EL PASO ENERGY PARTNERS LP, 10-K405, 2000-03-29

EL PASO ENERGY PARTNERS LP
10-K405, 2000-03-29
CRUDE PETROLEUM & NATURAL GAS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

<TABLE>
<S> <C>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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
</TABLE>

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 of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>

<TABLE>
<S> <C>
EL PASO ENERGY BUILDING 77002
1001 LOUISIANA STREET (Zip Code)
HOUSTON, TEXAS
(Address of Principal Executive Offices)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 420-2131

(LEVIATHAN GAS PIPELINE PARTNERS, L.P.)
(Former name)

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

<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Preference units representing limited partner New York Stock Exchange
interests
Common units representing limited partner interests New York Stock Exchange
</TABLE>

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. [X]

THE REGISTRANT HAD 26,739,065 COMMON UNITS AND 289,699 PREFERENCE UNITS
OUTSTANDING AS OF MARCH 24, 2000. THE AGGREGATE MARKET VALUE ON SUCH DATE OF THE
REGISTRANT'S COMMON UNITS AND PREFERENCE UNITS HELD BY NON-AFFILIATES WAS
APPROXIMATELY $501.2 MILLION.

DOCUMENTS INCORPORATED BY REFERENCE: NONE
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EFFECTIVE DECEMBER 1, 1999, LEVIATHAN GAS PIPELINE PARTNERS, L.P. CHANGED
ITS NAME TO EL PASO ENERGY PARTNERS, L.P. AND CHANGED ITS NEW YORK STOCK
EXCHANGE TRADING SYMBOLS TO "EPN" FOR ITS COMMON UNITS AND "EPN.P" FOR ITS
PREFERENCE UNITS.
<PAGE> 3

EL PASO ENERGY PARTNERS, L.P.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
CAPTION PAGE
------- ----
<S> <C> <C>
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 11

PART II
Item 5. Market for Registrant's Units and Related Unitholder
Matters................................................... 12
Item 6. Selected Financial Data..................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Risk Factors and Cautionary Statement for Purposes of the
"Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995... 21
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 27
Item 8. Financial Statements and Supplementary Data................. 28
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 58

PART III
Item 10. Directors and Executive Officers of the Registrant.......... 58
Item 11. Executive Compensation...................................... 62
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 64
Item 13. Certain Relationships and Related Transactions.............. 64

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 65
Signatures.................................................. 69
</TABLE>

i
<PAGE> 4

PART I

ITEM 1. BUSINESS

GENERAL

El Paso Energy Partners, L.P. and its subsidiaries, or the Partnership, is
one of the largest energy master limited partnerships in terms of market
capitalization and a leading independent gatherer of natural gas and oil in the
Gulf of Mexico. It also provides transportation, midstream and other related
services primarily in the Gulf. Through its subsidiaries and joint ventures, the
Partnership owns or has interests in (i) eleven natural gas and oil pipeline
systems (ii) six offshore platforms, including related production, processing,
and dehydration facilities, (iii) four producing oil and natural gas properties
and (iv) overriding royalty interests in two non-producing oil and natural gas
properties. The Partnership commenced operations in February 1993 in connection
with the initial public offering of preference units representing limited
partner interests in the Partnership. In June 1994, the Partnership completed a
second public offering of preference units. In May 1998 and 1999, preference
unitholders were given the opportunity to convert their preference units into
common units of the Partnership. Through December 31, 1999, approximately 98
percent of these preference units had been converted.

In August of 1998, El Paso Energy Corporation, or El Paso Energy, acquired
DeepTech International Inc., the parent company to the General Partner of the
Partnership. Following this acquisition, the General Partner became an indirect
wholly owned subsidiary of El Paso Energy and now performs all management and
operational functions. El Paso Energy, through its subsidiaries, owns an
effective 34.5 percent economic interest in the Partnership consisting of
8,953,764 common units, a one percent general partner interest, and an
approximate one percent nonmanaging member interest in certain of the
Partnership's subsidiaries.

In December 1999, the Partnership announced that it changed its name from
Leviathan Gas Pipeline Partners, L.P. to El Paso Energy Partners, L.P. At that
time, the Partnership's trading symbol for common units changed to "EPN," and
the symbol for preference units changed to "EPN.P" on the New York Stock
Exchange, or NYSE. The Partnership further announced that its growth strategy,
while remaining committed to the deepwater region of the Gulf, will incorporate
the acquisition and development of energy infrastructure assets in areas that
previously had not been in the Partnership's core geographic areas of operation.

Over the past five years, the Partnership has acquired or developed assets
that are strategically located to benefit from the growth of natural gas and oil
production occurring in the deepwater regions of the Gulf. In 1995 and 1996, the
Partnership finished the construction and installation of the Viosca Knoll Block
817 and Garden Banks Block 72 platforms, and completed its drilling programs at
those two locations and Garden Banks Block 117. In 1997, the Partnership
acquired a 25.67 percent indirect interest in each of Nautilus Pipeline Company,
L.L.C. and Manta Ray Offshore Gathering Company, L.L.C. In 1998, the Partnership
constructed a multi-purpose platform located in East Cameron Block 373 and
acquired a 100 percent working interest in the Ewing Bank 958 Unit, a
non-producing oil and natural gas property comprised of Ewing Bank Blocks 958,
959, 1002, and 1003. In 1999, the Partnership acquired an additional 49 percent
ownership interest in Viosca Knoll Gathering Company, and additional indirect
ownership interests in High Island Offshore System, L.L.C., East Breaks
Gathering Company, L.L.C., and U-T Offshore System, L.L.C., bringing its overall
ownership interest in Viosca Knoll to 99 percent and in HIOS, East Breaks and
UTOS to 50 percent. In addition, the Partnership placed the Allegheny system in
service and entered into an agreement to farm out its working interest in the
Ewing Bank 958 Unit to a subsidiary of El Paso Energy. The Partnership will
continue to look for opportunities in the future to enhance both its earnings
and its ability to make cash distributions to its unitholders.

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PARTNERSHIP OPERATIONS

The Partnership's principal operations include the transportation and
gathering of natural gas and oil in the Gulf. It conducts these activities
through its ownership of, or interests in, eleven pipeline systems. These
systems have a combined capacity of over 7.2 billion cubic feet per day, or
Bcf/d, of natural gas and over 480 thousand barrels per day, or MBbls/d, of oil
and include over 1,600 miles of pipeline. These systems are strategically placed
to serve production activities in some of the most active drilling and
development regions in the Gulf, including the offshore regions of Texas,
Louisiana, and Mississippi, and provide relatively low cost access to long line
transmission pipelines that access multiple markets in the eastern half of the
United States. During the years ended December 31, 1999, 1998, and 1997, these
systems handled an average of approximately 3.4 million dekatherms per day, or
MMdth/d, 3.4 MMdth/d, and 2.9 MMdth/d, respectively, of natural gas and
approximately 181 MBbls/d, 97 MBbls/d, and 52 MBbls/d, respectively, of oil.

The Partnership also owns or has interests in six platforms which also
include certain production, processing, and dehydration facilities. These
facilities have a combined product handling capacity of over 630 thousand cubic
feet per day, or Mcf/d, of natural gas and over 77 MBbls/d of oil and
condensate. Through these facilities, the Partnership is able to provide a
variety of producer and midstream services to enhance deliverability and volumes
into its pipeline systems.

The Partnership conducts its oil and natural gas production activities
through its interests in four producing properties having total proved reserves
of over 17.5 Bcf of natural gas and over 1.5 million barrels, or MMBbls, of oil.
The Partnership also has overriding royalty interests in non-producing
properties in the Ewing Bank and Garden Banks region of the Gulf to capitalize
on future development efforts in those regions.

SEGMENTS

The Partnership segregates its business activities into two segments:
Gathering, Transportation, and Platform Services and Oil and Natural Gas
Production. These segments are strategic business units that provide a variety
of energy related services. For information relating to operating revenues and
operating income of each segment, see Item 8, Financial Statements and
Supplementary Data, Note 12, which is incorporated herein by reference. Each of
these segments is discussed more fully below.

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GATHERING, TRANSPORTATION, AND PLATFORM SERVICES

Pipeline Systems

The Partnership conducts a significant portion of its business activities
through equity investments, many of which are organized as limited liability
companies with subsidiaries of other substantial energy companies. Management
decisions related to these investees are made by committees comprised of
representatives from each member with authority appointed in proportion to the
member's relative ownership interests. The following table describes the
Partnership's network of subsidiary and joint venture owned natural gas and
crude oil pipelines as of December 31, 1999:

<TABLE>
<CAPTION>
NEPTUNE AND
OCEAN BREEZE
DEEPWATER HOLDINGS -------------------
-------------------------------- MANTA
EAST GREEN RAY VIOSCA
HIOS UTOS BREAKS STINGRAY CANYON TARPON OFFSHORE NAUTILUS KNOLL POSEIDON ALLEGHENY
---- ----- ------ -------- ------ ------ -------- -------- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Effective ownership
interest................ 50% 50% 50% 50% 100% 100% 25.67% 25.67% 99%(1) 36% 100%
Unregulated(U)/
regulated(R)............ R R U R U U U R U U U
Operated(O)/Non-
operated(N)............. N(3) N(3) N(3) O(2) O O N N O N O
In-service date.......... 1977 1978 --(4) 1975 1990 1978 1987 1997 1994 1996 1999(4)
Approximate capacity
(MMcf/d or MBbls/d)(5).. 1,800 1,200 400 1,120 220 80 755 600 1,000 400 80
Aggregate miles of
pipeline................ 204 30 85 417 68 40 225 101 125 288 43
Average net throughput
(Mdth/d or MBbls/d) for
the year ended:(6)
December 31, 1999....... 371 186 --(4) 304 90 44 109 75 558 61 12(4)
December 31, 1998....... 359 171 -- 346 139 66 80 42 319 35 --
December 31, 1997....... 375 111 -- 371 162 53 211 -- 217 22 --
</TABLE>

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(1) The Partnership acquired an additional 49 percent ownership interest in June
1999 from a subsidiary of El Paso Energy.
(2) The Partnership began operating this system in November 1999.
(3) The Partnership will assume full operations of these systems no later than
July 1, 2000.
(4) The East Breaks system was completed in December 1999, and is expected to be
placed in service by mid 2000. The Allegheny system was placed in service in
October 1999.
(5) All measures are on a million cubic feet per day, or MMcf/d, basis except
the Poseidon and Allegheny systems which are measured on a MBbls/d basis.
(6) All measures are on a thousand dekatherms per day, or Mdth/d, basis except
the Poseidon and Allegheny systems which are measured on a MBbls/d basis.

Deepwater Holdings. In June 1999, the Partnership acquired additional
ownership interests in the HIOS, UTOS and East Breaks systems. In September
1999, the Partnership and ANR Pipeline Company reorganized their interests in
these and certain other pipeline systems through the formation of Deepwater
Holdings, L.L.C. As a result of the reorganization, Deepwater Holdings owns 100
percent of the HIOS, UTOS, East Breaks and Stingray systems, as well as 100
percent of the West Cameron dehydration facility. The Partnership has a 50
percent ownership interest in Deepwater Holdings.

HIOS. The HIOS system is a natural gas transmission system consisting of
approximately 204 miles of pipeline which includes three supply laterals that
connect to a 42-inch diameter mainline. The HIOS system transports natural gas
received from fields located in the Galveston, Garden Banks, West Cameron and
East Breaks areas of the Gulf to a junction platform owned by HIOS located in
West Cameron Block 167.

UTOS. The UTOS system is a natural gas transmission system consisting of
approximately 30 miles of 42-inch diameter pipeline extending from an
interconnection with the HIOS system at West Cameron Block 167 to the Johnson
Bayou production handling facility, owned by UTOS. The UTOS system is
essentially an extension of the HIOS system, as almost all the natural gas
transported through the UTOS system comes from the HIOS system. The Johnson
Bayou facility provides primarily natural gas and liquids separation and gas
dehydration services for natural gas transported on the HIOS and UTOS systems.

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<PAGE> 7

East Breaks. The East Breaks system is a natural gas gathering system,
substantially completed in December 1999, consisting of approximately 85 miles
of 18 to 20-inch diameter pipeline that connects the HIOS system to the Diana
and Hoover fields being developed by subsidiaries of Exxon Company USA and BP
Amoco plc. Production from the Diana and Hoover properties has been committed to
the East Breaks system. This system has the ability to expand its throughput
capacity further, thereby providing the HIOS and UTOS systems with the ability
to compete to gather and transport the substantial reserves associated with
properties being, and expected to be, developed in these deepwater frontier
regions.

Stingray. The Stingray system is a natural gas gathering system consisting
of (i) approximately 361 miles of 6 to 36-inch diameter pipeline that transports
natural gas from the HIOS system, West Cameron, East Cameron and Vermilion lease
areas in the Gulf to onshore transmission systems in Louisiana, (ii)
approximately 12 miles of 16-inch diameter pipeline and approximately 31 miles
of 20-inch diameter pipeline connecting platforms and leases in the Garden Banks
191 and 72 areas, respectively, to the Stingray system, and (iii) approximately
13 miles of 16-inch diameter pipeline connecting the Partnership's platform at
East Cameron Block 373 to the Stingray system at East Cameron Block 338.

Green Canyon. The Green Canyon system is a natural gas gathering system
consisting of approximately 68 miles of 10 to 20-inch diameter pipeline which
transports natural gas from the South Marsh Island, Eugene Island, Garden Banks,
and Green Canyon areas in the Gulf to Transcontinental Gas Pipeline Company's,
or Transco's, South Lateral in South Marsh Island Block 106.

Tarpon. The Tarpon system is a natural gas gathering system consisting of
approximately 40 miles of 16-inch diameter pipeline that extends from the
Trunkline Gas Pipeline system at Ship Shoal Block 274 to the Eugene Island area
of the Gulf.

Neptune and Ocean Breeze. The Partnership owns a 25.67 percent interest in
Neptune Pipeline Company, L.L.C. and Ocean Breeze Pipeline Company, L.L.C.
Together, Neptune and Ocean Breeze own 100 percent of the Manta Ray Offshore and
Nautilus systems.

Manta Ray Offshore. The Manta Ray Offshore system is a natural gas
gathering system consisting of (i) three separate gathering lines in the
offshore Louisiana area of the Gulf, including approximately 76 miles of 12 to
24-inch diameter pipeline, each interconnecting offshore with Transco's
Southeast Louisiana Lateral, which provides transportation to shore in eastern
Louisiana and (ii) approximately 149 miles of 14, 16, and 24-inch diameter
pipelines, extending from the Green Canyon and South Timbalier areas to
facilities located at Ship Shoal Block 207. Affiliates of the other partners in
the system, Shell Oil Company and Marathon Oil Company, have dedicated
production from over 110 lease blocks in the area to the system.

Nautilus. The Nautilus system is a natural gas transmission system
consisting of 101 miles of 30-inch pipeline running downstream from Ship Shoal
Block 207 connecting to a natural gas processing plant in Louisiana and, through
the processing plant, facilitates deliveries into multiple interstate pipelines.
The Shell Oil Company and Marathon Oil Company production dedicated to the Manta
Ray Offshore system is also dedicated to the Nautilus system.

Viosca Knoll. The Viosca Knoll system is a natural gas gathering system
designed to serve the Main Pass, Mississippi Canyon and Viosca Knoll areas of
the Gulf and consists of 125 miles of predominantly 20-inch natural gas pipeline
and a 7,000 horsepower compressor. The system provides its customers access to
the facilities of a number of major interstate pipelines, including pipelines
owned by Tennessee Gas Pipeline Company, Columbia Gulf Transmission Company,
Southern Natural Gas Company, Transco, and Destin Pipeline Company. During 1999,
the Partnership acquired an additional 49 percent interest in the Viosca Knoll
system from a subsidiary of El Paso Energy.

Poseidon. Through its interest in Poseidon Oil Pipeline Company, L.L.C., or
Poseidon, the Partnership has an interest in the Poseidon system, which is a
major sour crude oil pipeline system built in response to the increased demand
for additional sour crude oil pipeline capacity in the central Gulf. The
Poseidon system consists of (i) approximately 117 miles of 16 to 20-inch
diameter pipeline extending from the Partnership's 50 percent owned Garden Banks
Block 72 platform to the Partnership's platform at Ship Shoal Block 332, (ii)
approximately 122 miles of 24-inch diameter pipeline extending from the Ship
Shoal Block 332 platform
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to Houma, Louisiana, (iii) approximately 32 miles of 16-inch diameter pipeline
extending from Ewing Bank Block 873 to the 24-inch pipeline in the area of South
Timbalier Block 212, and (iv) approximately 17 miles of 16-inch pipeline
extending from Garden Banks Block 260 to South Marsh Island Block 205.

Allegheny. The Allegheny system is a crude oil system, completed in the
fourth quarter of 1999, consisting of approximately 43 miles of 14-inch diameter
pipeline that connects the Allegheny field in the Green Canyon area of the Gulf
with the Poseidon system at the Partnership's Ship Shoal 332 platform. Oil
production from the Allegheny field is committed to the system.

Nemo. In August 1999, the Partnership and Tejas Offshore Pipeline, L.L.C.
formed Nemo Gathering Company L.L.C., or Nemo, to construct, own and operate a
natural gas gathering system extending from the Brutus and Glider deepwater
development properties to the Manta Ray Offshore system. The Nemo system, which
will consist of approximately 24 miles of 20 -inch diameter pipeline with a
capacity of 300 MMcf/d should be completed in late 2001.

Offshore Platforms and Related Facilities

The Partnership's offshore platforms play a key role in the development of
the oil and natural gas offshore pipeline network. Platforms are used to
interconnect the offshore pipeline grid; to provide an efficient means to
perform pipeline maintenance; and to serve as a base for compression,
separation, production handling, and other facilities. In addition to numerous
platforms owned by the Partnership's pipeline investments, the Partnership owns
six strategically-located platforms in the Gulf, including five multi-purpose
hub-platforms. These platforms were specifically designed to be used as
flextrend and deepwater landing sites and production handling and pipeline
maintenance facilities. Information regarding the Partnership's platforms as of
December 31, 1999, is set out below:

<TABLE>
<CAPTION>
EAST GARDEN SHIP SHIP SOUTH VIOSCA
CAMERON BANKS SHOAL SHOAL TIMBALIER KNOLL
373 72 332 331 292 817
------- ------- -------- ----- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Ownership interest............... 100% 50% 100% 100% 100% 100%
In-service date.................. 1998 1995 1985 1994 1984 1995
Water depth (in feet)............ 441 518 438 376 283 671
Acquired (A) or constructed
(C)............................ C C A A A C
Approximate handling capacity:
Natural gas (MMcf/d)........... 110 80 150(1) --(1) 150 140
Oil and condensate (Bbls/d).... 5,000 55,000 12,000(1) --(1) 2,500 5,000
</TABLE>

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

(1) The Ship Shoal 331 platform is currently used as a satellite landing area
and all products transported to the platform are processed on the Ship Shoal
332 platform.

East Cameron 373. The East Cameron 373 platform is located at the south end
of the central leg of the Stingray system. The platform serves as the host for
Kerr-McGee Corporation's East Cameron Block 373 production and as the landing
site for Garden Banks Blocks 108 and 152 production.

Garden Banks 72. The Garden Banks 72 platform is located at the south end
of the eastern leg of the Stingray system and serves as the western-most
termination point of the Poseidon system. The platform serves as a base for
landing deepwater production from Enterprise Oil Gulf of Mexico, Inc., and Devon
Energy Inc.'s Garden Banks Block 161 development and will serve as the host for
Mariner Energy Inc.'s development in Garden Banks Block 73. The Partnership also
uses the platform as the host for the Partnership's Garden Banks Block 72
production and the landing site for production from the Partnership's Garden
Banks Block 117 lease located in an adjacent lease block.

Ship Shoal 332. The Ship Shoal 332 platform serves as a major junction
platform for pipelines in the Manta Ray Offshore, Allegheny and Poseidon
systems. The platform will also serve as the landing site for the Nemo system.

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Ship Shoal 331. The Ship Shoal 331 platform is a production facility
located approximately 75 miles off the coast of Louisiana. Pogo Producing
Company has certain rights to utilize the platform pursuant to a production
handling and use of space agreement.

South Timbalier 292. The South Timbalier 292 platform is located at the
easternmost termination point of the Manta Ray Offshore system and serves as a
landing site for natural gas production in the area and provides an
interconnection to the Trunkline Gas Pipeline system.

Viosca Knoll 817. The Viosca Knoll 817 platform is centrally located on the
Viosca Knoll system. The platform serves as a base for landing deepwater
production in the area, including Exxon Company USA, Shell Offshore Inc., and BP
Amoco plc's Ram Powell development. A 7,000 horsepower compressor on the
platform facilitates deliveries from the Viosca Knoll system to multiple
downstream interstate pipelines. The platform is also used as a base for oil and
natural gas production from the Partnership's Viosca Knoll Block 817 lease.

Other Facilities. Through its 50 percent ownership interest in Deepwater
Holdings, the Partnership also owns an interest in the West Cameron dehydration
facility located at the northern termination point of the Stingray system in
Louisiana.

Markets and Competition

Each of the Partnership's natural gas pipeline systems is located at or
near natural gas production areas that are served by other pipelines. As a
result, each of the Partnership's natural gas pipeline systems face competition
from both regulated and unregulated systems. Some of these competitors are not
subject to the same level of rate and service regulation as, and may have a
lower cost structure than, the Partnership's natural gas pipeline systems. Other
competing pipelines, such as long-haul transporters, may have rate design
alternatives unavailable to the Partnership. Consequently, those competing
pipelines may be able to provide service on more flexible terms and at rates
significantly below those offered by the Partnership.

The Partnership's oil pipeline systems were built as a result of the need
for additional crude oil capacity to transport new deepwater oil production to
shore. These systems' principal competition includes other oil pipeline systems,
built, owned and operated by producers to handle their own production and, as
capacity is available, production for others. The Partnership's oil pipelines
compete for new production on the basis of geographic proximity to the
production, cost of connection, available capacity, transportation rates and
access to onshore markets. In addition, the ability of the Partnership's
pipelines to access future reserves will be subject to the ability of the
Partnership or the producers to fund the significant capital expenditures
required to connect to the new production.

A substantial portion of the revenues generated by the Partnership's
pipeline systems is attributed to production from reserves committed under
long-term contracts for the productive life of the relevant field. Nonetheless,
these reserves and other reserves that may become available to the Partnership's
pipeline systems are depleting assets and, as such, will be produced over a
finite period. Each of the Partnership's pipeline systems must access additional
reserves to offset the natural decline in production from existing connected
wells or the loss of any other production to a competitor. Furthermore, the
rates the Partnership charges for its services are dependent on (1) whether the
relevant pipeline system is regulated or unregulated, (2) the quality of the
service required by the customer, and (3) the amount and term of the reserve
commitment by the customer. A majority of the Partnership's arrangements involve
life-of-reserve commitments with both firm and interruptible components.
Generally, the Partnership receives a price per dekatherm of natural gas or
barrel of oil or water handled. Also, for firm arrangements, the Partnership
often receives a monthly fixed fee which is paid by the customer regardless of
the level of throughput, except under individually specified circumstances.

The Partnership's platforms are subject to similar competitive factors as
its pipeline systems. These assets generally compete on the basis of proximity
and access to existing reserves and pipeline systems, as well as costs and
rates. Furthermore, competitors to these platforms may possess greater technical
skill and capital resources than those of the Partnership.

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<PAGE> 10

For a discussion of significant customers of the Partnership, see Item 8,
Financial Statements and Supplementary Data, Note 11, which is incorporated
herein by reference.

Regulatory Environment

The Partnership's natural gas pipeline systems are subject to the Natural
Gas Pipeline Safety Act of 1968, as amended, which establishes pipeline and
liquified natural gas plant safety requirements. The Poseidon and Allegheny
systems are subject to regulations under the Hazardous Liquid Pipeline Safety
Act. All of the Partnership's pipeline systems are subject to the regulation
under the Outer Continental Shelf Lands Act, which calls for nondiscriminatory
transportation on pipelines operating in the outer continental shelf region of
the Gulf, and the National Environmental Policy Act and other environmental
legislation. Each of the systems has a continuing program of inspection designed
to keep all of its facilities in compliance with pollution control and pipeline
safety requirements. The Partnership believes that its systems are in
substantial compliance with applicable requirements of the regulations under
which the systems are governed.

The Partnership's HIOS, UTOS, Stingray and Nautilus pipeline systems are
also subject to the jurisdiction of the Federal Energy Regulatory Commission, or
FERC, in accordance with the Natural Gas Act of 1938 and the Natural Gas Policy
Act of 1978. Each of these systems operates under separate FERC approved tariffs
which establish rates, terms, and conditions under which each system provides
services to its customers.

On December 1, 1998, Stingray filed for a general rate increase at the
FERC. Pursuant to an order issued by FERC on December 30, 1998, the proposed
rates became effective June 1, 1999, subject to refund. A hearing on the merits
of Stingray's filing was held in December 1999. The rate case is still pending.
Each of the HIOS, UTOS and Nautilus systems is currently operating under
agreements with their respective customers which provide for rates that have
been approved by the FERC.

Maintenance

Each of the Partnership's pipeline systems and platforms requires regular
and thorough maintenance. The interior of the pipelines is maintained through
the regular "pigging" of the lines to clean the line of liquids that collect in
the pipeline. Corrosion inhibitors are also injected into all of the systems
through the flow stream on a continuous basis. To prevent external corrosion of
the pipe, anodes are fastened to the pipeline itself at prescribed intervals,
providing protection from sea water. The platforms are painted to the waterline
every three to five years to prevent atmospheric corrosion. Anodes are also
fastened to platform legs below the waterline to prevent corrosion. Remotely
operated vehicles or divers inspect the platforms below the waterline generally
every five years. The HIOS, Stingray, Manta Ray Offshore, Viosca Knoll and
Poseidon systems include platforms that are manned on a continuous basis. The
personnel onboard these platforms are responsible for site maintenance,
operations of the platform facilities, measurement of the oil or natural gas
stream at the source of production and corrosion control.

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<PAGE> 11

OIL AND NATURAL GAS PRODUCTION

Currently, the Partnership owns interests in four producing and two
non-producing oil and natural gas properties located in waters offshore
Louisiana. Production from these properties is gathered, transported, and
processed through the Partnership's pipeline systems and platform facilities,
and sold to an affiliate of El Paso Energy. The following is information
regarding these properties as of December 31, 1999:

Producing Properties

<TABLE>
<CAPTION>
GARDEN BANKS GARDEN BANKS VIOSCA KNOLL WEST DELTA
BLOCK 72 BLOCK 117 BLOCK 817 BLOCK 35
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Working interest........................... 50% 50% 100%(1) 38%
Net revenue interest....................... 40.2% 37.5% 80% 29.8%
In-service date............................ 1996 1996 1995 1993(2)
Net acres.................................. 2,880 2,880 5,760 1,894
Distance offshore (in miles)............... 120 120 40 10
Water depth (in feet)...................... 518 1,000 671 60
Producing wells............................ 5 2 7 2
Cumulative production:
Natural gas (MMcf)....................... 3,460 1,603 53,242 1,146(3)
Oil (Bbls)............................... 1,100,295 915,589 67,580 2,195(3)
</TABLE>

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

(1) The Partnership's working interest in this property is subject to a
production payment that entitles holders to 25 percent of the proceeds from
the production attributable to this working interest (after deducting all
leasehold operating expenses, including platform access and production
handling fees) until the holders have received the aggregate sum of $16
million. At December 31, 1999, the unpaid portion of the production payment
obligation totaled $10.4 million.
(2) The West Delta Block 35 field commenced production in 1993, but the
Partnership's interest in this field was acquired in connection with El Paso
Energy's acquisition of the Partnership's general partner in 1998.
(3) Production data is for the period from August 1998.

Acreage and Wells. The following table sets forth the Partnership's
developed and undeveloped oil and natural gas acreage as of December 31, 1999.
Undeveloped acreage refers to those lease acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and natural gas, regardless of whether or not such acreage
contains proved reserves. Gross acres in the following table refer to the number
of acres in which a working interest is owned directly by the Partnership. The
number of net acres is the Partnership's fractional ownership of the working
interest in the gross acres.

<TABLE>
<CAPTION>
GROSS NET
------ ------
<S> <C> <C>
Developed acreage........................................... 6,152 4,856
Undeveloped acreage......................................... 44,913 34,838
------ ------
Total acreage..................................... 51,065 39,694
====== ======
</TABLE>

The Partnership's gross and net ownership in producing wells at December
31, 1999, is as follows:

<TABLE>
<CAPTION>
GROSS NET
----- ----
<S> <C> <C>
Natural gas................................................. 10.0 8.3
Oil......................................................... 6.0 3.0
---- ----
Total............................................. 16.0 11.3
==== ====
</TABLE>

In 1999, the Partnership did not drill any exploratory or developmental
wells. One developmental oil well was drilled during 1998 and no wells were
drilled in 1997.

8
<PAGE> 12

Net production, unit prices, and production costs. The following table sets
forth certain information regarding the production volumes of, average unit
prices received for, and average production costs for the Partnership's oil and
natural gas properties for the periods indicated:

<TABLE>
<CAPTION>
OIL (BARRELS) NATURAL GAS (MMCF)
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------ ---------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net production(1)................ 357,000 540,000 801,000 12,211 11,324 19,792
Average sales price(1)()......... $ 14.32 $ 15.69 $ 20.61 $ 2.02 $ 2.01 $ 2.08
Average production costs(2)().... $ 2.38 $ 3.04 $ 1.98 $ 0.40 $ 0.51 $ 0.33
</TABLE>

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

(1) The information regarding net production and average sales prices excludes
overriding royalty interests.
(2) The components of average production costs may vary substantially among
wells depending on the methods of recovery employed and other factors, but
generally include third party transportation expenses, maintenance and
repair, labor and utilities costs.

The relationship between average sales prices and average production costs
depicted by the table above is not necessarily indicative of future results of
operations expected by the Partnership.

For a discussion of oil and natural gas reserve information and estimated
future net cash flows, see Item 8, Financial Statements and Supplementary Data,
Note 13, which is incorporated herein by reference.

Non-producing Properties

Ewing Bank 958 Unit. Through October 1999, the Partnership owned a 100
percent working interest in the Ewing Bank 958 Unit, comprised of Ewing Bank
Blocks 958, 959, 1002, and 1003 which were formerly referred to as the Sunday
Silence Properties. The Ewing Bank 958 Unit was discovered in 1994 in
approximately 1,500 feet of water in the Gulf. In October 1999, the Partnership
executed an agreement with El Paso Production Company, or El Paso Production, a
subsidiary of El Paso Energy, to farm out its working interest in the Ewing Bank
958 Unit. Under the terms of the farmout agreement, the Partnership increased
its overriding royalty interest in the Ewing Bank 958 Unit from 5.3 percent to
7.4 percent convertible, at its option, into a 30 percent undivided working
interest once El Paso Production has recouped the costs associated with its
drilling and completion activities on the unit. El Paso Production began
drilling on the Ewing Bank 958 Unit in November 1999.

Garden Banks Block 73. The Partnership maintains a 2.5 percent overriding
royalty interest in the Garden Banks Block 73 property, located 115 miles
offshore in approximately 743 feet of water. The property has one well and
expects to begin production in the second quarter of 2000. As of December 31,
1999, the property had proved developed reserves of 653 barrels and 218 MMcf of
oil and natural gas, respectively, net to the Partnership's interest.

Markets and Competition

The Partnership's focus is to maximize the production from its existing
portfolio of oil and natural gas properties. As a result, the competitive
factors that would normally impact exploration and production activities are not
as pervasive to the Partnership's operations. However, the oil and natural gas
industry is intensely competitive and the Partnership does compete with a
substantial number of other companies, including many with larger technical
staffs and greater financial and operational resources in terms of accessing
transportation, hiring personnel, marketing production and withstanding the
effects of general and industry-specific economic changes.

