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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
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[X] 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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TRANSCRIPT OF PRESENTATION ON CALIFORNIA SETTLEMENT CONFERENCE CALL ON
MARCH 21, 2003
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This message 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
message, including, without limitation, actions by credit rating agencies;
the successful implementation of the settlement announced in this message;
receipt of all necessary judicial and regulatory approvals of the
settlement; our ability to divest of certain non-core assets; 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; the successful implementation of the 2003 business
plan; 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.
ADDITIONAL IMPORTANT INFORMATION
Prior to its 2003 annual meeting, El Paso will furnish to its shareholders
El Paso's definitive proxy statement relating to this meeting, together
with a WHITE proxy card. Shareholders are strongly advised to read this
proxy statement when it becomes available, as it will contain important
information.
Shareholders will be able to obtain El Paso's proxy statement, any
amendments or supplements to the 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 proxy statement and any amendments and
supplements to the proxy statement will also be 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 the proxy materials may be requested by contacting our
proxy solicitor, MacKenzie Partners, Inc. at (800) 322-2885 toll-free or by
email at proxy@mackenziepartners.com.
To the extent that individual customers, independent industry researchers,
financial analysts, or El Paso commissioned research, are quoted, it is El
Paso's policy to use reasonable efforts to verify the source and accuracy
of the quote. El Paso has not, however, sought or obtained the consent of
the quoted source to the use of such quote as proxy soliciting material.
Also, El Paso may express opinions and beliefs. Except as otherwise
expressly attributed to another individual or entity, these opinions and
beliefs are the opinions and beliefs of El Paso.
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 Schedule 14A filed by El Paso with the
Securities and Exchange Commission on February 18, 2003, as amended by a
Schedule 14A filed by El Paso on March 18, 2003.
PRESENTATION
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Good morning and thank you all for joining us on such short notice. With me
here today from El Paso's management team are Peggy Heeg, general counsel
of El Paso Corporation; Brent Austin, president and chief operating
officer; John Somerhalder, president of El Paso's Pipeline Group; and Dan
Collins, deputy general counsel for the El Paso Pipeline Group.
This has been an eventful period of time at El Paso. Since this is the
first opportunity that I have had to speak with you in my new role, I
wanted to take a few minutes to give you a brief update on our progress.
We believe we have a solid operational and financial plan in place to
address our challenges. So far the execution of that plan has been better
than expected. The plan includes focusing on our core businesses. In that
regard, 35 percent of our capital expenditures this year are committed to
maintaining and expanding our pipelines; 52 percent devoted to production
and the remainder to our other businesses. The second point of our plan is
to exit our non-core businesses quickly and prudently - which we have been
doing through a series of asset sales. These asset sales are crucial to
improving the company's financial liquidity and our financial flexibility.
The effort is going well. To date we have closed or signed agreements to
sell $1.5 billion of assets. So you can see we are well on the way to
achieving our goal of monetizing $3.4 billion of assets. We recently raised
this target from $2.9 billion to $3.4 billion with the completed sale of
our Mid-Continent gas reserves for $500 million.
Another tenet of the plan is to simplify our balance sheet while improving
our liquidity. As you know, we recently closed a $1.2 billion two year
secured loan and used the proceeds to pay off the balance of the Trinity
River financing. This freed up substantial cash which is being generated by
the assets used to secure the Trinity River financing, thus greatly
improving our liquidity. This transaction also enabled us to use the freed
up cash from Trinity River, plus cash on hand, to retire the $1 billion
Limestone Electron notes. Finally, we also just issued a total of $700
million of bonds at Southern Natural and ANR. The fourth leg of the plan is
to aggressively move forward with getting our costs in line with what will
be on our ongoing operations. We have to bring our costs in line with what
we are going to be--not what we were. We've made great progress here but
there is a lot more to be done. Last year we reduced annual expenses by
$300 million, this year our target is to achieve additional cost savings of
at least $150 million.
The final leg of our plan is to resolve the regulatory and litigation
matters hanging over the Company. Which leads us directly into today's
announcement. As you all know by now, we have reached a comprehensive
agreement in principle to resolve claims related to the western energy
crisis from September 1996 to the present. This settlement will resolve the
principal litigation and claims against El Paso relating to the sale or
delivery of natural gas and/or electricity in or to California, Washington,
Oregon, and Nevada.
I am pleased we have secured a global settlement that will minimize current
demands on El Paso's liquidity. We will be taking an estimated after-tax
charge of approximately $650 million in the fourth quarter of 2002 to cover
this settlement. Getting these issues behind us and moving ahead with our
business plan is and has been the company's top priority.
Before I get to the details of the settlement, I want to reiterate that El
Paso's actions were at all times consistent with both the letter and the
spirit of the law. I am convinced the Company and its people have done
nothing wrong, absolutely convinced. However, this litigation has been the
subject of great concern in the financial markets. As objectionable as any
settlement is in these circumstances, it allows us to put the uncertainty
surrounding these issues behind us and move ahead with executing our plan.
This settlement is the result of many hours of hard work involving a very
large number of parties. The parties to this settlement include private
class action litigants in California, the Governor and Lieutenant Governor
of California, the attorneys general of California, Washington, Oregon and
Nevada, the California Public Utilities Commission, the California
Electricity Oversight Board, the California Department of Water Resources,
Pacific Gas and Electric Company and Southern California Edison Company. I
particularly want to thank the El Paso team led by Peggy Heeg that helped
navigate this very complex negotiation process.
