<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-11680
EL PASO ENERGY PARTNERS, L.P.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 76-0396023
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
EL PASO ENERGY BUILDING
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (713) 420-2131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The registrant had 30,951,554 common units and 77,210 preference units
outstanding as of August 8, 2000.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EL PASO ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- ------------------
2000 1999 2000 1999
------- ------- ------- --------
<S> <C> <C> <C> <C>
Operating revenues
Gathering, transportation, and platform services...... $20,800 $ 6,425 $33,958 $ 10,798
Oil and natural gas sales............................. 5,841 7,845 11,414 14,040
Equity investment earnings............................ 6,222 9,252 10,072 19,953
------- ------- ------- --------
32,863 23,522 55,444 44,791
------- ------- ------- --------
Operating expenses
Purchased natural gas costs........................... 4,641 -- 5,585 --
Operation and maintenance, net........................ 1,593 4,760 3,510 9,874
Depreciation, depletion, and amortization............. 6,988 7,009 13,464 13,727
------- ------- ------- --------
13,222 11,769 22,559 23,601
------- ------- ------- --------
Operating income........................................ 19,641 11,753 32,885 21,190
Other income, net....................................... 1,085 165 1,167 268
------- ------- ------- --------
Income before interest, income taxes, and other
charges............................................... 20,726 11,918 34,052 21,458
------- ------- ------- --------
Interest and debt expense............................... 12,370 7,766 23,750 13,868
Income tax benefit...................................... (136) (79) (139) (177)
Minority interest....................................... 125 43 135 80
------- ------- ------- --------
12,359 7,730 23,746 13,771
------- ------- ------- --------
Net income.............................................. 8,367 4,188 10,306 7,687
Net income allocated to general partner................. 3,622 2,847 6,854 5,685
------- ------- ------- --------
Net income allocated to limited partners before
accounting change..................................... 4,745 1,341 3,452 2,002
Cumulative effect of accounting change.................. -- -- -- (15,427)
------- ------- ------- --------
Net income (loss) allocated to limited partners......... $ 4,745 $ 1,341 $ 3,452 $(13,425)
======= ======= ======= ========
Basic and diluted net income per unit before accounting
change................................................ $ 0.18 $ 0.05 $ 0.13 $ 0.08
Cumulative effect of accounting change.................. -- -- -- (0.60)
------- ------- ------- --------
Basic and diluted net income (loss) per unit............ $ 0.18 $ 0.05 $ 0.13 $ (0.52)
======= ======= ======= ========
Weighted average number of units outstanding............ 27,029 25,244 27,029 24,808
======= ======= ======= ========
</TABLE>
See accompanying notes.
1
<PAGE> 3
EL PASO ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 10,630 $ 4,202
Accounts receivable....................................... 14,173 8,501
Other current assets...................................... 2,478 254
-------- --------
Total current assets.............................. 27,281 12,957
Property, plant, and equipment, net......................... 414,724 373,759
Investments in unconsolidated affiliates.................... 189,242 185,766
Other....................................................... 11,068 11,103
-------- --------
Total assets...................................... $642,315 $583,585
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable and accrued liabilities.................. $ 15,071 $ 10,418
Notes payable............................................... 369,000 290,000
Long-term debt.............................................. 175,000 175,000
Other noncurrent liabilities................................ 12,772 12,164
-------- --------
Total liabilities................................. 571,843 487,582
Commitments and contingencies
Minority interest........................................... (715) (486)
Partners' capital
Limited partners
Preference units; 289,699 units issued and
outstanding........................................... 3,005 2,969
Common units; 26,739,065 units issued and
outstanding........................................... 68,125 93,277
General partner........................................... 57 243
-------- --------
Total partners' capital........................... 71,187 96,489
-------- --------
Total liabilities and partners' capital........... $642,315 $583,585
======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 4
EL PASO ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------------
2000 1999
-------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 10,306 $ 7,687
Adjustments to reconcile net income to net cash from
operating activities
Depreciation, depletion, and amortization.............. 13,464 13,727
Distributed earnings of equity investees
Earnings from equity investments..................... (10,072) (19,953)
Distributions from equity investments................ 15,484 24,108
Reversal of litigation reserve......................... (2,250) --
Other noncash items.................................... 1,278 721
Working capital changes, net of non-cash
transactions.......................................... 1,130 (2,650)
-------- ---------
Net cash provided by operating activities......... 29,340 23,640
-------- ---------
Cash flows from investing activities
Additions to property, plant, and equipment............... (29,482) (17,441)
Additions to investments in unconsolidated affiliates..... (8,888) (4,393)
Cash paid for acquisitions, net of cash acquired.......... (26,476) (70,984)
Other..................................................... (183) --
-------- ---------
Net cash used in investing activities............. (65,029) (92,818)
-------- ---------
Cash flows from financing activities
Revolving credit borrowings............................... 89,090 91,496
Revolving credit repayments............................... (11,000) (160,350)
Net proceeds from issuance of long-term debt.............. -- 168,878
Distributions to partners................................. (35,973) (31,256)
General Partner's contribution............................ -- 603
-------- ---------
Net cash provided by financing activities......... 42,117 69,371
-------- ---------
Increase in cash and cash equivalents....................... 6,428 193
Cash and cash equivalents
Beginning of period....................................... 4,202 3,108
-------- ---------
End of period............................................. $ 10,630 $ 3,301
======== =========
</TABLE>
See accompanying notes.
3
<PAGE> 5
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Our 1999 Annual Report on Form 10-K includes a summary of our significant
accounting policies and other disclosures. You should read it in conjunction
with this Quarterly Report on Form 10-Q. The condensed consolidated financial
statements at June 30, 2000, and for the quarters and six months ended June 30,
2000 and 1999, are unaudited. The condensed consolidated balance sheet at
December 31, 1999, is derived from the audited financial statements. These
financial statements do not include all disclosures required by accounting
principles generally accepted in the United States, but have been prepared
pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission. In our opinion, all material adjustments, all of which are of a
normal, recurring nature, have been made to fairly present our results of
operations. Information for any interim period may not necessarily indicate the
results of operations for the entire year due to the seasonal nature of our
businesses. The prior period information includes reclassifications which were
made to conform to the current presentation. These reclassifications have no
effect on our reported net income or partners' capital.
