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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Rule14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
EL PASO CORPORATION
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(Name of Registrant as Specified in its Charter)
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[EL PASO LOGO]
D. DWIGHT SCOTT
Executive Vice President and
Chief Financial Officer
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J.P. MORGAN CHASE
NORTH AMERICAN NATURAL GAS
PIPELINES FIXED INCOME AND
EQUITY INVESTMENT CONFERENCE
May 22, 2003
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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THIS PRESENTATION 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
PRESENTATION, INCLUDING, WITHOUT LIMITATION, THE SUCCESSFUL IMPLEMENTATION
OF THE 2003 BUSINESS PLAN; THE SUCCESSFUL IMPLEMENTATION OF THE SETTLEMENT
RELATED TO THE WESTERN ENERGY CRISIS; ACTIONS BY CREDIT RATING AGENCIES;
OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED MEMBERS OF THE BOARD OF
DIRECTORS AND SENIOR MANAGEMENT; OUR ABILITY TO DIVEST OF CERTAIN NON-CORE
ASSETS; MATERIAL AND ADVERSE IMPACTS FROM OUR PROXY CONTEST WITH SELIM
ZILKHA/OSCAR WYATT; CHANGES IN COMMODITY PRICES FOR OIL, NATURAL GAS, AND
POWER; GENERAL ECONOMIC AND WEATHER CONDITIONS IN GEOGRAPHIC REGIONS OR
MARKETS SERVED BY EL PASO CORPORATION AND ITS AFFILIATES, OR WHERE
OPERATIONS OF THE COMPANY AND ITS AFFILIATES ARE LOCATED; THE UNCERTAINTIES
ASSOCIATED WITH GOVERNMENTAL REGULATION; COMPETITION; 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.
ADDITIONAL IMPORTANT INFORMATION
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ON MAY 12, 2003, EL PASO CORPORATION BEGAN THE PROCESS OF MAILING ITS
DEFINITIVE PROXY STATEMENT, TOGETHER WITH A WHITE PROXY CARD. SHAREHOLDERS
ARE STRONGLY ADVISED TO READ EL PASO'S PROXY STATEMENT AS IT CONTAINS
IMPORTANT INFORMATION.
SHAREHOLDERS MAY OBTAIN AN ADDITIONAL COPY OF EL PASO'S DEFINITIVE PROXY
STATEMENT AND ANY OTHER DOCUMENTS FILED BY EL PASO WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR FREE AT THE INTERNET WEB SITE MAINTAINED BY THE
SECURITIES AND EXCHANGE COMMISSION AT WWW.SEC.GOV. COPIES OF THE DEFINITIVE
PROXY STATEMENT ARE AVAILABLE FOR FREE AT EL PASO'S INTERNET WEB SITE AT
WWW.ELPASO.COM OR BY WRITING TO EL PASO CORPORATION, INVESTOR RELATIONS,
P.O. BOX 2511, HOUSTON, TX 77252. IN ADDITION, COPIES OF EL PASO'S PROXY
MATERIALS MAY BE REQUESTED BY CONTACTING EL PASO'S PROXY SOLICITOR,
MACKENZIE PARTNERS, INC. AT (800) 322-2885 TOLL-FREE OR BY EMAIL AT
PROXY@MACKENZIEPARTNERS.COM.
INFORMATION REGARDING THE NAMES, AFFILIATION AND INTERESTS OF INDIVIDUALS
WHO MAY BE DEEMED PARTICIPANTS IN THE SOLICITATION OF PROXIES OF EL PASO'S
SHAREHOLDERS IS CONTAINED IN EL PASO'S DEFINITIVE PROXY STATEMENT.
