HOUSTON, May 3 /PRNewswire-FirstCall/ -- El Paso Corporation (NYSE: EP)
announced today the findings of the independent review of the Audit Committee
of the company's board of directors concerning revisions to its oil and
natural gas reserves.
On February 17, 2004, El Paso announced that its proved oil and natural
gas reserves were being revised lower by approximately 1.8 trillion cubic feet
of natural gas equivalent (Tcfe). Concurrently, the Audit Committee initiated
an independent review to determine the factors that contributed to the
revisions. The review has been conducted by independent counsel, Haynes and
Boone, LLP, over the last two months. The review was intended to assess the
reasons for the revisions, evaluate and make recommendations on any
improvements in the internal controls associated with the booking of reserves,
and determine if there were any instances of misconduct. The review has
included the completion of more than 200 interviews and the review of more
than 100,000 documents. While a limited number of interviews and document
reviews are still being conducted, the company does not expect that the
findings made as of today will change materially. El Paso will provide an
update if additional material findings arise with the completion of the
review.
The review of Haynes and Boone has found that during the period from the
beginning of 1999 through the end of 2003, certain employees used aggressive
and, at times, unsupportable methods to book proved reserves. In addition,
certain employees provided proved reserve estimates that they knew or should
have known were incorrect at the time they were reported.
The independent review confirms El Paso's previous assessment that the
financial statements for El Paso Corporation, El Paso CGP Company (EPCGP), and
El Paso Production Holding Company (EPPH) should be restated. As announced
earlier, investors should not rely on previously filed reports for these
registrants until further notice from the company. The company will discuss
with the Securities and Exchange Commission (SEC) its plans for such
restatements and will work to file its Form 10-K for 2003 and any required
restated financial statements for prior periods as soon as possible.
Currently, the company plans to restate the financial statements of El Paso
Corporation, EPCGP, and EPPH from 1999 through 2003. The first quarter 2004
Form 10-Qs for these registrants will be delayed pending the filing of the
Form 10-Ks.
Independent counsel to the Audit Committee also discussed the roles of
current senior executive management in the reserve revisions. Independent
counsel advised the Audit Committee that the current senior executive
management team of El Paso Corporation did not participate in the inaccurate
booking and the resulting overstatement of reserves. Independent counsel also
advised the Audit Committee that the process conducted to estimate El Paso's
proved reserves at December 31, 2003 was sound and that the reserves the
company recently announced were estimated in accordance with applicable
guidelines.
"El Paso's board of directors fully accepts the findings of the
independent review," said Ronald L. Kuehn, Jr., chairman of the board of El
Paso Corporation. "This process is an important milestone for all
stakeholders as we take the necessary steps to ensure the integrity of the
company's reserve reporting process."
The board of directors is actively working to implement controls and
procedures that will ensure the integrity of the company's reserve booking
process. The following controls are either in place or are being implemented:
(1) formation of an internal committee of the company to routinely review
the company's oil and natural gas reserves, which will be staffed
with appropriate technical, financial reporting, and legal expertise;
(2) continued use of an independent third-party engineering firm that
will be selected by and report annually to the Audit Committee of the
board of directors with a subsequent report by the Audit Committee to
the full board of directors of the company;
(3) formation of a centralized reserve reporting function that is
separated from the operating divisions and reports directly to the
president of Production and Nonregulated Operations;
(4) revisions in the company's documentation procedures and controls for
estimating proved reserves;
(5) improved training regarding SEC guidelines for booking proved
reserves; and
(6) enhanced internal audit reviews.
In addition, there have been significant changes already implemented in
the organization. These changes include the addition of individuals with
extensive exploration and production experience, including five new board
members and three new members of the company's executive management team. The
changes in the company's executive management include the appointment of Doug
Foshee as the president and chief executive officer of El Paso Corporation,
Lisa Stewart as the president of Production and Nonregulated Operations, and
Jeff Sherrick as the senior vice president of the company's production
business in charge of the reserve estimation process.
The company continues to cooperate with the SEC and the U.S. Attorney's
office on the results of these reviews.
El Paso Corporation provides natural gas and related energy products in a
safe, efficient, dependable manner. The company owns North America's largest
natural gas pipeline system and one of North America's largest independent
natural gas producers. For more information, visit http://www.elpaso.com.
Cautionary Statement Regarding Forward-Looking Statements
This release includes forward-looking statements and projections, made in
reliance on the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The company has made every reasonable effort to ensure
that the information and assumptions on which these statements and projections
are based are current, reasonable, and complete. However, a variety of
factors could cause actual results to differ materially from the projections,
anticipated results or other expectations expressed in this release,
including, without limitation, any developments arising from additional
reviews of the reserve revisions performed internally or by independent
counsel to the Audit Committee; the extent and time periods involved in the
restatement of our prior years' financial results; the upcoming discussions
with the SEC regarding the company's plan for restatement of prior years'
financial results; the potential impact of the restatement of financial
results on our access to capital (including borrowings under credit
arrangements); the availability of certain information required to complete
some alternative forms of restatement associated with the reserve revisions;
further changes in reserve estimates based upon internal and third party
reserve analyses; uncertainties associated with the outcome of governmental
investigations; outcome of litigation including shareholder derivative and
class actions related to reserve revisions and restatements; consequences
arising from the delay in filing of our periodic reports; and other factors
described in the company's (and its affiliates') Securities and Exchange
Commission filings. While the company makes these statements and projections
in good faith, neither the company nor its management can guarantee that
anticipated future results will be achieved. Reference must be made to those
filings for additional important factors that may affect actual results. The
company assumes no obligation to publicly update or revise any forward-looking
statements made herein or any other forward-looking statements made by the
company, whether as a result of new information, future events, or otherwise.
SOURCE El Paso Corporation
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Related links:
http://www.elpaso.com
http://www.elpaso.com/press/newsquery.asp?sId=4252
http://www.elpaso.com/investor/presentations.shtm
CONTACT:
Investor and Public Relations: Bruce L.
Connery, Vice President, +1-713-420-5855, or fax,
+1-713-420-4417, or Media Relations: Kim Wallace, Manager,
+1-713-420-6330, or fax, +1-713-420-6341, both of El Paso
Corporation
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