El Paso Describes Its Restatements
El Paso Corp.’s pending restatements of financial results probably will revise accounting for natural gas hedges as well as reduce proven oil and gas reserves, the company said Tuesday.
El Paso, the nation’s largest natural gas pipeline company, said in a filing with the Securities and Exchange Commission that the elimination of hedge accounting could result in non-cash write-downs of asset values by no more than $2 billion. No changes in cash flow are expected.
“That suggests to me that these restatements could be meaningful” in regard to shareholder equity, said Hope Crifo, an analyst with KDP Investment Advisors Inc.
El Paso announced in February that the company would have to revise financial statements dating back to 1999 to reflect a 41% reduction in proven oil and gas reserves. The SEC is investigating the reduction, which the company has acknowledged will require a more than $1-billion write-down of the reserves’ value.
Proven oil and gas reserves are closely monitored by analysts as an estimate of a company’s future profit potential.
A comprehensive review of finances that examined both proven reserves and the company’s accounting from 1999 through 2003 also revealed problems with accounting of natural gas hedges, and “financial statements will likely need to be further restated” to reflect those revisions, El Paso said.
The company said elimination of the hedges would result in decreases and increases in earnings from El Paso’s merchant energy and production segments from 1999 through 2003. The effect on shareholder equity should be “largely offset” by changes in other comprehensive income, but an overall reduction is expected, El Paso said.
El Paso has held off on releasing quarterly 2004 earnings pending completion of the review and restatements, the process of which is “essentially complete,” the company said. El Paso expects to file its 2003 annual report with the SEC by the end of the third quarter this year, And it is scheduled to discuss the restatement process with analysts on Aug. 23.
The company also has received additional waivers from lenders on its $3-billion revolving credit line and other financing, extending deadlines to file its 2003 annual report by Sept. 30 and quarterly reports for the first and second quarters of 2004 to Nov. 30.
“Clearly, this shows a light at the end of the tunnel,” said John Olson, an analyst with Sanders Morris Harris. “This is almost forensic accounting, having to go back and almost do it by hand.”
El Paso shares fell 6 cents to close at $7.65 on Tuesday on the New York Stock Exchange.