Regulatory Environment

The production and development operations of the Partnership are subject to
regulation at the federal and state levels. Regulated activities include:
requiring permits for the drilling of wells; maintaining bonds and insurance
requirements in order to drill or operate wells; drilling and casing wells; the
surface use and restoration of properties upon which wells are drilled; and the
plugging and abandoning of wells. The

9
<PAGE> 13

Partnership's production and development operations are also subject to various
conservation laws and regulations. These include the regulation of the size of
drilling and spacing units or proration units, the density of wells that may be
drilled, the levels of production, and the unitization or pooling of oil and
natural gas properties.

The Partnership presently has interests in, or rights to, offshore leases
located in federal waters. Federal leases are administered by the Minerals
Management Service, or MMS. Individuals and entities must qualify with the MMS
prior to owning and operating any leasehold or right-of-way interest in federal
waters. Qualification with MMS generally involves filing certain documents and
obtaining an area-wide performance bond and/or supplemental bonds representing
security for facility abandonment and site clearance costs.

Operating Environment

The Partnership's business is subject to all of the operating risks
normally associated with the production of oil and natural gas, including
blowouts, cratering, pollution, and fires, each of which could result in damage
to life or property. Offshore operations are subject to usual marine perils,
including hurricanes and other adverse weather conditions, and governmental
regulations, including interruption or termination by governmental authorities
based on environmental and other considerations. In accordance with customary
industry practices, the Partnership maintains broad insurance coverage with
respect to potential losses resulting from these operating hazards.

MAJOR ENCUMBRANCES

Substantially all of the Partnership's assets are pledged as collateral to
secure obligations under its existing credit facility. In addition, certain of
the Partnership's investees currently have, and others are expected to have,
credit facilities under which substantially all of their assets are, or would
be, pledged. For a discussion of the Partnership's credit facilities, see Item
8, Financial Statements and Supplementary Data, Notes 6 and 9, which are
incorporated herein by reference.

ENVIRONMENTAL

A description of the Partnership's environmental matters is included in
Item 8, Financial Statements and Supplementary Data, Note 9, which is
incorporated herein by reference.

EMPLOYEES

Employees of El Paso Energy, through the General Partner, perform all
administrative and operational activities of the Partnership under a management
agreement. Therefore, the Partnership had no direct employees at December 31,
1999. The Partnership reimburses the General Partner for all reasonable general
and administrative expenses and other reasonable expenses incurred by the
General Partner and its affiliates for, or on behalf of, the Partnership,
including, but not limited to, expenses incurred by the General Partner under
this management agreement.

10
<PAGE> 14

ITEM 2. PROPERTIES

A description of the Partnership's properties is included in Item 1,
Business, and is incorporated herein by reference.

The Partnership is of the opinion that it has satisfactory title to the
properties owned and used in its businesses, subject to liens for current taxes,
liens incident to minor encumbrances, and easements and restrictions that do not
materially detract from the value of such property, or the interests therein, or
the use of such properties in its businesses. The Partnership believes that its
physical properties are adequate and suitable for the conduct of its business in
the future.

ITEM 3. LEGAL PROCEEDINGS

See Item 8, Financial Statements and Supplementary Data, Note 9, which is
incorporated herein by reference.

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

None.

11
<PAGE> 15

PART II

ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS

The Partnership's common and preference units are traded on the NYSE under
the symbol "EPN" for common units and "EPN.P" for preference units. As of March
15, 2000, there were approximately 525 and 59 holders of record of common and
preference units, respectively.

The following table reflects the high and low sales prices for common and
preference units, for the periods indicated, based on the daily composite
listing of stock transactions for the NYSE and cash distributions declared
during those periods.

<TABLE>
<CAPTION>
PRICE RANGE
------------------------------------- DISTRIBUTIONS DECLARED
COMMON UNITS PREFERENCE UNITS PER UNIT
----------------- ----------------- ----------------------
HIGH LOW HIGH LOW COMMON PREFERENCE
------- ------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Fourth Quarter....................................... $24.750 $16.750 $22.625 $16.875 $ 0.525 $ 0.275
Third Quarter........................................ 25.125 21.875 24.500 22.625 0.525 0.275
Second Quarter....................................... 24.750 21.375 23.250 20.500 0.525 0.275
First Quarter........................................ 23.125 19.500 20.875 17.625 0.525 0.275
Year ended December 31, 1998
Fourth Quarter....................................... $28.500 $19.750 $25.000 $17.375 $ 0.525 $ 0.275
Third Quarter(1)..................................... 27.875 21.500 29.750 21.250 0.525 0.275
Second Quarter....................................... -- -- 34.000 25.500 0.525 0.525
First Quarter........................................ -- -- 33.625 27.000 0.525 0.525
</TABLE>

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

(1) Common units of the Partnership began trading on August 6, 1998. Therefore,
no market price information exists before that date.

In January 2000, the Partnership declared a quarterly distribution of
$0.525 per common unit and $0.275 per preference unit payable on February 15,
2000, to unitholders of record on January 31, 2000.

CASH DISTRIBUTIONS

The Partnership makes quarterly distributions of 100 percent of its
available cash, as defined in the partnership agreement, to its unitholders and
to the General Partner. Available cash consists generally of all the cash
receipts of the Partnership plus reductions in reserves less all of its cash
disbursements and net additions to reserves. The General Partner has broad
discretion to establish cash reserves that it determines are necessary or
appropriate to provide for the proper conduct of the Partnership. These can
include cash reserves for future capital and maintenance expenditures, reserves
to stabilize distributions of cash to the unitholders and the General Partner,
reserves to reduce debt, or, as necessary, reserves to comply with the terms of
any agreement or obligation of the Partnership.

The distribution of available cash for each calendar quarter is subject to
the preferential rights of the preference unitholders to receive a minimum
quarterly distribution of $0.275 per unit for such quarter, plus arrearages for
prior quarters before any distribution is made to holders of common units. The
holders of common units and the General Partner are not entitled to arrearages
of minimum quarterly distributions.

Distributions by the Partnership are effectively made 98 percent to limited
unitholders and 2 percent to the General Partner, subject to the payment of
incentive distributions to the General Partner if certain target cash
distribution levels to unitholders are achieved. As an incentive, the General
Partner's interest in the portion of quarterly cash distributions in excess of
$0.325 per unit and less than or equal to $0.375 per unit is increased to 15
percent. For quarterly cash distributions over $0.375 per unit but less than or
equal to $0.425 per unit, the General Partner receives 25 percent of such
incremental amount, and for all quarterly cash distributions in excess of $0.425
per unit, the General Partner receives 50 percent of the incremental amount. For
the year ended December 31, 1999, the Partnership paid the General Partner
incentive distributions totaling $12.1 million and paid an incentive
distribution of $3.2 million in February 2000.

12
<PAGE> 16

CONVERSION OF PREFERENCE UNITS INTO COMMON UNITS

In May 1998, the Partnership notified the holders of its 18,075,000 then
outstanding preference units of their right to convert their preference units
into an equal number of common units within a 90-day period. On August 5, 1998,
the first conversion period expired and holders of 17,058,094 preference units,
representing approximately 94 percent of the preference units then outstanding,
elected to convert their preference units to common units. Upon completion of
the preference period, as defined in the partnership agreement, the common
units, including the 6,291,894 common units held by the General Partner, became
the primary listed security on the NYSE under the symbol "EPN." The preference
units began trading as the Partnership's secondary listed security on the NYSE
under the symbol "EPN.P." The Partnership reallocated partners' capital to
reflect this conversion of preference units into common units.

In May 1999, the Partnership notified the holders of its 1,016,906 then
outstanding preference units of their second opportunity to submit their
preference units for conversion into common units. During that second 90-day
conversion period, 727,207 preference units were converted into common units.

Until they are redeemed, the remaining preference units retain their
distribution preferences over the common units; that is, holders of such
preference units will be paid up to the minimum quarterly distribution of $0.275
per unit before any quarterly distributions are made to the common unitholders
or the General Partner. However, holders of preference units will not receive
any distributions in excess of the minimum quarterly distribution of $0.275 per
unit. Only holders of common units and the General Partner will be eligible to
receive any such excess distributions.

In accordance with the partnership agreement, holders of the remaining
preference units will have a final 90-day opportunity to convert their
preference units into common units beginning in May 2000. Thereafter, any
remaining preference units will be subject to redemption for an amount equal to
the unrecovered capital, as defined in the partnership agreement, of such
preference units plus minimum quarterly distribution arrearages, if any.

13
<PAGE> 17

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating Results Data:
Operating revenues(1)................. $ 96,473 $ 75,455 $104,762 $ 91,507 $ 41,993
Impairment, abandonment and
other(2)........................... -- (1,131) 21,222 -- --
Net income (loss)(1)(2)............... 18,817 746 (1,138) 38,692 23,945
Basic and diluted income (loss) per
unit(3)............................ (0.34) 0.02 (0.06) 1.57 0.97
Distributions per common unit......... 2.10 2.075 1.75 1.35 1.20
Distributions per preference unit..... 1.10 1.825 1.75 1.35 1.20
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Financial Position Data:
Total assets.......................... $583,585 $442,726 $409,842 $453,526 $398,696
Notes payable......................... 290,000 338,000 238,000 227,000 135,780
Long-term debt........................ 175,000 -- -- -- --
Partners' capital..................... 96,489 82,896 143,966 192,023 186,841
</TABLE>

- ----------

(1) The increase in 1996 reflects the completion and commencement of production
on the Garden Banks Blocks 72 and 117 properties in 1996 and the Viosca
Knoll Block 817 property in December 1995.
(2)Reflects impairment charges for capitalized costs written off in 1997 as a
result of the abandonment of certain flow lines connecting to wells abandoned
by third party owners.
(3)Reflects the Partnership's adoption, in 1999, of a different accounting
method for allocating partnership income to the General Partner and the
preference and common unitholders. See Item 8, Financial Statements and
Supplementary Data, Note 1, for further information.

14
<PAGE> 18

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

GENERAL

Over the past three years, the Partnership's business activities have
changed as a result of acquisitions and transactions designed to enhance its
ability to compete effectively. In 1997, the Partnership acquired a 25.67
percent indirect ownership interest in each of Nautilus and Manta Ray Offshore.
In 1998, the Partnership constructed a multi-purpose platform located in East
Cameron Block 373 and acquired a 100 percent working interest in the Ewing Bank
958 Unit. In 1999, the Partnership acquired an additional 49 percent ownership
interest in Viosca Knoll, and an additional indirect ownership interest in HIOS,
East Breaks and UTOS bringing its overall ownership interest in Viosca Knoll to
99 percent and in HIOS, East Breaks and UTOS to 50 percent. Also, in 1999, the
Partnership placed the Allegheny system in service and entered into an agreement
to farm out its working interest in the Ewing Bank 958 Unit to a subsidiary of
El Paso Energy. The Partnership will continue to look for opportunities in the
future to enhance both its earnings and its ability to make cash distributions
to its unitholders.

In addition, the Partnership issued $175 million of notes in May 1999 and
amended its credit facility in September 1999 to extend its maturity to May
2002.

In March 2000, the Partnership acquired the El Paso Intrastate-Alabama
pipeline system, or EPIA, a natural gas gathering system in the coal seam
producing regions of Alabama for total consideration of $24.5 million from a
subsidiary of El Paso Energy. This acquisition represents the first purchase of
an onshore system by the Partnership.

In January 2000, an anchor from a submersible drilling rig in tow damaged a
section of the Poseidon system north of the Partnership's Ship Shoal 332
platform. The accident resulted in the release of approximately 2,200 Bbls of
crude oil in the waters surrounding the area, caused damage to the Partnership's
Ship Shoal 332 platform, and resulted in the shutdown of the system and certain
surrounding facilities in which the Partnership has ownership interests.
Poseidon estimates the cost to repair the damaged pipeline and clean up the
crude oil released into the Gulf to be approximately $15 million, and has placed
the rig's owner on notice for liability and expenses due to the incident.
Management is currently evaluating the effects of the incident on the
Partnership's operations and expects to complete its evaluation in the first
quarter of 2000.

RESULTS OF OPERATIONS

To the extent possible, results of operations have been reclassified to
conform to the current business segment presentation, although such results are
not necessarily indicative of the results which would have been achieved had the
revised business segment structure been in effect during those periods.
Operating revenues and expenses by segment include intersegment sales and
expenses which are eliminated in consolidation. For a further discussion of the
individual segments, see Item 8, Financial Statements and Supplementary Data,
Note 12, which is incorporated herein by reference.

15
<PAGE> 19

The following table presents EBIT by segment and in total for each of the
three years ended December 31:

<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
EARNINGS BEFORE INTEREST EXPENSE AND INCOME TAXES
Gathering, transportation, and platform services......... $61,070 $ 30,513 $21,636
Oil and natural gas production........................... (7,359) (10,140) (9,114)
------- -------- -------
Segment EBIT........................................... 53,711 20,373 12,522
Non-segment activity, net................................ 191 159 191
------- -------- -------
Consolidated EBIT...................................... $53,902 $ 20,532 $12,713
======= ======== =======
</TABLE>

EBIT year-to-year variances are discussed in the segment results below.

GATHERING, TRANSPORTATION, AND PLATFORM SERVICES

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Gathering and transportation........................... $ 23,005 $ 6,852 $ 11,580
Platform services...................................... 23,882 21,141 16,911
Equity investment earnings............................. 32,814 26,724 29,327
-------- -------- --------
Total operating revenues............................. 79,701 54,717 57,818
Operating expenses..................................... (28,932) (24,806) (36,895)
Other income........................................... 10,301 602 713
-------- -------- --------
EBIT................................................. $ 61,070 $ 30,513 $ 21,636
======== ======== ========
</TABLE>

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Operating revenues for the year ended December 31, 1999, were approximately
$25.0 million higher than 1998. The increase in gathering and transportation
revenues is due to including the revenues of Viosca Knoll as a result of the
acquisition of an additional 49 percent ownership interest in, and the
consolidation of, Viosca Knoll beginning in June 1999. These revenues were
included as equity investment earnings prior to June 1999. The increase in
gathering and transportation revenues was also a result of the commencement of
operations of the Allegheny system in the fourth quarter of 1999, partially
offset by decreased transportation volumes on the Green Canyon and Tarpon
systems due to natural depletion. The increase in platform services revenues is
a result of new production processed at the Partnership's Garden Banks 72
platform, and a full year's operations at the East Cameron 373 platform. The
increase in equity investment earnings is attributable to increased throughput
on the Poseidon, Manta Ray Offshore and Nautilus systems, partially offset by
lower volumes on the HIOS, UTOS, and Stingray systems and the impact of
consolidating Viosca Knoll.

Operating expenses for the year ended December 31, 1999, were approximately
$4.1 million higher than 1998 primarily as a result of the acquisition of an
additional 49 percent ownership interest in, and the consolidation of, Viosca
Knoll beginning in June 1999, the accrual of certain costs relating to various
regulatory and operational issues, and higher depreciation as a result of the
Allegheny system being placed into service in the fourth quarter of 1999 and the
East Cameron 373 platform being in service for a full year in 1999.

Other income for the year ended December 31, 1999, was approximately $9.7
million higher than 1998. The increase is primarily a result of a gain on the
sale of a portion of the Partnership's interest in Deepwater Holdings.

16
<PAGE> 20

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Operating revenues for the year ended December 31, 1998, were approximately
$3.1 million lower than 1997. The decrease in gathering and transportation
revenues is primarily a result of the cessation of production in May 1997 from
the Partnership's well connected to the Ewing Bank system, lower throughput on
the Green Canyon system, and the contribution of a significant portion of the
Manta Ray Offshore system to Manta Ray Offshore in January 1997, resulting in
revenue from these assets being included in equity in earnings for the entire
year ended December 31, 1998 as compared with a portion of the year ended
December 31, 1997. In addition, throughput volumes for the Partnership's
wholly-owned gathering systems decreased approximately eight percent for the
year ended December 31, 1998, as compared with the same period in 1997. The
increase in platform services revenues is a result of placing the Partnership's
East Cameron 373 platform in service in April 1998 offset by lower oil and
natural gas volumes processed on the Partnership's Viosca Knoll 817 platform
caused by capacity constraints of the downstream transporter, which were
alleviated during the third quarter of 1998. The decrease in equity investments
earnings primarily reflects decreases related to nonrecurring start-up costs,
changes in prior period estimates and a decrease in equity ownership of the
Nautilus and Manta Ray Offshore systems along with increased maintenance costs
related to the Stingray and HIOS systems. Total natural gas throughput volumes
for the Partnership's equity investments increased from 1997 to 1998 primarily
as a result of increased throughput on the Viosca Knoll, UTOS, Nautilus and
Manta Ray Offshore systems. Oil volumes on the Poseidon system increased from
1997 to 1998. In addition, equity investment earnings were adversely impacted by
two tropical storms and Hurricane Georges passing through the Gulf during the
third quarter of 1998.

Operating expenses for the year ended December 31, 1998, were approximately
$12.1 million lower than 1997 primarily as a result of the Partnership's
abandonment of certain of its flowlines in 1997. In addition, depreciation was
lower in 1998 as a result of these abandonments, partially offset by higher
operating expenses on the East Cameron Block 373 platform placed in service in
the second quarter of 1998.

OIL AND NATURAL GAS PRODUCTION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Natural gas............................................ $ 24,829 $ 22,941 $ 41,367
Oil, condensate and liquids............................ 5,136 8,470 16,739
-------- -------- --------
Total operating revenues..................... 29,965 31,411 58,106
Operating expenses..................................... (37,324) (41,551) (67,783)
Other income........................................... -- -- 563
-------- -------- --------
EBIT................................................. $ (7,359) $(10,140) $ (9,114)
======== ======== ========
</TABLE>

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Total operating revenues for the year ended December 31, 1999, were
approximately $1.4 million lower than 1998. The decrease is attributable to
lower oil production due to natural depletion and lower realized oil prices,
offset by higher natural gas sales from the acquisition of an additional 25
percent interest in Viosca Knoll Block 817 and the acquisition of a 38 percent
working interest in the West Delta Block 35 in the third quarter of 1998, along
with a slight increase in realized natural gas prices.

Operating expenses for the year ended December 31, 1999, were approximately
$4.2 million lower than 1998, primarily as a result of decreased depletion and
abandonment rates related to the Partnership's oil and natural gas wells, along
with cost reductions associated with the operations of those properties.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Total operating revenues for the year ended December 31, 1998, were
approximately $26.7 million lower than 1997. The decrease is attributable to
substantially lower realized oil and natural gas prices, decreased

17
<PAGE> 21

production as a result of two tropical storms and Hurricane Georges passing
through the Gulf during the third quarter of 1998, normal production declines
from the Partnership's oil and natural gas properties and the lack of acceptable
markets due to capacity constraints downstream of the Viosca Knoll system. These
capacity constraints were alleviated during the third quarter of 1998.

Operating expenses for the year ended December 31, 1998, were approximately
$26.2 million less than 1997 primarily as a result of lower depletion due to
decreased production, and the establishment of an allowance on a long-term
receivable related to the prepayment of demand charge obligations of certain
leases in 1997.

INTEREST AND DEBT EXPENSE

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Interest and debt expense, net of capitalized interest, for the year ended
December 31, 1999, was approximately $15.1 million higher than 1998. The
increase is attributable to higher average debt outstanding due to acquisitions
and construction during 1999 and higher average 1999 interest rates primarily as
a result of the issuance of $175 million of Senior Subordinated Notes in May of
1999 and an increase in the average interest rate on the Partnership's variable
rate debt.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Interest and debt expense, net of capitalized interest, for the year ended
December 31, 1998, was approximately $6.1 million higher than 1997. The increase
is attributed to higher average debt outstanding in 1998 related to construction
activities and higher average interest rates.

LIQUIDITY AND CAPITAL RESOURCES

CASH FROM OPERATING ACTIVITIES

Net cash provided by operating activities was approximately $50.8 million
for the year ended December 31, 1999, compared to approximately $25.7 million
for the same period in 1998. The increase in cash from operations resulted
primarily from higher net income and increased distributed earnings from the
Partnership's equity investments.

CASH FROM INVESTING ACTIVITIES

Net cash used in investing activities was approximately $67.1 million for
the year ended
December 31, 1999, due to the Partnership's acquisition of additional interests
in the HIOS, UTOS, and East Breaks systems, the acquisition of an additional 49
percent interest in the Viosca Knoll system and increased capital expenditures,
primarily related to the construction of the Allegheny system. Investing
activities also included the receipt of proceeds from the sale of a portion of
the Partnership's interest in Deepwater Holdings and a capital distribution from
Deepwater Holdings.

The Partnership's planned capital and investment expenditures for 2000 of
approximately $125 million are primarily intended for expansion of unregulated
operations, pipeline systems and production activities.

Funding for capital expenditures, acquisitions, and other investing
expenditures is expected to be provided by internally generated funds, available
capacity under existing credit facilities, and/or the issuance of other
long-term debt or equity.

CASH FROM FINANCING ACTIVITIES

Net cash flows provided by financing activities totaled approximately $17.5
million for the year ended December 31, 1999. During 1999, the Partnership
received approximately $168.9 million in net proceeds from the issuance of
Subordinated Notes and borrowings under its revolving credit facilities, and
partially repaid

18
<PAGE> 22

amounts outstanding under its credit facility. The Partnership also made
distributions to its unitholders and General Partner.

Future funding for long-term debt retirements, distributions, and other
financing expenditures is expected to be provided by internally generated funds,
available capacity under existing credit facilities, and/or the issuance of
other long-term debt or equity.

LIQUIDITY

The Partnership relies on cash generated from internal operations as its
primary source of liquidity, supplemented by its available credit facility. The
availability of borrowings under the Partnership's credit agreement is subject
to specified conditions, which management believes the Partnership currently
meets. These conditions include compliance with the financial covenants and
ratios and borrowing bases required by such agreements, absence of default under
such agreements, and continued accuracy of the representations and warranties
contained in such agreements (including the absence of any material adverse
changes since the specified dates). For a discussion of the Partnership's
financing arrangements, see Item 8, Financial Statements and Supplementary Data,
Notes 6 and 9, which are incorporated herein by reference.

COMMITMENTS AND CONTINGENCIES

See Item 8, Financial Statements and Supplementary Data, Note 9, for a
discussion of the Partnership's commitments and contingencies which is
incorporated herein by reference.

At December 31, 1999, the Partnership had capital and investment
commitments of approximately $34 million which are expected to be funded through
internally generated funds and/or incremental borrowings. The Partnership's
other planned capital and investment projects are discretionary in nature, with
no substantial commitments made in advance of the actual expenditures.

OTHER

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 the Partnership's joint venture partner in Deepwater
Holdings, an equity investment of the Partnership. The merger is subject to
certain conditions, including approval of the stockholders of both companies and
receipt of certain required government approvals. If the merger is completed,
ANR will become an affiliate of the Partnership.

YEAR 2000

To coordinate the phases of the Partnership's Year 2000 project, the
Partnership established a project team to work with El Paso Energy's Year 2000
executive steering committee. The phases of the project were: (i) awareness;
(ii) assessment; (iii) remediation; (iv) testing; (v) implementation of the
necessary modifications, and (vi) contingency planning. The goal of the Year
2000 project was to ensure that all of the critical systems and processes under
the Partnership's direct control remained functional. As of
December 31, 1999, the Partnership had substantially completed the above phases
for all critical systems. While the Year 2000 rollover date has passed with no
apparent disruptions experienced by the Partnership's systems and processes, it
remains possible that third parties, including the Partnership's joint ventures
and equity investments, may have experienced disruptions which have not yet
manifested any impact on the Partnership, but could in the future. Accordingly,
the Partnership is prepared to implement any contingency plans should a
disruption occur.

While the total cost of the Partnership's Year 2000 project continues to be
accumulated, the Partnership does not expect to incur any remaining material
costs in 2000. As of December 31, 1999, the Partnership has incurred expenses of
less than $1 million.

The above disclosure is a "YEAR 2000 READINESS DISCLOSURE." To the extent
that any reader of the above Year 2000 Readiness Disclosure is other than an
investor or potential investor in the

19
<PAGE> 23

Partnership's -- or an affiliate's -- equity or debt securities, this disclosure
is made for the SOLE PURPOSE of communicating or disclosing information aimed at
correcting, helping to correct and/or avoiding Year 2000 failures.

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

See Item 8, Financial Statements and Supplementary Data, Note 1, for a
discussion relating to new accounting pronouncements not yet adopted which is
incorporated herein by reference.

20
<PAGE> 24

RISK FACTORS AND CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Where any forward-looking statement includes a statement of the
assumptions or bases underlying the forward-looking statement, we caution that,
while we believe these assumptions or bases to be reasonable and made in good
faith, assumed facts or bases almost always vary from the actual results, and
the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, we or our management express an expectation or belief as to future
results, such expectation or belief is expressed in good faith and is believed
to have a reasonable basis. We cannot assure you, however, that the statement of
expectation or belief will result or be achieved or accomplished. The words
believe, expect, estimate, anticipate and similar expressions may identify
forward-looking statements.

With this in mind, you should consider the following important factors that
could cause actual results to differ materially from those expressed in any
forward-looking statement made by us or on our behalf.

RISKS INHERENT IN AN INVESTMENT IN OUR LIMITED PARTNER INTERESTS

YOU WILL HAVE LIMITED VOTING RIGHTS AND WILL NOT CONTROL OUR GENERAL PARTNER

Unlike the holders of capital stock in a corporation, you only have limited
voting rights on matters affecting our business. Our general partner, whose
directors you do not elect, manages our activities. In addition, absent
voluntary withdrawal, our unitholders will not have the right to elect the
general partner on an annual or any other continuing basis. Furthermore, the
general partner may not be removed as our general partner except upon the
affirmative vote of the holders of at least 55 percent of our outstanding
limited partner interests, including units owned by the general partner and its
affiliates.

WE MAY ISSUE ADDITIONAL SECURITIES, DILUTING YOUR INTERESTS

We can issue additional common units, preference units and other capital
securities representing limited partner interests, including securities with
rights to distributions and allocations or in liquidation equal or superior to
the securities held by you, for any amount and on any terms and conditions
established by the general partner. If we issue more limited partner interests,
it will reduce your proportionate ownership interest in us. This could cause the
market price of your securities to fall and reduce the cash distributions paid
to our limited partners. Further, we have the ability to issue partnership
interests with voting rights superior to yours. If we issued any such
securities, it could adversely affect your voting power.

YOU MAY NOT HAVE LIMITED LIABILITY IN THE CIRCUMSTANCES DESCRIBED BELOW AND MAY
BE LIABLE FOR THE RETURN OF WRONGFUL DISTRIBUTIONS

You will not be liable for assessments in addition to your initial capital
investment in the Partnership securities. However, you may be required to repay
to us amounts wrongfully returned or distributed to you under some
circumstances. Delaware law provides that a limited partner who receives a
distribution that results in liabilities of the partnership exceeding the fair
value of the assets of the partnership and knows at the time of the distribution
that the distribution violates the law will be liable to the limited partnership
for the amount of the distribution for three years from the date of the
distribution.

OUR EXISTING UNITS ARE SUBJECT TO RESTRICTIONS ON TRANSFER

All purchasers of our existing units, who wish to become holders of record
must deliver an executed transfer application in which the purchaser or
transferee must certify that, among other things, he, she or it is eligible to
purchase those securities before the purchaser or transferee of those securities
will be registered on our records, and before cash distributions can be made and
federal income tax information furnished to the purchaser or transferee. A
person purchasing our existing units, who does not execute a transfer
application

21
<PAGE> 25

and certify that the purchaser is eligible to purchase those securities,
acquires no rights in those securities other than the right to resell those
securities. Further, our general partner may request each record holder to
furnish certain information about the holder's nationality, citizenship or other
related status. If the record holder fails to furnish the information or if the
general partner determines, on the basis of the information furnished by the
holder in response to the request, that the cancellation or forfeiture of any
property in which we have an interest may occur, the general partner may be
substituted as a holder for the record holder, who will then be treated as a
non-citizen assignee, and we will have the right to redeem those securities held
by the record holder. As a result of these restrictions, your ability to
transfer your limited partner interests may be adversely affected.

OUR GENERAL PARTNER HAS A LIMITED CALL RIGHT THAT MAY REQUIRE YOU TO SELL YOUR
LIMITED PARTNER INTERESTS AT AN UNDESIRABLE TIME OR PRICE

If, at any time, our general partner and its affiliates hold 85 percent or
more of any class or series of our issued and outstanding limited partner
interests, the general partner will have the right to purchase all, but not less
than all, of the outstanding securities of that class or series held by
nonaffiliates. Accordingly, under certain circumstances you may be required to
sell your limited partner interests against your will and the price you receive
for those securities may be less than you would like to receive.

RISKS RELATED TO CONFLICTS OF INTEREST

EL PASO ENERGY AND ITS AFFILIATES MAY HAVE CONFLICTS OF INTEREST WITH THE
PARTNERSHIP

Although El Paso Energy controls our general partner and has financial
incentives to protect its investment by encouraging our success, and it plans to
use us when practical as its principal offshore gathering and transportation
growth vehicle in the Gulf, El Paso Energy is not contractually bound to do so
and may reconsider at any time, without notice. Additionally, El Paso Energy is
not required to pursue a business strategy that will favor our business
opportunities over the business opportunities of El Paso Energy or any of its
affiliates (or any other competitor of ours acquired by El Paso Energy,
including Coastal, with whom El Paso Energy is pursuing a merger). In fact, El
Paso Energy may have financial motives to favor our competitors. El Paso Energy
and its subsidiaries (many of which are wholly owned) operate in some of the
same lines of business and in some of the same geographic areas in which we
operate. El Paso Energy continues to own pipelines and related facilities
located in the Gulf, including the Bluewater and Seahawk Shoreline systems. The
extent we continue to acquire interests in oil and natural gas properties may
compete with the exploration, development and marketing activities conducted by
El Paso Energy.

The Partnership and our general partner and its affiliates share and,
therefore, will compete for, the time and effort of general partner personnel
who provide services to the Partnership. Officers of the general partner and its
affiliates do not, and will not be required to, spend any specified percentage
or amount of time on our business. Since these shared officers function as both
our representatives and those of our general partner and its affiliates,
conflicts of interest could arise between our general partner and its
affiliates, on the one hand, and the Partnership on the other. In addition, we
have, and we expect to enter into other, significant business relationships with
El Paso Energy, our general partner and their affiliates in which conflicts of
interest could arise.

22
<PAGE> 26

RISKS RELATED TO OUR LEGAL STRUCTURE

THE INTERRUPTION OF DISTRIBUTIONS TO THE PARTNERSHIP FROM OUR SUBSIDIARIES AND
JOINT VENTURES MAY AFFECT OUR ABILITY TO MAKE CASH DISTRIBUTIONS

The Partnership is a holding company. As such, our primary assets are the
capital stock and other equity interests in our subsidiaries and joint ventures.
Consequently, our ability to make cash distributions depends upon the earnings
and cash flow of our subsidiaries and joint ventures and the distribution of
that cash to us. Distributions from our joint ventures are subject to the
discretion of their respective management committees. In addition, several of
our joint ventures have credit arrangements that contain various restrictive
covenants. Among other things, those covenants limit or restrict such joint
ventures' ability to make distributions to us under certain circumstances.
Further, the joint venture charter documents typically vest in their management
committees sole discretion regarding distributions. We cannot assure you that
our joint ventures will continue to make distributions to us at current levels
or at all.

Moreover, pursuant to some of the joint venture credit arrangements, we
have agreed to return a limited amount of the distributions made to us by the
applicable joint venture if certain conditions exist.

