interest
of an Affected Member and may exercise such right by notifying the Affected
Member (or its representative) of such exercise within 30 Days following the
later of (i) the occurrence of such Buyout Event and (ii) the receipt by the
Company of the Affected Member's notice (such 30-Day period being herein
referred to as the "Company Option Period"). If the Company does not respond
during the Company Option Period, the Company shall be deemed to have waived
its right. If the Company elects or is deemed to have waived its right to
acquire the Company Interest of an Affected Member, or if the Company only
elects to acquire a portion of the Company Interest of an Affected Member, each
of the Management Members (other than the Affected Member) shall have the
option to acquire the Company Interest of the Affected Member, to the extent
the Company has not elected to do so. In such event, or in the case of a Buyout
Event consisting of a Change of Control, the Management Members (other than the
Affected Member) may exercise such right by notifying the Affected Member (or
its representative) and the Company of the exercise within 30 Days following
(A) if applicable, the date on which the Company notified the Management
Members of its decision with respect to its option to acquire the Company
Interest of the Affected Member or was deemed to have waived such option,
whichever occurs first or (B) if the Buyout Event is a Change of Control, the
later of the occurrence of such Buyout Event and the receipt by the Management
Members of the Affected Member's notice as required by the first sentence of
this Section 10.1. If more than one Management Member exercises its right, the
exercising Management Members shall participate in the purchase on a pro rata
basis.

10.3 PURCHASE PRICE. The Person that is required to sell its Company
Interest pursuant to this Article 10 is referred to herein as the "Seller," and
the Persons that exercise a right to purchase a Company Interest pursuant to
this Article 10 are referred to herein as the "Buyers." The purchase price for
a Company Interest being purchased pursuant to this Article 10 (the "Purchase
Price") shall be determined as provided in this Section 10.3. The Seller and
the Buyers shall attempt to agree upon the fair market value of the applicable
Company Interest. If those Persons do not reach such agreement on or before the
30th Day following the expiration of the Company Option Period (or the 30th Day
following the date on which the last Buyer exercised or waived its Option, if
applicable), any such Person, by notice to the others, may require the
determination of fair market value to be made by arbitration pursuant to
Article 11. Following the determination of fair market value by agreement or
arbitration (the "Fair Market Value"), the Purchase Price shall be determined
and paid in accordance with the following procedures:

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(a) the Purchase Price shall be the Fair Market Value;
provided, however, that if the Buyout Event is the Resignation or Change
of Control of the Affected Member, then the Purchase Price shall be (i)
the Fair Market Value less (ii) the amount of all monetary damages
suffered by the Company and the other Members as a result of such
Resignation or Change of Control (including indirect, incidental and
consequential damages); and

(b) at the closing, the Buyers shall pay the Seller 25% of the
Purchase Price and the remainder of the Purchase Price shall accrue
interest from the date of closing at a rate per annum equal to the
minimum rate chargeable under the Code without triggering the imputation
of interest for federal income tax purposes and shall be paid by the
Buyers in equal cash installments on a semi-annual basis over a 5 year
period.

The payment to be made to the Seller pursuant to this Article 10 shall be in
complete liquidation and satisfaction of all the rights and interest of the
Seller (and of all Persons claiming by, through, or under the Seller) in and in
respect of the Company, including any rights against the Company and (insofar
as the affairs of the Company are concerned) against the other Members, and
constitutes a compromise to which all Members have agreed pursuant to Section
18-502(b) of the Act.

10.4 CLOSING. If an option to purchase is exercised in accordance with
the other provisions of this Article 10, the closing of such purchase shall
occur at a mutually agreeable location in the Cayman Islands on the 30th Day
after the determination of the Fair Market Value pursuant to Section 10.3 (or,
if later, the fifth Business Day after the receipt of all applicable regulatory
and governmental approvals to the purchase), unless the parties to such closing
agree upon a different place or date. At the closing, (a) the Seller shall
execute and deliver to the Buyers (i) an assignment of the Seller's Company
Interest, in form and substance reasonably acceptable to the Buyers, containing
a general warranty of title as to such Company Interest (including that such
Company Interest is free and clear of any Encumbrances), and (ii) any other
instruments reasonably requested by the Buyers to give effect to the purchase;
and (b) the Buyers shall deliver to the Seller (i) the portion of the Purchase
Price required to be paid at the closing, in immediately available funds, and
(ii) one or more unsecured promissory notes reflecting the payment terms
established in Section 10.3.

10.5 RELATIONSHIP OF BUY-OUT, DISSOLUTION AND DISPOSITION PROVISIONS.
The following sets forth the relationship among this Article 10, Section
9.1 (regarding Dispositions of Company Interests and admission of Assignees),
Section 3.4 (regarding Resignations of Members) and Section 12.1 (regarding
dissolution):

(a) Dissolution. If the Buyout Event is the dissolution of the
Affected Member, then the Affected Member shall automatically cease to
be a Member upon the occurrence of such Buyout Event, and such Buyout
Event shall constitute a Dissolution Event under Section 12.1(a)(ii). If
the other Members purchase the Affected Member's Company Interest
pursuant to this Article 10, the Assignees of such Affected Member shall
have no further rights with respect to such Company Interest (except the
right to receive the Purchase Price in accordance with Sections 10.3 and
10.4), regardless of whether a Continuation Election is made. If,
however, the other Members do not purchase the Affected Member's Company
Interest pursuant to this Article 10, then the following procedures will
apply. If a Continuation Election

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is not made, the Assignees of the Affected Member shall receive the
applicable liquidating distribution described in Section 12.2(c)(iii).
If a Continuation Election is made, the Assignees of the Affected Member
may request admission to the Company as Members pursuant to Section
9.1(b)(ii). If such Assignees do not request admission, or if they
request admission and it is not granted pursuant to Section 9.1(b)(ii),
then such Assignees shall remain Assignees and shall only have the
rights of an assignee under Section 18-702(b)(1) of the Act.

(b) Bankruptcy. If a Buyout Event occurs as a result of the
Affected Member becoming a Bankrupt Member, then the Affected Member
shall not cease to be a Member, but such fact shall constitute a
Dissolution Event under Section 12.1(a)(ii). If the other Members
purchase the Affected Member's Company Interest pursuant to this Article
10, the Affected Member shall have no further rights with respect to
such Company Interest (except the right to receive the Purchase Price in
accordance with Sections 10.3 and 10.4), regardless of whether a
Continuation Election is made. If, however, the other Members do not
purchase the Affected Member's Company Interest pursuant to this Article
10, then the following procedures will apply. If a Continuation Election
is not made, the Affected Member shall receive the applicable
liquidating distribution described in Section 12.2(c)(iii). If a
Continuation Election is made, the Assignees of the Affected Member may
request admission to the Company as Members pursuant to Section
9.1(b)(ii). If such Assignees do not request admission, or if they
request admission and it is not granted pursuant to Section 9.1(b)(ii),
then such Assignees shall remain Assignees and shall only have the
rights of an assignee under Section 18-702(b)(1) of the Act. If there
are no Assignees of the Affected Member, the Affected Member shall be
deemed to be an Assignee and shall only have the rights of an assignee
under Section 18-702(b)(1) of the Act.

(c) Resignation. If the Buyout Event is the Resignation of the
Affected Member, then the Affected Member shall automatically cease to
be a Member upon such Resignation, and such Resignation shall constitute
a Dissolution Event under Section 12.1(a)(ii). If the other Members
purchase the Affected Member's Company Interest pursuant to this Article
10, the Affected Member shall have no further rights with respect to
such Company Interest (except the right to receive the Purchase Price in
accordance with Sections 10.3 and 10.4), regardless of whether a
Continuation Election is made. If, however, the other Members do not
purchase the Affected Member's Company Interest pursuant to this Article
10, then the following procedures will apply. If a Continuation Election
is not made, the Affected Member shall receive the applicable
liquidating distribution described in Section 12.2(c)(iii), less any
damages owed by the Affected Member to the Company and the Members
pursuant to Section 3.4. If a Continuation Election is made, the
Affected Member shall be deemed to be an Assignee and shall only have
the rights of an assignee under Section 18-702(b)(1) of the Act.

(d) Change of Control. If the Buyout Event is the Change of
Control of the Affected Member, then the Affected Member shall not cease
to be a Member and such Buyout Event, in itself, shall not constitute a
Dissolution Event. If the other Members purchase the Affected Member's
Company Interest pursuant to this Article 10, however, (i) such purchase
shall constitute an Expulsion of the Affected Member and, therefore, a
Dissolution Event under Section 12.1(a)(ii), and (ii) the Affected
Member shall have no further rights with respect to such Company
Interest (except the right to receive the Purchase Price in accordance
with

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Sections 10.3 and 10.4), regardless of whether a Continuation Election
is made. If, however, the other Members do not purchase the Affected
Member's Company Interest, then such Affected Member shall remain a
Member, and no Dissolution Event shall have occurred.

ARTICLE 11
ARBITRATION

11.1 SUBMISSION OF DISPUTES TO ARBITRATION. (a) This Article 11 shall
apply to any of the following types of disputes (each a "Dispute"):

(i) any dispute as to fair market value under Section
9.1(c)(ii) or 10.3;

(ii) any dispute as to any accounting or tax issue under this
Agreement; or

(iii) except for disputes described in the foregoing paragraphs
(i) and (ii), (A) any dispute regarding the construction,
interpretation, performance, validity, termination, or enforceability of
any provision of the Certificate of Formation or this Agreement, or
whether any Person is in compliance with, or breach of, any provisions
of the Certificate of Formation or this Agreement, or (B) any other
dispute of a legal nature arising under the Certificate of Formation or
this Agreement, it being intended that this Section 11.1(a)(iii) shall
not include any disputes of a purely business nature, such as disputes
as to business strategy.

