El Paso Takes $2.67-Billion Write-Down on Fuel Assets

El Paso Corp., the nation’s largest natural gas pipeline company, said Monday that it would write down the value of its oil and gas properties by $2.67 billion and reduce the value of its shareholder equity by $1 billion to reflect accounting revisions for natural gas hedges.

The balance-sheet changes are a consequence of Houston-based El Paso’s announcement in February that it was slashing its proven oil and gas reserves by 41%, which triggered a review of its financial statements from 1999 through 2003.

The effect on El Paso earnings has yet to be disclosed. The company held off on releasing quarterly 2004 earnings pending completion of the review and restatements. The company expects to file its 2003 annual report with the Securities and Exchange Commission by the end of the third quarter this year, and quarterly reports for the first two quarters of 2004 by Nov. 30.

El Paso last reported earnings for the third quarter of 2003, posting a net loss of $146 million, or 24 cents per share, because of disappointing production results, write-downs for liquefied natural gas and power assets and losses associated with domestic power asset sales.

The noncash write-downs announced Monday, which will come to $2.4 billion after an adjustment for taxes, will have no cash effect, said Doug Foshee, El Paso’s president and chief executive. “While we know we still have challenges, we are beginning to see the clouds part,” he said.

Investors appeared to agree. El Paso shares rose 24 cents, or 3%, to close at $8.05 on Monday on the New York Stock Exchange.

“Apparently the portfolio managers liked what they heard and are willing to wait two or three years to see a turnaround materialize,” said John Olson, an analyst with Sanders Morris Harris.

Olson said these one-time write-offs should improve profitability in El Paso’s production arm by reducing depletion costs. He called the write-down because of elimination of accounting hedges “a good, old-fashioned write-down” that would not affect future profit.