WE CANNOT CAUSE OUR JOINT VENTURES TO TAKE OR NOT TO TAKE CERTAIN ACTIONS UNLESS
SOME OR ALL OF OUR JOINT VENTURE PARTNERS AGREE

Due to the nature of joint ventures, each partner (including the
Partnership) in each of our joint ventures has made substantial contributions
and other commitments to that joint venture and, accordingly, has required that
the relevant charter documents contain certain features designed to provide each
partner with the opportunity to protect its investment in that joint venture, as
well as any other assets which may be substantially dependent on or otherwise
affected by the activities of that joint venture. These protective features
include a corporate governance structure which requires at least a majority in
interest vote to authorize many basic activities and requires a greater voting
interest (sometimes up to 100 percent) to authorize more significant activities.
Depending on the particular joint venture, these more significant activities
might involve large expenditures or contractual commitments, the construction or
acquisition of assets, borrowing money, transactions with affiliates of a joint
venture partner, litigation and/or transactions not in the ordinary course of
business, among others. Thus, without the concurrence of joint venture partners
with enough voting interests, we cannot cause any of our joint ventures to take
or not to take certain actions, even though such actions may be in the best
interest of the particular joint venture or the Partnership.

WE DO NOT HAVE THE SAME FLEXIBILITY AS OTHER TYPES OF ORGANIZATIONS TO
ACCUMULATE CASH AND EQUITY TO PROTECT AGAINST ILLIQUIDITY IN THE FUTURE

Unlike a corporation, our partnership agreement requires us to make
quarterly distributions to our unitholders of all available cash reduced by any
amounts reserved for commitments and contingencies, including capital and
operating costs and debt service requirements. The value of our common units
will decrease in direct correlation with decreases in the amount we distribute
per unit. Accordingly, if we experience a liquidity problem in the future, we
may not be able to issue more equity to recapitalize.

CHANGES OF CONTROL OF OUR GENERAL PARTNER MAY ADVERSELY AFFECT YOU

Our results of operations and, thus, our ability to make cash distributions
could be adversely affected if there is a change in management resulting from a
change of control of our general partner. Although such an action would result
in a change of control under the terms of the indenture governing our
publicly-held debt, El Paso Energy is not restricted from selling the general
partner or any of the common units it holds. As a result, El Paso Energy could
sell control of our general partner to another company with less familiarity and
experience with our businesses and with different business philosophies and
objectives. We cannot assure you that any such acquiror would continue our
current business strategy, or even a business strategy economically compatible
with our current business strategy.

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<PAGE> 27

RISKS RELATED TO OUR BUSINESS

OUR INDUSTRY IS HIGHLY COMPETITIVE

The hydrocarbons that we transport, gather, and process are, in many cases,
owned by third parties. As a result, the volume of hydrocarbons involved in
these activities depends on the actions of those third parties, and is beyond
our control. Further, the following factors, most of which are beyond our
control, impact our ability to maintain or increase current transmission,
gathering, processing, and sales volumes and rates, renegotiate existing
contracts as they expire or to remarket unsubscribed capacity at levels and
rates currently in place:

- future weather conditions, including those that favor alternative energy
sources;

- price competition;

- drilling activity and supply availability; and

- service area competition.

Our future profitability may be affected by our ability to compete with
services offered by other energy enterprises which may be larger, offer more
services, and possess greater resources.

The ongoing profitability of our pipeline systems depends upon having in
place long-term firm transportation contracts for a major portion of their
capacity. Our ability to negotiate new contracts and to renegotiate existing
contracts could be harmed by factors we cannot control, including:

- the proposed construction by other companies of additional pipeline
capacity in markets served by our pipelines;

- reduced demand due to higher oil and natural gas prices;

- actions by regulators that may impact the competitiveness of short-term
and long-term capacity markets;

- the availability of alternative energy sources; and

- the viability of our expansion projects.

FLUCTUATIONS IN ENERGY COMMODITY PRICES COULD ADVERSELY AFFECT OUR BUSINESS

Revenues generated by our gathering, transportation and processing
contracts depend on volumes and rates, both of which can be affected by the
prices of oil and natural gas. The success of our expanding gathering,
transportation, and processing operations in the Gulf is subject to continued
development of additional oil and natural gas reserves in the vicinity of our
facilities, and our ability to access such additional reserves to offset the
natural decline from existing wells connected to our systems. A decline in
energy prices could precipitate a decrease in these development activities and
could cause a decrease in the volume of reserves available for gathering,
transportation and processing through our offshore facilities. Fluctuations in
energy prices, which may impact gathering rates and investments by third parties
in the development of new oil and natural gas reserves connected to our
facilities, are caused by a number of factors, including:

- regional, domestic and international supply and demand;

- availability and adequacy of transportation and platform facilities;

- energy legislation;

- federal or state taxes, if any, on the sale or transportation of natural
gas and natural gas liquids; and

- abundance of supplies of alternative energy sources.

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<PAGE> 28

If there are reductions in the average volume of the natural gas we
transport, gather and process for a prolonged period, our results of operations
and financial position could be significantly, negatively affected.

FLUCTUATIONS IN PRODUCTION ACTIVITIES COULD HARM OUR BUSINESS

The success of our production activities could be adversely affected by
factors we can not control, including:

- fluctuations in prices of crude oil and natural gas;

- future production and development costs; and

- risks incident to the operation of oil and natural gas wells.

THE USE OF DERIVATIVE FINANCIAL INSTRUMENTS COULD RESULT IN FINANCIAL LOSSES

We enter into derivative financial instruments to reduce our exposure to
short-term volatility in changes in energy commodity prices. In these
activities, we could incur financial losses in the future as a result of
volatility in the market values of the underlying commodities or if one of our
counterparties fails to perform under a contract. For additional information
concerning our derivative financial instruments, see item 7A, Quantitative and
Qualitative Disclosures About Market Risks and Item 8, Financial Statements and
Supplementary Data, Note 9.

ATTRACTIVE ACQUISITION AND INVESTMENT OPPORTUNITIES MAY NOT BE AVAILABLE

Our ability to grow will depend, in part, upon our ability to identify and
complete attractive acquisition and investment opportunities. Opportunities for
growth through acquisitions and investments in joint ventures, and the future
operating results and success of these acquisitions and joint ventures within
the United States may be subject to the effects of, and changes in, the
following:

- United States monetary policies;

- laws and regulations;

- political and economic developments;

- inflation rates;

- taxes; and

- operating conditions.

WE COULD INCUR SUBSTANTIAL ENVIRONMENTAL LIABILITIES

We may incur significant costs and liabilities in order to comply with
existing and future environmental laws and regulations. It is also possible that
other developments, such as increasingly strict environmental laws, regulations
and enforcement policies thereunder, and claims for damages to property,
employees, other persons and the environment resulting from our operations could
result in substantial costs and liabilities in the future. For additional
information concerning our environmental matters, see Item 8, Financial
Statements and Supplementary Data, Note 9.

OUR ACTIVITIES INVOLVE OPERATING HAZARDS AND UNINSURED RISKS

While we maintain insurance against certain of the risks normally
associated with the gathering, transportation, processing, exploration and
production of oil and natural gas, including, but not limited to explosions,
pollution and fires, the occurrence of a significant event against which we are
not fully insured could have a significant negative effect on our business.

25
<PAGE> 29

OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND
PREVENT US FROM MAKING DISTRIBUTIONS TO OUR UNITHOLDERS

We have a significant amount of indebtedness and the ability to incur more
indebtedness. Furthermore, our indebtedness is collateralized by guarantees of
our subsidiaries. Our substantial indebtedness could have important consequences
to our unitholders. For example, it could:

- limit our ability to make distributions to our unitholders;

- increase our vulnerability to general adverse economic and industry
conditions;

- prevent us from running our businesses as planned;

- limit our ability to pursue acquisition opportunities; and

- place us at a competitive disadvantage as compared to our competitors
that have less debt.

OUR INDEBTEDNESS MAY RESTRICT OUR ABILITY TO OPERATE

We must comply with various affirmative and negative covenants related to
our senior subordinated notes and our revolving credit facility. These
restrictions may prevent us from engaging in transactions beneficial to us.
Specifically, these covenants limit our ability to:

- incur additional indebtedness or liens;

- make payments in respect of, redeem or acquire any debt or equity issued
by us;

- sell assets;

- make loans or investments;

- acquire or be acquired by other companies; and

- amend some of our contracts.

Any additional indebtedness we incur in the future will be under our
existing credit agreement or under arrangements that we believe have terms and
conditions at least as restrictive as those contained in our existing credit
agreements.

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<PAGE> 30

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Partnership may utilize derivative financial instruments for purposes
other than trading to manage its exposure to movements in interest rates and
commodity prices. In accordance with procedures established by the General
Partner, management monitors current economic conditions and evaluates its
expectations of future prices and interest rates when making decisions with
respect to risk management.

INTEREST RATE RISK

The Partnership utilizes both fixed and variable rate long-term debt, and
is exposed to market risk due to the floating interest rate under its credit
facility. Under the Partnership's credit facility, as amended, the remaining
principal and the final interest payment are due in May 2002. As of December 31,
1999, the Partnership's credit facility had a principal balance of $290 million
at an average floating interest rate of 9.0% per annum. A one percent increase
in interest rates would result in a $2.9 million annual increase in interest
expense on the existing principal balance. The Partnership is exposed to similar
risk under the various joint venture credit facilities and loan agreements.

COMMODITY PRICE RISK

The Partnership hedges a portion of its oil and natural gas production to
reduce its exposure to fluctuations in the market prices of oil and natural gas,
and to meet certain requirements under its revolving credit facility. The
Partnership uses commodity price swap transactions whereby monthly settlements
are based on differences between the prices specified in the commodity price
swap agreements and the settlement prices of certain futures contracts quoted on
the New York Mercantile Exchange, or NYMEX, or certain other indices. The
Partnership settles the commodity price swap transactions by paying the negative
difference or receiving the positive difference between the applicable
settlement price and the price specified in the contract. The commodity price
swap transactions used by the Partnership differ from futures contracts in that
there are no contractual obligations which require or allow for the future
delivery of the product. The credit risk from the Partnership's price swap
contracts is derived from the counterparty to the transaction, typically a major
financial institution. Management does not require collateral and does not
anticipate non-performance by this counterparty, which does not transact a
sufficient volume of transactions with the Partnership to create a significant
concentration of credit risk. Gains or losses resulting from hedging activities
and the termination of any hedging instruments are initially deferred and
included as an increase or decrease to oil and natural gas sales in the period
in which the hedged production is sold. If the Partnership had settled its open
natural gas hedging positions as of December 31, 1999 and 1998, based on the
applicable settlement prices of the NYMEX futures contracts, the Partnership
would have recognized a loss of approximately $3.8 million and $2.6 million,
respectively. For the year ended December 31, 1999, the Partnership recorded a
net loss of $2.3 million related to its hedging activities.

At December 31, 1999, the Partnership had two outstanding natural gas sales
swap transactions for the calendar year 2000. Under one of the swaps, the
Partnership will receive a fixed price of $1.6686 on 10,000 MMbtu/d, and pay the
monthly natural gas futures contract price on NYMEX. The second swap provides
for similar pricing terms, notional quantity and contract period. On January 18,
2000, the Partnership fixed the contract price under the swap whereby it will
receive $1.8050 on 10,000 MMbtu/d from February through December 2000 and pay
the monthly NYMEX settlement price.

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<PAGE> 31

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Operating revenues
Oil and natural gas sales................................. $ 29,965 $31,411 $ 58,106
Gathering and transportation.............................. 22,311 6,852 11,580
Platform services......................................... 11,383 10,468 5,749
Equity investment earnings................................ 32,814 26,724 29,327
-------- ------- --------
96,473 75,455 104,762
-------- ------- --------
Operating expenses
Operating expenses........................................ 22,402 27,558 26,013
Depreciation, depletion and amortization.................. 30,630 29,267 46,289
Impairment, abandonment and other......................... -- (1,131) 21,222
-------- ------- --------
53,032 55,694 93,524
-------- ------- --------
Operating income............................................ 43,441 19,761 11,238
-------- ------- --------
Other income
Gain on sale of assets.................................... 10,103 311 --
Other..................................................... 358 460 1,475
-------- ------- --------
10,461 771 1,475
-------- ------- --------
Income before interest, income taxes and other charges...... 53,902 20,532 12,713
Interest and debt expense................................... 35,323 20,242 14,169
Minority interest........................................... 197 15 (7)
-------- ------- --------
Income (loss) before income taxes........................... 18,382 275 (1,449)
Income tax benefit.......................................... 435 471 311
-------- ------- --------
Net income (loss)........................................... 18,817 746 (1,138)
Net income allocated to General Partner..................... 12,129 142 449
-------- ------- --------
Net income (loss) allocated to limited partners before
accounting change......................................... 6,688 604 (1,587)
Cumulative effect of accounting change...................... (15,427) -- --
-------- ------- --------
Net income (loss) allocated to limited partners............. $ (8,739) $ 604 $ (1,587)
======== ======= ========
Weighted average basic and diluted units outstanding........ 25,928 24,367 24,367
======== ======= ========
Basic and diluted net income (loss) per unit before
accounting change......................................... $ 0.26 $ 0.02 $ (0.06)
Cumulative effect of accounting change...................... (0.60) -- --
-------- ------- --------
Basic and diluted net income (loss) per unit after
accounting
change.................................................... $ (0.34) $ 0.02 $ (0.06)
======== ======= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.
28
<PAGE> 32
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 4,202 $ 3,108
Accounts receivable....................................... 5,149 1,482
Accounts receivable from affiliates....................... 3,352 7,106
Other current assets...................................... 254 247
-------- --------
Total current assets.............................. 12,957 11,943
Property and equipment, net................................. 373,759 241,992
Equity investments.......................................... 185,766 186,079
Other noncurrent assets..................................... 11,103 2,712
-------- --------
Total assets...................................... $583,585 $442,726
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable and accrued liabilities.................. $ 8,591 $ 10,429
Accounts payable to affiliates............................ 1,827 738
Notes payable............................................. -- 338,000
-------- --------
Total current liabilities......................... 10,418 349,167
Notes payable............................................... 290,000 --
Long-term debt.............................................. 175,000 --
Other noncurrent liabilities................................ 12,164 11,661
-------- --------
Total liabilities................................. 487,582 360,828
-------- --------
Commitments and contingencies

Minority interest........................................... (486) (998)
Partners' capital........................................... 96,489 82,896
-------- --------
Total liabilities and partners' capital........... $583,585 $442,726
======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

29
<PAGE> 33

EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)....................................... $ 18,817 $ 746 $ (1,138)
Adjustments to reconcile net income (loss) to net cash
from operating activities
Depreciation, depletion and amortization............ 30,630 29,267 46,289
Gain of sale of assets.............................. (10,103) (311) --
Impairment, abandonment and other................... -- (1,131) 21,222
Distributed earnings of equity investees
Earnings from equity investments.................. (32,814) (26,724) (29,327)
Distributions from equity investments............. 46,180 31,171 27,135
Other noncash items................................. 4,084 1,682 (966)
Working capital changes, net of effects of
acquisitions and non-cash transactions
(Increase) decrease in accounts receivable........ 2,107 (27) 11,783
Decrease in other current assets.................. 366 406 206
Decrease in accounts payable and accrued
liabilities.................................... (8,507) (9,402) (7,719)
--------- -------- --------
Net cash provided by operating activities....... 50,760 25,677 67,485
--------- -------- --------
Cash flows from investing activities
Acquisition and development of oil and natural gas
properties........................................... (3,218) (30,548) (11,249)
Additions to pipelines, platforms and facilities........ (30,662) (27,368) (30,708)
Investments in equity investees......................... (59,348) (8,195) --
Cash paid for acquisition of Viosca Knoll, net of cash
acquired............................................. (20,351) -- --
Proceeds from sale of assets............................ 26,122 487 --
Distributions related to the formation of Deepwater
Holdings............................................. 20,000 -- --
Other................................................... 322 -- 188
--------- -------- --------
Net cash used in investing activities........... (67,135) (65,624) (41,769)
--------- -------- --------
Cash flows from financing activities
Net proceeds from notes payable......................... 141,126 128,072 64,907
Repayments of notes payable............................. (226,850) (29,000) (54,000)
Net proceeds from issuance of long-term debt............ 168,878 -- --
General Partner's contribution.......................... 603 -- --
Distributions to partners............................... (66,288) (62,447) (47,398)
Other................................................... -- -- 716
--------- -------- --------
Net cash provided by (used in) financing
activities.................................... 17,469 36,625 (35,775)
--------- -------- --------

Net increase (decrease) in cash and cash equivalents...... 1,094 (3,322) (10,059)
Cash and cash equivalents at beginning of year............ 3,108 6,430 16,489
--------- -------- --------
Cash and cash equivalents at end of year.................. $ 4,202 $ 3,108 $ 6,430
========= ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.
30
<PAGE> 34

EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)

<TABLE>
<CAPTION>
PREFERENCE PREFERENCE COMMON COMMON GENERAL
UNITS UNITHOLDERS UNITS UNITHOLDERS PARTNER(1) TOTAL
---------- ----------- ------ ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Partners' capital at December 31,
1996............................ 18,075 $ 196,224 6,292 $ (3,969) $ (232) $192,023
Net income (loss) for the year
ended December 31, 1997......... -- (1,167) -- (420) 449 (1,138)
Cash distributions................ -- (31,631) -- (11,011) (4,277) (46,919)
------- --------- ------ -------- -------- --------
Partners' capital at December 31,
1997............................ 18,075 163,426 6,292 (15,400) (4,060) 143,966
Net income for the year ended
December 31, 1998............... -- 63 -- 541 142 746
Conversion of preference units
into common units............... (17,058) (127,842) 17,058 127,842 -- --
Cash distributions................ -- (28,296) -- (22,011) (11,509) (61,816)
------- --------- ------ -------- -------- --------
Partners' capital at December 31,
1998............................ 1,017 7,351 23,350 90,972 (15,427) 82,896
Cumulative effect of accounting
change.......................... 3,072 (18,499) 15,427 --
Net income for the year ended
December 31, 1999............... -- 919 -- 5,769 12,129 18,817
Issuance of common units for
acquisition of additional
interest in Viosca Knoll........ -- -- 2,662 59,792 -- 59,792
General Partner contribution
related to issuance of common
units........................... -- -- -- -- 603 603
Conversion of preference units
into common units............... (727) (7,454) 727 7,454 --
Cash distributions................ -- (919) -- (52,211) (12,489) (65,619)
------- --------- ------ -------- -------- --------
Partners' capital at December 31,
1999............................ 290 $ 2,969 26,739 $ 93,277 $ 243 $ 96,489
======= ========= ====== ======== ======== ========
</TABLE>

- ---------------
(1) El Paso Energy Partners Company owns a one percent general partner interest
in the Partnership.

The accompanying notes are an integral part of these financial statements.
31
<PAGE> 35

EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

The Partnership is a publicly held Delaware master limited partnership that
provides energy services, including natural gas and oil gathering,
transportation, midstream and other related services, primarily in the Gulf. In
August 1998, El Paso Energy acquired, through a series of transactions, DeepTech
International Inc., or DeepTech. As a result, El Paso Energy acquired 100
percent of the General Partner's interest in the Partnership and an overall 27.3
percent effective interest in the Partnership. In June 1999, additional common
units were issued to El Paso Energy in connection with the sale of a portion of
the Viosca Knoll system to the Partnership, bringing El Paso Energy's overall
effective interest in the Partnership to 34.5 percent. See Note 2 for further
discussion of this transaction.

In December 1999, the Partnership changed its name to El Paso Energy
Partners, L.P. At that date, the Partnership's trading symbol for common units
was changed to "EPN" and the symbol for preference units was changed to "EPN.P"
on the NYSE.

Basis of Presentation and Principles of Consolidation

The consolidated financial statements of the Partnership include the
accounts of all majority-owned, controlled subsidiaries after the elimination of
all significant intercompany accounts and transactions. Investments in companies
where the Partnership has the ability to exert significant influence over, but
not control operating and financial policies, are accounted for using the equity
method. The General Partner's approximate one percent non-managing interest in
certain subsidiaries of the Partnership represents the minority interest in the
Partnership's consolidated financial statements. The consolidated financial
statements for previous periods include certain reclassifications that were made
to conform to the current year presentation. Such reclassifications have no
impact on reported net income or partners' capital.

Cash and cash equivalents

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

Property and equipment

Gathering pipelines, platforms and related facilities are recorded at cost
and are depreciated on a straight-line basis over the estimated useful lives of
the assets which generally range from 5 to 30 years for the gathering pipelines
and from 18 to 30 years for platforms and related facilities. Repair and
maintenance costs are expensed as incurred, while additions, improvements and
replacements are capitalized.

The Partnership accounts for its oil and natural gas exploration and
production activities using the successful efforts method of accounting. Under
this method, costs of successful exploratory wells, development wells and
acquisitions of mineral leasehold interests are capitalized. Production,
exploratory dry hole and other exploration costs, including geological and
geophysical costs and delay rentals, are expensed as incurred. Unproved
properties are assessed periodically and any impairment in value is recognized
currently as depreciation, depletion and amortization expense.

Depreciation, depletion, and amortization of the capitalized costs of
producing oil and natural gas properties, consisting principally of tangible and
intangible costs incurred in developing a property and costs of productive
leasehold interests, are computed on the unit-of-production method.
Unit-of-production rates are based on annual estimates of remaining proved
developed reserves or proved reserves, as appropriate, for each property.

Estimated dismantlement, restoration and abandonment costs and estimated
residual salvage values are taken into account in determining depreciation
provisions for gathering pipelines, platforms, related facilities

32
<PAGE> 36
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and oil and natural gas properties. Other noncurrent liabilities at December 31,
1999 and 1998, include approximately $11.7 million and $10.7 million,
respectively, of accrued dismantlement, restoration and abandonment costs.

Retirements, sales and disposals of assets are recorded by eliminating the
related costs and accumulated depreciation, depletion and amortization of the
disposed assets with any resulting gain or loss reflected in income.

The Partnership evaluates impairment of its regulated and non-regulated
property, plant, and equipment in accordance with Statement of Financial
Accounting Standards, or SFAS, No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.

Capitalization of interest

Interest and other financing costs are capitalized in connection with
construction and drilling activities as part of the cost of the asset and
amortized over the related asset's estimated useful life.

Debt issue costs

Debt issue costs are capitalized and amortized over the life of the related
indebtedness. Any unamortized debt issue costs are expensed at the time the
related indebtedness is repaid or otherwise terminated.

Revenue recognition

Revenue from pipeline transportation of hydrocarbons is recognized upon
receipt of the hydrocarbons into the pipeline systems. Revenue from oil and
natural gas sales is recognized upon delivery in the period of production.
Revenue from platform access and processing services is recognized in the period
the services are provided.

Income taxes

The Partnership and its subsidiaries, other than Tarpon Transmission
Company, or Tarpon, are not taxable entities. However, the taxable income or
loss resulting from the operations of the Partnership will ultimately be
included in the federal and state income tax returns of the general and limited
partners. Individual partners will have different investment bases depending
upon the timing and price of acquisition of partnership units. Further, each
partner's tax accounting, which is partially dependent upon his/her tax
position, may differ from the accounting followed in the consolidated financial
statements. Accordingly, there could be significant differences between each
individual partner's tax basis and his/her share of the net assets reported in
the consolidated financial statements. The Partnership does not have access to
information about each individual partner's tax attributes in the Partnership,
and the aggregate tax bases cannot be readily determined.

Tarpon is subject to federal corporate income taxation. The Partnership
utilizes SFAS No. 109, Accounting for Income Taxes, to account for income taxes.
The income tax benefit reported in the Partnership's Consolidated Statements of
Operations for the years ending 1999, 1998, and 1997, relates solely to Tarpon's
book loss at the effective statutory income tax rate for the respective period
since no material differences exist between book and taxable income. 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. Resulting tax liabilities, if any, are borne by
the Partnership.

33
<PAGE> 37
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Use of Estimates

Unit Options

The Partnership applies the provisions of Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its unit
compensation plans, including options issued to employees of the General
Partner. Accordingly, compensation expense is not recognized for unit options
unless the options were granted at an exercise price lower than the market price
of common units on the grant date. The Partnership uses fixed and variable plan
accounting for its fixed and variable compensation plans, respectively.

Environmental Costs

Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments indicate that
remediation efforts are probable and the costs can be reasonably estimated.

Price Risk Management Activities

The Partnership enters into commodity price swap instruments for
non-trading purposes to manage its exposure to price fluctuations on anticipated
natural gas and crude oil sales transactions. To qualify for hedge accounting,
the transactions must reduce the price risk of the underlying hedged items, be
designated as hedges at inception, and result in cash flows and financial
impacts which are inversely correlated to the position being hedged. If
correlation ceases to exist, hedge accounting is terminated and mark-to-market
accounting is applied. Gains and losses resulting from hedging activities and
the termination of any hedging instruments are initially deferred and included
as an increase or decrease to oil and natural gas sales in the period in which
the hedged production is sold.

Income (Loss) Per Unit

Basic income per unit excludes dilution and is computed by dividing net
income (loss) attributable to the limited partners by the weighted average
number of units outstanding during the period. Dilutive income per unit reflects
potential dilution and is computed by dividing net income (loss) attributable to
the limited partners by the weighted average number of units outstanding during
the period increased by the number of additional units that would have been
outstanding if the dilutive potential units had been issued.

Basic income (loss) per unit and diluted income (loss) per unit for the
Partnership are the same for the years ended December 31, 1999, 1998 and 1997,
as no dilutive potential units were outstanding during the respective periods.
The Partnership includes the outstanding preference units in the basic and
diluted net income (loss) per unit calculation as if the preference units had
been converted into common units.

Cumulative Effect of Accounting Change

In the fourth quarter of 1999, the Partnership changed its method of
allocating net income to its partners' capital accounts from a method where
income was allocated 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 the
Partnership's book value capital. Management believes
34
<PAGE> 38
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

that the new income allocation method is preferable because it more accurately
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 the Partnership's book value capital at each period end. This
change in accounting had no impact on the Partnership's consolidated net income
(loss) or its consolidated total partners' capital for any period presented.
Furthermore, the change is not expected 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 adjustment in the Partnership's income allocation for the year ended
December 31, 1999. The effect of adopting this change in accounting, excluding
the cumulative adjustment, was to reduce basic and diluted net income per
limited partner unit by $0.33 for the year ended December 31, 1999. In addition,
had this change been in effect for the years ended December 31, 1998 and 1997,
the loss allocated to limited partners would have been $11.2 million and $5.0
million, respectively, and basic and diluted net loss per limited partner unit
would have been $0.46 and $0.20, respectively.

Recent Pronouncements

In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued by the Financial Accounting Standards Board to
establish accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. This pronouncement requires that an entity classify all
derivatives as either assets or liabilities and measure those instruments at
fair value. If certain conditions are met, a derivative may be specifically
designated as (i) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (ii) a hedge
of the exposure to variable cash flows of a forecasted transaction, or (iii) a
hedge of 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. This standard was amended by Statement
of Financial Accounting Standards No. 137 issued in June 1999. The amendment
defers the effective date to fiscal years beginning after June 15, 2000. The
Partnership is currently evaluating the effects of this pronouncement.

2. ACQUISITIONS

Deepwater Holdings

In June 1999, the Partnership acquired additional interests in the HIOS,
East Breaks and UTOS systems through its acquisition of Natoco, Inc. and Naloco,
Inc. for $51 million. As part of the transaction, the Partnership also assumed
operations of the Stingray system, the Stingray Offshore separation facility and
the West Cameron dehydration facility in November 1999. The purchase price
exceeded the book value of net assets acquired by approximately $48 million.
This excess cost is being amortized on a straight line basis over the estimated
lives of the acquired assets, which approximates 30 years.

In September 1999, the Partnership and ANR Pipeline Company, or ANR, formed
Deepwater Holdings to reorganize their interests in certain joint ventures. In
the transaction, the Partnership and ANR contributed their interests in certain
pipeline systems and facilities to Deepwater Holdings. Following this
reorganization, Deepwater Holdings owns 100 percent of the East Breaks, HIOS,
UTOS, and Stingray systems, along with the West Cameron dehydration facility. In
exchange for its contribution, the Partnership received a 59.66 percent interest
in Deepwater Holdings. The Partnership subsequently sold a 9.66 percent members'
interest in Deepwater Holdings to ANR for $26.1 million to effect a 50/50
ownership position. The Partnership realized a $10.1 million gain associated
with the sale. In conjunction with the transaction, the Partnership will become
the full operator of the UTOS, HIOS, and East Breaks systems no later than July
1, 2000.

35
<PAGE> 39
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In connection with its formation, Deepwater Holdings established a $175
million credit facility to retire existing debt of Stingray and Western Gulf,
the parent company of East Breaks and HIOS, to fund a one-time distribution of
$20 million to each of the equity partners, to provide funds for the remaining
construction costs of the East Breaks system and any future system expansions,
and to provide for other working capital needs of Deepwater Holdings.

The following selected unaudited pro forma information represents the
Partnership's consolidated results of operations on a pro forma basis for the
years ended December 31, 1999 and 1998, assuming the transactions relating to
Deepwater Holdings discussed above had occurred on January 1, 1998:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1999 1998
-------- --------
(IN THOUSANDS, EXCEPT
PER UNIT AMOUNTS)
<S> <C> <C>
Revenue..................................................... $93,071 $73,329
Operating income............................................ $39,841 $17,239
Net loss allocated to limited partners...................... $(7,364) $(2,689)
Basic and diluted net loss per unit before cumulative effect
of accounting change...................................... $ (0.28) $ (0.11)
</TABLE>

Viosca Knoll

In June 1999, the Partnership acquired an additional 49 percent interest in
Viosca Knoll from El Paso Field Services Company, or EPFS. In the transaction,
EPFS contributed $33.4 million to Viosca Knoll and then sold a 49 percent
interest to the Partnership in exchange for $19.9 million and 2,661,870 common
units. The Partnership paid closing costs of $0.9 million in connection with the
acquisition and the General Partner contributed $0.6 million to the Partnership
in order to maintain its one percent capital account balance. In addition,
during the six months commencing June 1, 2000, the Partnership has an option to
acquire EPFS's remaining one percent interest in profits and capital of Viosca
Knoll for $1.6 million plus any additional distributions which would have been
paid, accrued, or been in arrears if the Partnership had acquired the remaining
one percent of Viosca Knoll on June 1, 1999. As a result of the acquisition, the
Partnership began consolidating Viosca Knoll effective June 1999.

The acquisition was accounted for as a purchase and the purchase price was
assigned to the assets and liabilities acquired based upon their estimated fair
value as of the acquisition date. These fair value allocations are preliminary
and may be revised after the completion of an independent appraisal. The
following is summary information related to the acquisition (in thousands):

<TABLE>
<S> <C>
Fair value of assets acquired.......................... $ 83,105
Cash acquired.......................................... 434
Fair value of liabilities assumed...................... (2,962)
--------
Total purchase price......................... 80,577
Issuance of common units............................... (59,792)
--------
Net cash paid................................ $ 20,785
========
</TABLE>

36
<PAGE> 40
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following selected unaudited pro forma information represents the
Partnership's consolidated results of operations on a pro forma basis for the
years ended December 31, 1999 and 1998, assuming the Viosca Knoll acquisition
had occurred on January 1, 1998:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1999 1998
-------- -------
(IN THOUSANDS, EXCEPT
PER UNIT AMOUNTS)
<S> <C> <C>
Revenue..................................................... $104,951 $95,676
Operating income............................................ $ 48,710 $31,815
Net income allocated to limited partners.................... $ 8,675 $ 5,124
Basic and diluted net income per unit before cumulative
effect of accounting change............................... $ 0.32 $ 0.19
</TABLE>

Ewing Bank 958 Unit

In October 1998, the Partnership purchased a 100 percent working interest
in the Ewing Bank 958 Unit from a wholly-owned indirect subsidiary of El Paso
Energy for $12.2 million. In December 1998, the Partnership completed the
drilling of a successful delineation well on the Ewing Bank 958 Unit. In October
1999, the Partnership executed an agreement with El Paso Production Company, or
El Paso Production, a subsidiary of El Paso Energy, to farm out its working
interest in the Ewing Bank 958 Unit at which time the Partnership's investment
in the unit totaled $32.8 million. Under the terms of the farmout agreement, the
Partnership increased its overriding royalty interest in the Ewing Bank 958 Unit
from 5.3 percent to 7.4 percent convertible, at its option, into a 30 percent
undivided working interest once El Paso Production has recouped the costs
associated with its drilling and completion activities on the unit. El Paso
Production began drilling on the Ewing Bank 958 Unit in November 1999.