With respect to a particular Dispute, each Person that is a party to such
Dispute (whether a Member or other Person) is referred to herein as a
"Disputing Party."

(b) If the Disputing Parties are unable to resolve a Dispute on or
before the 30th Day following written notice of such Dispute from a Disputing
Party to every other Disputing Party (or, in the case of Disputes described in
Section 9.1(c)(ii) or 10.3, the time period set forth in such Section), which
notice describes in reasonable detail the nature of the Dispute and the facts
and circumstances relating thereto, any Disputing Party may, by delivery of
written notice to every other Disputing Party, require that each Disputing
Party nominate a member of its senior management team for the purpose of
meeting at mutually agreeable time and place to resolve such Dispute. Such
meeting shall take place on or before the 15th Business Day following the date
of the notice requiring such meeting, and if the Dispute has not been resolved
within 15 Business Days following such meeting (or if a Disputing Party fails
to designate a member of its senior management team), any Disputing Party may
submit such Dispute to binding arbitration under this Article 11 by notifying
the other Disputing Parties (an "Arbitration Notice"). Any Arbitration Notice
must include a general description of the Dispute and a reference to the fact
that such Dispute is being referred to arbitration under this Article 11.
Except as otherwise expressly provided herein to the contrary, arbitration
pursuant to this Article 11 shall be the exclusive method of resolving Disputes
other than through agreement of the Disputing Parties.

11.2 SELECTION OF ARBITRATOR. Promptly following the delivery by a
Disputing Party to the other Disputing Parties of an Arbitration Notice, the
Disputing Parties shall endeavor to agree upon a

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panel of three arbitrators. If on or before the 15th Day following the delivery
of an Arbitration Notice they have not so agreed, then:

(a) if there are two Disputing Parties, each Disputing Party,

(b) if there are more than two Disputing Parties, each set of
Disputing Parties taking the same side of the dispute, or

(c) if there are more than two Disputing Parties and more than
two sides to the dispute, the Disputing Party or group of Disputing
Parties with the largest aggregate Sharing Ratio of all Disputing
Parties and the remaining Disputing Parties collectively,

by notice to the other Disputing Party(s), may designate one arbitrator. The
two arbitrators designated as provided in the immediately preceding sentence
shall endeavor to designate promptly a third arbitrator. If a Disputing Party
or group of Disputing Parties having the fight to designate an initial
arbitrator has not done so on or before the 15th day following the delivery of
an Arbitration Notice, or if the two initially designated arbitrators have not
designated the third arbitrator by the 15th day following the designation of
the second of such initially designated arbitrators, any Disputing Party may
request the International Chamber of Commerce to designate the remaining
arbitrator(s). If any arbitrator resigns, becomes incapacitated, or otherwise
refuses or fails to serve or to continue to serve as an arbitrator, the Person
entitled to designate that arbitrator shall designate a successor.

11.3 CONDUCT OF ARBITRATION. (a) The arbitration shall be conducted in
Washington, D.C., or such other place as the Disputing Parties may agree. The
arbitrators shall set the date, the time, and the place of the hearing, which
must commence on or before the 30th Day following the designation of the third
arbitrator. The hearing may be adjourned to later times and dates as the
arbitrators determine. The arbitration shall be conducted under the rules of
the International Chamber of Commerce not inconsistent with the provisions of
this Agreement. In connection with any such arbitration, the arbitrators shall
construe this Agreement in a manner consistent with the choice of law
provisions set forth in Section 14.7. The arbitrators shall endeavor to notify
any Disputing Party not present of any adjournment to other dates or places;
however, the proceedings may continue in the absence of any Disputing Party
that has received notice of the date, the time, and the place of the initial
session of the hearing. All hearings shall be conducted in English.

(b) The arbitrators shall endeavor to render their decision on or
before the 30th Day following the last session of the hearing. The arbitrators'
decision shall be set forth in a writing that includes an explanation of the
reasons for such decision and an allocation of the fees and expenses of the
arbitrators to the Disputing Parties based on the relative extent to which they
do not prevail on their positions. Each Disputing Party against which the
decision assesses a monetary obligation shall pay that obligation on or before
the 30th Day following the decision or such other date as the decision may
provide.

(c) The decisions of the arbitrators are final and binding on all
Disputing Parties and are not subject to appeal. The decisions of the
arbitrators may be enforced in any court of competent

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jurisdiction, and the Disputing Parties authorize any such court to enter
judgment on the arbitrators' decisions.

(d) Pending the outcome of any arbitration conducted pursuant to this
Article 11, the Members shall be obligated to continue to perform their
respective obligations hereunder.

(e) Each of the Disputing Parties hereby undertakes to carry out
without delay the provisions of any arbitral award or decision.

11.4 EXCLUSIVITY. EXCEPT AS EXPRESSLY PROVIDED HEREIN TO THE CONTRARY,
EACH MEMBER AGREES THAT ARBITRATION UNDER THIS ARTICLE 11 IS THE EXCLUSIVE
METHOD FOR RESOLVING ANY DISPUTE AND THAT IT WILL NOT COMMENCE AN ACTION OR
PROCEEDING BASED ON A DISPUTE, EXCEPT TO ENFORCE ARBITRATORS' DECISIONS AS
PROVIDED IN TIES ARTICLE 11 OR TO COMPEL THE OTHER MEMBERS TO PARTICIPATE IN
ARBITRATION UNDER THIS ARTICLE 11.

ARTICLE 12
DISSOLUTION, WINDING UP AND TERMINATION

12.1 DISSOLUTION. (a) Subject to Section 12.1(b), the Company shall
dissolve and its affairs shall be wound up on the first to occur of the
following events (each a "Dissolution Event"):

(i) the unanimous consent of the Management Committee;

(ii) a Member becomes a Bankrupt Member or the death,
Resignation, Expulsion or dissolution of any Member, or the occurrence
of any other event that terminates the continued membership of any
Member in the Company;

(iii) entry of a decree of judicial dissolution of the Company
under Section 18-802 of the Act; or

(iv) the close of Company business on December 31, 2045.

(b) If a Dissolution Event described in Section 12.1(a)(ii) shall
occur and there shall be at least two other Members remaining, the Company
shall not be dissolved, and the business of the Company shall be continued, if
all of the remaining Members so agree within 90 Days of the occurrence of such
Dissolution Event (such agreement is referred to herein as a "Continuation
Election").

12.2 WINDING UP AND TERMINATION. On the occurrence of a Dissolution
Event, unless a Continuation Election is made in the case of Dissolution Events
of the type described in Section 12.1(a)(ii), the Management Committee
(excluding the vote of the Representative whose appointing Member has suffered
a Dissolution Event) shall select one or more Members to act as liquidator. The
liquidator shall proceed diligently to wind up the affairs of the Company and
make final distributions as provided herein and in the Act. The costs of
winding up shall be borne as a Company

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expense. Until final distribution, the liquidator shall continue to operate the
Company properties with all of the power and authority of the Members. The
steps to be accomplished by the liquidator are as follows:

(a) as promptly as possible after dissolution and again after
final winding up, the liquidator shall cause a proper accounting to be
made by a recognized firm of certified public accountants of the
Company's assets, liabilities, and operations through the last calendar
day of the month in which the dissolution occurs or the final winding up
is completed, as applicable;

(b) the liquidator shall pay, satisfy or discharge from
Company funds all of the debts, liabilities and obligations of the
Company (including all expenses incurred in winding up and any advances
described in Section 4.5) or otherwise make adequate provision for
payment and discharge thereof (including the establishment of a cash
escrow fund for contingent liabilities in such amount and for such term
as the liquidator may reasonably determine); and

(c) all remaining assets of the Company shall, subject to the
terms of Section 2.9, be distributed to the Members as follows:

(i) the liquidator may sell any or all Company
property, including to Members, and any resulting gain or loss
from each sale shall be computed and allocated to the capital
accounts of the Members in accordance with the provisions of
Article 5;

(ii) with respect to all Company property that has not
been sold, the fair market value of that property shall be
determined and the capital accounts of the Members shall be
adjusted to reflect the manner in which the unrealized income,
gain, loss, and deduction inherent in property that has not been
reflected in the capital accounts previously would be allocated
among the Members if there were a taxable disposition of that
property for the fair market value of that property on the date
of distribution; and

(iii) Company property shall be distributed among the
Members in accordance with Section 5.3; and those distributions
shall be made by the end of the taxable year of the Company
during which the liquidation of the Company occurs (or, if later,
90 Days after the date of the liquidation).

All distributions in kind to the Members shall be made subject to the liability
of each distributee for costs, expenses, and liabilities theretofore incurred
or for which the Company has committed prior to the date of termination and
those costs, expenses, and liabilities shall be allocated to the distributee
pursuant to this Section 12.2. The distribution of cash and/or property to a
Member in accordance with the provisions of this Section 12.2 constitutes a
complete return to the Member of its Capital Contributions and a complete
distribution to the Member of its Company Interest and all the Company's
property and constitutes a compromise to which all Members have consented
within the meaning of Section 18-502(b) of the Act. To the extent that a
Member returns funds to the Company, it has no claim against any other Member
for those funds.