Cumulative Effect of Accounting Change
In 1999, we changed our method of allocating net income to our partners'
capital accounts from a method whereby we allocated income based on percentage
ownership and proportionate share of cash distributions, to a method whereby
income is allocated to the partners based upon the change from period to period
in their respective claims on our book value capital. We believe that the new
income allocation method is preferable because it better reflects the income
allocation provisions called for under the partnership agreement and the
resulting partners' capital accounts are more reflective of a partner's claim on
our book value capital at each period end. This change in accounting had no
impact on our consolidated net income (loss) or our consolidated total partners'
capital for any period presented. Furthermore, we do not expect the change to
impact the declaration of future cash distributions or affect an individual
partner's tax basis in the partnership. The impact of this change in accounting
has been recorded as a cumulative effect of an accounting change in our income
allocation for the quarter ended March 31, 1999.
2. ACQUISITIONS
In March 2000, we acquired the El Paso Intrastate-Alabama pipeline system,
or EPIA, from a subsidiary of El Paso Energy Corporation for $26.5 million in
cash. In addition to providing transportation services, EPIA provides marketing
services through the purchase and resale of natural gas. EPIA buys natural gas
from regional producers and others and sells natural gas to local distribution
companies and others. We accounted for the acquisition as a purchase and
assigned the purchase price to the assets and liabilities acquired based upon
the estimated fair value of those assets and liabilities as of the acquisition
date. The values assigned are preliminary and may be revised. The following is
summary information related to the acquisition (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired.......................... $ 28,261
Fair value of liabilities assumed...................... (1,785)
--------
Net cash paid................................ $ 26,476
========
</TABLE>
4
<PAGE> 6
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following information represents our consolidated results of operations
on a pro forma basis for the six month periods ended June 30, 2000 and 1999, as
if we acquired EPIA on January 1, 1999:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------------
2000 1999
-------- --------
(IN THOUSANDS, EXCEPT
PER UNIT AMOUNTS)
<S> <C> <C>
Operating revenues.......................................... $64,317 $59,645
Operating income............................................ $33,829 $22,165
Net income.................................................. $10,689 $ 9,462
Basic and diluted net income per unit....................... $ 0.14 $ 0.14
</TABLE>
3. PARTNERS' CAPITAL
Public offering of common units
In July 2000, we completed a public offering of 4,000,000 common units. We
used the net cash proceeds of $87.2 million to temporarily reduce the balance
outstanding under our revolving credit facility. If, within 30 days, the
underwriters exercise in full their over-allotment option covering an additional
600,000 common units, we expect to receive an additional $13.2 million in net
cash proceeds, all of which would be used to temporarily reduce the balance
outstanding under our revolving credit facility.
Cash distributions
The following table reflects our per unit cash distributions to our
preference and common unitholders and the total incentive distributions paid to
our general partner during the six months ended June 30, 2000:
<TABLE>
<CAPTION>
PREFERENCE COMMON GENERAL
MONTH PAID UNIT UNIT PARTNER
---------- ---------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
February........................................... $0.275 $0.525 $3.2
====== ======= ====
May................................................ $0.275 $0.5375 $3.6
====== ======= ====
</TABLE>
In July 2000, we declared a cash distribution of $0.275 per preference unit
and $0.5375 per common unit, which we will pay on August 15, 2000, to
unitholders of record as of July 31, 2000. In addition, we will pay our General
Partner $4.1 million in incentive distributions. At the current distribution
rates, our General Partner receives approximately 20 percent of total cash
distributions we pay.
4. PROPERTY, PLANT, AND EQUIPMENT
Our property, plant, and equipment consisted of the following at June 30,
2000 and December 31, 1999:
<TABLE>
<CAPTION>
2000 1999
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Property, plant, and equipment, at cost
Pipelines................................................. $246,145 $220,816
Platforms and facilities.................................. 165,917 137,537
Oil and natural gas properties............................ 156,140 155,968
-------- --------
568,202 514,321
Less accumulated depreciation, depletion, and
amortization.............................................. 153,478 140,562
-------- --------
Property, plant, and equipment, net.................... $414,724 $373,759
======== ========
</TABLE>
5
<PAGE> 7
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DEBT AND OTHER CREDIT FACILITIES
Partnership Credit Facility
In June 2000, we amended and restated our revolving credit facility with a
syndicate of commercial banks to provide up to $500 million of available credit.
As of June 30, 2000, we had $369 million outstanding under this facility and $53
million available, and the average interest rate was 9.3%. We pay a commitment
fee of 0.25% per annum on the unused and unavailable portion of the credit
facility and 0.50% per annum on the unused and available portion.
Other Credit Facilities
Deepwater Holdings, L.L.C. and Poseidon Oil Pipeline Company, L.L.C. are
parties to credit agreements under which each has outstanding obligations that
may restrict their ability to pay distributions to their respective owners.
Deepwater Holdings has a revolving credit facility with a syndicate of
commercial banks to provide up to $175 million. As of June 30, 2000, Deepwater
Holdings had $151 million outstanding under its credit facility at an average
floating interest rate of 8.16% and had no additional availability under its
borrowing base limitations.
Poseidon has a revolving credit facility with a syndicate of commercial
banks to provide up to $150 million. As of June 30, 2000, Poseidon had $150
million outstanding under its facility at an average floating interest rate of
7.5%.
6. COMMITMENTS AND CONTINGENCIES
Hedging Activities
At June 30, 2000, we had three oil and natural gas sales swaps covering a
portion of our production for the calendar year 2000. For the six months ended
June 30, 2000 and 1999, we recorded a net loss of $3.9 million and $0.7 million
on these contracts. Had we settled our open hedging positions as of June 30,
2000, based on the applicable settlement prices of the NYMEX futures contracts,
we would have recognized losses of approximately $0.5 million related to our oil
swap and $9.0 million related to our natural gas swaps.
Legal Proceedings
We are a named defendant in a lawsuit filed by Transcontinental Gas
Pipeline Company. Transco alleged that it had the right, under a platform lease
agreement with us, to expand its facilities and operations on the offshore
platform by connecting additional pipeline receiving and appurtenant facilities.
We denied Transco's request to expand its facilities and operations because we
do not believe the lease agreement provides for such expansion, and because
Transco's activities would have interfered with the Manta Ray Offshore system
and our existing and planned activities on that platform. The case went to trial
on April 3, 2000, and the jury found that we were not at fault and therefore
awarded no damages to Transco. Transco has filed motions related to the jury's
findings.