El Paso Intrastate-Alabama Pipeline System

37
<PAGE> 41
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. EQUITY INVESTMENTS

The Partnership holds equity investments which are accounted for using the
equity method of accounting. Summarized financial information for these
investments is as follows:

AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
MANTA WEST
RAY VIOSCA DEEPWATER CAMERON
OFFSHORE(A) NAUTILUS(A) KNOLL(C) HOLDINGS(B) STINGRAY(B) HIOS(B) UTOS(B) DEHY(B)
----------- ----------- -------- ----------- ----------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
END OF PERIOD OWNERSHIP
INTEREST................ 25.67% 25.67% 99% 50% 50% 50% 50% 50%
======== ======== ======= ======= ======= ======== ======= ======
OPERATING RESULTS DATA:
Operating revenue....... $ 16,782 $ 9,838 $12,338 $14,106 $13,322 $27,370 $3,233 $1,934
Other income............ 2,307 21 31 87 1,898 143 52 23
Operating expenses...... (3,724) (1,440) (925) (8,183) (7,932) (13,212) (1,544) (210)
Depreciation............ (5,323) (5,872) (1,752) (4,023) (5,699) (3,475) (420) (12)
Other expenses.......... (57) (293) (1,973) (1,402) (1,516) -- -- --
-------- -------- ------- ------- ------- -------- ------- ------
Net Income.............. $ 9,985 $ 2,254 $ 7,719 $ 585 $ 73 $10,826 $1,321 $1,735
======== ======== ======= ======= ======= ======== ======= ======
PARTNERSHIP'S SHARE:
Allocated income........ $ 2,563 $ 579 $ 3,860 $ 293 $ 37 $ 4,780 $ 614 $ 868
Adjustments(d).......... (784) (55) -- (118) 1,223 92 (25) --
-------- -------- ------- ------- ------- -------- ------- ------
Equity earnings......... $ 1,779 $ 524 $ 3,860 $ 175 $ 1,260 $ 4,872 $ 589 $ 868
======== ======== ======= ======= ======= ======== ======= ======
Allocated
distributions......... $ 4,001 $ 1,905 $ 6,350 $ 4,400 $ 2,501 $ 6,900 $1,000 $ 800
======== ======== ======= ======= ======= ======== ======= ======
FINANCIAL POSITION DATA:
Current assets.......... $ 4,394 $ 3,540 $34,334
Noncurrent assets....... 137,700 107,464 208,939
Current liabilities..... 4,749 408 32,727
Long-term debt.......... -- -- 122,000
Other noncurrent
liabilities........... -- -- 41

POSEIDON OTHER TOTAL
-------- ----- -------
<S> <C> <C> <C>
END OF PERIOD OWNERSHIP
INTEREST................ 36% 50%
======== ====
OPERATING RESULTS DATA:
Operating revenue....... $76,160 $ 35
Other income............ 403 --
Operating expenses...... (8,774) (18)
Depreciation............ (6,172) --
Other expenses.......... (9,133) --
-------- ----
Net Income.............. $52,484 $ 17
======== ====
PARTNERSHIP'S SHARE:
Allocated income........ $18,894 $ 8
Adjustments(d).......... (7) (8)
-------- ----
Equity earnings......... $18,887 $ -- $32,814
======== ==== =======
Allocated
distributions......... $18,191 $132 $46,180
======== ==== =======
FINANCIAL POSITION DATA:
Current assets.......... $171,720 $376
Noncurrent assets....... 243,971 --
Current liabilities..... 159,359 44
Long-term debt.......... 150,000 --
Other noncurrent
liabilities........... 322 --
</TABLE>

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

(a) These investees are indirect investees of the Partnership. However, because
the Partnership believes 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
HIOS, East Breaks, UTOS, Stingray, and West Cameron Dehy. Prior to September
1999, the Partnership had a direct ownership interest in each of these
investees. Information included herein is for the periods and dates in which
the Partnership had a direct investment in these entities.
(c) Information on Viosca Knoll is through May 31, 1999. On June 1, 1999, the
Partnership began consolidating Viosca Knoll as a result of acquiring an
additional 49 percent ownership interest therein.
(d) Adjustments result primarily from purchase price adjustments recorded by the
Partnership in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations", except for $0.9 million on Stingray which results
from changes in prior period estimates of reserves for uncollectible
revenues.

As of December 31, 1999, the carrying amount of the Partnership's equity
investments exceeded the underlying equity in net assets by approximately $84
million. This difference is being amortized on a straight-line basis over the
estimated lives of the underlying net assets of the respective investee.

38
<PAGE> 42
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
MANTA WEST
RAY VIOSCA CAMERON
OFFSHORE(A) NAUTILUS(A) KNOLL STINGRAY HIOS UTOS DEHY POSEIDON TOTAL
----------- ----------- ------- -------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OWNERSHIP PERCENTAGE.... 25.67% 25.67% 50% 50% 40% 33.3% 50% 36%
======== ======== ======= ======== ======== ======= ====== ========
OPERATING RESULTS DATA:
Operating revenue..... $ 10,949 $ 5,403 $29,334 $ 23,008 $ 43,818 $ 5,174 $2,796 $44,522
Other income.......... 488 100 50 670 -- 100 11 290
Operating expenses.... (3,710) (1,979) (3,031) (16,814) (19,047) (2,466) (183) (4,763)
Depreciation.......... (4,303) (5,845) (3,860) (6,852) (4,772) (559) (16) (8,846)
Interest expense...... -- -- (4,267) (1,668) (16) (2) -- (8,671)
-------- -------- ------- -------- -------- ------- ------ --------
Net income (loss)..... $ 3,424 $ (2,321) $18,226 $ (1,656) $ 19,983 $ 2,247 $2,608 $22,532
======== ======== ======= ======== ======== ======= ====== ========
PARTNERSHIP'S SHARE:
Allocated income
(loss).............. $ 879 $ (596) $ 9,113 $ (828) $ 7,993 $ 749 $1,304 $ 8,111
Adjustments(b)........ (348) (714) -- 573 627 (19) -- (120)
-------- -------- ------- -------- -------- ------- ------ --------
Equity earnings
(loss).............. $ 531 $ (1,310) $ 9,113 $ (255) $ 8,620 $ 730 $1,304 $ 7,991 $ 26,724
======== ======== ======= ======== ======== ======= ====== ======== ========
Allocated
distributions....... $ 1,182 $ 634 $10,350 $ 1,000 $ 9,240 $ 933 $1,100 $ 6,732 $ 31,171
======== ======== ======= ======== ======== ======= ====== ======== ========
FINANCIAL POSITION DATA:
Current assets........ $ 7,250 $ 2,782 $ 5,451 $ 17,892 $ 4,662 $ 4,699 $ 848 $43,338
Noncurrent assets..... 135,626 113,434 97,758 50,109 12,939 2,745 647 233,082
Current liabilities... 5,023 709 1,021 18,960 2,626 4,125 13 40,134
Long-term debt........ -- -- 66,700 20,583 -- -- -- 131,000
Other noncurrent
liabilities......... -- -- 340 12,924 -- -- -- --
</TABLE>

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

(a) These investments are indirect investees of the Partnership. However,
because the Partnership believes the separate data for each of these
investees is more meaningful, results have been reflected separately.
(b) Adjustments result from purchase price adjustments recorded by the
Partnership in accordance with APB Opinion No. 16 except for the $0.7
million reduction on Nautilus related to a revision of the allowance for
funds used during construction, or AFUDC, which represents the estimated
costs, during the construction period, of funds used for construction
purposes.

39
<PAGE> 43
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FOR THE YEAR ENDED
DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
MANTA WEST
RAY VIOSCA CAMERON
OFFSHORE(A) NAUTILUS(A) KNOLL STINGRAY HIOS UTOS DEHY POSEIDON TOTAL
----------- ----------- ------- -------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OWNERSHIP PERCENTAGE....... 25.67% 25.67% 50% 50% 40% 33.3% 50% 36%
======= ====== ======= ======== ======== ======= ====== =======
OPERATING RESULTS DATA:
Operating revenue........ $ 6,263 $ 54 $23,128 $ 23,630 $ 45,917 $ 3,785 $2,451 $26,161
Other income............. 1,564 6,489(b) 40 970 -- 61 29 209
Operating expenses....... (2,223) (435) (2,115) (15,612) (17,101) (2,472) (164) (5,782)
Depreciation............. (1,823) (233) (2,474) (7,216) (4,774) (566) (16) (6,463)
Interest expense......... (1,483) -- (1,959) (1,384) -- 37 -- (5,341)
------- ------ ------- -------- -------- ------- ------ -------
Net income............... $ 2,298 $5,875 $16,620 $ 388 $ 24,042 $ 845 $2,300 $ 8,784
======= ====== ======= ======== ======== ======= ====== =======
PARTNERSHIP'S SHARE:
Allocated income......... $ 590 $1,508 $ 8,310 $ 194 $ 9,617 $ 281 $1,150 $ 3,162
Adjustments(c)........... 3,082 733 -- 560 512 11 -- (383)
------- ------ ------- -------- -------- ------- ------ -------
Equity earnings.......... $ 3,672 $2,241 $ 8,310 $ 754 $ 10,129 $ 292 $1,150 $ 2,779 $29,327
======= ====== ======= ======== ======== ======= ====== ======= =======
Allocated
distributions.......... $ 2,560 $ -- $ 9,650 $ 1,375 $ 12,200 $ 200 $1,150 $ -- $27,135
======= ====== ======= ======== ======== ======= ====== ======= =======
</TABLE>

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

(a) These investments are indirect investees of the Partnership. However,
because the Partnership believes the separate data for each of these
investees is more meaningful, results have been reflected separately.
(b) Includes approximately $6.4 million related to AFUDC. Recognition of this
allowance is appropriate because it constitutes an actual cost of
construction. For regulated activities, Nautilus is permitted to earn a
return on and recover AFUDC through its inclusion in the rate base and the
provision for depreciation. The rate employed for the equity component of
AFUDC is the equity rate of return stated in Nautilus' FERC tariff.
(c) Adjustments result from purchase price adjustments recorded by the
Partnership in accordance with APB Opinion No. 16 except for the $3.1
million for Nautilus which represents additional net earnings specifically
allocated to the Partnership related to the assets contributed by the
Partnership to the Manta Ray Offshore joint venture. Pursuant to the terms
of the joint venture agreement, the Partnership managed the operations of
the assets contributed to Manta Ray Offshore and was permitted to retain
approximately 100% of the net earnings from such assets during the
construction phase of the expansion to the Manta Ray Offshore system
(January 17, 1997 through December 31, 1997). Effective January 1, 1998,
Manta Ray Offshore began allocating all net earnings in accordance with the
ownership percentages of the joint venture.

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment, at cost
Pipelines................................................. $220,816 $ 64,464
Platforms and facilities.................................. 137,537 123,912
Oil and natural gas properties............................ 155,968 152,750
-------- --------
514,321 341,126
Less accumulated depreciation, depletion, and
amortization.............................................. 140,562 99,134
-------- --------
Property and equipment, net............................ $373,759 $241,992
======== ========
</TABLE>

In June 1998, Tatham Offshore, Inc., or Tatham Offshore, an affiliate of
the Partnership prior to the acquisition of DeepTech by El Paso Energy, canceled
its reversionary interests in certain oil and natural gas properties owned by
the Partnership. In addition, in August 1998, Tatham Offshore transferred its
remaining

40
<PAGE> 44
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assets located in the Gulf to the Partnership in exchange for 7,500 shares of
its Series B Senior Preferred Stock, then owned by the Partnership.

5. REGULATORY MATTERS

FERC has jurisdiction over the Nautilus, Stingray, HIOS and UTOS systems
with respect to transportation of natural gas, rates and charges, construction
of new facilities, extension or abandonment of service and facilities, accounts
and records, depreciation and amortization policies, and certain other matters.

On December 1, 1998, Stingray filed for a general rate increase at the
FERC. Pursuant to an order issued by FERC on December 30, 1998, the increased
rates became effective June 1, 1999, subject to refund. A hearing on the merits
of Stingray's filing was held in December 1999. Management does not expect the
outcome of these proceedings to have a material effect on the rates charged by
Stingray under its FERC order. Each of Nautilus, HIOS, and UTOS are currently
operating under agreements with their respective customers that provide for
rates that have been approved by the FERC. The Partnership's remaining systems
are gathering facilities and, as such, are not currently subject to rate and
certificate regulation by FERC.

All of the Partnership's pipelines are subject to FERC's administration of
the "equal access" requirements of the Outer Continental Shelf Lands Act. In
addition, the Poseidon and Allegheny systems are subject to regulation under the
Hazardous Liquid Pipeline Safety Act. Operations in offshore federal waters are
regulated by the Department of the Interior.

6. FINANCING TRANSACTIONS

Senior Subordinated Notes

In May 1999, the Partnership entered into an indenture with Chase Bank of
Texas, under which it issued $175 million in aggregate principal amount of
Senior Subordinated Notes, or the Subordinated Notes. The Partnership
capitalized $6.1 million of debt issue costs related to the issuance and
registration of the Subordinated Notes. The Subordinated Notes bear interest at
a rate of 10 3/8% per annum, payable semi-annually, on June 1 and December 1,
and mature on June 1, 2009. The Partnership's subsidiaries have guaranteed its
obligations under the Subordinated Notes. In addition, the Partnership could be
required to repurchase the Subordinated Notes if certain circumstances relating
to change of control or asset disposition exist. None of such circumstances
currently exist at the Partnership. The terms of the Subordinated Notes include,
among other things, certain financial tests and covenants, all of which the
Partnership currently meets. In September 1999, the Partnership exchanged all of
its Subordinated Notes for registered debt securities with identical terms. The
proceeds from the Senior Subordinated Notes were used to fund the cost
requirements of the Viosca Knoll acquisition and to pay down the Partnership's
revolving credit facility.

Partnership Credit Facility

The Partnership has a revolving credit facility with a syndicate of
commercial banks to provide up to $375 million of available credit, subject to
certain limitations. As of December 31, 1999 and 1998, the Partnership had $290
million and $338 million, respectively, outstanding under this facility and
$56.5 million available at December 31, 1999. At the election of the
Partnership, interest under this facility is determined by reference to the
reserve-adjusted London Interbank Offer Rate, or LIBOR, the prime rate, or the
90-day average certificate of deposit rate. The interest rate at December 31,
1999 and 1998 was 9.0 percent
and 7.1 percent per annum, respectively. A commitment fee is charged on the
unused and available portion of the credit facility. This fee varies between
0.25% and 0.5% per annum and was 0.5% per annum at
December 31, 1999. The Partnership's credit facility matures in May 2002; is
guaranteed by the Partnership and each of the Partnership's subsidiaries; and is
collateralized by the management agreement with the Partnership, substantially
all of the assets of the Partnership, the General Partner's one percent general
partner

41
<PAGE> 45
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interest in the Partnership and its approximate one percent nonmanaging interest
in certain subsidiaries of the Partnership. The Partnership may borrow money
under this facility for capital expenditures, investment and working capital
purposes as well as to make capital distributions under certain circumstances.

During the years ended December 31, 1999, 1998 and 1997, the Partnership
capitalized approximately $1.8 million, $1.1 million, and $1.7 million,
respectively, of interest expense in connection with construction projects and
drilling activities during such periods. At December 31, 1999 and 1998, the
unamortized portion of debt issue costs totaled approximately $11.0 million and
$2.5 million, respectively.

7. PARTNERS' CAPITAL

General

As of December 31, 1999, the Partnership had 26,739,065 common units and
289,699 preference units outstanding. Preference units and common units totaling
18,075,000 are owned by the public, representing a 65.5 percent effective
limited partner interest in the Partnership. El Paso Energy has an effective
34.5 percent interest in the Partnership, consisting of a 32.5 percent limited
partner interest in the form of 8,953,764 common units, a one percent general
partner interest in the Partnership and an approximate one percent non-managing
interest in certain subsidiaries of the Partnership.

Conversion of Preference Units into Common Units

In May 1998, and again in May 1999, the Partnership notified its preference
unitholders of their opportunity to convert their preference units into an equal
number of common units. To date, 98 percent of the preference units, which were
outstanding in May 1998, have been converted into common units consisting of
17,058,094 converted in 1998 and 727,207 converted in 1999. The holders of the
remaining 289,699 preference units will have a final 90-day conversion
opportunity beginning in May 2000. These units will retain their distribution
preferences over the common units; that is, holders of such preference units
will be paid up to the minimum quarterly distribution of $0.275 per unit plus
any distribution in arrears before any quarterly distributions are made to the
common unitholders or the General Partner. Following this conversion period,
remaining preference units may, under certain circumstances, be subject to
mandatory redemption for an amount equal to the unrecovered capital, as defined
in the partnership agreement, of such preference units plus minimum quarterly
distribution arrearages, if any. The Partnership reallocated the partners'
capital accounts in the conversion period to reflect these conversions of
preference units into common units.

Cash Distributions

The distribution of available cash for each calendar quarter is subject to
the preferential rights of the preference unitholders to receive a minimum
quarterly distribution of $0.275 per unit for such quarter, plus arrearages for
prior quarters before any distribution is made to holders of common units. Cash
distributions on common units and to the General Partner are discretionary in
nature and are not entitled to arrearages of minimum quarterly distributions.

42
<PAGE> 46
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Distributions by the Partnership are effectively made 98 percent to limited
unitholders and 2 percent to the General Partner, subject to the payment of
incentive distributions to the General Partner if certain target cash
distribution levels to unitholders are achieved. As an incentive, the General
Partner's interest in the portion of quarterly cash distributions in excess of
$0.325 per unit and less than or equal to $0.375 per unit is increased to 15
percent. For quarterly cash distributions over $0.375 per unit but less than or
equal to $0.425 per unit, the General Partner receives 25 percent of such
incremental amount, and for all quarterly cash distributions in excess of $0.425
per unit, the General Partner receives 50 percent of the incremental amount. For
the year ended December 31, 1999, 1998, and 1997, the Partnership paid the
General Partner incentive distributions totaling $12.1 million, $11.1 million,
and $3.9 million, respectively, and paid an incentive distribution of $3.2
million in February 2000.

Unit Rights Appreciation Plan

Prior to 1997, the Partnership maintained a unit rights appreciation plan
under which employees of the General Partner were granted a right to market
appreciation on the Partnership's common and/or preference units. A total of
1,200,000 of these rights were granted to officers and employees of the General
Partner and its affiliates. For the year ended December 31, 1997, expenses
incurred under the plan totaled $3.7 million. As a result of the "change in
control" occurring upon the closing of El Paso Energy's acquisition of DeepTech
in 1998, these rights fully vested and the holders elected to be paid $8.6
million, the amount equal to the difference between the grant price of these
rights and the average of the high and the low sales price of the common units
on the date of exercise. Upon the exercise of all of the rights outstanding,
this plan was terminated. The Partnership replaced this plan with the Omnibus
Plan discussed below.

Option Plans

In August 1998, the Partnership adopted the 1998 Omnibus Compensation Plan,
or the Omnibus Plan, to provide the General Partner with the ability to issue
unit options to attract and retain the services of knowledgeable officers and
key management personnel. Unit options to purchase a maximum of 3 million common
units of the Partnership may be issued pursuant to the Omnibus Plan. Unit
options granted pursuant to the Omnibus Plan are not immediately exercisable.
One-half of the unit options are considered vested and exercisable one year
after the date of grant and the remaining one-half of the unit options are
considered vested and exercisable one year after the first anniversary of the
date of grant. The unit options expire ten years from such grant date, but shall
be subject to earlier termination under certain circumstances.

43
<PAGE> 47
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes activity under the Omnibus Plan and Director
Plan as of and for the years ended December 31, 1999 and 1998. No unit options
were granted by the Partnership prior to August 1998.

<TABLE>
<CAPTION>
1999 1998
------------------------------------- -------------------------------------
# UNITS OF WEIGHTED AVERAGE # UNITS OF WEIGHTED AVERAGE
UNDERLYING OPTIONS EXERCISE PRICE UNDERLYING OPTIONS EXERCISE PRICE
------------------ ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year......................... 933,000 $27.18 -- $ --
Granted...................... 4,500 21.58 933,000 27.18
Exercised.................... -- -- -- --
Forfeited.................... -- -- -- --
Canceled..................... -- -- -- --
------- ------ ------- ------
Outstanding at end of year..... 937,500 27.16 933,000 $27.18
======= ====== ======= ======
Options exercisable at end of
year......................... 687,500(1) 27.15 3,000 $26.17
======= ====== ======= ======
</TABLE>

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

(1) Includes the accelerated vesting of approximately 215,000 unit options under
certain employment agreements as a result of a defined change in control
within El Paso Energy following its merger with Sonat Inc.

The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:

<TABLE>
<CAPTION>
ASSUMPTION 1999 1998
- ---------- ---- ----
<S> <C> <C>
Expected term in years...................................... 8 8
Expected volatility......................................... 28.7% 37.0%
Expected dividends.......................................... 9.2% 8.0%
Risk-free interest rate..................................... 6.4% 4.6%
</TABLE>

The Black-Scholes weighted average fair value of options granted during
1999 and 1998 was $3.14 and $4.59 per option, respectively.

Options outstanding as of December 31, 1999, are summarized below:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/99 EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$20.62 to $25.00 6,000 9.2 $22.44 6,000 $22.44
$25.01 to $27.34 931,500 6.8 $27.19 681,500 $27.19
------- -------
$20.62 to $27.34 937,500 6.8 $27.16 687,500 $27.15
======= =======
</TABLE>

Had the compensation expense for the Partnership's stock-based compensation
plans been determined applying the provisions of SFAS No. 123, Accounting for
Stock Based Compensation, using the Black-Scholes

44
<PAGE> 48
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

weighted average fair value of options granted, the Partnership's net income
allocated to the limited partners and net income per common unit for 1999 and
1998 would approximate the pro forma amounts below:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C>
SFAS No. 123 charge, pretax..................... $ -- $ 890 $ -- $ 1,065
APB No. 25 charge, pretax....................... $ -- $ -- $ -- $ --
Net income (loss) allocated to the limited
partners...................................... $(8,739) $(9,629) $ 604 $ (461)
Basic and diluted income (loss) per unit........ $ (0.34) $ (0.37) $0.02 $ (0.02)
</TABLE>

The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.

8. RELATED PARTY TRANSACTIONS

Transactions with related parties and affiliates for each of the three
years ended December 31, are as follows:

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues received from related parties:
Oil and natural gas sales................................. $29,778 $31,225 $57,830
Gathering, transportation and platform services........... 990 3,546 4,143
------- ------- -------
$30,768 $34,771 $61,973
======= ======= =======
Expenses paid to related parties:
Operating expenses........................................ $10,541 $12,345 $14,598
======= ======= =======
</TABLE>

Revenues received from related parties

The Partnership has agreed to sell all of its oil and natural gas
production to an affiliate of the Partnership, on a month to month basis. The
agreement provides fees equal to 2 percent of the sales value of crude oil and
condensate and $0.015 per dekatherm of natural gas for selling the Partnership's
production. During the years ended December 31, 1999, 1998 and 1997, oil and
natural gas sales to the affiliate totaled approximately $29.8 million, $31.2
million, and $57.8 million, respectively.

For the years ended December 31, 1998 and 1997, the Partnership received
approximately $1.1 million and $2.0 million, respectively, from Tatham Offshore
as platform access and processing fees related to the Partnership's platform
located in Viosca Knoll Block 817.

For the five months ended May 31, 1999, and the years ended December 31,
1998 and 1997, the Partnership charged Viosca Knoll approximately $1.0 million,
$2.4 million and $2.1 million, respectively, for expenses and platform access
fees related to the Viosca Knoll Block 817 platform. The Partnership began
consolidating Viosca Knoll following its acquisition of an additional 49 percent
ownership interest in June 1999. As a result, charges after this period were
eliminated in consolidation.

Expenses paid to related parties

Management Fees. Substantially all of the individuals who perform the
day-to-day financial, administrative, accounting and operational functions for
the Partnership, as well as those who are responsible for the direction and
control of the Partnership, are currently employed by El Paso Energy. Pursuant
to a management agreement between El Paso Energy and the General Partner, a
management fee is charged to the General Partner which is intended to
approximate the amount of resources allocated by El Paso Energy in

45
<PAGE> 49
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

providing various operational, financial, accounting and administrative services
on behalf of the General Partner and the Partnership. The management agreement
expires on June 30, 2002, and may be terminated thereafter upon 90 days notice
by either party. Pursuant to the terms of the partnership agreement, the General
Partner is entitled to reimbursement of all reasonable general and
administrative expenses and other reasonable expenses incurred by the General
Partner and its affiliates for, or on behalf of, the Partnership including, but
not limited to, amounts payable by the General Partner to El Paso Energy under
its management agreement.

Prior to its acquisition by El Paso Energy in August 1998, DeepTech had a
similar management agreement with the General Partner. Management fees were
based on a percentage of DeepTech's overhead. However, in connection with El
Paso Energy's acquisition of the General Partner, the General Partner amended
its management agreement to provide for a monthly management fee of $775,000.
The General Partner charged the Partnership $9.3 million, $9.3 million, and $8.1
million pursuant to its management agreement for the years ended December 31,
1999, 1998 and 1997, respectively.

The General Partner is also required to reimburse El Paso Energy, and its
predecessor, DeepTech for certain tax liabilities resulting from, among other
things, additional taxable income allocated to the General Partner due to (i)
the issuance of additional preference units and (ii) the investment of such
proceeds in additional acquisitions or construction projects. During the years
ended December 31, 1998 and 1997, the General Partner charged the Partnership
approximately $0.5 million and $0.7 million, respectively, to compensate
DeepTech for additional taxable income allocated to the General Partner.

During the five months ended May 31, 1999, and the years ended December 31,
1998 and 1997, Viosca Knoll charged the Partnership approximately $0.8 million,
$1.9 million and $3.9 million, respectively, for transportation services related
to transporting production from the Viosca Knoll Block 817 lease.

Garden Banks. During the years ended December 31, 1999, 1998 and 1997,
Poseidon charged the Partnership approximately $0.9 million, $1.4 million and
$2.0 million, respectively, for transportation services related to transporting
production from the Garden Banks Block 72 and 117 leases.

Other. Pursuant to a management agreement between Viosca Knoll and the
Partnership, the Partnership charges Viosca Knoll a base fee of $100,000
annually in exchange for the Partnership providing financial, accounting and
administrative services on behalf of Viosca Knoll. For the five months ended May
31, 1999, and each of the years ended December 31, 1998 and 1997, the
Partnership charged Viosca Knoll approximately $42,000, $100,000 and $100,000,
respectively, in accordance with this management agreement. In addition, for the
years ended December 31, 1998 and 1997, Viosca Knoll reimbursed the Partnership
approximately $152,000 and $47,000, respectively, for costs incurred by the
Partnership in connection with the acquisition and installation of a booster
compressor on the Partnership's Viosca Knoll Block 817 platform.

For the years ended December 31, 1999, 1998 and 1997, the Partnership
charged Manta Ray Offshore a management fee of approximately $0.5 million, $1.3
million, and $0.3 million, respectively, pursuant to its management and
operations agreements.

Pursuant to former non-employee director compensation arrangements, the
Partnership was obligated to pay each non-employee director 2 1/2 percent of the
general partners' incentive distribution as a profit participation fee. During
the years ended December 31, 1998 and 1997, the Partnership paid three
non-employee directors of the Partnership a total of $0.6 million and $0.3
million, respectively, as a profit participation fee. As a result of El Paso
Energy's acquisition of Deep Tech, these non-employee directors resigned and
these arrangements were terminated.

46
<PAGE> 50
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Farmout

In October 1999, the Partnership executed an agreement with El Paso
Production Company, or El Paso Production, a subsidiary of El Paso Energy, to
farm out its working interest in the Ewing Bank 958 Unit. Under the terms of the
farmout agreement, the Partnership increased its overriding royalty interest in
the Ewing Bank 958 Unit from 5.3 to 7.4 percent convertible, at its option, into
a 30 percent undivided working interest once El Paso Production has recouped the
costs associated with its drilling and completion activities on the unit. El
Paso Production began drilling on the Ewing Bank 958 Unit in November 1999.

Other

In 1997, Tatham Offshore announced its intent to reserve its remaining
costs associated with certain of its wells as a result of production problems.
Accordingly, the Partnership recorded a charge totaling $21.2 million in the
consolidated statements of operations. This charge consisted of approximately
$6.4 million to reserve the Partnership's investment in certain gathering
facilities and other assets associated with these properties, approximately $3.8
million to fully accrue its abandonment obligations associated with the
gathering facilities serving these properties, approximately $9.1 million to
reserve its noncurrent receivable related to the prepayment of the demand charge
obligations under certain agreements, and approximately $1.9 million to accrue
certain abandonment obligations associated with its Viosca Knoll and Garden
Banks properties. During 1998, the Partnership abandoned its Ewing Bank
flowlines at a cost of $2.9 million and recorded a credit to impairment,
abandonment and other of $1.1 million, which represented the excess of the
accrued costs over the actual costs incurred associated with the abandonment of
the flowlines.

During the year ended December 31, 1997, the Partnership was charged
approximately $3.4 million by Sedco Forex Division of Schlumberger Technology
Corporation for contract drilling services rendered by the semisubmersible
drilling rig, the FPS Laffit Pincay, at its Garden Banks Block 117 project. The
FPS Laffit Pincay was owned by an affiliate of DeepTech and managed by Sedco
Forex during such period.

In addition, see Note 2 relating to the formation of Deepwater Holdings and
the Partnership's acquisition of an additional ownership interest in Viosca
Knoll.

9. COMMITMENTS AND CONTINGENCIES

Credit Facilities

Deepwater Holdings and Poseidon are parties to a credit agreement under
which they have an outstanding obligation that may restrict the payment of
distributions to their respective owners.

In connection with its formation, Deepwater Holdings assumed Western Gulf
Holdings' obligations under its $100 million revolving credit facility entered
into in February 1999, and amended and restated that facility to, among other
things, increase the commitment amount to $175 million. Deepwater Holdings'
ability to borrow money under this credit facility is subject to certain
customary terms and conditions, including borrowing base limitations. The credit
facility is collateralized by substantially all of the material contracts and
agreements of East Breaks, West Cameron Dehy and Deepwater Holdings, including
Deepwater Holdings' ownership in Stingray, UTOS, West Cameron Dehy, and Western
Gulf, and its subsidiaries HIOS and East Breaks, and matures in February 2004.
As of March 15, 2000, Deepwater Holdings had $147 million outstanding under its
credit facility bearing interest at an average floating rate of 7.2 percent and
had $13.2 million available.

Poseidon has a revolving credit facility, as amended, with a syndicate of
commercial banks to provide up to $150.0 million for the construction and
expansion of the Poseidon system and for other working capital needs. Poseidon's
ability to borrow money under this facility is subject to certain customary
terms and conditions, including borrowing base limitations. The facility is
collateralized by a substantial portion of

47
<PAGE> 51
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Poseidon's assets and matures on April 30, 2001. As of December 31, 1999, 1998
and 1997, Poseidon had $150.0 million, $131.0 million and $120.5 million,
respectively, outstanding under its credit facility bearing interest at an
average floating rate of 7.8 percent, 6.9 percent, and 7.2 percent per annum,
respectively.