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12.3 DEFICIT CAPITAL ACCOUNTS. No Member will be required to pay to
the Company, to any other Member or to any third party any deficit balance
which may exist from time to time in the Member's capital account.

12.4 CERTIFICATE OF CANCELLATION. On completion of the distribution of
Company assets as provided herein, the Members (or such other Person or Persons
as the Act may require or permit) shall file a Certificate of Cancellation with
the Secretary of State, cancel any other filings made pursuant to Section 2.5,
and take such other actions as may be necessary to terminate the existence of
the Company. Upon the effectiveness of the Certificate of Cancellation, the
existence of the Company shall cease, except as may be otherwise provided by
the Act or other applicable Law.

ARTICLE 13
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS

13.1 MAINTENANCE OF BOOKS. The Members shall keep or cause to be kept
at the principal office of the Company complete and accurate books and records
of the Company, supporting documentation of the transactions with respect to
the conduct of the Company's business and minutes of the proceedings of its
Members and each committee of the Members. The records shall include, but not
be limited to, complete and accurate information regarding the state of the
business and financial condition of the Company; a copy of the Certificate of
Formation and this Agreement and all amendments thereto; a current list of the
names and last known business, residence, or mailing addresses of all Members;
and the Company's tax returns for the Company's six most recent tax years.

13.2 REPORTS. The Management Committee may cause to be prepared and
delivered to the Members such other reports as it may deem appropriate from
time to time. The Company shall bear the costs of all such financial statements
and reports.

13.3 ACCOUNTS. The Members shall establish one or more separate bank
and investment accounts and arrangements outside the United States for the
Company, which shall be maintained in the Company's name with financial
institutions and firms that the Management Committee deems appropriate. The
Members may not commingle the Company's funds with the funds of any Member;
provided, however, that the Company funds may be invested in a manner the same
as or similar to the Members' investment of their own funds or investments by
their Affiliates.

ARTICLE 14
GENERAL PROVISIONS

14.1 OFFSET. Whenever the Company is to pay any sum to any Member, any
amounts that Member or any of its Affiliates owes the Company which are then
due and payable may be deducted from that sum before payment.

14.2 NOTICES. Except as expressly set forth to the contrary in this
Agreement, all notices, requests or consents provided for or permitted to be
given under this Agreement must be in writing and

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must be delivered to the recipient in person, by courier or mail or by
facsimile, telegram, telex, cablegram or similar transmission; and a notice,
request or consent given under this Agreement is effective (a) upon receipt if
sent by personal delivery, mail, courier, telegram or cablegram or (b) upon the
sender's receipt of electronic confirmation of transmission, if sent by telex
or facsimile during regular business hours on a Business Day or (if not sent
during regular business hours or on a Business Day, on the next succeeding
Business Day). All notices, requests and consents to be sent to a Member must
be sent to or made at the addresses given for that Member on Exhibit A or in
the instrument described in Section 9.1(d)(i)(B) or 3.3, or such other address
as that Member may specify by notice to the other Members. Any notice, request
or consent to the Company must be given to all of the Management Members.
Whenever any notice is required to be given by Law or this Agreement, a written
waiver thereof, signed by the Person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of such
notice.

14.3 ENTIRE AGREEMENT, SUPERSEDURE. This Agreement and any agreements
of even date herewith among the Members constitutes the entire agreement of the
Members and their Affiliates relating to the formation and organization of the
Company and supersedes all prior contracts or agreements among such Persons
with respect to such matters, whether oral or written.

14.4 EFFECT OF WAIVER OR CONSENT. A waiver or consent, express or
implied, to or of any breach or default by any Person in the performance by
that Person of its obligations with respect to the Company is not a consent or
waiver to or of any other breach or default in the performance by that Person
of the same or any other obligations of that Person with respect to the
Company. Failure on the part of a Person to complain of any act of any Person
or to declare any Person in default with respect to the Company, irrespective
of how long that failure continues, does not constitute a waiver by that
Person of its rights with respect to that default until the applicable
statute-of-limitations period has run.

14.5 AMENDMENT OR RESTATEMENT. This Agreement may be amended or
restated only by a written instrument adopted, executed and agreed to by the
Management Committee; provided, however, that (a) an amendment or restatement
reducing a Member's Sharing Ratio or increasing its Commitment (other than to
reflect changes expressly contemplated by this Agreement) is effective only
with that Member's consent, (b) an amendment or restatement reducing the
required Sharing Ratio or other measure for any consent or vote in this
Agreement is effective only with the consent of Members having the Sharing
Ratio or other measure theretofore required, (c) amendments of the type
described in Section 6.1(b)(i) may be adopted as therein provided and (d)
amendments of the type described in Section 3.3 may be adopted as therein
provided.

14.6 BINDING EFFECT, NO THIRD-PARTY BENEFICIARIES; REMEDIES NOT
EXCLUSIVE. Subject to the restrictions on Dispositions set forth in this
Agreement, this Agreement is binding on and inures to the benefit of the
Members and their respective heirs, legal representatives, successors, and
assigns. Except to the extent Article 7 hereof provides otherwise, this
Agreement is solely for the benefit of the Members and their respective
successors and permitted assigns, and this Agreement shall not otherwise be
deemed to confer upon or give to any other third party any remedy, claim,
liability, reimbursement, cause of action or other right. Except as otherwise
expressly stated in this Agreement, the rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any party
hereto shall not preclude or constitute a waiver of its right to use any or all
other remedies. Such rights and

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remedies are given in addition to any other rights and remedies a party may
have by law, statute or otherwise.

14.7 GOVERNING LAW, SEVERABILITY. THIS AGREEMENT IS GOVERNED BY AND
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE,
EXCLUDING ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE
GOVERNANCE OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER
JURISDICTION. In the event of a direct conflict between the provisions of this
Agreement and (a) any provision of the Certificate of Formation, or (b) any
mandatory, non-waivable provision of the Act, such provision of the Certificate
of Formation or the Act shall control. If any provision of the Act provides
that it may be varied or superseded in the regulations of a limited liability
company (or otherwise by agreement of the members or managers of a limited
liability company), such provision shall be deemed superseded and waived in its
entirety if this Agreement contains a provision addressing the same issue or
subject matter. If any provision of this Agreement or the application thereof
to any Person or circumstance is held invalid or unenforceable to any extent,
the remainder of this Agreement and the application of that provision to other
Persons or circumstances is not affected thereby and that provision shall be
enforced to the greatest extent permitted by Law.

14.8 FURTHER ASSURANCES. In connection with this Agreement and the
transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may
be necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.

14.9 WAIVER OF CERTAIN RIGHTS. Each Member irrevocably waives any
right it may have to maintain any action for dissolution of the Company or for
partition of the property of the Company.

14.10 LANGUAGE. This Agreement has been drafted and executed in
English, and the English version shall prevail over any translations.

14.11 INDEMNIFICATION. To the fullest extent permitted by Law, each
Member shall indemnify the Company and each other Member and hold them harmless
from and against all losses, costs, liabilities, damages, and expenses
(including costs of suit and attorney's fees) they may incur on account of any
breach by the indemnifying Member of any of its representations, warranties or
obligations under this Agreement.

14.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if all signing parties had signed the same
document. All counterparts shall be construed together and constitute the same
instrument.

14.13 DIRECTLY OR INDIRECTLY; WITHOUT LIMITATION. Where any provision
in this Agreement refers to action to be taken by any Person, or which such
Person is prohibited from taking, such provision shall be applicable whether
such action is taken directly or indirectly by such Person, including actions
taken by or on behalf of any Affiliate of such Person. Throughout this
Agreement, the term "including" and words to the same or similar effect shall
be interpreted and construed to mean "including without limitation."

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14.14 REFERENCES. All references herein to one gender shall include the
others and the singular shall include the plural and vice versa as appropriate.
All references to an entity shall be deemed to include its successors and
assigns, to the extent succession or assignment is not restricted by this
Agreement. Unless otherwise expressly provided, all references to "Articles" or
"Sections" are to Articles or Sections of this Agreement and all references to
"Exhibits" are to the exhibits attached hereto, each of which is made a part
hereof for all purposes.

14.15 REPRESENTATIONS AND WARRANTIES. (a) Each Member hereby represents
and warrants to the Company and each other Member that

(i) It is a duly organized, validly existing entity of the
type described in the introduction to this Agreement and is in good
standing under the laws of the jurisdiction of its formation. It has all
requisite power and authority to enter into and to perform its
obligations under this Agreement.

(ii) Its execution, delivery, and performance of this Agreement
have been duly authorized, and do not and will not (A) violate any law,
rule, regulation, order, or decree applicable to it, (B) violate its
organizational documents or (C) contravene or constitute a default or
breach under any instrument, indenture, agreement or other obligation to
which it or one of its Affiliates is a party or by which it or such
Affiliate is bound; provided, however, that with respect to Maple, such
representation and warranty shall be subject to the receipt by Maple or
Maple Peru of any consents or approvals by PeruPetro S.A., the making by
Maple or Maple Peru of any notices, registrations, recordations or
filings, or the taking of any other actions by PeruPetro S.A., any
public registrar, the government of Peru or any ministry, agency or
instrumentality thereof, in each case, to the extent same is required in
order to effect the Maple Assignment (such matters being herein referred
to as the "Maple Assignment Approvals").