In January 2000, an anchor from a submersible drilling rig in tow damaged a
section of the Poseidon system north of our Ship Shoal 332 platform. The
accident resulted in the release of approximately 2,200 barrels of crude oil in
the waters surrounding the system, caused damage to our platform, and resulted
in initial shutdown of the system and certain surrounding facilities in which we
have ownership interests. Poseidon's costs to repair the damaged pipeline and
clean up the crude oil released into the Gulf was approximately $17 million, and
Poseidon has filed a lawsuit against the rig's owner. As of the end of the first
quarter, the pipeline was repaired and throughput returned to normal levels. In
June 2000, we recorded income of $1.0 million of insurance proceeds for business
interruption.
6
<PAGE> 8
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
We are named a defendant in actions brought by Jack Grynberg on behalf of
the U.S. Government under the False Claims Act. Generally, these complaints
allege an industry-wide conspiracy to underreport the heating value as well as
the volumes of the natural gas produced from federal and Native American lands,
which deprived the U.S. Government of royalties. We have also been named as a
defendant in a similar class action suit, Quinque Operating Company v. Gas
Pipelines. This complaint alleges that the defendants mismeasured natural gas
volumes and heating content of natural gas on non-federal and non-Native
American lands. The Quinque complaint was transferred to the same court handling
the Grynberg complaint. We believe both complaints are without merit.
We are also a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of our
business.
While the outcome of the matters discussed above cannot be predicted with
certainty, we do not expect the ultimate resolution of these matters to have a
material adverse effect on our financial position, results of operations, or
cash flows.
Environmental
We are subject to extensive federal, state, and local laws and regulations
governing environmental quality and pollution control. These laws and
regulations require us to remove or remedy the effect on the environment of the
disposal or release of specified substances at current and former operating
sites.
It is possible that new information or future developments could require us
to reassess our potential exposure related to environmental matters. We may
incur significant costs and liabilities in order to comply with existing
environmental laws and regulations. It is also possible that other developments,
such as increasingly strict environmental laws and regulations, and claims for
damages to property, employees, other persons and the environment resulting from
our current or past operations, could result in substantial costs and
liabilities in the future. As this information becomes available, or other
relevant developments occur, we will make accruals accordingly.
7
<PAGE> 9
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SEGMENT INFORMATION
We segregate our business activities into two segments: Gathering,
Transportation, and Platform Services and Oil and Natural Gas Production. As a
result of our acquisition of EPIA in March 2000, we began providing marketing
services to our customers. Our marketing activities are recorded in the
Gathering, Transportation, and Platform Services segment. Each of our segments
are business units that offer different services and products. They are managed
separately, as each requires different technology and marketing strategies. We
measure segment performance based on performance cash flows, or an asset's or
investment's ability to generate cash flow. We determine performance cash flows
by taking earnings before interest, taxes, and depreciation, depletion, and
amortization, and adding or subtracting as appropriate, cash distributions from
equity investments, earnings attributable to equity investments, and other cash
and non-cash items. We use this measure as a supplemental financial measurement
in the evaluation of our business, and you should not consider it an alternative
to earnings before interest and taxes, or EBIT, as an indicator of our operating
performance or to cash flows from operating activities as a measure of our
liquidity. In addition, it may not be a comparable measurement among different
companies. Performance cash flows are presented here to provide you with
additional information about our assets and investments. The accounting policies
of the individual segments are the same as ours. The following table summarizes
certain financial information for our business segments (in thousands):
<TABLE>
<CAPTION>
GATHERING,
TRANSPORTATION, OIL AND
AND PLATFORM NATURAL GAS
SERVICES PRODUCTION OTHER(1) TOTAL
--------------- ----------- -------- --------
<CAPTION>
AS OF AND FOR THE QUARTER ENDED JUNE 30, 2000
---------------------------------------------------
<S> <C> <C> <C> <C>
<S> <C> <C> <C> <C>
Revenue from external customers....................... $ 20,800 $ 5,841 $ -- $ 26,641
Intersegment revenue.................................. 3,453 -- (3,453) --
Earnings from equity investments...................... 6,222 -- -- 6,222
Depreciation, depletion, and amortization............. 3,804 3,148 36 6,988
Operating income (loss)............................... 20,924 (1,248) (35) 19,641
EBIT.................................................. 21,932 (1,248) 42 20,726
Performance cash flows................................ 26,008 1,900 78 27,986
Assets................................................ 557,909 62,509 21,897 642,315
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE QUARTER ENDED JUNE 30, 1999
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers....................... $ 6,425 $ 7,845 $ -- $ 14,270
Intersegment revenue.................................. 3,136 -- (3,136) --
Earnings from equity investments...................... 9,252 -- -- 9,252
Depreciation, depletion, and amortization............. 2,320 4,686 3 7,009
Operating income (loss)............................... 12,932 (1,177) (2) 11,753
EBIT.................................................. 13,000 (1,177) 95 11,918
Performance cash flows................................ 20,087 3,796 98 23,981
Assets................................................ 532,647 77,871 15,395 625,913
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2000
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers....................... $ 33,958 $11,414 $ -- $ 45,372
Intersegment revenue.................................. 6,619 -- (6,619) --
Earnings from equity investments...................... 10,072 -- -- 10,072
Depreciation, depletion, and amortization............. 7,165 6,208 91 13,464
Operating income (loss)............................... 35,517 (2,542) (90) 32,885
EBIT.................................................. 36,526 (2,542) 68 34,052
Performance cash flows................................ 48,853 3,303 158 52,314
Assets................................................ 557,909 62,509 21,897 642,315
</TABLE>
---------------
(1) Represents intersegment eliminations and other income or assets not
associated with our segment activities.
8
<PAGE> 10
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
GATHERING,
TRANSPORTATION, OIL AND
AND PLATFORM NATURAL GAS
SERVICES PRODUCTION OTHER(1) TOTAL
--------------- ----------- -------- --------
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1999
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers....................... $ 10,798 $14,040 $ -- $ 24,838
Intersegment revenue.................................. 6,010 -- (6,010) --
Earnings from equity investments...................... 19,953 -- -- 19,953
Depreciation, depletion, and amortization............. 4,236 9,484 7 13,727
Operating income (loss)............................... 25,239 (4,043) (6) 21,190
EBIT.................................................. 25,375 (4,043) 126 21,458
Performance cash flows................................ 33,765 6,093 134 39,992
Assets................................................ 532,647 77,871 15,395 625,913
</TABLE>
---------------------
(1) Represents intersegment eliminations and other income or assets not
associated with our segment activities.
8. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
We hold investments in various affiliates which we account for using the
equity method of accounting. Summarized financial information for these
investments is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------------------
MANTA
RAY DEEPWATER
OFFSHORE(A) NAUTILUS(A) HOLDINGS(B) POSEIDON TOTAL
----------- ----------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
OWNERSHIP INTEREST...................... 25.67% 25.67% 50% 36%
======= ======= ======== =======
(IN THOUSANDS)
OPERATING RESULTS DATA:
Operating revenues.................... $ 9,245 $ 5,711 $ 31,121 $30,257
Other income (expense)................ 1,134 (16) 172 464
Operating expenses.................... (1,733) (987) (16,117) (3,843)
Depreciation.......................... (1,985) (2,945) (8,409) (4,815)
Other expenses........................ (36) (180) (3,160) (5,423)
------- ------- -------- -------
Net income............................ $ 6,625 $ 1,583 $ 3,607 $16,640
======= ======= ======== =======
OUR SHARE:
Allocated income...................... $ 1,701 $ 406 $ 1,804 $ 5,990
Adjustments(c)........................ 3 -- 784 (616)
------- ------- -------- -------
Earnings from equity investments...... $ 1,704 $ 406 $ 2,588 $ 5,374 $10,072
======= ======= ======== ======= =======
Allocated distributions............... $ 3,102 $ 1,218 $ 7,600 $ 3,564 $15,484
======= ======= ======== ======= =======
</TABLE>
---------------------
(a) We own indirect investments in Manta Ray Offshore Gathering Company, L.L.C.
and Nautilus Pipeline Company, L.L.C. However, because we believe separate
data on each of these investees is more meaningful, results have been
reflected separately.
(b) Deepwater Holdings was formed in September 1999 and owns 100 percent of High
Island Offshore System, L.L.C., East Breaks Gathering Company, L.L.C., U-T
Offshore System, L.L.C., Stingray Pipeline Company, L.L.C., and West Cameron
Dehydration Company, L.L.C.
(c) We recorded adjustments primarily for differences from estimated year end
1999 earnings reported in our Annual Report on Form 10-K and actual earnings
reported in the 1999 audited annual reports of our unconsolidated
affiliates, and for purchase price adjustments under Accounting Principles
Board (APB) Opinion No. 16, "Business Combinations."
9
<PAGE> 11
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
--------------------------------------------------------------------------------------------------
MANTA WEST
RAY VIOSCA CAMERON
OFFSHORE(A) NAUTILUS(A) KNOLL(B) STINGRAY HIOS UTOS DEHY POSEIDON TOTAL
----------- ----------- -------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OWNERSHIP INTEREST............ 25.67% 25.67% 50% 50% 40% 33.3% 50% 36%
======= ======= ======= ======= ======= ======= ====== ========
(IN THOUSANDS)
OPERATING RESULTS DATA:
Operating revenue........... $ 7,780 $ 4,453 $12,338 $ 9,068 $19,350 $ 2,119 $1,475 $ 36,217
Other income (expense)...... 1,144 (123) 31 1,105 118 33 13 191
Operating expenses.......... (1,997) (698) (925) (5,569) (8,649) (1,074) (142) (3,814)
Depreciation................ (2,523) (2,964) (1,752) (3,800) (2,321) (280) (8) (2,301)
Interest expense............ (18) (182) (1,973) (858) -- -- -- (4,220)
------- ------- ------- ------- ------- ------- ------ --------
Net income (loss)........... $ 4,386 $ 486 $ 7,719 $ (54) $ 8,498 $ 798 $1,338 $ 26,073
======= ======= ======= ======= ======= ======= ====== ========
OUR SHARE:
Allocated income (loss)..... $ 1,126 $ 125 $ 3,860 $ (27) $ 3,399 $ 266 $ 669 $ 9,386
Adjustments(c).............. (174) (57) -- 1,121 299 20 -- (60)
------- ------- ------- ------- ------- ------- ------ --------
Earnings from equity
investments............... $ 952 $ 68 $ 3,860 $ 1,094 $ 3,698 $ 286 $ 669 $ 9,326 $19,953
======= ======= ======= ======= ======= ======= ====== ======== =======
Allocated distributions..... $ 1,954 $ 757 $ 6,350 $ 2,501 $ 4,200 $ 333 $ 550 $ 7,463 $24,108
======= ======= ======= ======= ======= ======= ====== ======== =======
</TABLE>
---------------
(a) We own indirect investments in these investees. However, because we believe
separate data for each of these investees is more meaningful, results have
been reflected separately.
(b) The information presented for Viosca Knoll as an equity investment is
through May 31, 1999. On June 1, 1999, we began consolidating the results of
Viosca Knoll as a result of acquiring an additional 49 percent interest in
the system.
(c) We recorded adjustments primarily for differences from estimated year end
1998 earnings reported in our Annual Report on Form 10-K and actual earnings
reported in the 1998 audited annual reports of our unconsolidated
affiliates, and for purchase price adjustments under APB Opinion No. 16,
except for Stingray which resulted from changes in estimates of reserves for
uncollectible revenues.
9. RELATED PARTY TRANSACTIONS
Our transactions with related parties and affiliates are as follows (in
thousands):
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- ------------------
2000 1999 2000 1999
------ ------ ------- -------
<S> <C> <C> <C> <C>
Revenues received from related parties:
Oil and natural gas sales........................... $5,951 $8,257 $11,647 $15,026
Gathering, transportation and platform services..... 50 395 50 990
------ ------ ------- -------
$6,001 $8,652 $11,697 $16,016
====== ====== ======= =======
Expenses paid to related parties:
Purchased natural gas costs......................... $1,565 $ -- $ 2,050 $ --
Operating expenses(1)............................... 5,092 3,551 9,621 7,137
------ ------ ------- -------
$6,657 $3,551 $11,671 $ 7,137
====== ====== ======= =======
Reimbursements received from related parties:
Operating expenses.................................. $5,704 $ 114 $10,725 $ 302
====== ====== ======= =======
</TABLE>
---------------
(1) Included in these amounts are charges for other miscellaneous costs from El
Paso Field Services of approximately $0.5 million for the quarter ended June
30, 2000, $0.7 million for the quarter ended June 30, 1999, and $1.2 million
for each of the six month periods ended June 30, 2000 and June 30, 1999.
10
<PAGE> 12
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There have been no changes to our related party relationships, except as
described below, from our 1999 Annual Report on Form 10-K.
As a result of becoming the operator of Deepwater Holdings' assets, we
began receiving a reimbursement from Deepwater Holdings for the cost of
operating HIOS, UTOS, East Breaks, Stingray, and West Cameron Dehy. This
reimbursement is a fixed monthly amount covering normal operating activities and
is recorded as a reduction to our operation and maintenance expense. To the
extent our costs are more than the monthly reimbursement, our operating expenses
will be higher, and to the extent our costs are lower than the monthly
reimbursement, our operating expense will be lower. In addition, due to the
timing of actual costs, we may recognize fluctuations in our results of
operations throughout the year.