In June 1999, the Viosca Knoll revolving credit facility was repaid and
cancelled concurrent with the closing of the Partnership's acquisition of the
additional interest in Viosca Knoll.

The Stingray credit facility was paid off and cancelled concurrent with the
formation of Deepwater Holdings. Funds from the Deepwater Holdings credit
facility were used to pay off the Stingray credit facility.

Borrowings under the above mentioned credit facilities may be used for
capital expenditures, investment and working capital purposes, as well as to
make capital distributions in certain circumstances.

Hedging Activities

The Partnership hedges a portion of its oil and natural gas production to
reduce its exposure to fluctuations in market prices of oil and natural gas and
to meet certain requirements under its revolving credit facility. The
Partnership uses commodity price swap instruments whereby monthly settlements
are based on differences between the prices specified in the commodity price
swap agreement and the settlement prices of certain futures contracts quoted on
the NYMEX or certain other indices. The Partnership settles the commodity price
swap transactions by paying the negative difference or receiving the positive
difference between the applicable settlement price and the price specified in
the contract. The commodity price swap transactions used by the Partnership
differ from futures contracts in that there is no contractual obligation which
requires or allows for the future delivery of the product. The credit risk from
the Partnership's price swap contracts is derived from the counterparty to the
transaction, typically a major financial institution. Management does not
require collateral and does not anticipate non-performance by this counterparty,
which does not transact a sufficient volume of transactions with the Partnership
to create a significant concentration of credit risk. Gains or losses on hedging
activities and the termination of any hedging instruments are initially deferred
and included as an increase or decrease to oil and natural gas sales in the
period in which the hedged production is sold. For the years ended December 31,
1999, 1998 and 1997, the Partnership recorded a net (gain) loss of $2.3 million,
$(2.5) million and $6.3 million, respectively, from such activities.

As of December 31, 1998, the Partnership maintained two natural gas sales
swap transactions, one covering the calendar year 1999, and one covering the
calendar year 2000. Each of these swaps carried a notional amount of 10,000
MMbtu/d. Under these transactions, the Partnership receives a fixed price and
pays a variable price based on the monthly natural gas futures contract
settlement price as set by NYMEX. In January 1999, the Partnership elected to
change the term of its 1999 swap to calendar year 2000. In January 1999 and
2000, under the terms of this transaction, the Partnership fixed its contract
price at $1.6686 per MMbtu and $1.8050 per MMbtu, respectively, for each swap.

If the Partnership had settled its open natural gas hedging positions as of
December 31, 1999 and 1998 based on the applicable settlement prices of the
NYMEX futures contracts, the Partnership would have recognized a loss of
approximately $3.8 million and $2.6 million, respectively.

In February 2000, the Partnership also entered into a swap transaction
whereby the Partnership will receive $24.05 per barrel of oil in exchange for
the monthly Oil Futures Contract NYMEX settlement for 12,000 barrels per month
for February and March 2000 and 15,000 barrels per month for each month in the
following three quarters of calendar year 2000.

Legal Proceedings

The Partnership is a defendant in a lawsuit filed by Transco in the 157th
Judicial District Court, Harris County, Texas on August 30, 1996. Transco
alleges that, pursuant to a platform lease agreement entered into on June 28,
1994, it had the right to expand its facilities and operations on the offshore
platform by connecting
48
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EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

additional pipeline receiving and appurtenant facilities. Management denied
Transco's request to expand its facilities and operations because the lease
agreement does not provide for such expansion, and because Transco's activities
would have interfered with the Manta Ray Offshore system and the Partnership's
existing and planned activities on the platform. The case is set for trial on
April 3, 2000. It is the opinion of management that adequate defenses exist and
that the final disposition of this suit will not have a material adverse effect
on the consolidated financial position, results of operations or cash flows of
the Partnership.

In January 2000, an anchor from a submersible drilling rig in tow damaged a
section of the Poseidon system north of the Partnership's 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 the
Partnership's Ship Shoal 332 platform, and resulted in the shutdown of the
system and certain surrounding facilities in which the Partnership has ownership
interests. Poseidon estimates the cost to repair the damaged pipeline and clean
up the crude oil released into the Gulf to be approximately $15 million, and has
placed the rig's owner on notice for liability and expenses due to the incident.
Management is currently evaluating the effects of the accident on the
Partnership's operations and expects to complete its evaluation in the first
quarter of 2000.

The Partnership, along with several subsidiaries of El Paso Energy, have
been named defendants in actions brought by Jack Grynberg on behalf of the U.S.
Government under the False Claims Act. Generally, the complaints allege an
industry-wide conspiracy to underreport the heating value as well as the volumes
of the natural gas produced from federal and Indian lands, thereby depriving the
United States Government of royalties. The Partnership believes the complaint to
be without merit.

The Partnership, along with several subsidiaries of El Paso Energy, have
been named defendants in a class action suit, Quinque Operating Company v. Gas
Pipelines. The plaintiff alleges that the defendants have mismeasured natural
gas volumes and heating content of natural gas on non-federal and non-Native
American lands. This suit is similar to the action brought by Jack Grynberg on
behalf of the United States Government. The Partnership believes the complaint
to be without merit.

The Partnership is also a named defendant in numerous lawsuits and a named
party in numerous governmental proceedings arising in the ordinary course of its
business.

Other

In July 1999, the Partnership 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 Ewing Bank 958 Unit development. Upon the farm
out of the Ewing Bank 958 Unit, the Partnership suspended the construction of
the TLP and is currently discussing its use at a different location with several
major producers. The Partnership expects to incur up to $10 million of costs
related to the TLP which is expected to be recovered through the Ewing Bank 958
Unit farmout agreement. As a result, management does not expect the ultimate
resolution of this matter to have a material adverse effect on the Partnership's
consolidated financial position, results of operations or cash flows.

While the outcome of the matters discussed above cannot be predicted with
certainty, management currently does not expect the ultimate resolution of these
matters to have a material adverse effect on the Partnership's consolidated
financial position, results of operations, or cash flows.

Environmental

The Partnership is subject to extensive federal, state, and local laws and
regulations governing environmental quality and pollution control. These laws
and regulations require the Partnership to remove or remedy the effect on the
environment of the disposal or release of specified substances at current and
former operating sites.
49
<PAGE> 53
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

It is possible that new information or future developments could require
the Partnership to reassess its potential exposure related to environmental
matters. The Partnership 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,
regulations and enforcement policies thereunder, and claims for damages to
property, employees, other persons and the environment resulting from current or
discontinued operations, could result in substantial costs and liabilities in
the future. As such information becomes available, or other relevant
developments occur, related accrual amounts will be adjusted accordingly. While
there are still uncertainties relating to the ultimate costs which may be
incurred, based upon the Partnership's evaluation and experience to date, the
Partnership believes the recorded reserves are adequate.

10. SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS

Cash paid for interest, net of amounts capitalized, and taxes were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest................................................ $31,696 $17,608 $12,965
Taxes................................................... $ -- $ -- $ 11
</TABLE>

Noncash investing and financing activities excluded from the statement of cash
flows were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisition of additional ownership interest in Viosca
Knoll
Issuance of common units........................... $59,792 $ -- $ --
Working capital acquired........................... (2,400) -- --
Decrease in investment in Tatham Offshore............... -- 7,500 --
Additions to oil and natural gas properties............. -- (4,683) --
Additions to platform and facilities.................... -- (7,024) --
Assumption of abandonment obligations................... -- 4,033 --
Conveyance of assets and liabilities to Manta Ray
Offshore and Nautilus................................. -- 30 72,080
</TABLE>

11. MAJOR CUSTOMERS

As discussed in Note 8, the Partnership sells all of its oil and natural
gas production to an affiliated company. The percentage of gathering,
transportation and platform services revenue from major customers was as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Kerr-McGee Corporation...................................... 26% 32% --
Shell Gas Trading Company................................... 21% -- --
Texaco Gas Marketing, Inc................................... -- 10% 13%
Viosca Knoll................................................ -- 13% --
Walter Oil & Gas Corporation................................ -- -- 13%
</TABLE>

50
<PAGE> 54
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. BUSINESS SEGMENT INFORMATION:

The Partnership's business activities are segregated into two segments:
Gathering, Transportation, and Platform Services, and Oil and Natural Gas
Production. This structure reflects management's current view of the
Partnership's activities and all historical periods have been presented on the
basis of the current segment presentation. Each of the Partnership's segments is
a strategic business unit that offers different services or products. The
Partnership manages each of these segments separately as each requires different
technology and marketing strategies. Management of the Partnership measures
performance based on an asset's or investment's ability to generate cash flow to
the Partnership, or performance cash flow. Performance cash flow is earnings
before interest, taxes, and depreciation, depletion, and amortization, plus cash
distributions from equity investments less earnings attributable to equity
investments and, as appropriate, other non-cash items. This measurement is used
as a supplemental financial measurement in the evaluation of the Partnership's
business and should not be considered as an alternative to EBIT, as an indicator
of our operating performance or as an alternative to cash flows from operating
activities as a measure of liquidity. In addition, it may not be a comparable
measurement among different companies. Performance cash flow is presented here
to provide additional information about the Partnership. The accounting policies
of the individual segments are the same as those of the Partnership, as a whole,
as described in Note 1. The following table summarizes certain financial
information for each business segment:

<TABLE>
<CAPTION>
GATHERING,
TRANSPORTATION OIL AND
AND PLATFORM NATURAL GAS TOTAL INTERSEGMENT
SERVICES PRODUCTION SEGMENT ELIMINATIONS OTHER(1) TOTAL
-------------- ----------- -------- ------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Revenue from external customers...... $ 66,508 $ 29,965 $ 96,473 $ -- $ -- $ 96,473
Intersegment revenue................. 13,193 -- 13,193 (13,193) -- --
Equity investment earnings........... 32,814 -- 32,814 -- -- 32,814
Depreciation, depletion and
amortization....................... (12,087) (18,543) (30,630) -- -- (30,630)
Operating income (loss).............. 51,150 (7,709) 43,441 -- -- 43,441
EBIT................................. 61,070 (7,359) 53,711 -- 191 53,902
Performance cash flows............... 78,853 12,452 91,305 -- -- 91,305
Total assets......................... 500,720 67,785 568,505 -- 15,080 583,585
Capital expenditures................. 169,977 3,218 173,195 -- -- 173,195
Equity investments................... 185,766 -- 185,766 -- -- 185,766
YEAR ENDED DECEMBER 31, 1998:
Revenue from external customers...... $ 44,044 $ 31,411 $ 75,455 $ -- -- $ 75,455
Intersegment revenue................. 10,673 -- 10,673 (10,673) -- --
Equity investment earnings........... 26,724 -- 26,724 -- -- 26,724
Depreciation, depletion and
amortization....................... (7,266) (22,001) (29,267) -- -- (29,267)
Impairment, abandonment and other.... 1,131 -- 1,131 -- -- 1,131
Operating income (loss).............. 30,032 (10,271) 19,761 -- -- 19,761
EBIT................................. 30,513 (10,140) 20,373 -- 159 20,532
Performance cash flows............... 40,615 11,730 52,345 -- -- 52,345
Total assets......................... 349,237 81,195 430,432 -- 12,294 442,726
Capital expenditures................. 33,423 35,056 68,479 -- -- 68,479
Equity investments................... 186,079 -- 186,079 -- -- 186,079
YEAR ENDED DECEMBER 31, 1997:
Revenue from external customers...... $ 46,656 $ 58,106 $104,762 $ -- -- $104,762
Intersegment revenue................. 11,162 -- 11,162 (11,162) -- --
Equity investment earnings........... 29,327 -- 29,327 -- -- 29,327
Depreciation, depletion and
amortization....................... (9,900) (36,389) (46,289) -- -- (46,289)
Impairment, abandonment and other.... (10,268) (10,954) (21,222) -- -- (21,222)
Operating income (loss).............. 20,914 (9,676) 11,238 -- -- 11,238
EBIT................................. 21,636 (9,114) 12,522 -- 191 12,713
Performance cash flows............... 38,890 37,667 76,557 -- -- 76,557
</TABLE>

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

(1) Represents income or assets not associated with segment activities.

51
<PAGE> 55
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. SUPPLEMENTAL OIL AND NATURAL GAS INFORMATION (UNAUDITED):

Oil and natural gas reserves

The following table represents the Partnership's net interest in estimated
quantities of developed and undeveloped reserves of crude oil, condensate and
natural gas and changes in such quantities at fiscal year end 1999, 1998 and
1997. Estimates of the Partnership's reserves at December 31, 1999, 1998 and
1997, have been made by the independent engineering consulting firm, Netherland,
Sewell & Associates, Inc. Net proved reserves are the estimated quantities of
crude oil and natural gas which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed reserves are
proved reserve volumes that can be expected to be recovered through existing
wells with existing equipment and operating methods. Proved undeveloped reserves
are proved reserve volumes that are expected to be recovered from new wells on
undrilled acreage or from existing wells where a significant expenditure is
required for recompletion.

Estimates of reserve quantities are based on sound geological and
engineering principles, but, by their very nature, are still estimates that are
subject to substantial upward or downward revision as additional information
regarding producing fields and technology becomes available.

<TABLE>
<CAPTION>
OIL/CONDENSATE NATURAL GAS
(BARRELS) (MMCF)
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Proved reserves -- December 31, 1996....................... 3,462 44,514
Revisions of previous estimates.......................... (542) 5,441
Production............................................... (801) (19,792)
----- -------
Proved reserves -- December 31, 1997....................... 2,119 30,163
Revisions of previous estimates.......................... (33) 1,833
Purchase of reserves in place............................ 32 8,212
Production............................................... (540) (11,324)
----- -------
Proved reserves -- December 31, 1998....................... 1,578 28,884
Revision of previous estimates........................... 251 623
Extension, Discoveries, and other Additions.............. 1 218
Production............................................... (357) (12,211)
----- -------
Proved reserves -- December 31, 1999(1).................... 1,473 17,514
===== =======
</TABLE>

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

(1) Includes the Partnership's net interest in proved reserves on Garden Banks
Block 73 totaling 653 barrels of oil and 218 MMcf of natural gas.

The following are estimates of the Partnership's total proved developed and
proved undeveloped reserves of oil and natural gas by producing property as of
December 31, 1999.

<TABLE>
<CAPTION>
OIL (BARRELS) NATURAL GAS (MCF)
------------- ------------------------
PROVED PROVED PROVED
DEVELOPED DEVELOPED UNDEVELOPED
------------- ---------- -----------
<S> <C> <C> <C>
Garden Banks Block 72............................ 314,884 2,123,573 --
Garden Banks Block 117........................... 978,450 1,413,934 --
Viosca Knoll Block 817........................... 169,815 10,407,707 2,452,000
West Delta Block 35.............................. 8,878 898,584 --
--------- ---------- ---------
Total.................................. 1,472,027 14,843,798 2,452,000
========= ========== =========
</TABLE>

52
<PAGE> 56
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In general, estimates of economically recoverable oil and natural gas
reserves and of the future net revenue therefrom are based upon a number of
variable factors and assumptions, such as historical production from the subject
properties, the assumed effects of regulation by governmental agencies and
assumptions concerning future oil and natural gas prices, future operating costs
and future plugging and abandonment costs, all of which may vary considerably
from actual results. All such estimates are to some degree speculative, and
classifications of reserves are only attempts to define the degree of
speculation involved. For these reasons, estimates of the economically
recoverable oil and natural gas reserves attributable to any particular group of
properties, classifications of such reserves based on risk of recovery and
estimates of the future net revenue expected therefrom, prepared by different
engineers or by the same engineers at different times, may vary substantially.
The meaningfulness of such estimates is highly dependent upon the assumptions
upon which they are based.

Estimates with respect to proved undeveloped reserves that may be developed
and produced in the future are often based upon volumetric calculations and upon
analogy to similar types of reserves rather than upon actual production history.
Estimates based on these methods are generally less reliable than those based on
actual production history. Subsequent evaluation of the same reserves based upon
production history will result in variations, which may be substantial, in the
estimated reserves. A significant portion of the Partnership's reserves is based
upon volumetric calculations.

Future net cash flows

The standardized measure of discounted future net cash flows relating to
the Partnership's proved oil and natural gas reserves is calculated and
presented in accordance with SFAS No. 69, Disclosures About Oil and Gas
Producing Activities. Accordingly, future cash inflows were determined by
applying year-end oil and natural gas prices, as adjusted for hedging and other
fixed price contracts in effect, to the Partnership's estimated share of future
production from proved oil and natural gas reserves. The average prices utilized
in the calculation of the standardized measure of discounted future net cash
flows at December 31, 1999, were $21.04 per barrel of oil and $2.18 per Mcf of
gas. Actual future prices and costs may be materially higher or lower. Future
production and development costs were computed by applying year-end costs to
future years. As the Partnership is not a taxable entity, no future income taxes
were provided. A prescribed 10 percent discount factor was applied to the future
net cash flows.

In the Partnership's opinion, this standardized measure is not a
representative measure of fair market value, and the standardized measure
presented for the Partnership's proved oil and natural gas reserves is not
representative of the reserve value. The standardized measure is intended only
to assist financial statement users in making comparisons between companies.

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows.................................. $ 69,719 $ 53,299 $104,192
Future production costs.............................. (14,530) (13,412) (15,895)
Future development costs............................. (10,681) (10,566) (10,463)
-------- -------- --------
Future net cash flows................................ 44,508 29,321 77,834
Annual discount at 10% rate.......................... (7,990) (2,649) (10,468)
-------- -------- --------
Standardized measure of discounted future net cash
flows.............................................. $ 36,518 $ 26,672 $ 67,366
======== ======== ========
</TABLE>

53
<PAGE> 57
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Estimated future net cash flows for proved developed and proved undeveloped
reserves as of December 31, 1999, are as follows:

<TABLE>
<CAPTION>
PROVED PROVED
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Undiscounted estimated future net cash flows from
proved reserves before income taxes................. $41,303 $3,205 $44,508
======= ====== =======
Present value of estimated future net cash flows from
proved reserves before income taxes, discounted at
10%................................................. $34,041 $2,477 $36,518
======= ====== =======
</TABLE>

The following are the principal sources of change in the standardized
measure (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Beginning of year.................................... $ 26,672 $ 67,366 $155,638
Sales and transfers of oil and natural gas
produced, net of production costs............... (22,154) (22,131) (53,492)
Net changes in prices and production costs......... 29,901 (32,129) (35,645)
Extensions, discoveries and improved recovery, less
related costs................................... 544 -- --
Oil and natural gas development costs incurred
during the year................................. 615 120 11,140
Changes in estimated future development costs...... (1,098) (443) (12,439)
Revisions of previous quantity estimates........... 5,124 1,920 (3,817)
Purchase of reserves in place...................... -- 7,573 --
Accretion of discount.............................. 2,666 6,736 15,564
Changes in production rates, timing and other...... (5,752) (2,340) (9,583)
-------- -------- --------
End of year.......................................... $ 36,518 $ 26,672 $ 67,366
======== ======== ========
</TABLE>

Development, Exploration, and Acquisition Expenditures

The following table details certain information regarding costs incurred in
the Partnership's development, exploration, and acquisition activities during
the years ended December 31:

<TABLE>
<CAPTION>
1999 1998 1997
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Development costs........................................ $3,018 $17,783 $10,522
Proved acquisitions...................................... -- 16,945 1
Capitalized interest..................................... 200 328 726
------ ------- -------
Total capital expenditures..................... $3,218 $35,056 $11,249
====== ======= =======
</TABLE>

54
<PAGE> 58
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Capitalized Costs

Capitalized costs relating to the Partnership's natural gas and oil
producing activities and related accumulated depreciation, depletion and
amortization were as follows as of December 31:

<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Oil and natural gas properties
Proved properties......................................... $ 53,392 $ 53,313
Wells, equipment, and related facilities.................. 102,576 99,437
-------- --------
155,968 152,750
Less accumulated depreciation, depletion, and
amortization.............................................. 90,677 72,958
-------- --------
$ 65,291 $ 79,792
======== ========
</TABLE>

14. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

As discussed in Note 1, the Partnership changed its method for allocating
net income among the partners. The change was adopted during the fourth quarter
of 1999, effective as of January 1, 1999. The information that follows for the
year 1999 has been restated to reflect this change as if it were in effect for
all periods presented.

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- ------- ------------ ----------- -------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
1999
Revenue.................................. $21,879 $23,972 $25,616 $25,006 $96,473
Operating income......................... 9,437 11,753 9,833 12,418 43,441
Net income............................... 3,499 4,188 9,257 1,873 18,817
Net income allocated to General
Partner................................ 2,838 2,847 3,217 3,227 12,129
Net income (loss) allocated to Limited
Partners before accounting change...... 661 1,341 6,040 (1,354) 6,688
Cumulative effect of accounting change... (15,427) -- -- -- (15,427)
------- ------- ------- ------- -------
Net income (loss) allocated to Limited
Partners............................... (14,766) 1,341 6,040 (1,354) (8,739)
Basic and diluted net income (loss) per
unit before accounting change.......... $ 0.03 $ 0.05 $ 0.22 $ (0.05) 0.26
Cumulative effect of accounting change... $ (0.60) -- -- -- $ (0.60)
------- ------- ------- ------- -------
Basic and diluted net income (loss) per
unit................................... $ (0.57) $ 0.05 $ 0.22 $ (0.05) (0.34)
Distributions declared per common unit... 0.525 0.525 0.525 0.525 2.10
Distributions declared per preference
unit................................... 0.275 0.275 0.275 0.275 1.10
Weighted average number of units
outstanding............................ 24,367 25,244 27,029 27,029 25,928
</TABLE>

55
<PAGE> 59
EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- ------- ------------ ----------- -------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
1998
Revenue.................................. $17,714 $18,373 $18,230 $21,138 $75,455
Operating income......................... 2,060 6,133 2,863 8,705 19,761
Net income (loss)........................ (1,424) 1,510 (1,806) 2,466 746
Net income (loss) allocated to General
Partner................................ (275) 292 (342) 467 142
Net income (loss) allocated to Limited
Partners............................... (1,149) 1,218 (1,464) 1,999 604
Basic and diluted net income (loss) per
unit................................... (0.05) 0.05 (0.06) 0.08 0.02
Distributions declared per common unit... 0.525 0.525 0.525 0.525 2.10
Distributions declared per preference
unit................................... 0.525 0.525 0.275 0.275 1.60
Weighted average number of units
outstanding............................ 24,367 24,367 24,367 24,367 24,367
</TABLE>

56
<PAGE> 60

REPORT OF INDEPENDENT ACCOUNTANTS

To the Unitholders of El Paso Energy Partners, L.P.
and the Board of Directors and Stockholder of
El Paso Energy Partners Company, as General Partner

In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations, of cash flows and of partners' capital
present fairly, in all material respects, the financial position of El Paso
Energy Partners, L.P. and its subsidiaries (the "Partnership") at December 31,
1999 and 1998 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

As disclosed in Note 1 to the consolidated financial statements, the
Partnership changed its method for allocating net income to its partners in
1999.

[PRICEWATERHOUSECOOPERS]

Houston, Texas
March 24, 2000

57
<PAGE> 61

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

GENERAL

The General Partner and the Partnership utilize the employees of and
management services provided by El Paso Energy under a management agreement. The
Partnership reimburses the General Partner for reasonable general and
administrative expenses, and other reasonable expenses, incurred by the General
Partner and its affiliates, for or on behalf of the Partnership.

DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER

The following table sets forth certain information as of March 24, 2000,
regarding the executive officers and directors of the General Partner. Each
executive officer of the General Partner serves the Partnership in the same
office or offices each such officer holds with the General Partner. Directors
are elected annually by the General Partner's sole stockholder, El Paso Energy
Partners Holding Company, and hold office until their successors are elected and
qualified. Each executive officer named in the following table has been elected
to serve until his successor is duly appointed or elected or until his earlier
removal or resignation from office.

In November 1999, the Partnership's Board of Directors accepted the
resignation of its chief executive officer, Grant E. Sims. Robert G. Phillips,
current president of EPFS and a director of the Partnership, assumed the
additional role of chief executive officer of the Partnership.

There is no family relationship among any of the executive officers or
directors of the General Partner, and, other than described herein, no
arrangement or understanding exists between any executive officer and any other
person pursuant to which he was or is to be selected as an officer.

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
William A. Wise.......... 54 Director and Chairman of the Board
Robert G. Phillips....... 45 Director and Chief Executive Officer
James H. Lytal........... 42 Director and President
H. Brent Austin.......... 45 Director and Executive Vice President
Keith B. Forman.......... 41 Vice President and Chief Financial Officer
D. Mark Leland........... 38 Vice President and Controller
Michael B. Bracy......... 58 Director
H. Douglas Church........ 62 Director
Malcolm Wallop........... 67 Director
</TABLE>

Mr. Wise has served as Director and Chairman of the Board of the General
Partner since August 1998. He has served as Chief Executive Officer of El Paso
Energy since January 1990 and was Chairman of El Paso Energy's board of
directors from January 1994 until October 1999. Mr. Wise was President of El
Paso Energy from January 1990 to April 1996 and from July 1998 to present. He
served as President and Chief Operating Officer of El Paso Energy from April
1989 to December 1989. From March 1987 until April 1989, Mr. Wise was an
Executive Vice President of El Paso Energy and a Senior Vice President of El
Paso Energy from January 1984 to February 1987. Mr. Wise is a member of the
Board of Directors of Battle Mountain Gold Company and is Chairman of the Board
of El Paso Tennessee Pipeline Co.

Mr. Phillips has served as a Director of the General Partner since August
1998. He has served as Chief Executive Officer of the Partnership and the
General Partner since November 1999. He served as Executive

58
<PAGE> 62

Vice President from August 1998 to October 1999. Mr. Phillips has served as
President of El Paso Field Services Company since June 1997. He served as
President of El Paso Energy Resources Company from December 1996 to June 1997,
President of El Paso Field Services Company from April 1996 to December 1996 and
Senior Vice President of El Paso Energy from September 1995 to April 1996. For
more than five years prior thereto, Mr. Phillips was Chief Executive Officer of
Eastex Energy, Inc.

Mr. Lytal has served as a Director of the General Partner since August 1994
and as President of the Partnership and the General Partner since July 1995. He
served as Senior Vice President of the Partnership and the General Partner from
August 1994 to June 1995. Prior to joining the Partnership, Mr. Lytal was Vice
President -- Business Development for American Pipeline Company from December
1992 to August 1994. From March 1991 to December 1992, Mr. Lytal served as Vice
President -- Business Development for United Gas Pipe Line Company. Prior to
March 1991, Mr. Lytal has served in various capacities in the oil and gas
exploration and production and gas pipeline industries with Texas Oil and Gas,
Inc. and American Pipeline Company.

Mr. Austin has served as a Director of the General Partner and as Executive
Vice President of the Partnership and the General Partner since August 1998. Mr.
Austin has served as an Executive Vice President and Chief Financial Officer of
El Paso Energy since May 1995 and as the Chief Financial Officer of El Paso
Energy since April 1992. He served as the Senior Vice President of El Paso
Energy from April 1992 to April 1995. He served as the Vice President, Planning
and Treasurer of Burlington Resources Inc. from November 1990 to March 1992 and
Assistant Vice President, Planning of Burlington from January 1989 to October
1990. Mr. Austin is a member of the Board of Directors of El Paso Tennessee
Pipeline Co.

Mr. Forman has served as the Chief Financial Officer of the Partnership and
the General Partner since January 1992 and served as a Director of the General
Partner from July 1992 to August 1998. Prior to 1982, Mr. Forman served as Vice
President of the Natural Gas Pipeline Group of Manufacturers Hanover Trust
Company.

Mr. Leland has served as Vice President and Controller of the Partnership
and the General Partner since August 1998 and as Vice President of El Paso Field
Services Company since September 1997. He served as Director of Business
Development for El Paso Field Services Company from September 1994 to September
1997. For more than five years prior thereto, Mr. Leland served in various
capacities in the finance and accounting functions of El Paso Energy.

Mr. Bracy has served as a Director of the General Partner since October
1998. From January 1993 to August 1997, Mr. Bracy served as a Director,
Executive Vice President and Chief Financial Officer of NorAm Energy Corp. and
as Executive Vice President and Chief Financial Officer of NorAm from December
1991 to January 1993. For seven years prior thereto, Mr. Bracy served in various
executive capacities with NorAm. From December 1977 to October 1984, Mr. Bracy
held various executive financial positions with El Paso Energy. Prior to
December 1977, Mr. Bracy served in various capacities with The Chase Manhattan
Bank. Mr. Bracy is a member of the Board of Directors of Itron, Inc.

Mr. Church has served as a Director of the General Partner since January
1999. From January 1994 to December 1998, Mr. Church served as the Senior Vice
President, Transmission, Engineering and Environmental for a subsidiary of Duke
Energy Corporation, Texas Eastern Transmission Company. For thirty-two years
prior thereto, Mr. Church served in various engineering and operating capacities
with Texas Eastern Transmission Company, Panhandle Eastern Corporation and
Transwestern Pipeline Company. Mr. Church is a past member of the Board of
Directors of Southern Gas Association and Boys and Girls Country of Houston,
Inc. (Chairman).

Mr. Wallop has served as a Director of the General Partner since August
1998 and as a Director of El Paso Energy since January 1995. Since January 1995,
Mr. Wallop has served as President for Frontiers of Freedom Foundation, a
political foundation. For eighteen years prior to 1995, Mr. Wallop was a member
of the United States Senate. He is a member of the Board of Directors of Hubbell
Inc. and Sheridan State Bank.

59
<PAGE> 63

COMPENSATION OF DIRECTORS

Directors of the General Partner are entitled to reimbursement for their
reasonable out-of-pocket expenses in connection with their travel to and from,
and attendance at, meetings of the Board or committees thereof.

In August 1998, the Partnership adopted the 1998 Unit Option Plan for
Non-Employee Directors, or the Director Plan, to provide the General Partner
with the ability to issue unit options to attract and retain the services of
knowledgeable directors. Unit options to purchase a maximum of 100,000 common
units of the Partnership may be issued pursuant to the Director Plan. Under the
Director Plan, each non-employee director receives a grant of 1,500 unit options
upon initial election to the Board of Directors and an annual unit option grant
of 1,000 upon each re-election to the Board of Directors. Each unit option that
is granted will vest immediately at the date of grant and will expire ten years
from such date, but will be subject to earlier termination in the event that
such non-employee director ceases to be a director of the General Partner for
any reason, in which case the unit options expire 36 months after such date
except in the case of death, in which case the unit options expire 12 months
after such date. The Director Plan is administered by a management committee
consisting of the Chairman of the Board and such other senior officers of the
General Partner or its affiliates as the Chairman of the Board may designate.

In 1998, the Partnership granted 3,000 unit options to purchase an equal
number of common units with an exercise price of $27.185 per unit and, in 1999,
granted 4,500 unit options to purchase an equal number of common units with an
exercise price of $21.575 under this plan. At March 15, 2000, all those options
remain outstanding.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Partnership does not currently have a compensation committee or another
committee performing similar functions, and all such matters which would be
considered by such committee are acted upon by the full Board of Directors of
the General Partner. Employees of El Paso Energy, through the General Partner,
are the individuals who work on Partnership matters. Accordingly, the only
compensation addressed by the Partnership relates to issuance of unit options
under the various Partnership option plans. The Board of Directors administers
and interprets the Omnibus Plan. See Item 11, Executive Compensation.