(iii) This Agreement is a legal and binding obligation of that
Member, enforceable against that Member in accordance with its terms,
except to the extent enforceability is modified by bankruptcy,
reorganization and other similar laws affecting the rights of creditors
generally and by general principles of equity.

(iv) Except as described in Exhibit 14.15(a)(iv), there is no
litigation pending or, to the best of its knowledge, threatened to which
that Member or any of its Affiliates is a party that, if adversely
determined, could have a material adverse effect on the financial
condition, prospects, or business of the Project or that Member's
ability to perform its obligations under this Agreement.

(v) In the case of Scudder, the financial statements provided
by such Member to the other Members fairly present the financial
position and results of operations of such Member for the fiscal periods
covered thereby, and each of such financial statements has been prepared
in conformity with generally accepted accounting principles applied on a
consistent basis (except as otherwise stated therein or in the notes
thereto). Since the dates of such financial statement, no event has
occurred that has had a material adverse impact on the financial
position of Scudder. Scudder also represents and warrants to the Company
and each other Member

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(i) the only owners of equity interests in Scudder are CMS Generation
Co., Corporacion Andina de Fomento, the International Finance
Corporation and NRG International, Inc., (ii) each such member has
entered into a Class A Member Share Subscription Agreement dated July
14, 1995, with Scudder (as to each such member its "Subscription
Agreement"), (iii) pursuant to its Subscription Agreement each member
has agreed to invest in Scudder an amount equal to $24,791,175 (which
commitment amount is inclusive of commitments by such member to an
Affiliate of Scudder known as Scudder Latin American Power I-C)(iv) as
of the date hereof, the Project Committee of Scudder has not approved
investments by Scudder that, when taken together with investments that
have been approved by the Project Committee for Scudder Latin American
Power I-C, exceed an amount that would cause the aggregate remaining
uncommitted subscription obligations of the members of Scudder to be
less than the amount of Scudder's Commitment hereunder.

(vi) In connection with the Project, neither it nor any of its
agents has (A) violated any applicable law of the United States, Peru or
any other jurisdiction that may be applicable to the Project, the
Company or such member, (B) made any expenditure for other than lawful
purposes, (C) made, promised or authorized any payment or any gift of
anything of value to any government officials or customer
representatives, except such payments as are required by law and made to
such officials or representatives in other than their individual
capacities, or (D) otherwise taken any action that would constitute a
violation of the United States Foreign Corrupt Practices Act, 15 U.S.C.
Section 78dd-1 et seq.

(vii) Such Member is not acquiring its Company Interest with a
view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act of 1933, as amended.

(b) In connection with the initial formation of the Company and the
Maple Assignment, Maple hereby represents and warrants to the Company and each
other Member that:

(i) The Company is a Limited Liability Company duly organized,
validly existing and in good standing under the Laws of the State of
Delaware. The Company is not in violation of or default under any
provision of its Certificate of Formation or the Original L.L.C.
Agreement, or any law or regulation applicable to it. The Company is not
qualified to transact business as a foreign entity in any jurisdiction
and such qualification is not now required.

(ii) The Original L.L.C. Agreement is valid, subsisting, in
full force and effect and enforceable in accordance with its terms, and
neither Maple nor the Organizational Member is in default in any respect
thereunder.

(iii) As of the date hereof and except for certain bank accounts
that have been opened by the Company, the Company is not a party to or
otherwise bound by any agreement, contract or other commitment (whether
oral or written), does not own any property or assets (whether tangible
or intangible), and has no employees.

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(iv) As of the date hereof the Company has no liabilities or
obligations, whether known or unknown, absolute or contingent, or
otherwise, and whether due or to become due, and neither Maple nor the
Organizational Member is aware of any basis for any claim against the
Company for any liability or obligation. There is no action, suit,
proceeding or investigation pending or threatened against the Company,
and neither Maple nor the Organizational Member is aware of any basis
therefor.

(v) Maple and the Organizational Member are the sole members
of the Company, and they are the sole beneficial owners and record
holders of their respective Company Interests, free and clear of any
encumbrance, security interest, limitation or adverse claim of any kind.
Except for this Agreement, there are no options, warrants, rights or
agreements of any nature obligating the company to issue, directly or
indirectly, any units or other Company Securities, or otherwise to admit
any Person as a member of the Company.

(vi) Maple Peru is a branch duly created and validly existing
in accordance with the laws of Peru, as evidenced by Public Deed Number
2003 dated November 2, 1993, granted before the faith of Dr. Ricardo
Fernandini Barreda, Public Notary of the City of Lima, Peru, and
registered in the Public Commercial Registry (Registro Mercantil) of
Lima in Record No. 102512, and in Entry 1, Page 405, Volume 11 of the
Operating Contractors' Book of the Public Hydrocarbons Registry (Libro
de Contratistas de Operaciones del Registro Publico de Hidrocarburos).

(vii) Maple has all requisite corporate power and authority to
execute and deliver, and to perform its obligations under, the Maple
Assignment Agreement and to cause Maple Peru to execute and deliver, and
to perform its obligations under the Maple Assignment.

(viii) The execution, delivery and performance by Maple of the
Maple Assignment Agreement, and the taking by Maple of such action as
may be necessary to cause Maple Peru to execute, deliver and perform the
Maple Assignment Agreement, have been duly authorized by all requisite
corporate action on the part of Maple.

(ix) Except for the Maple Assignment Approvals, the execution
and delivery by Maple and Maple Peru of the Maple Assignment Agreement
or the other documents contemplated thereby, and the consummation by
each such Person of the transactions contemplated thereby or compliance
by each such Person with any of the terms thereof, does not and will not
(A) require approval of the equity owners or the holders of any
indebtedness or obligations of such Person, (B) contravene any law or
regulation applicable to or binding upon such Person or any of its
properties, (C) contravene any provision of the constituent documents of
such Person, (D) contravene or result in a breach of such Person or
constitute a default under any instrument, indenture, agreement or other
obligation to which such Person is a party or by which such Person or
any of its assets may be bound, or (E) require the consent or approval
of, the giving of notice to, the registration with, the recording or
filing of any document with, or the taking of any other action by or in
respect of, any governmental commission, authority or agency, or any
other person or entity whether foreign or domestic.

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(x) Upon the execution and delivery by Maple and Maple Peru of
the Maple Assignment Agreement, said agreement will constitute a legal,
valid and binding obligation of such Persons enforceable against each of
them in accordance with its terms.

(xi) The Assigned Assets (as said term is defined in the Maple
Assignment Agreement) constitute and include all agreements, rights and
other assets (tangible or intangible) used or held for use by Maple,
Maple Peru or their respective Affiliates in connection with the
Project.

(xii) Maple or Maple Peru, as applicable, has good title to all
of the Assigned Assets, free and clear of any encumbrance, security
interest, limitation or adverse claim of any kind.

(xiii) True, correct and complete copies of all Project
Agreements constituting a part of the "Assets" under the Maple
Assignment Agreement (the "Assigned Agreements") have been made
available when requested (either by copy or in the Maple data room in
Lima, Peru) by Maple to each of the other Members prior to the date
hereof. Each of the Assigned Agreements is valid, subsisting, in full
force and effect and enforceable in accordance with its terms. Neither
Maple nor Maple Peru is in default in any respect under any Assigned
Agreement, nor is either such Person aware of any other default under,
or of any event which with the giving of notice or the lapse of time or
both could result in a default under, any Assigned Agreement. Neither
Maple nor Maple Peru has received any notice from any other party to or
issuing authority of any Assigned Agreement of the termination or
revocation or threatened termination or revocation thereof, and neither
Maple nor Maple Peru is aware of the occurrence of any event which would
allow any such other party or authority to terminate or revoke any
Assigned Agreement. Neither Maple nor Maple Peru will modify, amend,
waive any provision of, or terminate any Assigned Agreement prior to the
Closing without the prior written consent of the Management Committee.

(xiv) All material permits, licenses, certificates, approvals,
concessions and authorizations (the "Governmental Approvals"), and all
easements and other surface, air and/or subsoil rights (the "Easement
Rights"), required under existing laws for the construction, ownership
and operation of the Project, and/or for the execution and performance
of the Assigned Agreements and the Project Agreements including those
listed on Exhibit 4.4(b) have either (A) been received or acquired, or
(B)(1) are not required at the present time, and (2) are reasonably
expected to be obtained in such a manner as to permit the timely
performance of all obligations contained in the Assigned Agreements and
the Project Agreements.

(xv) The Project to date has been and is currently being
executed in compliance with all applicable laws, regulations,
Governmental Approvals and Easement Rights.

(xvi) Except as described in Exhibit 14.15(a)(iv), there is no
action, suit, proceeding or investigation pending or, to the best of
Maple's knowledge, threatened against the Project.

(xvii) Neither Maple nor, to the best of Maple's knowledge, any
other Person has made any insurance claim in connection with the
Project.