In November 1999, we entered into an agreement with El Paso Field Services
under which they provide personnel to operate Stingray and West Cameron Dehy. In
February 2000, El Paso Field Services also began operating HIOS, UTOS and East
Breaks. On March 21, 2000, we entered into a similar agreement whereby El Paso
Field Services will operate EPIA. All fees paid under these contracts
approximate actual costs incurred.
In October 1999, we farmed out our working interest in the Prince Field,
formerly known as the Ewing Bank 958 Unit, to El Paso Production GOM, Inc., an
indirect subsidiary of El Paso Energy. Under the terms of the farmout agreement,
our net overriding royalty interest in the Prince Field, increased to a weighted
average of approximately 9 percent. If El Paso Production GOM recoups the costs
associated with its drilling and completion activities on the field, we can
convert our royalty interest into a 30 percent undivided working interest. El
Paso Production GOM began drilling on the Prince Field in November 1999 and
encountered over 200 feet of net hydrocarbon pay. As a result, El Paso
Production GOM contracted with us to build the TLP described below.
In July 1999, we entered into a contract with MODEC International, L.L.C.
for the design, construction, fabrication and installation of the hull, tendons,
pilings and production risers for a tension-leg platform, or TLP, to be used as
part of the Prince Field development. In May 2000, we entered into a letter of
intent with El Paso Production GOM to install and own the TLP.
10. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, to establish accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. This pronouncement requires us
to classify derivatives as either assets or liabilities on the balance sheet,
with a corresponding offset to income or other comprehensive income, and measure
those instruments at fair value. If certain conditions are met, we may
specifically designate a derivative as a hedge of:
- the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment;
- the exposure to variable cash flows of a forecasted transaction; or
- the foreign currency exposure of a net investment in a foreign operation,
an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
The accounting for the changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation.
11
<PAGE> 13
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 137, Deferral of the Effective Date of SFAS No. 133, amended the
standard in June 1999 to defer the effective date. Consequently, SFAS No. 133
will be effective for us January 1, 2001.
In June 2000, the Financial Accounting Standards Board issued SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities,
which also amended SFAS No. 133. The amendment:
- expands the normal purchases and sales exception;
- redefines specific risks that can be designated as hedges;
- allows recognition of foreign-currency-denominated assets and liabilities
as hedged items; and
- permits intercompany derivatives to be designated as hedging instruments
for foreign currency risk if the hedge is offset by an unrelated third
party on a net basis (netting risks is permitted only for foreign
currency transactions).
We are currently evaluating the effects these pronouncements will have on our
financial position, results of operations, and cash flows.
Staff Accounting Bulletin No. 101
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements,
to provide guidance for revenue recognition issues and disclosure requirements.
SAB No. 101 offers guidelines, examples, and explanations for uncertain matters
relating to the recognition of revenue and will be effective for us in the
fourth quarter of 2000. We do not believe the adoption of SAB No. 101 will have
a material impact on our financial position, results of operations, or cash
flows.
11. SUBSEQUENT EVENTS
Proposed $170 million acquisition of natural gas storage facilities from an
affiliate of El Paso Energy
In July 2000, we entered into a letter of intent to acquire the salt dome
natural gas storage businesses of Crystal Gas Storage, Inc., a subsidiary of El
Paso Energy, in exchange for $170.0 million, subject to adjustment, of a new
series of non-voting, preference units. See Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations, Other, for further
discussion.
Prince Field TLP Financing
In June 2000, we entered into a commitment letter regarding the syndication
of a construction loan that would be convertible into a term loan upon
completion of the construction project. See Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations, Cash From Financing
Activities, for further discussion.
12
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in Item 2 updates, and you should read it in
conjunction with, information disclosed in Part II, Items 7, 7A and 8, in our
Annual Report on Form 10-K for the year ended December 31, 1999, in addition to
the financial statements and notes presented in Item 1 of this Quarterly Report
on Form 10-Q.
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2000 Compared With Second Quarter Ended June 30,
1999
For the quarter ended June 30, 2000, our net income was $8.4 million versus
$4.2 million for the quarter ended June 30, 1999. Second quarter 2000 results
included earnings from the newly installed Allegheny oil pipeline, the newly
acquired EPIA gathering system, and a higher contribution from the Viosca Knoll
gathering system due to our acquisition of an additional interest in this system
in June 1999. In addition, we had lower net operating costs which included the
favorable resolution of the Transco litigation. EBIT was $20.7 million for the
second quarter of 2000 versus $11.9 million for the second quarter of 1999.
Six Months Ended June 30, 2000 Compared With Six Months Ended June 30, 1999
For the six months ended June 30, 2000, our net income was $10.3 million
versus $7.7 million for the six months ended June 30, 1999. Six months ended
June 30, 2000 results included earnings from the newly installed Allegheny oil
pipeline, the newly acquired EPIA system, a higher contribution from the Viosca
Knoll gathering system due to our acquisition of an additional interest in this
system in June 1999, and lower net operating costs. These increases were offset
by lower earnings from Poseidon as a result of the pipeline rupture. EBIT was
$34.1 million for the six months ended June 30, 2000 versus $21.5 million for
the six months ended June 30, 1999.
A more detailed analysis of our segment results and non-operating expenses
is discussed below.
SEGMENT RESULTS
The following table presents EBIT by segment and in total for each of the
three and six months ended June 30:
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
EARNINGS BEFORE INTEREST EXPENSE AND INCOME TAXES
Gathering, transportation, and platform services.... $21,932 $13,000 $36,526 $25,375
Oil and natural gas production...................... (1,248) (1,177) (2,542) (4,043)
------- ------- ------- -------
Segment EBIT...................................... 20,684 11,823 33,984 21,332
Non-segment activity, net........................... 42 95 68 126
------- ------- ------- -------
Consolidated EBIT................................. $20,726 $11,918 $34,052 $21,458
======= ======= ======= =======
</TABLE>
EBIT variances are discussed in the segment results below.