AUDIT AND CONFLICTS COMMITTEE

Currently, Messrs. Bracy and Church, who are neither officers nor employees
of the General Partner nor any of its affiliates, serve as the Audit and
Conflicts Committee of the Board of Directors of the General Partner and of the
Partnership. The Audit and Conflicts Committee provides two primary services.
First, it advises the Board of Directors in matters regarding the system of
internal controls and the annual independent audit, and reviews policies and
practices of the General Partner and the Partnership. Second, the Audit and
Conflicts Committee, at the request of the General Partner, reviews specific
matters as to which the General Partner believes there may be a conflict of
interest in order to determine if the resolution of such conflict proposed by
the General Partner is fair and reasonable to the Partnership. Except as
otherwise required by the rules of the NYSE, the Audit and Conflicts Committee
only reviews matters concerning potential conflicts of interest at the request
of the General Partner, which has sole discretion to determine which matters to
submit for review. Any such matters approved by a majority vote of the Audit and
Conflicts Committee will be conclusively deemed (i) to be fair and reasonable to
the Partnership, (ii) approved by all limited partners of the Partnership and
(iii) not a breach by the General Partner of any duties it may owe to the
Partnership. However, it is possible that such procedure in itself may
constitute a conflict of interest.

COMPENSATION OF THE GENERAL PARTNER

The General Partner receives no remuneration in connection with its
management of the Partnership other than: (i) distributions on its general and
limited partner interests in the Partnership and its nonmanaging interest in
certain subsidiaries of the Partnership; (ii) incentive distributions on its
general partner interest, as
60
<PAGE> 64

provided in the partnership agreement, and (iii) reimbursement for all direct
and indirect costs and expenses incurred, all selling, general and
administrative expenses incurred, and all other expenses necessary or
appropriate to the conduct of the business of, and allocable to, the
Partnership, including, but not limited to the management fees paid by the
General Partner to El Paso Energy under its management agreement.

LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY; INDEMNIFICATION

The Certificate of Incorporation of the General Partner limits the
liability of the directors of the General Partner to the General Partner or its
stockholder (in their capacity as directors but not in their capacity as
officers) to the fullest extent permitted by the Delaware General Corporation
Law, or the DGCL. Accordingly, pursuant to the terms of the DGCL as presently in
effect, directors of the General Partner will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to the
General Partner or its stockholder, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit. The Certificate of Incorporation
also provides that if the DGCL is amended after the approval of the Certificate
of Incorporation to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
General Partner will be eliminated to the full extent permitted by the DGCL, as
so amended.

In addition, the Amended and Restated By-laws of the General Partner, in
substance, require the General Partner to indemnify each person who is or was a
director, officer, employee or agent of the General Partner to the full extent
permitted by the laws of the State of Delaware if he is involved in legal
proceedings because he is or was a director, officer, employee or agent of the
General Partner, or is or was serving at the General Partner's request as a
director, officer, employee or agent of the General Partner and its
subsidiaries, another corporation, partnership or other enterprise. The General
Partner is also required to advance to such persons payments incurred in
defending a proceeding to which indemnification might apply, provided the
recipient provides an undertaking agreeing to repay all such advanced amounts if
it is ultimately determined that he is not entitled to be indemnified. In
addition, the By-laws specifically provide that the indemnification rights
granted thereunder are non-exclusive.

The General Partner has entered into indemnification agreements with
certain of its current and past directors providing for indemnification to the
full extent permitted by the laws of the State of Delaware. These agreements
provide for specific procedures to assure the directors' rights to
indemnification, including procedures for directors to submit claims, for
determination of directors' entitlement to indemnification (including the
allocation of the burden of proof and selection of a reviewing party) and for
enforcement of directors' indemnification rights.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Partnership
or the General Partner pursuant to the foregoing, the Partnership and the
General Partner have been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities and Exchange Act of 1933 and is therefore unenforceable.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The General Partner's directors, certain officers and beneficial owners of
more than 10 percent of a registered class of the Partnership's equity
securities are required to file reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission and the NYSE. Directors,
officers and beneficial owners of more than 10 percent of the Partnership's
equity securities are also required to furnish the Partnership with copies of
all such reports that are filed. Based on the Partnership's review of copies of
such forms and amendments, the Partnership believes its directors, executive
officers and greater than 10 percent beneficial owners complied with all filing
requirements during the year ended December 31, 1999.

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<PAGE> 65

ITEM 11. EXECUTIVE COMPENSATION

The executive officers of the General Partner and the Partnership are
compensated by El Paso Energy and do not receive compensation from the General
Partner or the Partnership for their services in such capacities with the
exception of awards pursuant to Omnibus Plan discussed below. However, the
General Partner does make certain payments to El Paso Energy pursuant to its
management agreement. See Item 10, Directors and Executive Officers of the
Registrant -- Compensation of Directors.

In August 1998, Mr. Lytal entered into an employment agreement with a five
year term with El Paso Energy, pursuant to which he would continue to serve as
President of the General Partner and the Partnership. However, pursuant to the
terms of his employment agreement, Mr. Lytal has the right to terminate such
agreement upon 30 days notice and El Paso Energy has the right to terminate such
agreement under certain circumstances.

OMNIBUS PLAN

In August 1998, the Partnership adopted the 1998 Omnibus Compensation Plan,
or the Omnibus Plan, to provide the General Partner with the ability to issue
unit options to attract and retain the services of knowledgeable officers and
key management personnel. Unit options to purchase a maximum of 3 million common
units may be issued pursuant to the Omnibus Plan. The Omnibus Plan is
administered by the General Partner's Board of Directors. The Board of Directors
shall interpret the Omnibus Plan, shall prescribe, amend and rescind rules
relating to it, select eligible participants, make grants to participants who
are not Section 16 insiders pursuant to the Securities Exchange Act, and shall
take all other actions necessary for the Omnibus Plan administration, which
actions shall be final and binding upon all the participants.

In August 1998, the Partnership granted 930,000 unit options to employees
of the General Partner to purchase an equal number of common units at $27.1875
per unit pursuant to the Omnibus Plan. All these unit options remain outstanding
as of March 15, 2000. No grants of unit options were made in 1999.

REPORT FROM COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION

Because the Partnership does not have a compensation committee or another
committee performing similar functions, this report is presented by the full
Board of Directors of the General Partner. The Board of Directors is responsible
for establishing appropriate compensation goals for the knowledgeable officers
and key management personnel working for us and evaluating the performance of
such officers and personnel in meeting such goals.

The goals of the Board of Directors in administering the Omnibus Plan are
as follows:

(1) To fairly compensate the knowledgeable officers and key management
personnel working for us and our affiliates for their contributions to our
short-term and long-term performance.

(2) To allow us to attract, motivate and retain the management
personnel necessary to our success by providing an Omnibus Plan comparable
to that offered by companies with which we compete for such management
personnel.

The elements of the Omnibus Plan described above are implemented and
periodically reviewed and adjusted by the Board of Directors. The awards made
under the Omnibus Plan are determined based on individual performance,
experience and comparison with awards made by our industry peers and other
companies in similar industries with comparable revenue while linking such
awards to our achievement of certain financial goals.

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<PAGE> 66

SUMMARY COMPENSATION TABLE

The following table sets forth information concerning the annual
compensation earned by the Partnership's Chief Executive Officer and each of its
other four most highly compensated executive officers whose annual salary and
bonus during the year ended December 31, 1999, exceeded $100,000 (collectively,
the Named Officers):

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(2) AWARDS
-------------------------------------------- -------------------------
MARKET VALUE OTHER ANNUAL ALL OTHER
NAME/PRINCIPAL FISCAL SALARY BONUS OF UNITS COMPENSATION OPTIONS COMPENSATION
POSITION YEAR ($) ($) ISSUED ($) (#) ($)
-------------- ------ ------ ----- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William A. Wise........................ 1999 -- -- -- -- -- --
Chairman of the Board 1998 -- -- -- -- -- --
1997 -- -- -- -- -- --
Robert G. Phillips..................... 1999 -- -- -- -- -- --
Chief Executive Officer 1998 -- -- -- -- -- --
1997 -- -- -- -- -- --
James H. Lytal......................... 1999 -- -- -- -- -- --
President 1998 -- -- -- -- 215,000(3) --
1997 -- -- -- -- 125,000(4) --
Keith B. Forman........................ 1999 -- -- -- -- -- --
Chief Financial Officer 1998 -- -- -- -- 215,000(3) --
1997 -- -- -- -- 125,000(4) --
D. Mark Leland......................... 1999 -- -- -- -- -- --
Vice President & 1998 -- -- -- -- -- --
Controller 1997 -- -- -- -- -- --
Grant E. Sims(1)....................... 1999 -- -- -- -- -- --
Former Chief 1998 -- -- -- -- 215,000(3) --
Executive Officer 1997 -- -- -- -- 125,000(4) --
</TABLE>

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

(1) Mr. Sims, former Chief Executive Officer, resigned his position effective
September 30, 1999.
(2) Other than awards made under the Partnership's incentive arrangements, all
other compensation was paid by El Paso Energy or subsidiaries of El Paso
Energy.
(3) Issued pursuant to the Omnibus Plan.
(4) Issued pursuant to the Unit Appreciation Rights Plan, the previous plan to
the Omnibus Plan.

OPTION GRANTS

None of the Named Officers received any unit options grants under the
Omnibus Plan during the year ended December 31, 1999:

OPTION EXERCISES AND YEAR-END VALUE TABLE

The following table sets forth certain information concerning the unit
options held by the Named Officers at December 31, 1999 or exercised by the
Named Officers during the year then ended:

<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
OPTIONS AT FISCAL
NUMBER OF YEAR-END
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE(2) UNEXERCISABLE
---- --------------- ------------- ---------------- -----------------
<S> <C> <C> <C> <C>
William A. Wise.................. -- -- $--/$--
Robert G. Phillips............... -- -- --/-- --/ --
James H. Lytal................... -- -- 215,000/-- --/ --
Keith B. Forman.................. -- -- 107,500/107,500 --/ --
D. Mark Leland................... -- -- --/-- --/ --
Grant E. Sims.................... -- -- 215,000/-- --/ --
</TABLE>

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<PAGE> 67

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 1, 2000, the beneficial
ownership of the outstanding equity securities of each of the Partnership, by
(i) each person who is known to the Partnership to beneficially own more than 5
percent of the outstanding units of the Partnership, (ii) each director of the
General Partner and (iii) all directors and executive officers of the General
Partner as a group.

<TABLE>
<CAPTION>
COMMON UNITS PREFERENCE UNITS
--------------------- -----------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
---------------- -------- ------- ------ -------
<S> <C> <C> <C> <C>
General Partner/El Paso............................. (1) (1) -- --
Robert G. Phillips.................................. 3,000 * -- --
James H. Lytal...................................... 221,016(2)(4) * -- --
Keith B. Forman..................................... 109,500(6) * -- --
William A. Wise..................................... 9,670(5) * -- --
H. Brent Austin..................................... 1,000 * -- --
D. Mark Leland...................................... 1,000 * -- --
Michael B. Bracy.................................... 7,500(3) * -- --
H. Douglas Church................................... 2,500(3) * -- --
Malcolm Wallop...................................... 2,500(3) * -- --
Executive officers and directors of the Partnership
as a group (9 persons)............................ 357,686 * -- --
</TABLE>

- ---------------
* Less than 1 percent.
(1) The address for the General Partner and El Paso Energy is El Paso Energy
Building, 1001 Louisiana Street, Houston, Texas 77002. All of the General
Partner's outstanding common stock, par value $0.10 per share, is indirectly
owned by El Paso Energy. The General Partner has no other class of capital
stock outstanding. El Paso Energy, through its subsidiaries, owns an
effective 34.5 percent economic interest in the Partnership consisting of
8,953,764 common units, a one percent general partner interest and an
approximate one percent non-managing member interest in certain of the
Partnership's subsidiaries.
(2) The amount reflected for Mr. Lytal excludes 34 common units owned by his
son, a minor.
(3) Includes the option to acquire 2,500 common units pursuant to the Director
Plan. See Item 10, Directors and Executive Officers of the
Registrant -- Compensation of Directors.
(4) Includes the option to acquire 215,000 common units pursuant to the 1998
Omnibus Plan.
(5) Mr. Wise disclaims beneficial ownership of 2,500 common units held by spouse
and 6,900 common units held by daughters.
(6) Includes the option to acquire 107,500 common units pursuant to the 1998
Omnibus Plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

A discussion of certain agreements, arrangements and transactions between
or among the Partnership, the General Partner, and certain other related parties
is summarized in Part II, Item 8, Financial Statements and Supplementary Data,
Note 8. Also see Item 10, Directors and Executive Officers of the Registrant.

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<PAGE> 68

PART IV

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

(a) The following documents are filed as part of this Annual Report or
incorporated by reference:

1. Financial Statements

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Operations....................... 28
Consolidated Balance Sheets................................. 29
Consolidated Statements of Cash Flows....................... 30
Consolidated Statements of Partners' Capital................ 31
Notes to Consolidated Financial Statements.................. 32
Report of Independent Accountants........................... 57
</TABLE>

The following consolidated financial statements of certain of the
Partnership's equity investments are included on the following pages of this
report:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WESTERN GULF HOLDINGS, L.L.C.
Independent Auditors' Report.............................. F-3
Consolidated Balance Sheet as of December 31, 1999........ F-4
Consolidated Statements of Income and Member's Equity for
the Year Ended December 31, 1999....................... F-5
Consolidated Statement of Cash Flows for the Year Ended
December 31, 1999...................................... F-6
Notes to the Consolidated Financial Statements for the
Year Ended December 31, 1999........................... F-7
POSEIDON OIL PIPELINE COMPANY, L.L.C.
Report of Independent Public Accountants.................. F-12
Balance Sheets -- December 31, 1999 and 1998.............. F-13
Statements of Income for the Years Ended December 31,
1999, 1998 and 1997.................................... F-14
Statements of Members' Equity for the Years Ended December
31, 1999, 1998 and 1997................................ F-15
Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997.................................... F-16
Notes to Financial Statements -- December 31, 1999, 1998
and 1997............................................... F-17
NEPTUNE PIPELINE COMPANY, L.L.C.
Report of Independent Public Accountants.................. F-22
Consolidated Balance Sheet as of December 31, 1999 and
1998................................................... F-23
Consolidated Statement of Income for the Years Ended
December 31, 1999 and 1998............................. F-24
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999 and 1998............................. F-25
Statement of Members' Capital as of December 31, 1999 and
1998................................................... F-26
Notes to Consolidated Financial Statement -- December 31,
1999................................................... F-27
</TABLE>

2. Financial Statement Schedules

None. All financial statement schedules are omitted because the
information is not required, is not material or is otherwise
included in the consolidated financial statements or notes thereto
included elsewhere in this Annual Report.

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<PAGE> 69

3.(a) Exhibits

Each exhibit identified below is filed as a part of this Annual
Report. Exhibits included in this 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.

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
3.1 -- Certificate of Limited Partnership of El Paso Energy
Partners (filed as Exhibit 3.1 to the Partnership's
Registration Statement on Form S-1, File No. 33-55642).
*3.2 -- Amendment Number 1 to the Certificate of Limited
Partnership of El Paso Energy Partners.
3.3 -- Amended and Restated Agreement of Limited Partnership of
El Paso Energy Partners (filed as Exhibit 10.41 to
Amendment No. one to DeepTech International Inc's.
Registration Statement on Form S-1, File No. 33-73538);
Amendment Number 1 to the Amended and Restated Agreement
of Limited Partnership of El Paso Energy Partners (filed
as Exhibit 10.1 to the Partnership's Current Report on
Form 8-K dated December 31, 1996); Amendment Number 2 to
the Amended and Restated Agreement of Limited Partnership
of El Paso Energy Partners (filed as Exhibit 3.4 to the
Partnership's Registration Statement on Form S-4, filed
on June 24, 1999, File No. 333-81143).
*4.1 -- Form of Certificate Evidencing Preference Units
Representing Limited Partner Interests (filed as Exhibit
4.1 to Amendment No. 2 to the Partnership's Registration
Statement on Form S-1, File No. 33-55642).
*4.2 -- Form of Certificate Evidencing Common Units Representing
Limited Partner Interests (filed as Exhibit 4.2 to
Amendment No. 2 to the Partnership's Registration
Statement on Form S-1, File No. 33-55642).
4.3 -- Form of Certificate of 10 3/8% Series A Senior
Subordinated Note due 2009 (included in Exhibit 4.1 to
the Partnership's Registration Statement on Form S-4,
filed on June 21, 1999, File No. 333-81143).
4.4 -- Form of Certificate of 10 3/8% Series B Senior
Subordinated Note due 2009 (included in Exhibit 4.1 to
the Partnership's Registration Statement on Form S-4,
filed on June 21, 1999, File No. 333-81143).
4.5 -- Form of Guarantee Notation of securities issued pursuant
to the Indenture (included in Exhibit 4.1 to the
Partnership's Registration Statement on Form S-4, filed
on June 21, 1999, File No. 333-81143).
4.6 -- A/B Exchange Registration Rights Agreement dated as of
May 27, 1999 among El Paso Energy Partners, L.P., El Paso
Energy Partners Finance Corporation, the Subsidiary
Guarantors, Donaldson, Lufkin & Jenrette Securities
Corporation, and Chase Securities Inc. (filed as Exhibit
4.7 to the Partnership's Registration Statement on Form
S-4, filed on June 21, 1999, File No. 333-81143).
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 the
Partnership'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 the Partnership'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 the Partnership's
Amendment No. 1 to Registration Statement on Form S-4,
filed August 27, 1999, File No. 333-81143).
</TABLE>

66
<PAGE> 70

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.1 -- First Amended and Restated Management Agreement, dated
June 27, 1994 and effective as of July 1, 1992, between
DeepTech International Inc. and the General Partner
(filed as Exhibit 10.1 to DeepTech's Form 10-K the year
ended December 31, 1994, File No. 0-23934); First
Amendment to First Amended and Restated Management
Agreement between DeepTech and General Partner (filed as
Exhibit 10.76 to DeepTech's Registration Statement on
Form S-1, filed on January 23, 1995, File No. 33-88688);
Second Amendment to First Amended and Restated Management
Agreement between DeepTech and General Partner (filed as
Exhibit 10.18 to the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, filed
on April 1, 1995, File No. 1-11680); Third Amendment to
First Amended and Restated Management Agreement between
DeepTech and General Partner (filed as Exhibit 10.4 to
the Partnership's Registration Statement on Form S-4,
filed on June 21, 1999, File No. 333-81143); Fourth
Amendment to First Amended and Restated Management
Agreement between DeepTech and General Partner (filed as
Exhibit 10.1 to the Partnership's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1997,
filed on August 12, 1997, File No. 1-11680); Fifth
Amendment to First Amended and Restated Management
Agreement between DeepTech and General Partner (filed as
Exhibit 10.1 to the Partnership's Quarterly Report on
Form 10-Q for the quarterly period ended September 30,
1997, filed on November 14, 1997, File No. 1-11680);
Sixth Amendment to First Amended and Restated Management
Agreement between DeepTech International Inc. and the
General Partner (filed as Exhibit 10.2 to the
Partnership's Form 10-K the year ended December 31, 1998,
filed on March 30, 1999, File No. 1-11680, the 1998 Form
10-K).
10.2 -- Third Amended and Restated Credit Agreement dated as of
March 23, 1995, as amended and restated through May 27,
1999 among El Paso Energy Partners, El Paso Energy
Partners Finance Corporation, The Chase Manhattan Bank,
as administrative agent, Credit Lyonnais, as syndication
agent, BankBoston, N.A., as documentation agent, and the
banks and other financial institutions from time to time
parties thereto. (filed as Exhibit 10.14 to the
Partnership's Amendment No. 1 to Registration Statement
on Form S-4, filed August 27, 1999, File No. 333-81143).
*10.3 -- Amendment Number 1 to Third Amended and Restated Credit
Agreement dated as of March 23, 1995, as amended and
restated through May 27, 1999 among El Paso Energy
Partners, El Paso Energy Partners Finance Corporation,
The Chase Manhattan Bank, as administrative agent, Credit
Lyonnais, as syndication agent, BankBoston, N.A., as
documentation agent, and the banks and other financial
institutions from time to time parties thereto.
*10.4 -- Amendment Number 2 to Third Amended and Restated Credit
Agreement dated as of March 23, 1995, as amended and
restated through May 27, 1999 among El Paso Energy
Partners, El Paso Energy Partners Finance Corporation,
The Chase Manhattan Bank, as administrative agent, Credit
Lyonnais, as syndication agent, BankBoston, N.A., as
documentation agent, and the banks and other financial
institutions from time to time parties thereto.
10.5 -- Redemption Agreement dated February 27, 1998 between
Tatham Offshore, Inc. and Flextrend Development Company,
L.L.C., a subsidiary of El Paso Energy Partners (filed as
Exhibit 10.1 to the 1998 Third Quarter Form 10-Q).
10.6 -- Contribution Agreement between El Paso Energy Partners
and El Paso Field Services Company (filed as Exhibit A to
the Partnership's Schedule 14A (Rule 14A-101) Proxy
Statement effective February 9, 1998).
+10.7 -- El Paso Energy Partners 1998 Unit Option Plan for
Non-Employee Directors Effective as of August 14, 1998
(filed as Exhibit 10.2 to the 1998 Third Quarter Form
10-Q).
</TABLE>

67
<PAGE> 71

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
+10.8 -- El Paso Energy Partners 1998 Omnibus Compensation Plan,
Amended and Restated, effective as of January 1, 1999
(filed as Exhibit 10.9 to the Partnership's Form 10-K for
the year ended 1998, filed on March 29, 1999, File No.
1-11680).
10.9 -- El Paso Energy Partners Unit Rights Appreciation Plan
(filed as Exhibit 10.25 to the Partnership's Annual
Report on Form 10-K for the fiscal year ended December
31, 1996, filed on March 26, 1997, File No. 1-11680).
10.10 -- Purchase Agreement dated as of May 24, 1999 among (i)
Leviathan Gas Pipeline Partners, L.P., (ii) Leviathan
Finance Corporation, (iii) Delos Offshore Company,
L.L.C., Ewing Bank Gathering Company, L.L.C., Flextrend
Development Company, L.L.C., Green Canyon Pipe Line
Company, L.L.C., Leviathan Oil Transport Systems, L.L.C.,
Manta Ray Gathering Company, L.L.C., Poseidon Pipeline
Company, L.L.C., Sailfish Pipeline Company, L.L.C.,
Stingray Holding, L.L.C., Delaware Transco Hydrocarbons
Company, L.L.C., Texam Offshore Gas Transmission, L.L.C.,
Transco Offshore Pipeline Company, L.L.C., Tarpon
Transmission Company, Viosca Knoll Gathering Company,
VK-Main Pass Gathering Company, L.L.C., VK Deepwater
Gathering Company, L.L.C. and the Subsidiary Guarantors
from time to time party thereto (collectively, the
"Subsidiary Guarantors"), (iv) Donaldson, Lufkin &
Jenrette Securities Corporation, and (v) Chase Securities
Inc. (filed as Exhibit 1.1 to the Partnership's
Registration Statement on Form S-4, filed on June 21,
1999, File No. 333-81143).
10.11 -- Purchase and Sale Agreement between Natural Gas Pipeline
Company of America as Seller and the Partnership as Buyer
dated as of June 30, 1999 (filed as Exhibit 10.1 to the
Partnership's Current Report on Form 8-K, filed on
July 15, 1999, File No. 1-11680).
10.12 -- Farmout Agreement dated October 25, 1999 by and between
Flextrend Development Company, L.L.C. and El Paso
Production GOM, Inc. (filed as Exhibit 10.15 to the
Partnership's Current Report on Form 8-K, filed on
November 15, 1999, File No. 1-11680).
*10.13 -- Agreement and Plan of Merger dated March 20, 2000, by and
among El Paso Energy Partners, L.P., Green Canyon Pipe
Line Company, L.L.C., El Paso Merchant Energy Holding
Company, and El Paso Intrastate-Alabama, Inc.
*21 -- List of Subsidiaries of El Paso Energy Partners.
*23 -- Letter regarding Change in Accounting Principles.
*27 -- Financial Data Schedule.
</TABLE>

3.(b) Reports on Form 8-K

None.

68
<PAGE> 72

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, El Paso Energy Partners, L.P. has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 29th day of March 2000.

EL PASO ENERGY PARTNERS, L.P.
(Registrant)

By: EL PASO ENERGY PARTNERS COMPANY,
its General Partner

By: /s/ ROBERT G. PHILLIPS
-------------------------------------
Robert G. Phillips
Chief Executive Officer

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>

/s/ WILLIAM A. WISE Chairman of the Board and Director March 29, 2000
- -----------------------------------------------------
William A. Wise

/s/ ROBERT G. PHILLIPS Chief Executive Officer and March 29, 2000
- ----------------------------------------------------- Director
Robert G. Phillips

/s/ KEITH B. FORMAN Chief Financial Officer and Vice March 29, 2000
- ----------------------------------------------------- President
Keith B. Forman

/s/ JAMES H. LYTAL President and Director March 29, 2000
- -----------------------------------------------------
James H. Lytal

/s/ D. MARK LELAND Vice President and Controller March 29, 2000
- ----------------------------------------------------- (Chief Accounting Officer)
D. Mark Leland

/s/ H. BRENT AUSTIN Executive Vice President and March 29, 2000
- ----------------------------------------------------- Director
H. Brent Austin

/s/ MICHAEL B. BRACY Director March 29, 2000
- -----------------------------------------------------
Michael B. Bracy

/s/ H. DOUGLAS CHURCH Director March 29, 2000
- -----------------------------------------------------
H. Douglas Church

/s/ MALCOLM WALLOP Director March 29, 2000
- -----------------------------------------------------
Malcolm Wallop
</TABLE>

69
<PAGE> 73

EL PASO ENERGY PARTNERS, L.P. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1
<PAGE> 74

WESTERN GULF HOLDINGS, L.L.C.

CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 1999

F-2
<PAGE> 75

INDEPENDENT AUDITORS' REPORT

To the Management Committee
Western Gulf Holdings, L.L.C.
Detroit, Michigan

We have audited the accompanying consolidated balance sheet of Western Gulf
Holdings, L.L.C. as of December 31, 1999, and the related statements of income,
member's equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Western Gulf Holdings, L.L.C.'s
management. Our responsibility is to express an opinion on these financial
statements 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 audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Western Gulf Holdings, L.L.C. as of December
31, 1999, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Detroit, Michigan
March 24, 2000

F-3
<PAGE> 76

WESTERN GULF HOLDINGS, L.L.C.

CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999

ASSETS

<TABLE>
<CAPTION>
1999
------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 5,134,750
Accounts receivable....................................... 7,403,494
Prepayments............................................... 250,199
------------
Total current assets.............................. 12,788,443
------------
GAS PLANT
Gas transmission plant.................................... 370,400,269
Construction work in process.............................. 55,570,733
------------
425,971,002
Less -- accumulated depreciation.......................... 368,690,710
------------
Net gas plant........................................ 57,280,292
------------
DEFERRED CHARGES............................................ 3,959,177
------------
TOTAL ASSETS...................................... $ 74,027,912
============
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 5,367,964
------------
Total current liabilities......................... 5,367,964
------------
COMMITMENTS AND CONTINGENCIES............................... --
------------
MEMBER'S EQUITY............................................. 68,659,948
------------
TOTAL LIABILITIES AND MEMBER'S EQUITY............. $ 74,027,912
============
</TABLE>

See notes to the consolidated financial statements.

F-4
<PAGE> 77

WESTERN GULF HOLDINGS, L.L.C.

CONSOLIDATED STATEMENTS OF INCOME AND MEMBER'S EQUITY

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
OPERATING REVENUES
Transportation services................................... $ 35,939,777
Other..................................................... 347,954
------------
Total operating revenues.......................... 36,287,731
------------
OPERATING EXPENSES
Operation and maintenance................................. 17,318,959
Depreciation.............................................. 4,632,968
Property taxes............................................ 108,854
------------
Total operating expenses.......................... 22,060,781
------------
NET OPERATING INCOME.............................. 14,226,950
------------
OTHER DEDUCTIONS
Interest expense.......................................... 2,637,945
Interest capitalized...................................... (2,617,372)
------------
Total other deductions............................ 20,573
------------
NET INCOME.................................................. $ 14,206,377
============
STATEMENT OF MEMBER'S EQUITY

BALANCE AT BEGINNING OF PERIOD.............................. $ --
Net income................................................ 14,206,377
Capital contributions..................................... 73,453,571
Distributions to member................................... (19,000,000)
------------
BALANCE AT END OF PERIOD.................................... $ 68,659,948
============
</TABLE>

See notes to the consolidated financial statements.

F-5
<PAGE> 78

WESTERN GULF HOLDINGS, L.L.C.

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 14,206,377
Adjustments to reconcile net income to cash provided by
(used in) operating activities
Depreciation and amortization.......................... 5,798,831
Accounts receivable.................................... (3,625,904)
Other assets........................................... (392,362)
Accounts payable....................................... 3,383,638
------------
Cash provided by operating activities............. 19,370,580
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (54,585,572)
------------
Cash used in investing activities................. (54,585,572)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long term debt................................ 53,100,000
Capital contribution from member.......................... 5,381,430
Distributions to member................................... (19,000,000)
------------
Cash provided by financing activities............. 39,481,430
------------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 4,266,438
CASH AND CASH EQUIVALENTS CONTRIBUTED AT BEGINNING OF
PERIOD.................................................... 868,312
------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 5,134,750
============
</TABLE>

Supplemental Disclosure of Non-Cash Financing Activities:

On September 30, 1999 the Company's loan agreement was amended and restated and
consolidated in the name of Deepwater. As a result, the Company no longer has
the primary debt obligation.

See notes to the consolidated financial statements.

F-6
<PAGE> 79

WESTERN GULF HOLDINGS, L.L.C.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999

1. FORMATION AND OWNERSHIP STRUCTURE

Description and Business Purpose

Western Gulf Holdings, L.L.C. ("Western Gulf" or "the Company"), a Delaware
Limited Liability Company organized December 11, 1998, was formed to own and
operate High Island Offshore System, L.L.C. ("HIOS") and East Breaks Gathering
Company, L.L.C. ("East Breaks"). East Breaks was also organized as a Delaware
Limited Liability Company on December 11, 1998.

Effective January 1, 1999, the members of the Company, each of which then
held a 20% interest in the Company, contributed their capital accounts in HIOS
to the Company in the amount of $14,972,141 in exchange for equivalent ownership
interests in the Company. As a result, the Company now owns a 100% interest in
HIOS.

Effective September 30, 1999, the members of the Company contributed their
capital accounts in the Company to Deepwater Holdings, L.L.C. ("Deepwater"). As
a result, Deepwater owns 100% of the Company. Deepwater is equally owned by
affiliates of ANR Pipeline Company ("ANR"), an indirect subsidiary of The
Coastal Corporation ("Coastal") and El Paso Energy Partners Deepwater, L.L.C.,
an affiliate of El Paso Energy Corporation ("El Paso").

On January 18, 2000 Coastal and El Paso entered into a merger agreement
under which, if the merger is completed, Coastal would be merged into El Paso.

HIOS owns a 203.4 mile undersea gas transmission system in the Gulf of
Mexico which provides transportation services as authorized by the Federal
Energy Regulatory Commission ("FERC"). HIOS' major transportation customers
include natural gas marketers and producers, and interstate natural gas pipeline
companies. The Company extends credit for transportation services provided to
these customers. The concentrations of customers, described above, may affect
the Company's overall credit risk in that the customers may be similarly
affected by changes in economic, regulatory and other factors.

East Breaks is a "development stage company" which is building an 85 mile
pipeline and related facilities extending from HIOS connecting the deep water
Diana/Hoover prospects developed by Exxon Company USA ("Exxon") and BP Amoco Plc
("BP Amoco") in Alaminos Canyon Block 25 in the Gulf of Mexico. The new line is
scheduled to be in service in July 2000 and is projected to cost approximately
$90 million. East Breaks entered into long-term agreements with Exxon and BP
Amoco involving gathering of production from the Diana/Hoover prospects.