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(xviii) The Lease Contract for the Pucallpa Refinery and Sales
Plant between Maple Peru and Petroleos del Peru-Petroperu S.A. (the
"Lease Agreement") is valid, subsisting, in full force and effect and
enforceable in accordance with its terms. Maple Peru is not in default
in any respect under the Lease Agreement, nor is Maple or Maple Peru
aware of any default under, or of any event which with the giving of
notice or the lapse of time or both could result in a default under, the
Lease Agreement. Neither Maple nor Maple Peru has received any notice
from any other party to the Lease Agreement of the termination or
threatened termination thereof, and neither Maple nor Maple Peru is
aware of the occurrence of any event which would allow any such other
party to terminate the Lease Agreement.

(xix) The presently contemplated location for the power plant
forming part of the Power Project is located within the "zone of
influence" of the "Integral Aguaytia Project," within the meaning of the
License. To the knowledge of Maple, the Limitada's acquisition,
ownership and/or use of the presently contemplated Power Project site(s)
will not violate any laws relating to "cultural wealth" (patrimonio
cultural).

(xxi) Except for such matters as are readily ascertainable from
a field visit to the proposed location of any material Project
facilities, Maple has accurately and completely disclosed to the other
Members, or made available for review in its data room in Lima, Peru,
all material information known to it regarding the Project which would
be required in order to render its other disclosure not misleading, or
the nondisclosure of which would otherwise be material to any Member.

14.16 OBSERVANCE OF LAWS. (a) Each Member shall comply with, shall
cause its Affiliates to comply with, and shall use all reasonable efforts to
cause the Company to comply with, all applicable laws, rules, and regulations
of Peru, the United States, or any other jurisdiction that are or may be
applicable to the Project or the Company's business and the Members' and their
Affiliates' activities in connection with the Project or such business,
including, without limitation, the Foreign Corrupt Practices Act.

(b) Each Member shall provide, on or before the 30th Day after notice
from another Member so requesting, the requesting Member with certification to
the effect that it has not, and its Affiliates have not, taken any action,
directly or indirectly, in violation of the laws referenced in clause (a)
above, including, without limitation, any laws dealing with illegal or improper
payments, gifts or gratuities.

14.17 DISCLOSURE OF INFORMATION. Each Member shall share with the other
Members the results of all studies or analyses conducted by or for the benefit
of such Member that involve the assessment of the feasibility or prospects for
success of the Project or any portions thereof (to the extent such information
has not already been communicated or distributed to the other Members). No
Member shall knowingly share false or misleading information with another
Member, but otherwise no Member shall have any liability in connection with any
information it shares with the other Members.

14.18 COMMUNICATIONS. Each Management Member shall, to the extent
practicable, give the other Management Members timely notice of and an
opportunity to participate in all material discussions relating to the Project
with PeruPetro S.A., Peruvian governmental authorities and other third parties
and

-54-
<PAGE> 60
shall, on a reasonable basis, provide all material information obtained from
any such discussions to the Management Committee.

14.19 SURVIVAL. The representations and warranties of the parties
contained in this Agreement, any other Project Agreement or any certificate
delivered pursuant hereto or thereto shall survive the Closing.

IN WITNESS WHEREOF, the Members have executed this Agreement as of the
date first set forth above.

MEMBERS:

THE MAPLE GAS CORPORATION PERU LTD.

By: /s/ REX W. CANON
-----------------------------------
Name: Rex W. Canon
---------------------------------
Title: Vice President
--------------------------------

P.I.D.C. AGUAYTIA, L.L.C.

By: /s/ JOHN T. SICKMAN
-----------------------------------
Name: John T. Sickman
---------------------------------
Title: Vice President
--------------------------------

EPED AGUAYTIA COMPANY

By: /s/ RANDOLPH L. WU
-----------------------------------
Name: Randolph L. Wu
---------------------------------
Title: Sr. Vice President
--------------------------------

IGC AGUAYTIA PARTNERS, L.L.C.

By: /s/ JON C. BANCKS
-----------------------------------
Name: Jon C. Bancks
---------------------------------
Title: Business Development Manager
--------------------------------
<PAGE> 61
SCUDDER LATIN AMERICAN POWER I-P, L.D.C.

By: /s/ J. SCOTT SWENSEN
-----------------------------------
Name: J. Scott Swensen
---------------------------------
Title: Lead Portfolio Manager
--------------------------------

PMDC AGUAYTIA, LTD.

By: /s/ PAUL T. CHAMPAGNE
-----------------------------------
Name: Paul T. Champagne
---------------------------------
Title: Vice President
--------------------------------

ORGANIZATIONAL MEMBER

THE MAPLE GAS CORPORATION

By: /s/ REX W. CANON
-----------------------------------
Name: Rex W. Canon
---------------------------------
Title: Executive Vice President
--------------------------------
<PAGE> 62
ATTACHMENT I
DEFINITIONS

As used in the Agreement, the following terms have the following
respective meanings set forth below or set forth in the provision of the
Agreement following such term:

$-refers to U.S. dollars.

ACT-third recital.

ADMINISTRATIVE SERVICES AGREEMENT-Section 4.4(j)(v).

ADVANCED AMOUNT-Section 4.1(b).

AFFECTED MEMBER-Section 10.1.

AFFILIATE-with respect to any Person, any other Person that (a)
owns or controls the first Person, (b) is owned or controlled by the
first Person or (c) is under common ownership or control with first
Person, where "own" means direct or indirect ownership of more than 50%
of the equity interest or rights to distributions on account of equity
of the Person and "control" means the direct or indirect power to direct
the management or policies of the Person, whether through the ownership
of voting securities, by contract, or otherwise; provided, however, that
(i) the Company shall not be considered to be an Affiliate of a Member
or of an Affiliate of a Member and (ii) with respect to Scudder, the
term "Affiliate" shall include any equity funds managed by Scudder,
Stevens & Clark, Inc.

AGREEMENT-introductory paragraph.

ARBITRATION NOTICE-Section 11.1(b).

ASSIGNED AGREEMENTS-Section 14.15(b)(xiii).

ASSIGNEE-any Person that acquires a Company Interest or any
portion thereof through a Disposition; provided, however, that, an
Assignee shall have no right to be admitted to the Company as a Member
except in accordance with Section 9.1(b)(ii). The Assignee of a
dissolved Member is the shareholder, partner, member or other equity
owner or owners of the dissolved Member to whom such Member's Membership
Interest is assigned by the Person conducting the liquidation or winding
up of such Member. The Assignee of a Bankrupt Member is the Person or
Persons (if any) to whom such Bankrupt Member's Membership Interest is
assigned by order of the bankruptcy court or other governmental
authority having jurisdiction over such Bankruptcy; or, in the event of
a general assignment for the benefit of creditors, the creditor to which
such Membership Interest is assigned.

BANKRUPT MEMBER-any Member (a) that (i) makes an assignment for
the benefit of creditors, (ii) files a voluntary petition in bankruptcy,
(iii) is adjudged a bankrupt or insolvent or has entered against the
Member an order for relief in any bankruptcy or insolvency
<PAGE> 63
proceeding, (iv) files a petition or answer seeking for the Member a
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation, (v)
files an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against the Member in a
proceeding of the type described in subclauses (i) through (iv) of this
clause (a) or (vi) seeks, consents to, or acquiesces in the appointment
of a trustee, receiver or liquidator of the Member or of all or any
substantial part of the Member's properties or (b) against which a
proceeding seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation has been commenced and 120 days have expired
without dismissal or stay thereof or with respect to which, without the
Member's consent or acquiescence, a trustee, receiver or liquidator of
the Member or of all or any substantial part of the Member's properties
has been appointed and 90 days have expired without the decree or order
making such appointment having been vacated or stayed, or 90 days have
expired after the date of expiration of a stay, if the appointment has
not previously been vacated.

BOARD APPROVAL-(a) with respect to Scudder, the approval by
Scudder's Project Committee of the execution and delivery by Scudder of
this Agreement and the performance by Scudder of its obligations
hereunder and (ii) in the case of PMDC, the approval by both the Board
of Directors of PMDC and the Unregulated Businesses Oversight Committee
of PP&L Resources, Inc., a Pennsylvania corporation, of the execution
and delivery by PMDC of this Agreement and the performance by PMDC of
its obligations hereunder.

BOOK VALUE-with respect to any asset, the adjusted basis of the
asset for U.S. federal income tax purposes, adjusted as follows:

(a) The initial Book Value of any asset contributed to
the Company by a Member shall be the fair market value of the
asset as of the date of contribution. The Members agree that the
Book Value of the Maple contribution in respect of the Maple
Assignment identified on Exhibit A shall be $13,300,000.

(b) The Book Value of each asset shall be its
respective fair market value, as of (i) the issuance of an
Interest in the Company to a new or existing Member in exchange
for a Capital Contribution, (ii) the distribution by the Company
to a Member in liquidation of the Member's interest in the
Company, and (iii) the liquidation of the Company within the
meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g).

(c) The Book Value of each asset distributed to any
Member will be the fair market value of the asset as of the date
of distribution.

(d) The Book Value of each asset will be increased or
decreased to reflect any adjustment to the adjusted basis of the
asset under Code Section 734(b) or 743(b), but only to the extent
that the adjustment is taken into account in determining Capital
Accounts under Treasury Regulation Section 1.704-1(b)(2)(iv)(m),
provided that the Book Value will not be adjusted under this
paragraph (d) to the extent that an adjustment under paragraph
(b) is necessary or appropriate in connection with a transaction
that would otherwise result in an adjustment under this paragraph
(d).