RECONCILIATION OF EBIT AND EBITDA
TO GAAP OPERATING INCOME
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FIRST QUARTER 2003
PIPELINE FIELD MERCHANT CORPORATE CONSOLIDATED
GROUP PRODUCTION SERVICES ENERGY AND OTHER TOTAL
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GAAP operating
income $ 384 $ 235 $ -- $(514) $ (44) $ 61
Equity and other
income 45 9 27 (242) (24) (185)
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Reported EBIT 429 244 27 (756) (68) (124)
Non-recurring items
-- 12 1 663 22 698
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PRO FORMA EBIT $ 429 $ 256 $ 28 $ (93) $ (46) $ 574
DD&A 95 205 10 29 22 361
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PRO FORMA EBITDA
$ 524 $ 461 $ 38 $ (64) $ (24) $ 935
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RECONCILIATION OF EBIT AND EBITDA
TO GAAP OPERATING INC
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FIRST QUARTER 2002
PIPELINE FIELD MERCHANT CORPORATE CONSOLIDATED
GROUP PRODUCTION SERVICES ENERGY AND OTHER TOTAL
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GAAP operating
income $ 357 $ 175 $ 38 $ 455 $ (13) $ 1,012
Equity and other
income 42 1 13 (362) 7 (299)
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Reported EBIT 399 176 51 93 (6) 713
Non-recurring items -- 33 -- 342 -- 375
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PRO FORMA EBIT $ 399 $ 209 $ 51 $ 435 $ (6) $ 1,088
DD&A 91 207 19 34 14 365
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PRO FORMA EBITDA $ 490 $ 416 $ 70 $ 469 $ 8 $ 1,453
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RECONCILIATION OF EBIT AND EBITDA
TO GAAP OPERATING INCOME
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FOURTH QUARTER 2002
PIPELINE FIELD MERCHANT CORPORATE CONSOLIDATED
GROUP PRODUCTION SERVICES ENERGY AND OTHER TOTAL
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GAAP operating
income $ (103) $ 170 $ 177 $(1,525) $ (238) $(1,519)
Equity and other
income (103) 2 16 (95) (33) 213)
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Reported EBIT (206) 172 193 (1,620) (271) (1,732)
Non-recurring items 561 6 (166) 972 169 1,542
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PRO FORMA EBIT $ 355 $ 178 $ 27 $ (648) $ (102) $ (190)
DD&A 94 192 11 30 21 348
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PRO FORMA EBITDA $ 449 $ 370 $ 38 $ (618) $ (81) $ 158
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PROGRESS AND
NEW INITIATIVES
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PROGRESS AGAINST 2003 OPERATIONAL
AND FINANCIAL PLAN
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o $2.3 billion (67%) of $3.4 billion asset sales program announced or
completed
o Significant improvement in liquidity
o Simplification of balance sheet
o Proposed Western energy settlement
o Extension of $3 billion bank facility
o $1.9 billion of financings
o Sale of European natural gas trading book
NEXT STEPS
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o The Board of Directors has formed a long-range planning committee to
ensure that El Paso maximizes all opportunities inherent in its core
businesses
o Undertaking top-to-bottom analysis to achieve substantial further cost
reductions and design most cost-efficient structure possible for our
businesses
o Targeting at least $250 MM of additional pre-tax cost savings and
business efficiencies beyond $150 MM previously announced by the end
of 2004
- Expected from corporate expense reductions and budgeted cost
savings and revenue enhancements at business unit level
LONG RANGE PLANNING PROCESS
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o Initial review of appropriate leverage capability of core assets
- Self-sustaining leverage to allow for maintenance and growth
capital
- Investment grade ratio comparison
o Evaluating options to achieve additional debt reduction
o Process will streamline and optimize core businesses
- Reduce costs
- Minimize capital
- Generate free cash flow
WE WILL PROVIDE DETAILED UPDATE TO THE INVESTMENT COMMUNITY UPON
COMPLETION OF THIS PROCESS
BUSINESS UNIT UPDATE
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PIPELINE GROUP
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o Continuing improvement in capacity values
- Return to normal or slightly colder-than-normal winter weather
- Record low storage inventories at the end of 1st quarter
- Recognition by LDCs and state utility commissions of increased
value of long-term capacity
o Excellent expansion inventory
- Southern Natural Gas
- Tennessee Gas Pipeline
- ANR Pipeline
- Colorado Interstate Gas
PRODUCTION COMPANY
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o Significant property sales since early 2002 have reduced production
volumes
o Current production forecast of 525 Bcfe for full year 2003
o New discoveries to come online by year end total almost 400 MMcfe/d
- 225 MMcfe/d net from 5 deep shelf, 3 South Texas and 1 North
Louisiana discoveries
- 64 MMcfe/d net from 5 Western Canada discoveries
- 100 MMcfe/d net expected from development wells on these
discoveries
o Continue to focus on core areas, lengthening R/P ratio, reducing
capital demand
FIELD SERVICES
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o Growth through GulfTerra Energy Partners (formerly El Paso Energy
Partners)
o GulfTerra has underway $900 MM of deepwater trend and platform
infrastructure projects
- These projects bring new strategic supplies to El Paso's
pipelines in the Gulf of Mexico
o Contribution from GulfTerra to Field Services doubled in 1Q vs. 2002
MERCHANT ENERGY GROUP
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o Making good progress on liquidation of trading book
- Managing for cash, not earnings
o Power assets performing as expected
o Petroleum assets reported strong results in the 1st quarter due to
improved refining margins
FIRST QUARTER RESULTS
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1ST QUARTER SUMMARY
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$ MILLIONS, EXCEPT EPS