13
<PAGE> 15
GATHERING, TRANSPORTATION, AND PLATFORM SERVICES
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ --------------------
2000 1999 2000 1999
------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gathering and transportation...................... $10,740 $ 3,676 $ 19,879 $ 4,938
Platform services................................. 6,767 5,885 12,786 11,870
Equity investment earnings........................ 6,222 9,252 10,072 19,953
Natural gas sales................................. 6,746 -- 7,912 --
------- ------- -------- --------
Total operating revenues........................ 30,475 18,813 50,649 36,761
Purchased natural gas costs....................... (4,641) -- (5,585) --
Operating expenses, net........................... (4,910) (5,881) (9,547) (11,521)
Other income...................................... 1,008 68 1,009 135
------- ------- -------- --------
EBIT............................................ $21,932 $13,000 $ 36,526 $ 25,375
======= ======= ======== ========
</TABLE>
Second Quarter Ended June 30, 2000 Compared With Second Quarter Ended June 30,
1999
Operating revenues for the quarter ended June 30, 2000, were $11.7 million
higher than 1999 primarily as a result of the purchase of the EPIA system in
March 2000. EPIA, in addition to providing transportation services, provides
marketing services through the purchase and resale of natural gas. EPIA buys
natural gas from regional producers and others and sells natural gas to local
distribution companies and others. The revenue from the sale of natural gas is
reflected above as "natural gas sales" and the cost of the natural gas acquired
for resale is reflected as "purchased natural gas costs." Revenues were also
higher due to an additional 49 percent interest in Viosca Knoll purchased in
June 1999, and the Allegheny oil pipeline, which was placed in service in the
fourth quarter of 1999. These increases were partially offset by lower equity in
earnings from Deepwater Holdings as a result of a decrease in volumes.
Operating expenses for the quarter ended June 30, 2000, were $1.0 million
lower than 1999 primarily due to the favorable resolution of the Transco
litigation, partially offset by higher operating costs as a result of acquiring
EPIA in March 2000. An increase in operating expenses as a result of becoming
the operator of Deepwater Holdings' assets did not have a significant impact on
our second quarter operating expenses since these costs were substantially
offset by cost recoveries under our operating agreement with Deepwater Holdings.
Other income includes $1.0 million of business interruption insurance
proceeds relating to the Poseidon pipeline rupture in January 2000.
Six Months Ended June 30, 2000 Compared With Six Months Ended June 30, 1999
Operating revenues for the six months ended June 30, 2000, were $13.9
million higher than 1999, primarily as a result of the purchase of the EPIA
system in March 2000. Revenues were also higher due to an additional 49 percent
interest in Viosca Knoll purchased in June 1999, and the Allegheny oil pipeline,
which was placed in service in the fourth quarter of 1999. These increases were
partially offset by lower equity in earnings from Deepwater Holdings as a result
of a decrease in volumes and lower equity in earnings from Poseidon due to the
pipeline rupture in January 2000.
Operating expenses for the six months ended June 30, 2000, were $2.0
million lower than 1999 primarily due to the favorable resolution of the Transco
litigation and cost recoveries under our operating agreement with Deepwater
Holdings relative to actual costs incurred during the first quarter for those
operations. These decreases were partially offset by higher operating costs as a
result of acquiring EPIA in March 2000.
Other income includes $1.0 million of business interruption insurance
proceeds relating to the Poseidon pipeline rupture in January 2000.
14
<PAGE> 16
OIL AND NATURAL GAS PRODUCTION
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ --------------------
2000 1999 2000 1999
------- ------- -------- --------
(IN THOUSANDS, EXCEPT VOLUMES)
<S> <C> <C> <C> <C>
Natural gas...................................... $ 4,142 $ 6,551 $ 8,515 $ 11,850
Oil, condensate, and liquids..................... 1,699 1,294 2,899 2,190
------- ------- -------- --------
Total operating revenues............... 5,841 7,845 11,414 14,040
Operating expenses............................... (7,089) (9,022) (13,956) (18,083)
------- ------- -------- --------
EBIT........................................... $(1,248) $(1,177) $ (2,542) $ (4,043)
======= ======= ======== ========
Volumes(1)
Natural gas sales (MMcf)....................... 1,959 3,293 3,846 6,877
======= ======= ======== ========
Oil, condensate, and liquid sales (MBbls)...... 75 93 134 192
======= ======= ======== ========
Weighted average realized prices(1)
Natural gas ($/Mcf)............................ $ 2.13 $ 2.08 $ 2.25 $ 1.83
======= ======= ======== ========
Oil, condensate, and liquids ($/Bbl)........... $ 23.57 $ 15.06 $ 22.32 $ 12.69
======= ======= ======== ========
</TABLE>
---------------
(1) As generally used in the energy industry and in this document, the following
terms have the following meanings:
MMcf = million cubic feet
MBbls = thousand barrels
Mcf = thousand cubic feet
Bbl = barrel
Second Quarter Ended June 30, 2000 Compared With Second Quarter Ended June 30,
1999
Oil and natural gas sales for the quarter ended June 30, 2000, were $2.0
million lower than 1999. The decrease was a result of lower oil and natural gas
production due to normal production declines of existing reserves, offset by
higher realized prices of both oil and natural gas.
Operating expenses for the quarter ended June 30, 2000, were $2.0 million
lower than in the same period in 1999, primarily a result of lower depletion due
to lower oil and natural gas production.
Six Months Ended June 30, 2000 Compared With Six Months Ended June 30, 1999
Oil and natural gas sales for the six months ended June 30, 2000, were $2.6
million lower than 1999. The decrease was a result of lower oil and natural gas
production due to normal production declines of existing reserves and the
temporary shut in of Garden Banks 72 and 117 as a result of the Poseidon
rupture, offset by higher realized prices of both oil and natural gas.
Operating expenses for the six months ended June 30, 2000, were $4.1
million lower than 1999, primarily a result of lower depletion due to lower oil
and natural gas production.
INTEREST AND DEBT EXPENSE
Interest and debt expense, net of capitalized interest, for the second
quarter and six months ending June 30, 2000, were higher than 1999, due to
higher average debt levels and higher average interest rates in 2000.
15
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
CASH FROM OPERATING ACTIVITIES
Net cash provided by operating activities was approximately $29.3 million
for the six months ended June 30, 2000, compared to approximately $23.6 million
for the same period in 1999. The increase was due to higher revenues from
acquisitions and higher distributions from equity investments in excess of
equity earnings in 2000, along with favorable working capital changes in the
2000 period.
CASH FROM INVESTING ACTIVITIES
Net cash used in investing activities was approximately $65.0 million for
the six months ended
June 30, 2000 due to our acquisition of EPIA, additions to property, plant, and
equipment, and additional expenditures on equity investments.