Attachment I
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<PAGE> 64
Book Value will be adjusted by book depletion and depreciation, and gain
or loss on a disposition of any asset shall be determined by reference
to such asset's Book Value as adjusted herein. The determination of the
fair market value of property shall be determined by the Management
Committee using any reasonable method of valuation.

BUDGET-Section 2.8(b).

BUSINESS DAY-any day other than a Saturday, a Sunday or a holiday
on which national banking associations in Dallas, Texas are required or
permitted by law to be closed.

BUYERS-Section 10.3.

BUY-IN-PRICE-Section 3.2.

BUYOUT EVENT-Section 10.1.

BUY/SELL NOTICE-Section 6.4(b)(i).

CAPITAL BUDGET-Section 2.8(b).

CAPITAL CONTRIBUTION-with respect to any Member, the amount of
money and the initial Book Value of any property (other than money)
contributed to the Company by the Member. Any reference in this
Agreement to the Capital Contribution of a Member shall include the
Capital Contributions of his predecessors in interest.

CAPITAL TRANSACTION-any transaction that results in the Company's
receipt of cash or other consideration other than Capital Contributions,
including proceeds of sales or exchanges or other Dispositions of
property not in the ordinary course of business, financings,
refinancings, condemnations, recoveries of damage awards, and insurance
proceeds, in each case that, in accordance with generally accepted
accounting principles, are considered capital in nature.

CASH MEMBERS-Maple (to the extent provided in the last sentence
of Section 3.2), Panhandle, El Paso, Illinova, Scudder and PMDC.

CERTIFICATE OF FORMATION-third recital.

CHANGE OF CONTROL-(a) with respect to any Member other than
Maple, that the Ultimate Parent of such Member on the date hereof has
ceased to own, directly or indirectly, at least (i) 5 1% of the issued
and outstanding voting equity interests of such Member, or 25% of such
issued and outstanding equity interests if no single Person (or "group"
of Persons as such term is defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended and including the rules and regulations
thereunder), other than the Ultimate Parent, owns more than 5% of the
balance of such equity interests and (ii) 25% of the rights to
distributions in respect of the issued and outstanding equity interests
of such Member and (b) with respect to Maple, that Jack Hanks, Rex
Canon, Tony Hines and Carlos Antonio de la Guerra Sison, as a group,
have ceased to own, directly or indirectly, at least (i) 51% of the
issued and outstanding voting equity interests of such Member, or 25% of
such issued and outstanding equity interest if no single Person (or
group" of Persons as such term is defined above), other than such
identified individuals, owns

Attachment I
Page 3
<PAGE> 65
more than 5% of the balance of such equity interest and (ii) 25% of the
rights to distribution in respect of the issued and outstanding equity
interests of such Member. For purposes of this definition, the "Ultimate
Parent" of a Member shall mean the Affiliate of such Member that is
neither owned nor controlled by another Person and shall include any
successors in interest by merger to such Affiliate; provided, however,
that in the case of each of Panhandle, El Paso, Illinova and PMDC (each,
an "Owner"), it is agreed that Panhandle International Development
Corporation, El Paso Energy Development Company, Illinova Generating
Company and Power Markets Development Company, respectively (each, a
"First Tier Sub"), shall be considered to be the Ultimate Parent of
their respective Owners, so long as the respective Entities that would,
but for this proviso, be their Ultimate Parents (each, an "Ultimate
Parent Owner"), owns, directly or indirectly, (x) 51% of the issued and
outstanding voting equity interests of their respective First Tier Subs,
or 25% of such issued and outstanding voting equity interests if no
single Person (or "group" of Persons as such term is defined above),
other than their respective Ultimate Parent Owners, own more than 5% of
the balance of such equity interests and (y) 25% of the rights to
distributions in respect of the issued and outstanding equity interests
of their respective First Tier Subs (where the terms "own" and "control"
shall have the meanings given such terms in the definition of the term
"Affiliate").

CLOSING-Section 4.3 (a).

CLOSING DATE-Section 4.3(a).

CLOSING DATE CAPITAL CONTRIBUTIONS-Section 4.3(a).

CODE-the United States Internal Revenue Code of 1986, and any
successor statute, as amended from time to time.

COMMENCEMENT OF COMMERCIAL OPERATIONS-the date on which all of
the conditions for transfer of care, custody and control from the
contractors under the EPC Agreements have been satisfied.

COMMITMENT-subject in each case to adjustments on account of
Dispositions of Company Interests permitted by this Agreement, (a) in
the case of a Member executing this Agreement as of the date of this
Agreement or a Person acquiring a Company Interest from such a Member,
the amount specified for that Member as its Commitment on Exhibit A, and
(b) in the case of a Member purchasing a Company Interest issued
pursuant to Section 3.3, the Commitment established pursuant thereto.

COMPANY-third recital.

COMPANY INTEREST-an interest in the Company, which shall include
Units or other Company Securities, and any rights attendant thereto,
including the right to a share of the income, gain, loss, deduction
and/or credits of, and the right to receive distributions from, the
Company.

COMPANY OPTION PERIOD-Section 10.2.

Attachment I
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<PAGE> 66
COMPANY PROJECTS-Section 6.3(b)(iii)(A).

COMPANY SECURITIES-Section 3.3(a).

CONFIDENTIAL INFORMATION-Section 3.5(b).

CONTINUATION ELECTION-Section 12.1(b).

DAY-a calendar day; provided, however, that, if any period of
Days referred to in this Agreement shall end on a Day that is not a
Business Day, then the expiration of such period shall be automatically
extended until the first succeeding Business Day.

DEADLOCK-Section 6.4.

DEBT PROCEEDS-Section 5.1(b).

DEFAULT NOTICE-Section 4.3(c)(i).

DEFAULT RATE-a rate per annum equal to the lesser of (a) 4% plus
a rate per annum equal to the rate per annum that is equal to the
interest rate published in the Wall Street Journal under the heading
"Money Rates" on the Day in question (or if the Wall Street Journal was
not published on such Day, the first Day immediately prior to such Day
for which a Wall Street Journal was published) or (b) the maximum rate
permitted by applicable law.

DISPOSE, DISPOSING OR DISPOSITION-with respect to any asset
(including Company Interests or any portion thereof), a sale,
assignment, transfer, conveyance, gift, exchange or other disposition of
such asset, whether such disposition be voluntary, involuntary or by
operation of Law, including the following: (a) in the case of an asset
owned by a natural person, a transfer of such asset upon the death of
its owner, whether by will, intestate succession or otherwise; (b) in
the case of an asset owned by an Entity, (i) a merger or consolidation
of such Entity, (ii) a conversion of such Entity into another type of
Entity, or (iii) a distribution of such asset in connection with the
dissolution, liquidation, winding-up or termination of such Entity
(unless, in the case of dissolution, such Entity's business is continued
without the commencement of liquidation or winding-up); and (c) a
disposition in connection with, or in lieu of, a foreclosure of an
Encumbrance; but such terms shall not include the creation of an
Encumbrance.

DISPOSING MEMBER-Section 9.1(c)(i).

DISPOSITION NOTICE-Section 9.1(c)(i).

DISPUTE-Section 11.1(a).

DISPUTING PARTY -Section 11.1(a).

DISSOLUTION EVENT-Section 12.1(a).

EASEMENT RIGHTS-Section 14.15(b)(xiv).

Attachment I
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<PAGE> 67
EL PASO-introductory paragraph.

ENCUMBER, ENCUMBERING, OR ENCUMBRANCE-the creation of a security
interest, lien, pledge, mortgage or other encumbrance, whether such
encumbrance be voluntary, involuntary or by operation of Law.

ENTITY-any corporation, limited liability company, partnership,
limited partnership, venture, trust, estate, governmental entity or
other entity.

EPC AGREEMENTS-Section 4.4(j).

EXCESS FINANCING PROCEEDS-Section 5.2(b).

EXERCISE NOTICE-Section 9.1(c)(i).

EXPEL, EXPELLED OR EXPULSION-the expulsion or removal of a Member
from the Company.

FAIR MARKET VALUE-Section 10.3.

GAS PROJECT-second recital.

GAS PROJECT EPC AGREEMENT-Section 4.4(j)(i).

GAS PROJECT O&M AGREEMENT-Section 4.4(j)(iv).

GOVERNMENTAL APPROVALS-Section 14.15(b)(xiv).

GUARANTY LETTER-the guaranty letter furnished by each Cash Member
other than Maple and Scudder pursuant to Section 4.1(d).

ILLINOVA-introductory paragraph.

INITIAL ADVANCED AMOUNT-Section 4.1(a)(ii).

INITIAL FUNDING DEFAULT NOTICE-Section 4.5(a).

INITIAL MEMBERS-Maple, Panhandle, El Paso, Illinova, Scudder and
PMDC.

INITIATING MEMBER-Section 6.4(b)(i).

LEASE AGREEMENT-Section 14.15(b)(xviii).

LEGAL STABILITY AGREEMENTS-Section 4.4(j)(vii).

LICENSE-first recital.

LIMITADA-Section 2.5(b).

Attachment I
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<PAGE> 68
LIMITADA CONTRIBUTIONS-Section 5.1(b).

MAJORITY VOTE-Section 6.1(b).

MANAGEMENT COMMITTEE-Section 6.1(a).

MANAGEMENT MEMBERS-Section 6.1(a).

MAPLE-introductory paragraph.