The Company is managed by a committee consisting of representatives from El
Paso and ANR. The Company has no employees. ANR is currently the operator of
HIOS and provides services at cost ($11.4 million in 1999). El Paso will replace
ANR as operator of HIOS during 2000.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and all of the accounts of HIOS and East Breaks. Intercompany
transactions and balances have been eliminated in consolidation.

Basis of Presentation

HIOS is regulated by the FERC. HIOS meets the criteria and, accordingly,
follows the accounting and reporting requirements of Statement of Financial
Accounting Standards No. 71 for regulated enterprises. Western Gulf and East
Breaks are non jurisdictional.

F-7
<PAGE> 80
WESTERN GULF HOLDINGS, L.L.C.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Use of Estimates

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 the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.

Depreciation

Annual depreciation and negative salvage provisions for HIOS are computed
on a straight-line basis using rates of depreciation, which vary by type of
property. The annual composite depreciation rate is approximately 1.26%, which
includes a provision for negative salvage of .2% for offshore facilities.

Interest Cost

The Company capitalizes interest and other borrowing costs incurred as a
component of its property, plant, and equipment during the construction of the
East Breaks pipeline and related facilities. The Company has capitalized $.6
million of initial debt issue costs and $2.6 million of interest costs incurred
in 1999, which includes $.8 million of interest costs incurred by Deepwater and
charged to Western Gulf.

Income Taxes

For tax filing purposes the Company has elected partnership status and
therefore, income taxes are the responsibility of the Members and are not
reflected in the financial statements of the Company.

Statement of Cash Flows

For purposes of these financial statements, the Company considers
short-term investments purchased with an original maturity of three months or
less to be cash. The Company had short-term investments in the amount of $5.1
million at December 31, 1999. The Company made cash payments for interest in the
amount of $1.7 million for the year 1999. The accounts of HIOS as of January 1,
1999 have been eliminated from the statement of consolidated cash flows for
1999.

Accounting Pronouncements

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No.133, "Accounting for Derivative Instruments and Hedging
Activities," ("FAS 133"), as amended by Statement of Financial Accounting
Standards No. 137, to be effective for all fiscal years beginning after June 15,
2000. FAS 133 requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative will depend on the intended use of the derivative and the resulting
designation. The Company is currently evaluating the impact, if any, of FAS 133.

3. REGULATORY MATTERS

By letter order issued September 18, 1995 the FERC approved the settlement
of HIOS's rate filing at Docket No. RP94-162, which required that HIOS file a
new rate case within three years of such date. On October 8, 1998, the FERC
granted a request filed by HIOS for an extension of time for the filing of its
next general rate case until January 1, 2003. Costs incurred in connection with
the extension of the rate case settlement have been deferred and are being
amortized on a straight-line basis through the period ending December 31, 2002.

F-8
<PAGE> 81
WESTERN GULF HOLDINGS, L.L.C.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. LONG TERM DEBT

On September 30, 1999, as a result of the restructuring of the ownership
interests of the Company, the Company's $100 million revolving credit facility
("Credit Facility") was amended and restated and consolidated in the name of
Deepwater.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash invested on a temporary basis at short-term
market rates of interest approximates the fair market value of the investments.

6. RELATED PARTY TRANSACTIONS

Transportation revenues derived from affiliated pipeline companies were
$3.1 million for 1999. Accounts receivable balances due from affiliates for
transportation services were $.5 million at December 31, 1999.

Both ANR and U-T Offshore System, L.L.C. ("UTOS") provide separation,
dehydration and measurement services to HIOS. UTOS is owned by Deepwater. HIOS
incurred charges for these services of $2.5 million in 1999 from ANR and $1.5
million in 1999 from UTOS. There were no amounts due to ANR for these services
at December 31, 1999. Amounts due from UTOS for over-estimated billings were $.4
million at December 31, 1999.

In February 1996, HIOS reached an agreement with ANR, which was approved by
the FERC, which provides that rates charged by ANR for separation, dehydration,
and measurement services would be $2.5 million for 1999 and $2.2 million for
calendar year 2000. The rate would be negotiated for calendar year 2001 and
thereafter.

In 1999 HIOS implemented "cash-out" accounting for volume imbalances in the
shipper accounts. In addition, HIOS entered into operational balancing
agreements ("OBA") with ANR, UTOS, and Stingray Pipeline Company, L.L.C.
("Stingray"). Stingray is owned by Deepwater. Amounts due from shippers for
transportation services, historical and current imbalances, and under the OBA at
December 31, 1999 were $6.5 million. Amounts due to shippers for historical and
current imbalances, and under the OBA at December 31, 1999 were $4.5 million,
which includes $3.3 million due to ANR.

Amounts due to ANR for operating and construction cost reimbursements were
$.4 million at December 31, 1999.

7. COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company is subject to various laws
and regulations. In the opinion of management, compliance with existing laws and
regulations will not materially affect the financial position or the results of
operations of the Company.

8. LEGAL PROCEEDINGS

Two legal proceedings, one in federal court and the other in state court,
have been instituted against a number of gas pipeline companies and their
affiliates, including HIOS. The plaintiffs in each suit seek damages for the
alleged undermeasurement of the heating value and the volume of natural gas. In
the federal proceeding, Jack Grynberg filed 77 separate False Claim Act suits in
September 1997 against transmission companies and producers, gatherers, and
processors of natural gas, seeking unspecified damages which could include
treble damages for the maximum period permitted by law (potentially as much as
10 years) and penalties of up to $10,000 per false claim. In addition to the
measurement claims, these suits also allege that the defendants undervalued the
gas in paying royalties. HIOS was sued in the U.S. District Courts of Colorado
and the Eastern District of Michigan. In April 1999, the United States
Department of Justice

F-9
<PAGE> 82
WESTERN GULF HOLDINGS, L.L.C.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

notified HIOS that the United States will not intervene in these cases at this
time. The MultiDistrict Litigation Panel has consolidated the Grynberg suits
with several other Grynberg cases for pre-trial proceedings in Wyoming. The
defendants have filed a motion to dismiss which will be argued in March of 2000.

In the state proceedings, the Quinque Operating Company, on behalf of
itself and subclasses of gas producers, royalty owners and state taxing
authorities, in May 1999 instituted a legal proceeding in State Court, Stevens
County, Kansas against over 200 gas pipeline companies, including HIOS. The
Quinque suit seeks unspecified actual, punitive and treble damages, for the
alleged undermeasurement of all natural gas measured in the United States from
non-federal and non-Indian lands since 1974. The plaintiffs are seeking
certification of a national class of all similarly situated gas producers,
royalty owners, overriding royalty owners, and state taxing authorities. The
suit has been removed to the U.S. District Court for the District of Kansas. The
plaintiffs have filed a motion to remand the case back to the state court, and
several defendants have filed a motion under the MultiDistrict Litigation rules
to have the suit transferred to Wyoming and consolidated with the Grynberg
proceedings for pre-trial proceedings.

Although no assurances can be given and no determination can be made at
this time as to the outcome of any particular lawsuit or proceeding, HIOS
believes there are meritorious defenses to substantially all such claims and
that any liability which may be finally determined should not have a material
adverse effect on HIOS' financial position or results of operations.

F-10
<PAGE> 83

POSEIDON OIL PIPELINE COMPANY, L.L.C.

FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
TOGETHER WITH AUDITORS' REPORT

F-11
<PAGE> 84

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Members of
Poseidon Oil Pipeline Company, L.L.C.:

We have audited the accompanying balance sheets of Poseidon Oil Pipeline
Company, L.L.C. (a Delaware limited liability company), as of December 31, 1999
and 1998, and the related statements of income, members' equity and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial position of Poseidon Oil Pipeline
Company, L.L.C., as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
March 17, 2000

F-12
<PAGE> 85

POSEIDON OIL PIPELINE COMPANY, L.L.C.
BALANCE SHEETS --
DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,052,631 $ 685,540
Crude oil receivables --
Related parties........................................ 58,360,962 28,216,308
Other.................................................. 110,674,707 12,179,468
Construction advances to operator (Note 6)................ 4,452 1,234,467
Materials, supplies and other............................. 626,961 1,022,450
------------ ------------
Total current assets.............................. 171,719,713 43,338,233
DEBT RESERVE FUND (Notes 2 and 4)........................... 4,783,461 4,329,254
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation (Note 3)..................................... 239,187,586 228,752,910
------------ ------------
Total assets...................................... $415,690,760 $276,420,397
============ ============
LIABILITIES AND MEMBERS' EQUITY

CURRENT LIABILITIES:
Accounts payable --
Related parties........................................ $ 565,586 $ 4,945,839
Other.................................................. 5,647,090 2,165,159
Crude oil payables --
Related parties........................................ 51,743,958 28,646,791
Other.................................................. 101,309,853 3,778,243
Other..................................................... 92,919 597,590
------------ ------------
Total current liabilities......................... 159,359,406 40,133,622
COMMITMENTS AND CONTINGENCIES (Note 7)...................... 322,242 --
LONG-TERM DEBT (Note 4)..................................... 150,000,000 131,000,000
MEMBERS' EQUITY (Note 1):
Capital contributions..................................... 107,999,320 107,999,320
Capital distributions..................................... (87,230,323) (36,699,320)
Retained earnings......................................... 85,240,115 33,986,775
------------ ------------
Total members' equity............................. 106,009,112 105,286,775
------------ ------------
Total liabilities and members' equity............. $415,690,760 $276,420,397
============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-13
<PAGE> 86
POSEIDON OIL PIPELINE COMPANY, L.L.C.

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------ ------------
<S> <C> <C> <C>
CRUDE OIL SALES.................................. $1,108,446,271 $370,431,640 $310,828,794
CRUDE OIL PURCHASES.............................. (1,034,329,971) (325,909,477) (284,667,502)
-------------- ------------ ------------
Net sales revenue......................... 74,116,300 44,522,163 26,161,292
-------------- ------------ ------------
OPERATING COSTS:
Transportation costs........................... 3,451,676 1,636,162 3,146,736
Operating expenses............................. 4,509,621 3,127,134 2,635,717
Depreciation................................... 6,171,803 8,846,395 6,463,327
-------------- ------------ ------------
Total operating costs..................... 14,133,100 13,609,691 12,245,780
-------------- ------------ ------------
OPERATING INCOME................................. 59,983,200 30,912,472 13,915,512
OTHER INCOME (EXPENSE):
Interest income................................ 403,507 290,745 208,961
Interest expense............................... (9,133,367) (8,671,250) (5,340,742)
-------------- ------------ ------------
NET INCOME....................................... $ 51,253,340 $ 22,531,967 $ 8,783,731
============== ============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-14
<PAGE> 87
POSEIDON OIL PIPELINE COMPANY, L.L.C.

STATEMENTS OF MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
POSEIDON
MARATHON PIPELINE EQUILON
OIL COMPANY, ENTERPRISES
COMPANY L.L.C. LLC
(28%) (36%) (36%) TOTAL
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996.............. $25,947,901 $33,361,588 $33,361,588 $ 92,671,077
Net income............................ 2,459,445 3,162,143 3,162,143 8,783,731
----------- ----------- ----------- ------------
BALANCE, December 31, 1997.............. 28,407,346 36,523,731 36,523,731 101,454,808
Net income............................ 6,308,951 8,111,508 8,111,508 22,531,967
Cash distributions.................... (5,236,000) (6,732,000) (6,732,000) (18,700,000)
----------- ----------- ----------- ------------
BALANCE, December 31, 1998.............. 29,480,297 37,903,239 37,903,239 105,286,775
Net income............................ 14,350,936 18,451,202 18,451,202 51,253,340
Cash distributions.................... (14,148,681) (18,191,161) (18,191,161) (50,531,003)
----------- ----------- ----------- ------------
BALANCE, December 31, 1999.............. $29,682,552 $38,163,280 $38,163,280 $106,009,112
=========== =========== =========== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-15
<PAGE> 88
POSEIDON OIL PIPELINE COMPANY, L.L.C.

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
------------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 51,253,340 $22,531,967 $ 8,783,731
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation.................................. 6,171,803 8,846,395 6,463,327
Changes in operating assets and liabilities --
Crude oil receivables....................... (128,639,893) (11,350,080) 2,509,382
Materials, supplies and other............... 395,489 23,487 (952,294)
Accounts payable............................ (898,322) (1,007,689) 5,939,637
Contingent revenue.......................... 322,242 -- --
Crude oil payables.......................... 120,628,777 4,750,982 (8,098,087)
Other current liabilities................... (504,671) 526,668 (16,110)
------------- ----------- ------------
Net cash provided by operating activities..... 48,728,765 24,321,730 14,629,586
------------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. (16,606,479) (15,261,547) (54,024,948)
Construction advances to operator, net........... 1,230,015 (1,234,467) 7,407,710
Proceeds from the sale of property, plant and
equipment..................................... -- -- 146,250
------------- ----------- ------------
Net cash used in investing activities......... (15,376,464) (16,496,014) (46,470,988)
------------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt................... 20,000,000 32,000,000 38,000,000
Repayments of long-term debt..................... (1,000,000) (21,500,000) (1,500,000)
Cash distributions............................... (50,531,003) (18,700,000) --
Increase in debt reserve fund.................... (454,207) (611,627) (3,717,627)
------------- ----------- ------------
Net cash provided by (used in) financing
activities.................................. (31,985,210) (8,811,627) 32,782,373
------------- ----------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 1,367,091 (985,911) 940,971
CASH AND CASH EQUIVALENTS, beginning of year....... 685,540 1,671,451 730,480
------------- ----------- ------------
CASH AND CASH EQUIVALENTS, end of year............. $ 2,052,631 $ 685,540 $ 1,671,451
============= =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts
capitalized................................. $ 8,729,860 $ 8,596,583 $ 5,342,217
============= =========== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-16
<PAGE> 89

POSEIDON OIL PIPELINE COMPANY, L.L.C.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

1. ORGANIZATION AND NATURE OF BUSINESS:

Poseidon Oil Pipeline Company, L.L.C. (the Company), is a Delaware limited
liability company formed on February 14, 1996, to design, construct, own and
operate the unregulated Poseidon Pipeline extending from the Gulf of Mexico to
onshore Louisiana. The original members of the Company were Texaco Trading and
Transportation, Inc. (TTTI), and Poseidon Pipeline Company, L.L.C. (Poseidon), a
subsidiary of Leviathan Gas Pipeline Partners, L.P. TTTI contributed $36,399,660
in cash, and Poseidon contributed property, plant and equipment, valued by the
two parties (TTTI and Poseidon) at $36,399,660, at the formation of the Company.
Each member received a 50 percent ownership interest in the Company.
Subsequently, $2,799,320 in cash was equally distributed to TTTI and Poseidon,
leaving $70 million of equity in the Company as of April 23, 1996.

On July 1, 1996, Marathon Pipeline Company (MPLC) and Texaco Pipeline, Inc.
(TPLI), through their 66 2/3 percent and 33 1/3 percent respectively owned
venture, Block 873 Pipeline Company (Block 873), contributed property, plant and
equipment valued by the parties (Block 873, TTTI and Poseidon) at $30,000,000.
In return, they received a 33 1/3 percent interest in the Company. Immediately
after the contribution, MPLC and TPLI transferred their pro rata ownership
interests in the Company to Marathon Oil Company (Marathon) and TTTI,
respectively. Marathon then contributed an additional $5.2 million in cash, and
distributions of $12.6 million and $2.6 million in cash were made to TTTI and
Poseidon, respectively. Upon completion of this transaction, TTTI, Poseidon and
Marathon owned 36 percent, 36 percent and 28 percent of the Company,
respectively, and total equity was $90,000,000.

Effective January 1, 1998, Shell Oil Company and Texaco Inc. (Texaco)
formed Equilon Enterprises LLC (Equilon). Equilon is a joint venture which
combines both companies' western and midwestern U.S. refining and marketing
businesses and both companies' nationwide trading, transportation and lubricants
businesses. Under the formation agreement, Shell Oil Company and Texaco
assigned, or caused to be assigned, the economic benefits and obligations of
certain regulated and unregulated pipeline assets, including TTTI's beneficial
interest in the Company. As a result of the joint venture, Equilon became
operator of the Company on January 1, 1998.

The Company purchased crude oil line-fill and began operating Phase I of
the pipeline in April 1996. Phase I consists of 16-inch and 20-inch sections of
pipe extending from the Garden Banks Block 72 to Ship Shoal Block 332. Phase II
of the pipeline is a 24-inch section of pipe from Ship Shoal Block 332 to
Caillou Island. Line-fill was purchased for Phase II in late December 1996 and
operations began in January 1997. Construction of Phase III of the pipeline
consisting of a section of 24-inch line extending from Caillou Island to the
Houma, Louisiana, area was completed during 1997, and operations began in
December 1997.

The Company is in the business of transporting crude oil in the Gulf of
Mexico in accordance with various purchase and sale contracts with producers
served by the pipeline. The Company buys crude oil at various points along the
pipeline and resells the crude oil at a destination point in accordance with
each individual contract. Net sales revenue is earned based upon the
differential between the sale price and purchase price. Differences between
purchased and sold volumes in any period are recorded as changes in line-fill.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Accounting

The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with accounting principles generally accepted
in the United States.

F-17
<PAGE> 90
POSEIDON OIL PIPELINE COMPANY, L.L.C.

NOTES TO FINANCIAL STATEMENTS

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.

Property, Plant and Equipment

Contributed property, plant and equipment is recorded at fair value as
agreed to by the members at the date of contribution. Acquired property, plant
and equipment is recorded at cost. Pipeline equipment is depreciated using a
composite, straight-line method over estimated useful lives of three to 30
years. Line-fill is not depreciated as management of the Company believes the
cost of all barrels is fully recoverable. Major renewals and betterments are
capitalized in the property accounts while maintenance and repairs are expensed
as incurred. No gain or loss is recognized on normal asset retirements under the
composite method.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

Debt Reserve Fund

In connection with the Company's revolving credit facility (see Note 4),
the Company is required to maintain a debt reserve account as security on the
outstanding balance. At December 31, 1999, the balance in the account totaled
approximately $4,783,000 and was comprised of funds earning interest at a money
market rate.

Fair Value of Financial Instruments

The Company's financial instruments consist of cash and cash equivalents,
short-term receivables, payables and long-term debt. The carrying values of cash
and cash equivalents, short-term receivables and payables approximate fair
value. The fair value for long-term debt is estimated based on current rates
available for similar debt with similar maturities and securities and, at
December 31, 1999, approximates the carrying value.

3. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consisted of the following at December 31,
1999 and 1998:

<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Rights-of-way............................................ $ 3,218,788 $ 3,218,788
Line-fill................................................ 11,350,466 11,350,466
Line pipe, line pipe fittings and pipeline
construction........................................... 222,380,927 223,076,191
Pumping and station equipment............................ 22,011,496 4,613,516
Office furniture, vehicles and other equipment........... 202,035 83,812
Construction work in progress............................ 3,681,556 3,896,016
------------ ------------
262,845,268 246,238,789
Less- Accumulated depreciation........................... (23,657,682) (17,485,879)
------------ ------------
$239,187,586 $228,752,910
============ ============
</TABLE>

F-18
<PAGE> 91
POSEIDON OIL PIPELINE COMPANY, L.L.C.

NOTES TO FINANCIAL STATEMENTS

Management evaluates the carrying value of the pipeline in accordance with the
guidelines presented under Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 establishes standards for measuring the
impairment of long-lived assets to be held and used and of those to be disposed.
Management believes no impairment of assets exists as of December 31, 1999.

During 1999 and 1998, the Company did not capitalize interest cost into
property, plant and equipment.

4. DEBT:

The Company maintains a $150,000,000 revolving credit facility with a group
of banks. The outstanding balance at December 31, 1999, is $150,000,000. Under
the terms of the related credit agreement, the Company has the option to either
draw or renew amounts at various maturities ranging from one to 12 months if a
Eurodollar interest rate arrangement is selected (7.75 percent at December 31,
1999). These borrowings can then be renewed assuming no event of default exists.
Alternatively, the Company may select to borrow under a base interest rate
arrangement, calculated in accordance with the credit agreement. The revolving
credit facility matures on April 30, 2001.

At December 31, 1999, the entire outstanding balance had been borrowed
under the Eurodollar alternative, and it is the Company's intent to extend
repayment beyond one year, thus the entire balance has been classified as
long-term.

The debt is secured by various assets of the Company including accounts
receivable, inventory, pipeline equipment and investments. The Company has used
the funds drawn on the revolver primarily for construction costs associated with
Phases II and III of the pipeline.

The revolving credit agreement requires the Company to meet certain
financial and nonfinancial covenants. The Company must maintain a tangible net
worth, calculated in accordance with the credit agreement, of not less than
$80,000,000. Beginning April 1, 1997, the Company is required to maintain a
ratio of earnings before interest, taxes, depreciation and amortization to
interest paid or accrued, as calculated in accordance with the credit agreement,
of 2.50 to 1.00. In addition, the Company is required to maintain a debt reserve
fund (see Note 2) with a balance equal to two times the interest payments made
in the previous quarter under the credit facility.

5. INCOME TAXES:

A provision for income taxes has not been recorded in the accompanying
financial statements because such taxes accrue directly to the members. The
federal and state income tax returns of the Company are prepared and filed by
the operator.

6. TRANSACTIONS WITH RELATED PARTIES:

The Company derives a significant portion of its gross sales and gross
purchases from its members and other related parties. The Company generated
approximately $520,632,000 in gross affiliated sales and approximately
$479,850,000 in gross affiliated purchases for 1999. During 1998 and 1997, the
Company generated approximately $37,688,000 and $19,790,000 of net sales revenue
from related parties.

The Company paid approximately $1,203,000 to Equilon in 1999 and $558,000
and $454,000 in 1998 and 1997, respectively, for management, administrative and
general overhead. In 1999, 1998 and 1997, the Company paid construction
management fees of $-, $2,134,000 and $1,091,000, respectively, to Equilon in
connection with the completion of Phase II and Phase III. As of December 31,
1999 and 1998, the Company had outstanding advances to Equilon of approximately
$4,000 and $1,234,000, respectively, in connection with construction work in
progress.

F-19
<PAGE> 92
POSEIDON OIL PIPELINE COMPANY, L.L.C.

NOTES TO FINANCIAL STATEMENTS

7. COMMITMENTS AND CONTINGENCIES:

In the normal course of business, the Company is involved in various legal
actions arising from its operations. In the opinion of management, the outcome
of these legal actions will not significantly affect the financial position or
results of operations of the Company.

In February 1998, Poseidon entered into an oil purchase and sale agreement
with Pennzoil Exploration and Production (Pennzoil). The agreement provides that
if Pennzoil delivers at least 7.5 million barrels by September 2002, Poseidon
will refund $.51 per barrel for all barrels delivered plus interest at 8
percent. Based on barrels delivered, the Company has accrued a potential refund
of contingent revenues of $322,242 at December 31, 1999.

8. SUBSEQUENT EVENTS (UNAUDITED):

On January 21, 2000, an anchor from the Transocean 96 Semi-Submersible
Drilling Unit (Transocean) hit the Poseidon 24-inch crude oil pipeline and
ruptured a section of the pipeline. The estimated cost to repair the damaged
pipeline and clean up approximately 2,240 barrels of crude oil that were
released into the ocean is $15,000,000. Poseidon has placed Transocean on notice
for liability and expenses due to the incident. The impact of lost revenue and
other related expenses due to this incident is not available as of March 17,
2000.

F-20
<PAGE> 93

NEPTUNE PIPELINE COMPANY

CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998

F-21
<PAGE> 94

PRICEWATERHOUSECOOPERS LETTERHEAD

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Members
of Neptune Pipeline Company, L.L.C.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of members' capital and of cash flows present
fairly, in all material respects, the financial position of Neptune Pipeline
Company, L.L.C. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

[PRICEWATERHOUSECOOPERS]

March 10, 2000

F-22
<PAGE> 95

NEPTUNE PIPELINE COMPANY, L.L.C.

CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999 AND 1998

ASSETS

<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 2,891,072 $ 6,016,841
Transportation receivable................................. 2,436,194 1,279,405
Owing from related parties................................ 2,265,383 2,880,664
Other assets.............................................. 260,052 104,756
------------ ------------
TOTAL CURRENT ASSETS........................................ 7,852,701 10,281,666
PIPELINES AND EQUIPMENT..................................... 268,055,626 261,104,113
Less: accumulated depreciation............................ 22,891,850 12,204,577
------------ ------------
245,163,776 248,899,536
LONG-TERM RECEIVABLE........................................ -- 160,000
------------ ------------
TOTAL ASSETS................................................ $253,016,477 $259,341,202
============ ============

LIABILITIES AND MEMBERS' EQUITY

CURRENT LIABILITIES
Accounts payable.......................................... $ 402,923 $ 964,761
Owing to related parties.................................. 4,419,136 4,784,102
Deferred income........................................... 25,000 --
------------ ------------
TOTAL CURRENT LIABILITIES......................... 4,847,059 5,748,863
MINORITY INTEREST........................................... 1,996,843 1,872,959
MEMBERS' EQUITY............................................. 246,172,575 251,719,380
------------ ------------
TOTAL LIABILITIES AND MEMBERS' EQUITY....................... $253,016,477 $259,341,202
============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-23
<PAGE> 96

NEPTUNE PIPELINE COMPANY, L.L.C.

CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
Transportation revenue.................................... $26,620,248 $16,172,659
Other gas revenue, net.................................... 1,663,920 180,236
----------- -----------
TOTAL REVENUES.................................... 28,284,168 16,352,895
OPERATING EXPENSES
Operating & maintenance................................... 3,396,722 3,575,712
Administrative & general.................................. 1,398,209 1,455,240
Depreciation.............................................. 10,687,273 10,148,332
Property taxes............................................ 348,800 326,332
----------- -----------
TOTAL OPERATING EXPENSES.......................... 15,831,004 15,505,616
NET OPERATING INCOME........................................ 12,453,164 847,279
Other income (expense)
Other income.............................................. 173,664 --
Other expense............................................. (100,000) (150,100)
Interest income........................................... 262,252 385,123
----------- -----------
TOTAL OTHER INCOME, NET........................... 335,916 235,023
INCOME BEFORE MINORITY INTEREST............................. 12,789,080 1,082,302
Minority interest in income of subsidiaries............... 128,059 11,026
----------- -----------
NET INCOME.................................................. $12,661,021 $ 1,071,276
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-24
<PAGE> 97

NEPTUNE PIPELINE COMPANY, L.L.C.

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 12,661,021 $ 1,071,276
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization............................. 10,721,566 10,148,332
Minority interest in income of subsidiaries............... 128,059 11,026
(Increases) decreases in working capital:
Transportation receivables................................ (1,156,789) (515,397)
Owing from related parties................................ 615,281 9,093,427
Other assets.............................................. (29,589) 25,065
Accounts payable.......................................... (561,838) (1,037,102)
Owing to related parties.................................. (4,569,270) (30,791,136)
Deferred income........................................... 25,000 (20,478)
------------ ------------
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES...................................... 17,833,441 (12,014,987)
CASH FLOWS USED FOR INVESTING ACTIVITIES
Capital expenditures...................................... (2,777,039) (9,252,950)
Proceeds from property sales and salvage.................. 29,830 187,149
Contributions in aid of construction...................... -- 419,000
------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES............ (2,747,209) (8,646,801)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Members' contributed capital.............................. 4,801,285 13,985,491
Minority interest contributed capital..................... (4,175) 83,193
Distributions............................................. (23,009,111) (5,921,511)
------------ ------------
NET CASH (USED FOR) PROVIDED BY FINANCING
ACTIVITIES...................................... (18,212,001) 8,147,173
------------ ------------
(DECREASE) IN CASH AND CASH EQUIVALENTS..................... $ (3,125,769) $(12,514,615)
============ ============
RECONCILIATION OF BEGINNING AND ENDING BALANCES
Cash and cash equivalents -- beginning of year............ $ 6,016,841 $ 18,531,456
(Decrease) in cash and cash equivalents................... (3,125,769) (12,514,615)
------------ ------------
CASH AND CASH EQUIVALENTS -- END OF YEAR.................... $ 2,891,072 $ 6,016,841
============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-25
<PAGE> 98

NEPTUNE PIPELINE COMPANY, L.L.C.

CONSOLIDATED STATEMENT OF MEMBERS' CAPITAL
AS OF DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
TEJAS OFFSHORE
PIPELINE, LLC/
SHELL SEAHORSE MARATHON GAS SAILFISH PIPELINE
COMPANY TRANSMISSION INC. COMPANY, L.L.C. TOTAL
-------------- ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
Capital account balances at December
31, 1997............................. $123,008,288 $57,988,142 $61,587,694 $242,584,124
Members' contributions................. 5,369,182 3,524,321 5,091,988 13,985,491
Net income............................. 585,317 236,169 249,790 1,071,276
Distributions.......................... (3,358,512) (1,246,864) (1,316,135) (5,921,511)
------------ ----------- ----------- ------------
Capital account balances at December
31, 1998............................. 125,604,275 60,501,768 65,613,337 251,719,380
Members' contributions................. 2,400,643 1,168,151 1,232,491 4,801,285
Net income............................. 6,394,682 3,111,652 3,154,687 12,661,021
Distributions.......................... (11,504,560) (5,598,117) (5,906,434) (23,009,111)
------------ ----------- ----------- ------------
Capital account balances at December
31, 1999............................. $122,895,040 $59,183,454 $64,094,081 $246,172,575
============ =========== =========== ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-26
<PAGE> 99

NEPTUNE PIPELINE COMPANY, L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999

1. ORGANIZATION AND CONTROL

Neptune Pipeline Company, L.L.C. (Neptune) owns a 99% member interest in
Manta Ray Offshore Gathering Company, L.L.C. (Manta Ray) and Nautilus Pipeline
Company, L.L.C. (Nautilus). Neptune is owned as follows: Tejas Offshore
Pipeline, LLC (Tejas), an affiliate of Shell Oil Company owns a 49.9% member
interest; Shell Seahorse Company (Shell Seahorse), an affiliate of Shell Oil
Company owns a 0.1% member interest; Marathon Gas Transmission Inc. (Marathon)
owns a 24.33% member interest; Sailfish Pipeline Company, L.L.C. (Sailfish) owns
a 25.67% member interest.

Tejas acquired its 49.9% interest from Shell Seahorse on February 2, 1998.

Agreements between the member companies address the allocation of income
and capital contributions and distributions amongst the respective members'
capital accounts. As a result of these agreements, the ratio of members' equity
accounts per the Statement of Members' Capital differs from the members'
ownership interests in Neptune.

Neptune was formed to acquire, construct, own and operate through Manta Ray
and Nautilus, the Manta Ray System and the Nautilus System and any other natural
gas pipeline systems approved by the members. As of December 31, 1999 the Manta
Ray System and the Nautilus System are the only pipelines owned by Manta Ray and
Nautilus, respectively.

The formation of Manta Ray was accomplished through cash and fixed asset
contributions from the member companies. Fixed asset contributions, which
accounted for approximately 50% of all contributions, consisted of the Manta Ray
System and various compressor equipment (contributed by Sailfish) and the
Boxer-Bullwinkle System (contributed by Shell Seahorse). Because both cash and
fixed assets were contributed, the Manta Ray System and related compressor
equipment and the Boxer-Bullwinkle System were recorded at $64,342,716, which
represented their fair value on the date of contribution.

