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El Paso Likely to Restate Previous Earnings

The energy firm, citing an earlier-disclosed reduction in its proven natural gas reserves, delays its 10-K filing.

March 11, 2004|From Reuters

El Paso Corp., an energy company struggling to return to financial health, said Wednesday that it was likely to restate past results because of the reduction of its estimated proven natural gas reserves.

The company also said its reserves review would indefinitely delay the release of its fourth-quarter results, which had been expected today, as well as the filing of its 10-K annual report with the Securities and Exchange Commission.

Investors should not rely on previously filed reports until further notice from the company, El Paso said.

The stock fell as much as 4% in early trading before closing 18 cents lower at $6.92, a loss of 2.5%, on the New York Stock Exchange. Shares are up 54% in the last year.

Burdened by about $24 billion in consolidated debt at the end of the third quarter of last year, the Houston-based company has struggled to return to financial health after failed ventures in the merchant electricity and telecom businesses in recent years.

Last month, El Paso cut its proven natural gas reserves estimate by 41%, or 1.8 trillion-cubic-feet equivalent, and forecast a fourth-quarter write-down of $1 billion for the lower estimate.

The news, though another in a series of blows to the company, probably would not affect its business going forward, analysts said.

"The auditors have considered that a restatement is necessary, and this should have little to no effect on earnings or cash flow as a consequence," said John Olson, chief investment officer at Sanders Morris Harris. "We hope and trust that there are few remaining bad news items out there after this one."

Under a potential restatement, the company could revise previous results to include part of the write-down it had said it would take in the fourth quarter.

"The simple explanation of this is that instead of taking a large charge in the fourth quarter of 2003, you take a number of smaller charges over several periods," company spokesman Bruce Connery said.

Proven reserves are quantities of oil and gas that a company expects to be commercially recoverable from known fields. Oil giant Royal Dutch/Shell Group shocked investors this year by reducing its reserves estimates by 20%.

El Paso's cut in reserves puts the company at a higher risk of shareholder lawsuits, analysts have said, and the restatement will only make matters worse.

"When they revised their reserve estimate, there was a tremendous amount of class-action litigation," said Gordon Howald, an analyst with Credit Lyonnais. "If those had traction before, they're going to have a lot more traction now."

El Paso said that although the cut in the reserve estimate would not change, it was reviewing whether parts of the revision should be applied to previous years.

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