MAPLE ASSIGNMENT-Section 4.2(b).

MAPLE ASSIGNMENT AGREEMENT-Section 4.2(b).

MAPLE ASSIGNMENT APPROVALS-Section 14.15(a)(ii).

MAPLE PERU-first recital.

MEMBER-the Initial Members, the Organizational Member, any Person
hereafter admitted to the Company as a Member as provided in this
Agreement, but does not include any Person who has ceased to be a Member
in the Company.

NATURAL GASOLINE PURCHASE AGREEMENT-Section 4.4(j)(vi).

NET CAPITAL PROCEEDS-the proceeds received by the Company in
connection with a Capital Transaction after the payment of costs and
expenses incurred by the Company in connection with such Capital
Transaction, including brokers' commissions, loan fees, loan payments,
other closing costs and the cost of any alteration, improvement,
restoration or repair of any Company property necessitated by or
incurred in connection with such Capital Transaction and, if the Capital
Transaction is a financing or refinancing, after the payment of any
Company indebtedness that is repaid in connection with such financing or
refinancing.

NET CASH FLOW-all Net Capital Proceeds (other than Net Capital
Proceeds attributable to the TCW Financing, a Project Financing
Transaction or a Capital Transaction that is entered into in connection
with or which will result in the dissolution, winding up and termination
of the Company) and ail cash funds derived from operations of the
Company (including interest received on reserves), without reduction for
any non-cash charges, but less cash funds used to pay current operating
expenses and to pay or establish reasonable reserves for future
expenses, debt payments, capital improvements, and replacements as
determined by the Management Committee. Net Cash Flow shall not include
proceeds or costs included in the determination of Net Capital Proceeds
but shall be increased by the reduction of any reserve previously
established.

NGL-second recital.

NON-BUDGETED CAPITAL ITEMS-Section 6.1(b)(i)(D).

NOTIFYING PARTY-Section 4.6(a).

Attachment I
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<PAGE> 69
OPERATING BUDGET-Section 2.8(b).

OPIC-Section 4.4(l).

ORGANIZATIONAL MEMBER-introductory paragraph.

ORIGINAL L.L.C. AGREEMENT-third recital.

OUTSTANDING means, with respect to Units or other Company
Securities, all Units or other Company Securities that are issued by the
Company and reflected as outstanding on the Company's books and records
as of the date of determination.

PANHANDLE-introductory paragraph.

PERSON-any natural person or Entity.

PERUVIAN TAX BENEFITS-Section 5.1(b).

PERUVIAN TAX SAVINGS-Section 5.1(b).

PMDC-introductory paragraph.

POWER PLANT EPC AGREEMENT-Section 4.4(j)(ii).

POWER PROJECT-second recital.

POWER PROJECT O&M AGREEMENT-Section 4.3(b)(ix).

PRO RATA-with respect to the Members or any subgroup thereof, in
accordance with their relative Sharing Ratios or on such other basis as
the Members (or applicable subgroup thereof) may all agree.

PROCEEDING-Section 7.1.

PROFIT and LOSS-for each fiscal year of the Company (or other
period for which Profit or Loss must be computed), the Company's taxable
income or loss determined in accordance with the principles of Code
Section 703(a), with the following adjustments:

(a) all items of income, gain, loss and deduction
required to be stated separately pursuant to the principles of
Code Section 703(a)(1) shall be included in computing taxable
income or loss;

(b) any tax-exempt income of the Company, not otherwise
taken into account in computing Profit or Loss, shall be included
in computing taxable income or loss;

(c) any expenditures of the Company described in Code
Section 705(a)(2)(B) (or treated as such pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(i)) and not

Attachment I
Page 8
<PAGE> 70
otherwise taken into account in computing Profit or Loss, shall
be subtracted from taxable income or loss;

(d) gain or loss resulting from any disposition of
Company property shall be computed by reference to the Book Value
of the property;

(e) in lieu of the depletion, depreciation,
amortization or cost recovery deductions allowable in computing
taxable income or loss, there shall be taken into account
depreciation or amortization as determined for book purposes by
reference to the Book Value of property; and

(f) if the Book Value of an asset of the Company is
adjusted, any increase or decrease in the Book Value of the asset
as a result of the adjustment shall be treated as gain or loss,
respectively, from the disposition of the asset and shall be
taken into account in computing Profit or Loss.

PROJECT-second recital.

PROJECT AGREEMENTS-the Agreement, the License, the organizational
agreements for the Limitada, the Maple Assignment Agreement, the EPC
Agreements, the Legal Stability Agreements, the Gas Project O&M
Agreement, the Power Project O&M Agreement, the Administrative Services
Agreement, the Natural Gasoline Purchase Agreement, the Guaranty
Letters, the Governmental Approvals, the Easement Rights and the
contract of insurance between the Company and OPIC.

PROJECT FINANCING TRANSACTION-Section 4.9(a).

PUHCA-EXEMPTION EVENT-Section 6.1(j).

PUHCA-RESTRICTED MEMBER-Section 6.1(j).

PURCHASE PRICE-Section 10.3.

PURCHASING MEMBER-Section 9.1(c)(i).

QUALIFIED GUARANTOR-when used with respect to a Member, an Entity
whose long-term senior unsecured debt is rated investment grade or
better by one of Standard & Poor's Corporation, Moody's Investor's
Service or Duff & Phelps, or their respective successors and assigns to
the extent the primary business of any such successor or assign is the
rating of debt securities of corporate and other issues.

QUALIFYING SECURITY ARRANGEMENT-(i) as used in Section 3.1(c)
with respect to Scudder, a legal opinion similar in form and content to
the Scudder Legal Opinion, (ii) as used in Section 3.1(c) with respect
to a Member other than Scudder, a guaranty letter or agreement that is
issued by a Qualified Guarantor and is reasonably acceptable to the
Management Committee and (iii) as used in Sections 3.2 and 4.1(a) in the
case of Maple, either (A) a guarantee of Banco Wiese, Ltd. in
substantially the form of Exhibit 4.1(d)-l hereto or (B) a guarantee
from a Qualified Guarantor or other Entity reasonably acceptable to the
Management Committee in

Attachment I
Page 9
<PAGE> 71
substantially the form of Exhibit 4.1(d)-1 hereto, in either case
guaranteeing the payment by Maple of the cash Capital Contributions
required to be made by it pursuant to this Agreement (it being agreed
that the cash Capital Contributions required to be made by Maple shall
not include amounts previously funded).

RELATED GAS PROJECTS-Section 6.3(b)(iii)(B).

REPRESENTATIVE-Section 6.1(a).

RESIGN, RESIGNING OR RESIGNATION-the resignation, withdrawal or
retirement of a Member from the Company as a member. Such terms shall
not include any Dispositions of Company Interests (which are governed by
Section 9.1), even though the Member making a Disposition may cease to
be a Member as a result of such Disposition.

RESPONDING MEMBER-Section 6.4(b)(i).

RESTRICTED FINANCING PROCEEDS-Section 5.2.

SCUDDER-introductory paragraph.

SCUDDER LEGAL OPINION-Section 3.1(a).

SECOND NOTICE-Section 6.4(b)(ii).

SECRETARY OF STATE-the Secretary of State of the State of
Delaware.

SELLER-Section 10.3.

SHARING RATIO-as of the date of determination, (a) as to any
Member or Assignee holding Units, the quotient of the number of Units
held by such Member or Assignee divided by the total number of all Units
then Outstanding; provided, however, that following the issuance of any
additional Company Securities (other than Units) in accordance with the
terms hereof, proper adjustment shall be made by the Management
Committee to the Sharing Ratio represented by each Unit to reflect such
issuance, and (b) as to the holders of the additional Company Securities
(other than Units) issued by the Company in accordance with Section
3.3(a), the Sharing Ratio established as a part of such issuance.

SUBJECT AMOUNT-Section 4.10(a).

SUBJECT INTEREST-that portion of the Company Interest of Maple
which is attributable to the 20,000 Units received by Maple pursuant to
Section 4.1(a).

SUBSCRIPTION AGREEMENT-Section 14.15(a)(v).

TAX SAVINGS DISTRIBUTION-Section 5.1(b).

TCW FINANCING-Section 4.4(q).

Attachment I
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<PAGE> 72
TRANSMISSION FACILITIES EPC AGREEMENT-Section 4.4(j)(iii).

TREASURY REGULATIONS-the regulations promulgated by the United
States Department of the Treasury pursuant to and in respect of
provisions of the Code. All references herein to sections of the
Treasury Regulations shall include any corresponding provision or
provisions of succeeding, similar, substitute proposed or final Treasury
Regulations.

UNIT-means a Company Interest of a Member or Assignee
representing a fractional part of the Company Interests of all Members
and Assignees and having the rights and obligations specified with
respect to Units in this Agreement.

Attachment I
Page 11

<PAGE> 1
[LOGO] P.O. BOX 1492
EL PASO EL PASO, TEXAS 79978
NATURAL GAS COMPANY PHONE: 915-541-3156

WILLIAM A. WISE PRESIDENT AND CHIEF EXECUTIVE OFFICER

February 4, 1992

PERSONAL

Michael C. Holland
c/o Mojave Pipeline
5001 East Commercenter Drive
Suite 300
Bakersfield, California 93309

Dear Mike:

I am pleased to advise you that, effective on the date of El Paso
Natural Gas Company's ("Company") initial public offering of its common stock
(the "IPO"), you are awarded 10,000 phantom shares of restricted EPNG common
stock. This phantom restricted stock will vest 20%, 20%, 20% and 40%, on the
first, second, third and fourth anniversaries, respectively, of your continuous
employment with the Company or a subsidiary after January 15, 1992. During the
vesting period, these phantom shares may not be sold, transferred by gift,
assigned or otherwise disposed of or pledged, mortgaged, assigned as security
or otherwise encumbered. Following the IPO, dividends on these phantom shares
will be distributed to you.