QUARTER ENDED
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MARCH 31, 2003 DECEMBER 31, 2002 MARCH 31, 2002
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Reported diluted earnings per share $ (.66) $ (2.92) $ .72
Non-recurring items .90 2.23 .21
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Pro forma diluted earnings per share $ .24 $ (.69) .93
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Funds from operations $ 585 $ 446 $ 739
Working capital and other $ (674) $ ( 1,169) $ (653)
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Cash provided (used)
from operations $ (89) $ (723) $ 86
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CORE BUSINESS
POSTED STRONG RESULTS
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$ MILLIONS
QUARTER ENDED
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MARCH 31, 2003 DECEMBER 31, 2002 MARCH 31, 2002
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Pipelines $ 429 $ 355 $ 399
Production 256 178 209
Field Services 28 27 51
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PRO FORMA EBIT $ 713 $ 560 $ 659
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Pipelines $ 524 $ 449 $ 490
Production 461 370 416
Field Services 38 38 70
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PRO FORMA EBITDA $ 1,023 $ 857 $ 976
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1ST QUARTER CONSOLIDATED RESULTS
OPERATING CASH FLOW
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$ MILLIONS
2003 2002
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Net income (loss) $ (394) $ 383
Non-cash adjustments to net income 979 356
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Subtotal 585 739
Working capital changes and other (674) (653)
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Cash flow from operating activities (89) 86
Cash flow from investing activities (477) (346)
Cash flow from financing activities 757 380
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CHANGE IN CASH $ 191 $ 120
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1ST QUARTER WORKING CAPITAL USE
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$ MILLIONS
APPROXIMATE
CATEGORY TARGET PROJECTED USE ACTUAL USE
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Trade book and Production hedges (gas $40 for $.10/Mcf FN1 $ 216 $ 350
price exposure)
Stress demand $ 2,200 FN2 400 275
Normal 1st quarter - $ 50 $ 50
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TOTAL $ 666 $ 675
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1 Movement of approximately $.54/Mcf for 12-month strip during the period.
2 $1.8 billion of working capital and other uses through December 31, 2002.
WORKING CAPITAL OUTLOOK FOR
APRIL-DECEMBER 2003
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EXPECT WORKING CAPITAL RECOVERY OF
$1.2 BILLION FOR REMAINDER OF 2003
o $500 MM from letters of credit backed by $3 billion facility
o $225 MM roll off of production hedges
o $300 MM impact of higher prices on production, or return of margin on
production hedges if prices fall
o $(60) MM settlements from trading book
o $200 MM related to petroleum asset sales
FINANCIAL REVIEW
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LIQUIDITY UPDATE
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$ BILLIONS
DECEMBER 31, 2002 MARCH 31, 2003 APRIL 30, 2003
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BALANCE SHEET CASH $ 1.6 $ 1.8 N/A
Available cash $ 1.1 $ 1.5 $ 1.9
Availability under $3 billion bank
facility 1.5 1.5 1.0
Available under $1 billion bank
facility .5 - .1
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NET AVAILABLE LIQUIDITY $ 3.1 $ 3.0 $ 3.0
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Note: $3 billion bank facility matures in June 2005 and $1 billion bank facility matures in August 2003
PRO FORMA BALANCE SHEET
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$ BILLIONS
FINANCING MINORITY AND GUARANTEES
OBLIGATIONS AND PREFERRED PER BANK
NOTES PAYABLE INTERESTS FN1 FACILITY PRO FORMA
Balance at March 31, 2003 $ 20.7 $ 2.2 $ 1.80 $ 24.7
ELECTRON AND GEMSTONE:
Gemstone notes due 2004 1.0 - (1.0) -
Gemstone project debt 0.1 - - 0.1
Electron project and
restructuring debt 1.6 - - 1.6
Intercompany eliminations (0.4) (0.4) - (0.8)
Linden sale (0.6) - - (0.6)
BANK FINANCING ACTIVITIES:
Clydesdale refinancing 0.8 (0.8) - -
Operating leases 0.6 - (0.6) -
Coastal Securities Company, Ltd 0.1 (0.1) - -
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PRO FORMA BALANCE AT MARCH 31, 2003 $ 23.9 $ 0.9 $ 0.2 $ 25.0
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1 FAS 150 may require reclassification of $625 MM of trust preferred
securities to debt.
DEBT REDUCTION PLAN
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$ BILLIONS
Pro forma obligations senior to common at March 31, 2003
Less: $ 25.0
(1.0)
Cash in excess of $500 MM (1.9)
Remaining 2003 asset sales (2.5)
Other asset sales identified for debt reduction (1.3)
Return of trading and hedge margin (.6)
Conversion of equity security units (mandatory August 2005) ----------
Target obligations senior to common $ 17.7
Less non-recourse obligations:
Utility Contract Funding (.8)
Mohawk River Funding (.1)
Cedar Brakes I and II (.7)
Other project debt (.3)
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Target recourse obligations senior to common $ 15.8
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SUMMARY
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o El Paso's core businesses performing very well
o Continued solid execution of operational and financial plan
o Aggressively pursuing $400 MM cost reduction target
o Asset sales and working capital recovery will yield significant debt
reduction
o Long range planning committee will deliver final part of restructuring
process
- Deliver solid earnings power of core business
- Reduce debt to appropriate level
- Generate free cash flow while investing prudently in core
businesses
o We WILL deliver shareholder value