This settlement is subject to the negotiation of definitive documents. In
addition, this settlement requires the review and approval of the courts
and the FERC.
With regard to the FERC, El Paso, the CPUC, PG&E, and SoCal Edison will
file a joint request with the FERC to stay the issuance of a decision in
the pending complaint proceeding.
I want to be clear that this is an agreement in principle which means there
is still work to be done. We anticipate that the settlement process can be
completed by year-end.
I want to reiterate my belief in this company and its people--El Paso is a
great company with the best employees and assets in the business. I look
forward to getting this settlement approved, moving ahead with our
business, and continuing the impressive progress that we have made on our
plans.
I am going to turn the call over to Peggy Heeg now. Peggy is our general
counsel and, as I said earlier, was very involved in the negotiation
process. Peggy will review the details of the settlement and then Brent
Austin will follow with financial details.
PEGGY HEEG
Thank you Ron. We are very pleased today to be able to announce this
comprehensive settlement today. I would like to first thank all of the
participants who worked so hard to achieve a settlement that was structured
to minimize the current demands on the company's liquidity. Today's
agreement in principle includes a number of key elements that I will go
over with you.
There are primarily four components to the settlement--up-front payments of
cash and stock, non-cash consideration, additional payments over time, and
certain structural arrangements. Before I turn to the specific components
of the settlement, I want to make clear that we negotiated this settlement
as a package with the settling parties. They have agreed among
themselves--and without our involvement--how they will allocate the
package.
Turning first to the up-front payments, El Paso has agreed to pay to the
settling parties $100 million in cash. This payment will be made into an
escrow account upon execution of a definitive settlement agreement. El Paso
will also make a $2 million payment from the company's officer bonus pool.
We will issue $125 million in El Paso common stock to the parties once the
settlement is effective. The number of shares that will be issued will be
based on the average stock price for the 30 trading days prior to
yesterday--the day of the announcement of the settlement. These shares will
be sold within 90 days after issuance.
As to the second element--the non-cash consideration--El Paso will deliver
at the California border $45 million worth of natural gas annually for 20
years, commencing in 2004.
We have also agreed to reduce the pricing of our long-term power contracts
with the California Department of Water Resources by $125 million over the
remaining term of those contracts, which run through the end of 2005.
The third component of the settlement -- additional payments over time
--the company has agreed to make annual payments of $22 million a year for
20 years. This obligation will commence 12 months after execution of the
settlement agreement. El Paso has the option to make 50 percent of any
annual payment in stock.
As to the fourth component of the settlement -- structural agreements -- El
Paso Natural Gas agrees to maintain its existing delivery capacity at the
California border of 3,290 million cubic feet per day over a five-year
period. El Paso will seek FERC authority to assure that its customers have
the contractual right to utilize that capacity on a primary delivery point
basis. El Paso has also agreed that no affiliates of El Paso will subscribe
to new capacity on the El Paso Natural Gas pipeline system.
As Ron mentioned, El Paso, the CPUC, PG&E, and SoCal Edison will file a
joint request with the FERC today to stay the issuance of a decision in the
pending complaint proceeding.
The settlement is subject to review and approval by the courts and the
FERC. We are hopeful that the settlement will be finalized by year-end.
Although there is still work to be done to implement the settlement, the
agreement represents a significant milestone toward the resolution of the
company's litigation and regulatory issues related to the western energy
crisis. This is a major accomplishment given the number of parties, the
complexity of the issues involved, and the financial exposure this
settlement eliminates.
Brent Austin is now going to walk you through the financial implications of
the settlement.
BRENT AUSTIN
Peggy, thank you very much.
This settlement helps our company with every constituency. It removes
significant market uncertainties surrounding the company. We are also
pleased that we were able to achieve our primary goal in this
settlement--namely, minimal demands on the company's current liquidity.
This settlement results in an estimated pre-tax charge of approximately
$900 million--which translates into an estimated after-tax charge of
approximately $650 million at a 28 percent tax rate. These amounts
represent the present value of the settlement components discounted at 10
percent. We will take this charge in the fourth quarter of 2002, as you
will see in the 10-K that we file at the end of this month.
In 2003 and future years, we will record an annual "imputed interest"
charge on the declining present value of the ongoing elements of the
settlement. This annual cost is expected to be on the order of $0.08 per
share and will decline over time.
With respect to the stock component of the settlement, we would expect to
issue approximately 26.4 million common shares once the settlement is
effective.
There is also a provision in the settlement that El Paso will supply
natural gas valued at $45 million annually to the California border for 20
years beginning in January 2004. The actual volume of the gas to be
delivered per year will vary depending upon the level of future gas prices.
However, it is important to note that El Paso's obligation is fixed at $45
million per year. As a result the company has no need or plans to hedge
this future obligation.
Additional details regarding the settlement will be included in the
company's Form 10-K, which we plan to file at the end of the month.
With that, we'll now move to the Q&A. The primary purpose of today's call
is to talk about the settlement so we will only be answering questions
relating to today's announcement. As Ron said earlier, we also have John
Somerhalder and Dan Collins here with us today to help us answer your
questions regarding the settlement.
Operator, we are now ready to take questions.
[Transcript, including Questions and Answers, to be filed separately]