The Manta Ray System consists of a 169 mile gathering system located in the
South Timbalier and Ship Shoal areas of the Gulf of Mexico. An additional
segment, 47 miles of 24 inch pipeline and associated facilities, extending from
Green Canyon Block 65, offshore Louisiana, to Ship Shoal Block 207, offshore
Louisiana, was constructed during 1997 and first provided natural gas
transportation service on December 15, 1997. This newly constructed pipeline is
referred to as Phase II Facilities elsewhere in these notes.

The Nautilus System consists of a 30-inch natural gas pipeline and
appurtenant facilities extending approximately 101 miles from Ship Shoal Block
207, offshore Louisiana, to six delivery point interconnects downstream of the
outlet of the Garden City Gas Processing Plant in St. Mary Parish, Louisiana.
The Nautilus System was constructed during 1997 and first provided natural gas
transportation service on December 15, 1997.

Neptune, Manta Ray and Nautilus (collectively referred to as the Companies)
have no employees and receive all administrative and operating support through
contractual arrangements with affiliated companies. These services and
agreements are outlined in Note 3, Related Party Transactions.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Neptune and
its subsidiaries. All intercompany transactions and balances have been
eliminated in consolidation. Neptune has accounting policies that conform to
generally accepted accounting principles.

F-27
<PAGE> 100
NEPTUNE PIPELINE COMPANY, L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Regulation

Nautilus, as an interstate pipeline, is subject to regulation by the
Federal Energy Regulatory Commission (FERC). Nautilus has accounting policies
that conform to generally accepted accounting principles, as applied to
regulated enterprises and are in accordance with the accounting requirements and
ratemaking practices of the FERC.

Cash and Cash Equivalents

All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.

Pipelines and Equipment

Newly constructed pipelines are recorded at historical cost. Regulated
pipelines and equipment includes an Allowance for Funds Used During Construction
(AFUDC). The rates used in the calculation of AFUDC are determined in accordance
with guidelines established by FERC. The Manta Ray pipeline and related
facilities are depreciated on a straight-line basis over their estimated useful
life of 30 years, while the Nautilus pipeline and related facilities are
depreciated on a straight line basis over their estimated useful life of 20
years. Maintenance and repair costs are expensed as incurred while additions,
improvements and replacements are capitalized.

Income Taxes

Neptune is treated as a tax partnership under the provisions of the
Internal Revenue Code. Accordingly, the accompanying financial statements do not
reflect a provision for income taxes since Neptune's results of operations and
related credits and deductions will be passed through to and taken into account
by its members in computing their respective tax liabilities.

Impairment of Long-Lived Assets

Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
requires recognition of impairment losses on long-lived assets if the carrying
amount of such assets, grouped at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows from
other assets, exceeds the estimated undiscounted future cash flows of such
assets. Measurement of any impairment loss is based on the fair value of the
asset. At December 31, 1999 and 1998 there were no impairments.

Revenue Recognition

Revenue from Manta Ray's and Nautilus' transportation of natural gas is
recognized upon receipt of natural gas into the pipeline systems.

In the course of providing transportation services to customers, Nautilus
and Manta Ray may receive different quantities of gas from shippers than the
quantities delivered on behalf of those shippers. These transactions result in
imbalances which are settled in cash on a monthly basis. In addition, certain
imbalances may occur with interconnecting facilities when the Companies deliver
more or less than what is nominated (scheduled). The settlement of these
imbalances is governed by Operational Balancing Agreements (OBA). Certain OBAs
stipulate that settlement will occur through delivery of physical quantities in
subsequent months. The Companies record the net of all imbalances as
Transportation Revenue or Other Revenue and carry the net position as a payable
or a receivable, as appropriate.

F-28
<PAGE> 101
NEPTUNE PIPELINE COMPANY, L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Fair Value of Financial Instruments

The reported amounts of financial instruments such as cash and cash
equivalents, receivables, and current liabilities approximate fair value because
of their maturities.

Use of Estimates and Significant Risks

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 certain assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the financial
statements and the related reported amounts of revenue and expenses during the
reporting period. Such estimates and assumptions include those made in areas of
FERC regulations, fair value of financial instruments, future cash flows
associated with assets, useful lives for depreciation and potential
environmental liabilities. Actual results could differ from those estimates.
Management believes that the estimates are reasonable.

Development and production of natural gas in the service area of the
pipelines are subject to, among other factors, prices for natural gas and
federal and state energy policy, none of which are within the Companies'
control.

Reclassification

Certain prior period amounts in the financial statements and notes thereto
have been reclassified to conform with the current year presentation.

3. RELATED PARTY TRANSACTIONS

Construction Management Agreements

On January 17, 1997, Nautilus entered into a Construction Management
Agreement (the Agreement) with Marathon under which Marathon agreed to construct
the Nautilus System. As of December 31, 1999 and 1998 respectively, Nautilus had
incurred $113,190,864, and $113,127,385 of costs under the Agreement. Of these
amounts, $0 and $309,238 were recorded as liabilities to affiliates at December
31, 1999 and 1998, respectively.

On January 17, 1997, Manta Ray entered into a Construction Management
Agreement with Shell Seahorse under which Shell Seahorse agreed to construct the
Phase II Facilities. Also on January 17, 1997, Manta Ray entered into a
Construction Management Agreement with Marathon under which Marathon agreed to
construct a slug catcher. On August 1, 1998, Manta Ray entered into a
Construction Management Agreement with Marathon under which Marathon agreed to
construct condensate stabilization facilities. As of December 31, 1999 and 1998,
Manta Ray had incurred $85,830,156 and $83,388,913, respectively, under these
agreements. On March 26, 1999, Manta Ray entered into a Construction Management
Agreement with Tejas Offshore Pipeline, LLC under which Tejas agreed to
construct the Grand Isle 116 Lateral Facility. As of December 31, 1999, Manta
Ray had incurred $4,421,792 under this agreement. On September 1, 1999, Manta
Ray entered into a Construction Management Agreement with Manta Ray Gathering
Company, L.L.C. under which Manta Ray Gathering agreed to construct ST292
Hickory Facilities. As of December 31, 1999, Manta Ray had incurred $25,000. Of
these amounts, $4,367,815 and $4,236,507 were recorded as liabilities to
affiliates at December 31, 1999 and 1998, respectively.

Transportation Services

During 1999 and 1998, $7,705,731 and $3,881,667, respectively, of
transportation revenues for Nautilus were derived from related parties. All
transactions were at rates pursuant to the existing tariff. At December 31, 1999
and 1998 respectively, Nautilus had affiliate receivables of $744,274 and
$596,090 relating

F-29
<PAGE> 102
NEPTUNE PIPELINE COMPANY, L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to transportation and gas imbalances. At December 31, 1999 and 1998,
respectively, Nautilus had affiliate payables of $310,134 and $230,730 relating
to transportation and gas imbalances.

During 1999 and 1998, $9,975,728 and $4,902,613, respectively, of
transportation revenues for Manta Ray were derived from related parties. All
transactions were at negotiated rates. At December 31, 1999 and 1998
respectively, Manta Ray had affiliate receivables of $1,781,506 and $1,857,320
relating to transportation and gas imbalances.

At December 31, 1998, Manta Ray also had a receivable from Sailfish of
$297,348 relating to accumulated transportation and gas balancing activity
associated with the assets contributed by Sailfish.

Leases

Effective December 1, 1997, Manta Ray, as lessor, and Nautilus, as lessee,
entered into a lease agreement for usage of offshore platform space located at
Ship Shoal Block 207. The term of the lease is for the life of the platform,
subject to certain early termination conditions, and requires minimum lease
payments of $225,000 per year adjusted annually for inflation. The associated
lease revenue and expense have been eliminated in consolidation.

Operating and Administrative Expense

Since the Companies have no employees, operating, maintenance and general
and administrative services are provided to the Companies under service
agreements with Manta Ray Gathering Company, L.L.C., Marathon, and Shell
Seahorse, all of which are affiliates of the Companies. Substantially all
operating and administrative expenses were incurred through services provided
under these agreements. Shell Seahorse assigned the operating agreements to
Tejas Offshore Pipeline, LLC effective February 2, 1998.

Other Affiliate Transactions

Included in Owing from Related Parties at December 31, 1998 is a receivable
from an affiliate for $129,698 relating to the sale of land during the fourth
quarter of 1998 by Nautilus. No gain or loss was recognized on the sale.

4. PIPELINES AND EQUIPMENT

Pipelines and equipment at December 31, 1999 and 1998 is comprised of the
following (in thousands):

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Pipelines and equipment................................. $256,014 $244,835
Land.................................................... 1,077 1,107
AFUDC................................................... 6,430 6,430
Construction in progress................................ 4,535 8,732
-------- --------
Subtotal...................................... 268,056 261,104
Accumulated depreciation................................ 22,892 12,204
-------- --------
Total......................................... $245,164 $248,900
======== ========
</TABLE>

During 1998, Nautilus entered into interconnection agreements with certain
other parties in which Nautilus agreed to construct interconnection facilities
whereby the parties agreed to contribute $619,000 as partial reimbursement for
construction costs. Nautilus was reimbursed $419,000 during 1998 and the
remaining balance will be paid monthly based on throughput. The receivable
balance at December 31, 1998

F-30
<PAGE> 103
NEPTUNE PIPELINE COMPANY, L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

was $200,000, the current portion of which is $40,000. The remaining balance at
December 31, 1999 was $157,173, all of which is considered current.

5. REGULATORY MATTERS

The FERC has jurisdiction over the Nautilus System with respect to
transportation of gas, rates and charges, construction of new facilities,
extension or abandonment of service facilities, accounts and records,
depreciation and amortization policies and certain other matters.

An annual charge (ACA) totaling $137,171 was paid to the FERC for fiscal
year 1999. This charge, to be recovered from customers through rates, was
recorded as a regulatory asset and will be amortized over twelve months. At the
end of 1999, the balance of this account was $102,878.

6. COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Companies are subject to various
laws and regulations. In the opinion of management, compliance with existing
laws and regulations will not materially affect the financial position, the
results of operations or cash flows of the Companies.

Various legal actions, which have arisen in the ordinary course of
business, are pending with respect to the assets of the Companies. Management
believes that the ultimate disposition of these actions, either individually or
in aggregate, will not have a material adverse effect on the financial position,
the results of operations or the cash flows of the Companies.

Pursuant to the terms of a construction agreement entered into in 1995,
Manta Ray agreed to pay liquidated damages to various parties if Manta Ray did
not complete an interconnect by May 31, 1998 between the Manta Ray System and
the system operated by Trunkline Gas Pipeline Company. Manta Ray incurred
$150,000 in 1998 and $100,000 in 1999, which was recorded in Other Expense.
Under the provision, Manta Ray will be obligated to pay an additional $50,000 if
the interconnect is not completed by May 31, 2000.

F-31
<PAGE> 104

INDEX TO EXHIBITS

Each exhibit identified below is filed as a part of this Annual Report.
Exhibits included in this 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.

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.9 -- El Paso Energy Partners Unit Rights Appreciation Plan
(filed as Exhibit 10.25 to the Partnership's Annual
Report on Form 10-K for the fiscal year ended December
31, 1996, filed on March 26, 1997, File No. 1-11680).
10.10 -- Purchase Agreement dated as of May 24, 1999 among (i)
Leviathan Gas Pipeline Partners, L.P., (ii) Leviathan
Finance Corporation, (iii) Delos Offshore Company,
L.L.C., Ewing Bank Gathering Company, L.L.C., Flextrend
Development Company, L.L.C., Green Canyon Pipe Line
Company, L.L.C., Leviathan Oil Transport Systems, L.L.C.,
Manta Ray Gathering Company, L.L.C., Poseidon Pipeline
Company, L.L.C., Sailfish Pipeline Company, L.L.C.,
Stingray Holding, L.L.C., Delaware Transco Hydrocarbons
Company, L.L.C., Texam Offshore Gas Transmission, L.L.C.,
Transco Offshore Pipeline Company, L.L.C., Tarpon
Transmission Company, Viosca Knoll Gathering Company,
VK-Main Pass Gathering Company, L.L.C., VK Deepwater
Gathering Company, L.L.C. and the Subsidiary Guarantors
from time to time party thereto (collectively, the
"Subsidiary Guarantors"), (iv) Donaldson, Lufkin &
Jenrette Securities Corporation, and (v) Chase Securities
Inc. (filed as Exhibit 1.1 to the Partnership's
Registration Statement on Form S-4, filed on June 21,
1999, File No. 333-81143).
10.11 -- Purchase and Sale Agreement between Natural Gas Pipeline
Company of America as Seller and the Partnership as Buyer
dated as of June 30, 1999 (filed as Exhibit 10.1 to the
Partnership's Current Report on Form 8-K, filed on
July 15, 1999, File No. 1-11680).
10.12 -- Farmout Agreement dated October 25, 1999 by and between
Flextrend Development Company, L.L.C. and El Paso
Production GOM, Inc. (filed as Exhibit 10.15 to the
Partnership's Current Report on Form 8-K, filed on
November 15, 1999, File No. 1-11680).
*10.13 -- Agreement and Plan of Merger dated March 20, 2000, by and
among El Paso Energy Partners, L.P., Green Canyon Pipe
Line Company, L.L.C., El Paso Merchant Energy Holding
Company, and El Paso Intrastate-Alabama, Inc.
*21 -- List of Subsidiaries of El Paso Energy Partners.
*23 -- Letter regarding Change in Accounting Principles.
*27 -- Financial Data Schedule.
</TABLE>

<PAGE> 1
EXHIBIT 3.2

STATE OF DELAWARE

OFFICE OF THE SECRETARY OF STATE PAGE 1

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

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "LEVIATHAN GAS PIPELINE PARTNERS, L.P.", CHANGING ITS NAME FROM "LEVIATHAN
GAS PIPELINE PARTNERS, L.P." TO "EL PASO ENERGY PARTNERS, L.P.", FILED IN THIS
OFFICE ON THE FIRST DAY OF DECEMBER, A.D., 1999, AT 10:01 O'CLOCK A.M.

AND I DO HEREBY FURTHER CERTIFY THAT THE EFFECTIVE DATE OF THE AFORESAID
CERTIFICATE OF AMENDMENT IS THE FIRST DAY OF DECEMBER, A.D. 1999.

2317845 8100 /s/ EDWARD J. FREEL
[SEAL] -----------------------------------
991509171 EDWARD J. FREEL, SECRETARY OF STATE

AUTHENTICATION: 0109057

DATE: 11-30-99
<PAGE> 2
CERTIFICATE OF AMENDMENT

TO THE

CERTIFICATE OF LIMITED PARTNERSHIP

LEVIATHAN GAS PIPELINE PARTNERS, L.P.

The undersigned, desiring to amend the Certificate of Limited Partnership
of LEVIATHAN GAS PIPELINE PARTNERS, L.P., pursuant to the provisions of Section
17-202 of the Revised Uniform Limited Partnership Act of the State of Delaware,
does hereby certify as follows:

FIRST: The name of the Limited Partnership is:

Leviathan Gas Pipeline Partners, L.P.

SECOND: Article I of the Certificate of Limited Partnership shall be
amended as follows:

"ARTICLE I

NAME

The name of the limited partnership shall be El Paso Energy Partners,
L.P."

THIRD: This amendment to the Certificate of Limited Partnership shall be
effective as of December 1, 1999.

IN WITNESS WHEREOF, the undersigned executed this Amendment to the
Certificate of Limited Partnership on this 29th day of November 1999.

LEVIATHAN GAS PIPELINE COMPANY
the General Partner

By: /s/ C. DANA RICE
------------------------------
C. Dana Rice
Vice President and Treasurer

<PAGE> 1
EXHIBIT 4.1

NUMBER PREFERENCE UNITS

EPNP UNITS

[EL PASO
ENERGY PARTNERS
LOGO]

This Certificate is Transferable
in New York, New York and
Ridgefield Park, New Jersey

(A limited partnership formed CUSIP 28368B 20 1
under the laws of Delaware) SEE REVERSE FOR CERTAIN DEFINITIONS

CERTIFICATE EVIDENCING PREFERENCE UNITS REPRESENTING LIMITED PARTNER INTERESTS

EL PASO ENERGY PARTNERS, L.P.

EL PASO ENERGY PARTNERS COMPANY, A DELAWARE CORPORATION, AS THE GENERAL
PARTNER OF EL PASO ENERGY PARTNERS, L.P., A DELAWARE LIMITED PARTNERSHIP (THE
"PARTNERSHIP"), HEREBY CERTIFIES THAT

(the "Holder")
is the registered owner of PREFERENCE UNITS

representing limited partner interests in the Partnership (the "Preference
Units") transferable on the books of the Partnership, in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed and
accompanied by a properly executed application for transfer of the Preference
Units represented by this Certificate. The rights and limitations of the
Preference Units are set forth in, and this Certificate and the Preference Units
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Agreement of Limited Partnership of
El Paso Energy Partners, L.P., as amended, supplemented or restated from time to
time (the "Partnership Agreement"). Copies of the Partnership Agreement are on
file at, and will be furnished without charge on delivery of written request to
the Partnership at, the principal office of the Partnership located at 1001
Louisiana Street, Houston, Texas 77002. Capitalized terms used herein but not
defined shall have the meanings given them in the Partnership Agreement.

The Holder, by accepting this Certificate, is deemed to have (a)
requested admission as, and agreed to become, a Limited Partner or a
Substituted Limited Partner, as applicable, and to have agreed to comply with
and be bound by and to have executed the Partnership Agreement, (b) represented
and warranted that the Holder has all right, power and authority and, if an
individual, the capacity necessary to enter into the Partnership Agreement, (c)
appointed the General Partner and, if a Liquidator shall be appointed, the
Liquidator of the Partnership as the Holder's attorney to execute, swear to,
acknowledge and file any document, including, without limitation, the
Partnership Agreement and any amendment thereto and the Certificate of Limited
Partnership of the Partnership and any amendment thereto, necessary or
appropriate for the Holder's admission as a Limited Partner or a Substituted
Limited Partner, as applicable, in the Partnership and as a party to the
Partnership Agreement, (d) given the powers of attorney provided for in the
Partnership Agreement, (e) made the waivers and given the consents and approvals
contained in the Partnership Agreement and (f) certified to the Partnership
that the Holder (including, to the best of the Holder's knowledge, any person
for whom the Holder holds the Preference Units) is an Eligible Citizen.

This Certificate shall not be valid for any purpose unless it has been
countersigned and registered by the Transfer Agent and Registrar.

Dated:

EL PASO ENERGY PARTNERS COMPANY,
AS GENERAL PARTNER Countersigned and registered by:
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C
as Transfer Agent and Registrar
SEAL

By:
President

By: By:
Secretary Authorized Signature

<PAGE> 2
EL PASO ENERGY PARTNERS, L.P.
ABBREVIATIONS

The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as follows according to applicable laws or
regulations:

TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common

UNIF GIFT MIN ACT - __________ Custodian __________
(Cust) (Minor)

under Uniform Gifts to Minors

Act _________
(State)

Additional abbreviations, though not in the above list, may also be used.

ASSIGNMENT OF PREFERENCE UNITS
IN
EL PASO ENERGY PARTNERS, L.P.
IMPORTANT NOTICE REGARDING INVESTOR RESPONSIBILITIES
DUE TO TAX SHELTER STATUS OF EL PASO ENERGY PARTNERS, L.P.

You have acquired an interest in El Paso Energy Partners, L.P., 1001
Louisiana Street, Houston, Texas 77002, whose taxpayer identification number is
76-0385475. The Internal Revenue Service has issued El Paso Energy Partners,
L.P. the following tax shelter registration number: _____________. If there is
no number in the blank in the preceding sentence, the number will be furnished
to the Holder when it is received.

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

YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE SERVICE
IF YOU CLAIM ANY DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORT ANY
INCOME BY REASON OF YOUR INVESTMENT IN EL PASO ENERGY PARTNERS, L.P.

You must report the registration number as well as the name and taxpayer
identification number of El Paso Energy Partners, L.P. on Internal Revenue Code
Form 8271. FORM 8271 MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM THE
DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORT ANY INCOME BY REASON OF
YOUR INVESTMENT IN EL PASO ENERGY PARTNERS, L.P.

If you transfer your interest in El Paso Energy Partners, L.P. to another
person, you are required by the Internal Revenue Service to keep a list
containing (a) that person's name, address and taxpayer identification number,
(b) the date on which you transferred the interest and (c) the name, address
and tax shelter registration number of El Paso Energy Partners, L.P. If you do
not want to keep such a list, you must (1) send the information specified above
to the General Partner, who will keep the list for this tax shelter and (2)
give a copy of this notice to the person to whom you transfer your interest.
Your failure to comply with any of the above-described responsibilities could
result in the imposition of a penalty under Section 6707(b) or 6708(a) of the
Internal Revenue Service Code of 1986, as amended, unless such failure is shown
to be due to reasonable cause.

ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT
OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR APPROVED BY THE
INTERNAL REVENUE SERVICE.

FOR VALUE RECEIVED,
-------------------------------------------------------
hereby assigns, conveys, sells and transfers unto

- --------------------------------------------------------------------------------
(Please print or typewrite name and address of Assignee)

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

- --------------------------------------------------------------------------------
(Please insert Social Security or other identifying number of Assignee)

Preference Units representing limited partner
- -----------------------------
interests evidenced by this Certificate, subject to the Partnership Agreement,
and does hereby irrevocably constitute and appoint

- --------------------------------------------------------------------------------
as its attorney-in-fact with full power of substitution to transfer the same on
the books of El Paso Energy Partners, L.P.

Date:
---------------------------------------------------------------------------

The signature(s) should be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 under the Securities and Exchange Act of 1934, as
amended.

NOTE: The signature to any endorsement hereon must correspond with the name as
written upon the face of this Certificate in every particular, without
alteration, enlargement or change.

- --------------------------------------------------------------------------------
(Signature)

SIGNATURE(S) GUARANTEED:

No assignment or transfer of the Preference Units evidenced hereby will be
registered on the books of El Paso Energy Partners, L.P. unless the Certificate
evidencing the Preference Units to be transferred is surrendered for
registration or transfer and an Application for Transfer of Preference Units (a
"Transfer Application") has been executed by a transferee either (a) on the
form set forth below or (b) on a separate application that the Partnership will
furnish on request without charge. A transferor of the Preference Units shall
have no duty to the transferee with respect to execution of the Transfer
Application in order for such transferee to obtain registration of the transfer
of the Preference Units.

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

APPLICATION FOR TRANSFER OF PREFERENCE UNITS

The undersigned ("Applicant") hereby applies for transfer to the name of
the Applicant of the Preference Units evidenced hereby.

The Applicant (a) requests admission as a Substituted Limited Partner and
agrees to comply with and be bound by, and hereby executes the Amended and
Restated Agreement of Limited Partnership of El Paso Energy Partners, L.P.,
(the "Partnership") as amended, supplemented or restated to the date hereof
(the "Partnership Agreement"), (b) represents and warrants that the Applicant
has all right, power and authority and, if an individual, the capacity
necessary to enter into the Partnership Agreement, (c) appoints the General
Partner and, if a Liquidator shall be appointed, the Liquidator of the
Partnership as the Applicant's attorney to execute, swear to, acknowledge and
file any document, including, without limitation, the Partnership Agreement and
any amendment thereto and the Certificate of Limited Partnership of the
Partnership and any amendment thereto, necessary or appropriate for the
Applicant's admission as a Substituted Limited Partner and as a party to the
Partnership Agreement, (d) gives the powers of attorney provided for in the
Partnership Agreement, (e) makes the waivers and gives the consents and
approvals contained in the Partnership Agreement and (f) certifies to the
Partnership that the Applicant (including, to the best of the Applicant's
knowledge, any person for whom the Applicant will hold the Preference Units) is
an Eligible Citizen. Capitalized terms not defined herein have the meanings
assigned to such terms in the Partnership Agreement.

Date:
---------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Signature of Applicant

- --------------------------------------------------------------------------------
Name and Address of Applicant

- --------------------------------------------------------------------------------
Social Security or other identifying number of Applicant

- --------------------------------------------------------------------------------
Purchase Price including commissions, if any

Type of Entity (check one):

[ ] Individual [ ] Partnership [ ] Corporation
[ ] Trust [ ] Other (specify)

Nationality (check one):

[ ] United States Citizen, [ ] Non-resident Alien [ ] Foreign Corporation
Resident or Domestic
Entity

If the United States Citizen, Resident or Domestic Entity box is checked,
the following certification must be completed.

Under Section 1445(e) of the Internal Revenue Code of 1986, as amended
(the "Code"), the Partnership must withhold tax with respect to certain
transfers of property if a holder of an interest in the Partnership is a
foreign person. To inform the Partnership that no withholding is required with
respect to the undersigned interest-holder's interest in it, the undersigned
hereby certifies the following (or, if applicable, certifies the following on
behalf of the interest-holder):

Complete either A or B:

A. Individual Interest-Holder

1. I am not a non-resident alien for purposes of United States income
taxation.

2. My United States taxpayer identifying number (Social Security
Number) is

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

3. My home address is

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

4. My year end for tax reporting purposes is

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

B. Partnership, Corporate or Other Interest-Holder

1.
---------------------------------------------------------------------
(Name of Interest-Holder)

is not a foreign corporation, foreign partnership, foreign trust or
foreign estate (as those terms are defined in the Code and Treasury
Regulations).

2. The interest-holder's U.S. employer identification number is

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

3. The interest-holder's office address and place of incorporation (if
applicable) is

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

4. The interest-holder's year end for tax reporting purposes is

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

The interest-holder agrees to notify the Partnership within sixty (60)
days of the date the interest-holder becomes a foreign person.

The interest-holder understands that this Certificate may be disclosed to
the Internal Revenue Service by the Partnership and that any false statement
contained herein could be punishable by fine, imprisonment or both.

Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct
and complete and, if applicable, I further declare that I have authority to
sign this document on behalf of

- --------------------------------------------------------------------------------
Name of Interest-Holder

- --------------------------------------------------------------------------------
Signature and Date

- --------------------------------------------------------------------------------
Title (if applicable)

NOTE: If the Applicant is a broker, dealer, bank, trust company, clearing
corporation, other nominee holder or an agent of any of the foregoing, and is
holding the Preference Units for the account of any other person, this
application should be completed by an officer thereof or, in the case of a
broker or dealer, by a registered representative who is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc., or, in the case of any other nominee holder, a person
performing a similar function. If the Applicant is a broker, dealer, bank,
trust company, clearing corporation, other nominee owner or an agent of any of
the foregoing, the above certification as to any Person for whom the Applicant
will hold the Preference Units shall be made to the best of the Applicant's
knowledge.

<PAGE> 1
EXHIBIT 4.2

NUMBER COMMON UNITS

EPN UNITS

[EL PASO
ENERGY PARTNERS
LOGO]

This Certificate is Transferable
in New York, New York and
Ridgefield Park, New Jersey

(A limited partnership formed CUSIP 28368B 20 2
under the laws of Delaware) SEE REVERSE FOR CERTAIN DEFINITIONS

CERTIFICATE EVIDENCING COMMON UNITS REPRESENTING LIMITED PARTNER INTERESTS

EL PASO ENERGY PARTNERS, L.P.

EL PASO ENERGY PARTNERS COMPANY, A DELAWARE CORPORATION, AS THE GENERAL
PARTNER OF EL PASO ENERGY PARTNERS, L.P., A DELAWARE LIMITED PARTNERSHIP (THE
"PARTNERSHIP"), HEREBY CERTIFIES THAT

(the "Holder")
is the registered owner of COMMON UNITS

representing limited partner interests in the Partnership (the "Common
Units") transferable on the books of the Partnership, in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed and
accompanied by a properly executed application for transfer of the Common
Units represented by this Certificate. The rights and limitations of the
Common Units are set forth in, and this Certificate and the Common Units
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Agreement of Limited Partnership of
El Paso Energy Partners, L.P., as amended, supplemented or restated from time to
time (the "Partnership Agreement"). Copies of the Partnership Agreement are on
file at, and will be furnished without charge on delivery of written request to
the Partnership at, the principal office of the Partnership located at 1001
Louisiana Street, Houston, Texas 77002. Capitalized terms used herein but not
defined shall have the meanings given them in the Partnership Agreement.

This Certificate shall not be valid for any purpose unless it has been
countersigned and registered by the Transfer Agent and Registrar.

Dated:

EL PASO ENERGY PARTNERS COMPANY,
AS GENERAL PARTNER Countersigned and registered by:
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C
as Transfer Agent and Registrar
SEAL

By:
President

By: By:
Secretary Authorized Signature

<PAGE> 2
EL PASO ENERGY PARTNERS, L.P.
ABBREVIATIONS

The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as follows according to applicable laws or
regulations:

TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common

UNIF GIFT MIN ACT - __________ Custodian __________
(Cust) (Minor)

under Uniform Gifts to Minors

Act _________
(State)

Additional abbreviations, though not in the above list, may also be used.

ASSIGNMENT OF COMMON UNITS
IN
EL PASO ENERGY PARTNERS, L.P.
IMPORTANT NOTICE REGARDING INVESTOR RESPONSIBILITIES
DUE TO TAX SHELTER STATUS OF EL PASO ENERGY PARTNERS, L.P.

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

ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT
OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR APPROVED BY THE
INTERNAL REVENUE SERVICE.

FOR VALUE RECEIVED,
-------------------------------------------------------
hereby assigns, conveys, sells and transfers unto

- --------------------------------------------------------------------------------
(Please print or typewrite name and address of Assignee)

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

- --------------------------------------------------------------------------------
(Please insert Social Security or other identifying number of Assignee)

Common Units representing limited partner
- -----------------------------
interests evidenced by this Certificate, subject to the Partnership Agreement,
and does hereby irrevocably constitute and appoint

Date:
---------------------------------------------------------------------------

The signature(s) should be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 under the Securities and Exchange Act of 1934, as
amended.

NOTE: The signature to any endorsement hereon must correspond with the name as
written upon the face of this Certificate in every particular, without
alteration, enlargement or change.

- --------------------------------------------------------------------------------
(Signature)

SIGNATURE(S) GUARANTEED:

No assignment or transfer of the Common Units evidenced hereby will be
registered on the books of El Paso Energy Partners, L.P. unless the Certificate
evidencing the Common Units to be transferred is surrendered for
registration or transfer and an Application for Transfer of Common Units (a
"Transfer Application") has been executed by a transferee either (a) on the
form set forth below or (b) on a separate application that the Partnership will
furnish on request without charge. A transferor of the Common Units shall
have no duty to the transferee with respect to execution of the Transfer
Application in order for such transferee to obtain registration of the transfer
of the Common Units.

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

APPLICATION FOR TRANSFER OF COMMON UNITS

The undersigned ("Applicant") hereby applies for transfer to the name of
the Applicant of the Common Units evidenced hereby.

The Applicant (a) requests admission as a Substituted Limited Partner and
agrees to comply with and be bound by, and hereby executes the Amended and
Restated Agreement of Limited Partnership of El Paso Energy Partners, L.P.,
(the "Partnership") as amended, supplemented or restated to the date hereof
(the "Partnership Agreement"), (b) represents and warrants that the Applicant
has all right, power and authority and, if an individual, the capacity
necessary to enter into the Partnership Agreement, (c) appoints the General
Partner and, if a Liquidator shall be appointed, the Liquidator of the
Partnership as the Applicant's attorney to execute, swear to, acknowledge and
file any document, including, without limitation, the Partnership Agreement and
any amendment thereto and the Certificate of Limited Partnership of the
Partnership and any amendment thereto, necessary or appropriate for the
Applicant's admission as a Substituted Limited Partner and as a party to the
Partnership Agreement, (d) gives the powers of attorney provided for in the
Partnership Agreement, (e) makes the waivers and gives the consents and
approvals contained in the Partnership Agreement and (f) certifies to the
Partnership that the Applicant (including, to the best of the Applicant's
knowledge, any person for whom the Applicant will hold the Common Units) is
an Eligible Citizen. Capitalized terms not defined herein have the meanings
assigned to such terms in the Partnership Agreement.