El Paso to Cut Dividend 82% to Save Cash

El Paso Corp., the largest U.S. natural gas pipeline company, Wednesday said that it would slash its dividend about 82% and sell nearly $3 billion in assets as part of a continuing plan to conserve cash and shore up its finances.

The announcement is the latest in a string of recent cost-saving moves for the Houston company, which has sold $4 billion in assets and is liquidating its energy trading portfolio.

The decision also lengthens the list of once highflying energy and utility companies that have fallen on hard times over the last year amid heavy debts and shrinking demand for certain services, especially trading. Investors in the companies have lost billions of dollars in share value and dividend income.

Like many U.S. utilities, El Paso has been grappling with fallout from the demise of the energy trading market in the wake of Enron Corp.’s collapse. Many utility companies borrowed large amounts a few years ago to ramp up for what they expected would be a long period of booming demand. That created a glut of competitors.

William Hederman, a Federal Energy Regulatory Commission official, told a conference Wednesday in Washington that U.S. energy firms have more than $100 billion in debt coming due this year, much of which will have to be refinanced if bankruptcies are to be avoided, Bloomberg News reported.

In a statement, El Paso warned that it would post a loss for 2002 after taking a series of charges for asset impairments and other cash-saving measures.

As a result of accounting changes and the company’s exit from trading, El Paso will take charges ranging from $500 million to $600 million after tax, plus impairment charges of $450 million to $700 million from its investment in a Western Australian pipeline and other assets.

“This is a very aggressive, positive step,” said Credit Lyonnais analyst Gordon Howald, who owns no shares of El Paso.

The company’s business “needs to reflect the fact that cash flows are less than what they had been, that they are no longer an investment-grade company, and they can’t continue to significantly overspend,” Howald said.

El Paso stock plummeted $1.80, or 23%, to $6.20 on the New York Stock Exchange. The price has plunged from a peak of about $75 in 2001.

El Paso aims to sell $2.9 billion of assets this year, lower its capital spending 35% from last year to $2.6 billion and slash its annual common stock dividend from 87 cents a share to 16 cents.

Reducing the dividend would allow the company to conserve about $425 million in cash per year, the firm said.

A growing number of utilities, including Allegheny Energy Inc., Aquila Inc., CMS Energy Corp. and Dynegy Inc., have eliminated or reduced their dividends during the last year to meet increasingly stringent credit requirements from nervous lenders.

Texas-based utility TXU Corp. on Wednesday reported a $4.9-billion fourth-quarter loss after charges to exit the electricity market in Britain. The company last year cut its annual dividend by 80%. TXU’s debt rating was reduced to junk level in December.

The utility industry also embarked on a wave of dividend cuts in the mid-1990s as the companies coped with federal and state deregulation.

El Paso plans to refocus its efforts on its primary natural gas pipeline, production and power units by lightening its exposure to other, less profitable businesses. The latest round of sales will include most of its remaining petroleum operations, which it said have been “a drag on earnings.”

The company forecast earnings per share from continuing operations in 2003 of $1.