We expect that funding for capital expenditures, acquisitions, and other
investing expenditures will be provided by internally generated funds, available
capacity under existing credit facilities, and the issuance of long-term debt or
equity.
CASH FROM FINANCING ACTIVITIES
Net cash flows provided by financing activities totaled approximately $42.1
million for the six months ended June 30, 2000. During 2000, we increased the
amounts outstanding under our credit facility by $78.1 million and made
distributions to partners of $36.0 million.
In June 2000, we amended our existing senior secured revolving credit
facility, increasing the facility to $500.0 million from $375.0 million, with
availability based upon historical cash flow. This credit facility allows us to
pursue the increasing number of internal growth opportunities in the Gulf of
Mexico and to implement our acquisition growth strategy. Specifically, the
additional borrowing capacity will be used to expand our offshore and onshore
infrastructure through acquisitions and construction.
To finance a substantial portion of the estimated $140.0 million total cost
of the TLP, pipelines and other facilities that we plan to install in the Prince
Field, we expect to obtain a $95.0 million limited recourse project finance loan
from a group of commercial lenders. Accordingly, we have entered into a
commitment letter regarding the syndication of a construction loan that would be
convertible into a term loan upon completion of the construction project.
In July 2000, we completed a public offering of 4,000,000 common units. We
used the net cash proceeds of $87.2 million to temporarily reduce the balance
outstanding under our revolving credit facility. If the underwriters exercise in
full their over-allotment option covering an additional 600,000 common units, we
would expect to receive an additional $13.2 million in net cash proceeds, all of
which would be used to temporarily reduce the balance outstanding under our
revolving credit facility. We may reborrow funds available under our revolving
credit facility in the future for general business purposes, including expanding
our offshore and onshore infrastructure through acquisitions and construction.
As a result of the third and final offer to convert our 289,699 outstanding
preference units into an equal number of our common units, which expired on
August 7, 2000, approximately 212,000 units were tendered for conversion by our
unitholders. We have the right and intend to redeem all of the remaining
outstanding preference units for $10.25 in cash per unit before December 31,
2000. Trading of the preference units has been suspended and we are in the
process of delisting the units.
We expect that future funding for long-term debt retirements,
distributions, and other financing expenditures will be provided by internally
generated funds, available capacity under existing credit facilities, and the
issuance of long-term debt or equity.
16
<PAGE> 18
COMMITMENTS AND CONTINGENCIES
See Note 6, which is incorporated herein by reference.
OTHER
In July 2000, we entered into a letter of intent to acquire the salt dome
natural gas storage businesses of Crystal Gas Storage, Inc., a subsidiary of El
Paso Energy, in exchange for $170.0 million, subject to adjustment, of a new
series of non-voting, preference units. These units will have an annual
distribution rate of 10 percent, per year, but will not obligate us to pay these
distributions in cash until 2010. These businesses, the Petal and Hattiesburg
natural gas storage facilities located in Mississippi, are well situated to
serve the Northeast, Mid-Atlantic and Southeast natural gas markets. On July 27,
2000, the Federal Trade Commission approved the proposed acquisition. We plan to
close the acquisition in the third quarter.
In June 2000, we placed our East Breaks joint venture system in service in
water depths reaching 4,800 feet, making it one of the deepest pipelines in the
Gulf of Mexico. This system consists of 85 miles of 20-inch diameter pipeline
with current capacity in excess of 400 MMcf per day and transports natural gas
from two new deepwater discoveries, the Diana and Hoover Fields (owned by
ExxonMobil and BP Amoco PLC, respectively), to our HIOS joint venture system.
In March 2000, we entered into a letter of intent with El Paso Production
GOM under which they would commit all of the natural gas and oil produced from
the Prince Field to a TLP, the related pipelines, and separating and handling
facilities that we would install by July 2001. The platform is anticipated to be
delivered in April 2001 with first production anticipated to commence in June
2001. El Paso Production GOM would pay us a fixed monthly demand charge
beginning upon installation of our TLP, as well as a commodity charge for the
natural gas, oil and water produced from the Prince Field. In addition, El Paso
Production GOM would use other existing pipelines, including our Poseidon and
Manta Ray Offshore joint venture systems, to transport the Prince Field
production from our TLP to shore.
In January 2000, El Paso Energy announced it had entered into an agreement
to merge with The Coastal Corporation. Coastal is the parent company of ANR
Pipeline Company, which is our joint venture partner in Deepwater Holdings. The
merger, which is expected to close in the fourth quarter, is subject to certain
conditions, including receipt of certain required government approvals. If the
merger is completed, ANR will become our affiliate.
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
See Note 10, which is incorporated herein by reference.
17
<PAGE> 19
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
We have made statements in this document that constitute forward-looking
statements, as that term is defined in the Private Securities Litigation Reform
Act of 1995. These statements are subject to risks and uncertainties.
Forward-looking statements include information concerning possible or assumed
future results of operations. These statements may relate to information or
assumptions about:
- earnings per unit;
- capital and other expenditures;
- cash distributions;
- financing plans;
- capital structure;
- cash flow;
- pending legal proceedings and claims, including environmental matters;
- future economic performance;
- operating income;
- cost savings;
- management's plans; and
- goals and objectives for future operations.
Important factors that could cause actual results to differ materially from
estimates or projections contained in forward-looking statements include, among
others, the following:
- the increasing competition within our industry;
- the timing and extent of changes in commodity prices for natural gas and
oil;
- the uncertainties associated with customer contract expirations on our
pipeline systems;
- the conditions of equity and other capital market; and
- the ability to successfully integrate acquisitions.
These and other risk factors are more fully described in our other filings
with the Securities and Exchange Commission, including our Annual Report on Form
10-K for the year ended December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information updates, and you should read it in conjunction with,
information disclosed in Part II, Item 7A in our Annual Report on Form 10-K for
the year ended December 31, 1999, in addition to the information presented in
Items 1 and 2 of this Quarterly Report on Form 10-Q.
At June 30, 2000, we had three oil and natural gas sales swaps covering a
portion of our production for the calendar year 2000. For the six months ended
June 30, 2000 and 1999, we recorded a net loss of $3.9 million and $0.7 million,
respectively, on these contracts. Had we settled our open hedging positions as
of June 30, 2000, based on the applicable settlement prices of the NYMEX futures
contracts, we would have recognized losses of approximately $0.5 million related
to our oil swap and $9.0 million related to our natural gas swaps.
18
<PAGE> 20
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I -- Financial Information, Note 6, which is incorporated herein
by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
19
<PAGE> 21
Each exhibit identified below is filed as part of this quarterly report.