The restrictions will lapse immediately in the event of your death or
permanent disability or upon a "change in control" of EPNG. Prior to BR's
distribution of the Company's common stock owned by BR to the stockholders of
BR, your phantom restricted shares would vest upon a "change in control" of BR.
The phantom stock will be forfeited if you retire, resign or are terminated by
the Company prior to the end of the vesting period.

You will also participate in a phantom EPNG nonqualified stock option
program. On January 15, 1992 a grant of 34,000 phantom EPNG nonqualified stock
options was placed in your name. The exercise price of these phantom options
will be the price at which shares of EPNG's common stock are offered to the
public ("IPO Price") in the initial public "offering of EPNG" common stock
("IPO").

The phantom grant will vest over a period of three years. One-third
(1/3) of the award will vest or be exercisable after you have completed the
first, second and third years, respectively, of continuous employment with the
Company or a subsidiary after January 15, 1992. Thereafter, the phantom option
may be exercised, in whole or in part, through January 15, 2002, unless
terminated earlier as a result of Plan provisions.

<PAGE> 2

PERSONAL
M. HOLLAND
FEBRUARY 4, 1992
PAGE 2

The phantom options are subject to all of the terms and conditions of
the Plan.

The phantom options would become immediately exercisable in the event
of your death or permanent disability or if there were a "change in control" of
EPNG. Your beneficiary would be able to exercise the phantom options for one
year following your death. You would be able to exercise your options for three
years after you become permanently disabled.

If you terminate from the Company, any unvested phantom options would
expire. Vested phantom options may be exercisable by you for up to three years
following your termination with Company approval. Vested phantom options would
expire upon your termination without Company approval.

If you retire from the Company, any unvested phantom options would
expire. Vested phantom options will be exercisable by you for up to three years
following your retirement.

An agreement that outlines the procedures for exercising vested
phantom restricted shares and vested EPNG phantom stock options will be
forwarded to you in the near future. If you have any questions, please call
Joel Richards.

Sincerely,

/s/ BILL

cc: J. Richards

<PAGE> 1

EL PASO NATURAL GAS COMPANY

EARNINGS PER COMMON SHARE
Form 10-K, Exhibit 11

Year Ended
December 31
-----------------------------------------------------------
1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C>
Income available for common stock dividends $85,363,000 $89,613,000 $91,673,000
Fully diluted average common shares outstanding 34,733,823 37,022,444 37,662,381
Fully diluted earnings per common share $ 2.4576 $ 2.4205 $ 2.4341
</TABLE>

Outstanding stock options of EPG are common stock equivalents but are
excluded from primary earnings per common share due to immateriality.

Year Ended
December 31
-----------------------------------------------------------
1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C>
Total primary earnings per common share $ 2.4746 $ 2.4463 $ 2.4635
Fully diluted earnings per common share $ 2.4576 $ 2.4205 $ 2.4341
Percent dilution 0.6870% 1.0547% 1.1934%
</TABLE>

<PAGE> 1

EL PASO NATURAL GAS COMPANY

RATIO OF EARNINGS TO FIXED CHARGES
Form 10-K, Exhibit 12
(Dollars in millions)

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss) from continuing operations $ 85 $ 90 $ 92 $ 76 $ 89
Income taxes (benefit) 48 58 59 47 52
---- ---- ---- ---- ----
Income (loss) from continuing operations
before income taxes 133 148 151 123 141
Interest and debt expense 85 76 71 68 74
Interest component of rent 3 3 3 3 2
---- ---- ---- ---- ----
Total Earnings Available for Fixed Charges $221 $227 $225 $194 $217
==== ==== ==== ==== ====

Fixed Charges (a)
Interest and debt expense 85 76 71 68 74
Interest component of rent 3 3 3 3 2
---- ---- ---- ---- ----
Total fixed charges $ 88 $ 79 $ 74 $ 71 $ 76
==== ==== ==== ==== ====

Ratio of Earnings to Fixed Charges (b) 2.51x 2.87x 3.04x 2.73x 2.86x
</TABLE>
- -----------------

(a) Fixed charges consist of interest, exclusive of interest on rate refunds,
plus interest capitalized, and a portion of operating lease rent expense
deemed to be representative of interest.

(b) The ratio of earnings to combined fixed charges and preferred and preference
stock dividend requirements for the periods presented would be the same as
the ratio of earnings to fixed charges since EPG has no outstanding
preferred stock or preference stock and therefore, no dividend
requirements.

<PAGE> 1
EXHIBIT 21

PARENT AND SUBSIDIARIES

The following is a list of El Paso Natural Gas Company and its
subsidiaries as of December 31, 1995.

State or
Place of
Company (1) Incorporation
----------- -------------

El Paso Natural Gas Company
Eastex Energy Inc. Delaware
Eastex Gas Production Company Delaware
Eastex Gas Storage and Exchange, Inc. Delaware
Eastex Gas Transmission Company Delaware
Eastex Hydrocarbons Inc. (2) Delaware
Eastex Power Marketing, Inc. Delaware
EPGM Canada Inc. Canada
Heath Petra Exploration, Inc. Delaware
Heath Petra Resources, Inc. Delaware
Premier Gas Company Oklahoma
The El Paso Company Delaware
El Paso Development Company Delaware
Ex-Mission Ranches, Inc. Delaware
El Paso Energy Development Company (3) Delaware
EPED Holding Company Delaware
EPED A Company Cayman Islands
EPED B Company Cayman Islands
EPED Ecuador Company Delaware
EPED SAM Holdings Company Delaware
El Paso Energy International Company Delaware
El Paso Field Services Company Delaware
El Paso Intrastate Company Delaware
El Paso Fuel Development Company Delaware
El Paso Gas Marketing Company (4) Delaware
El Paso Gas Services Company Delaware
El Paso Gas Transportation Company Delaware
El Paso Mojave Pipeline Co. (5) Delaware
El Paso Natural Gas Foundation Texas
El Paso Natural Gas Service Company Delaware
El Paso New Chaco Company Delaware
El Paso TransColorado Company Delaware
EPNG Mojave, Inc. (5) Texas
Mt. Franklin Insurance Ltd. Bermuda

(1) The names under which such companies do business are as listed unless
otherwise footnoted.

(2) Also qualified to do business in New York under the name "Eastex
Hydrocarbons of Delaware."

(3) Also qualified to do business in New York under the name "El Paso Energy
Development Company Inc."

(4) Also qualified to do business in New York under the name "El Paso Gas
Marketing Company, Inc." In addition, the Company conducts business in Texas
under the name listed above and under the name "Pecos Gas Services Company."

(5) Mojave Pipeline Operating Company is a wholly owned subsidiary of Mojave
Pipeline Company, a Texas general partnership, in which each of El Paso
Mojave Pipeline Co. and EPNG Mojave, Inc. own a 50% interest.
<PAGE> 2

(1) The names under which such companies do business are as listed unless
otherwise footnoted.

(2) Also qualified to do business in New York under the name "Eastex
Hydrocarbons of Delaware"

(3) Also qualified to do business in New York under the name "El Paso Energy
Development Company Inc."

(4) Also qualified to do business in New York under the name "El Paso Gas
Marketing Company, Inc." In addition, the Company conducts business in
Texas under the name listed above and under the name "Pecos Gas Services
Company."

<PAGE> 1

EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statement
of El Paso Natural Gas Company on Form S-3 and the four registration statements
of El Paso Natural Gas Company on Form S-8 (File No. 1-2700) of our report dated
March 15, 1996, on our audits of the consolidated financial statements and the
financial statement schedule of El Paso Natural Gas Company as of December 31,
1995 and 1994, and for the years ended December 31, 1995, 1994 and 1993, which
report is included in this Annual Report on Form 10-K.

COOPERS & LYBRAND L.L.P.

El Paso, Texas
March 15, 1996

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 39,373
<SECURITIES> 0
<RECEIVABLES> 214,796
<ALLOWANCES> 0<F1>
<INVENTORY> 37,108
<CURRENT-ASSETS> 368,592
<PP&E> 1,977,624
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 2,534,625
<CURRENT-LIABILITIES> 642,642
<BONDS> 771,892
<COMMON> 112,054
0
0
<OTHER-SE> 600,101
<TOTAL-LIABILITY-AND-EQUITY> 2,534,625
<SALES> 0
<TOTAL-REVENUES> 1,037,997
<CGS> 0
<TOTAL-COSTS> 825,586
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,297
<INCOME-PRETAX> 132,976
<INCOME-TAX> 47,613
<INCOME-CONTINUING> 85,363
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,363
<EPS-PRIMARY> 2.47
<EPS-DILUTED> 0
<FN>
<F1>NOT SEPARATELY IDENTIFIED IN THE CONSOLIDATED FINANCIAL STATEMENTS OR
ACCOMPANYING NOTES THERETO.
</FN>

</TABLE>