Exhibits not incorporated by reference to a prior filing are designated by an
asterisk; all exhibits not so designated are incorporated herein by reference to
a prior filing as indicated.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Underwriting Agreement dated July 24, 2000 among El Paso
Energy Partners, L.P., El Paso Energy Partners Company,
Salomon Smith Barney Inc., Goldman, Sachs & Co., PaineWebber
Incorporated, and Donaldson, Lufkin & Jenrette Securities
Corporation. (Exhibit 1.1 of El Paso Energy Partners, L.P.'s
Form 8-K filed on July 27, 2000).
4.7 Indenture dated as of May 27, 1999 among El Paso Energy
Partners, L.P., El Paso Energy Partners Finance Corporation,
the subsidiary guarantors and Chase Bank of Texas, as
trustee (filed as Exhibit 4.1 to El Paso Energy Partners,
L.P.'s Registration Statement on Form S-4, filed on June 24,
1999, File No. 333-81143); First Supplemental Indenture
dated as of June 30, 1999 (filed as Exhibit 4.2 to El Paso
Energy Partners, L.P.'s Amendment No. 1 to Registration
Statement on Form S-4 filed August 27, 1999 File No.
333-81143); Second Supplemental Indenture dated as of July
27, 1999 (filed as Exhibit 4.3 to El Paso Energy Partners,
L.P.'s Amendment No. 1 to Registration Statement on Form
S-4, filed August 27, 1999, File No. 333-81143).
*4.7.1 Third Supplemental Indenture dated as of March 21, 2000, to
the Indenture dated as of May 27, 1999, among El Paso Energy
Partners, L.P., El Paso Energy Partners Finance Corporation,
as the issuers, and the subsidiaries party thereto, as
subsidiary guarantors, and Chase Bank of Texas, National
Association, as trustee.
10.1 Fourth Amended and Restated Credit Agreement dated June 30,
2000, among El Paso Energy Partners L.P., El Paso Energy
Partners Finance Corporation, Credit Lyonnais, as
syndication agent, BankBoston N.A., as documentation agent,
and the Chase Manhattan Bank, as administrative agent, and,
as applicable, the banks and other institutions parties
thereto. (Exhibit 10.1 of El Paso Energy Partners, L.P.'s
Form 8-K filed on July 14, 2000).
*10.7.1 Amendment No. 1 to the Leviathan Gas Pipeline Partners, L.P.
1998 Unit Option Plan for Non-Employee Directors.
*10.8.1 Amendment No. 1 to the Leviathan Gas Pipeline Partners, L.P.
1998 Omnibus Compensation Plan.
*27 Financial Data Schedule
</TABLE>
(b) Report on Form 8-K
We filed a Current Report on Form 8-K, dated April 4, 2000, with regard to
the acquisition of the El Paso Intrastate-Alabama pipeline system.
We filed a Current Report on Form 8-K/A, dated June 5, 2000, reporting
unaudited pro forma condensed combined financial statements reflecting our
purchase of the El Paso Interstate-Alabama pipeline system.
We filed a Current Report on Form 8-K, dated July 14, 2000, with regard to
our pending acquisition of the natural gas storage businesses of Crystal Gas
Storage, Inc. and the amendment of our senior secured revolving credit facility.
We filed a Current Report on Form 8-K, dated July 19, 2000, reporting
unaudited pro forma condensed combined financial statements reflecting our
pending acquisition of the natural gas storage businesses of Crystal Gas
Storage, Inc.
We filed a Current Report on Form 8-K, dated July 27, 2000, regarding the
underwriting agreement related to our public offering of common units that
closed on July 28, 2000.
20
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EL PASO ENERGY PARTNERS, L.P.
By: EL PASO ENERGY PARTNERS COMPANY,
its General Partner
Date: August 9, 2000 By: /s/ KEITH B. FORMAN
------------------------------------
Keith B. Forman
Vice President and Chief Financial
Officer
Date: August 9, 2000 By: /s/ D. MARK LELAND
------------------------------------
D. Mark Leland
Senior Vice President and Controller
(Principal Accounting Officer)
21
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Underwriting Agreement dated July 24, 2000 among El Paso
Energy Partners, L.P., El Paso Energy Partners Company,
Salomon Smith Barney Inc., Goldman, Sachs & Co., PaineWebber
Incorporated, and Donaldson, Lufkin & Jenrette Securities
Corporation. (Exhibit 1.1 of El Paso Energy Partners, L.P.'s
Form 8-K filed on July 27, 2000).
4.7 Indenture dated as of May 27, 1999 among El Paso Energy
Partners, L.P., El Paso Energy Partners Finance Corporation,
the subsidiary guarantors and Chase Bank of Texas, as
trustee (filed as Exhibit 4.1 to El Paso Energy Partners,
L.P.'s Registration Statement on Form S-4, filed on June 24,
1999, File No. 333-81143); First Supplemental Indenture
dated as of June 30, 1999 (filed as Exhibit 4.2 to El Paso
Energy Partners, L.P.'s Amendment No. 1 to Registration
Statement on Form S-4 filed August 27, 1999 File No.
333-81143); Second Supplemental Indenture dated as of July
27, 1999 (filed as Exhibit 4.3 to El Paso Energy Partners,
L.P.'s Amendment No. 1 to Registration Statement on Form
S-4, filed August 27, 1999, File No. 333-81143).
*4.7.1 Third Supplemental Indenture dated as of March 21, 2000, to
the Indenture dated as of May 27, 1999, among El Paso Energy
Partners, L.P., El Paso Energy Partners Finance Corporation,
as the issuers, and the subsidiaries party thereto, as
subsidiary guarantors, and Chase Bank of Texas, National
Association, as trustee.
10.1 Fourth Amended and Restated Credit Agreement dated June 30,
2000, among El Paso Energy Partners L.P., El Paso Energy
Partners Finance Corporation, Credit Lyonnais, as
syndication agent, BankBoston N.A., as documentation agent,
and the Chase Manhattan Bank, as administrative agent, and,
as applicable, the banks and other institutions parties
thereto. (Exhibit 10.1 of El Paso Energy Partners, L.P.'s
Form 8-K filed on July 14, 2000).
*10.7.1 Amendment No. 1 to the Leviathan Gas Pipeline Partners, L.P.
1998 Unit Option Plan for Non-Employee Directors.
*10.8.1 Amendment No. 1 to the Leviathan Gas Pipeline Partners, L.P.
1998 Omnibus Compensation Plan.
*27 Financial Data Schedule
</TABLE>
