After years of slimming its portfolio through divestitures and honing its E&P operating focus, Houston-based El Paso Corp.'s E&P side of the business is now open to playing the acquisition game again, according to chief executive Doug Foshee. The purchase could be as small as a $5-million working interest up to more than $1 billion, Foshee says. Any acquisitions will likely be E&P-focused because of the regulatory red tape inherent in pipeline acquisitions, he adds. Any E&P purchases made during the next several quarters will probably be for resource plays, though Foshee says he would also consider attractive corporate acquisitions. Though a natural third leg for the company would be midstream, Foshee expects that type of deal would be tough to do in the near-term. "...Given the company's backlog of drilling projects coming up during the next five years, we won't be forced into making purchases. I think the bar is pretty high for us for acquisitions. "For the first time in a long time, we've got enough organic growth capacity that we don't feel we have a gun to our head to go do an acquisition...." Staying in data rooms is the only way to stay in the M&A loop, he adds, even when a company isn't ready to buy. "You have to consistently go, even when you think [acquisition] prices are at levels where you might not be successful." El Paso recently turned the corner on a three-year turnaround plan to lower debt and refocus on gas. At year-end 2005 the company had whittled its total debt down to $16.1 billion. Through asset sales, equity issuances and free cash flow, Foshee is aiming to pull it down to $14 billion this year. "We're becoming a simpler company, one that's easier to analyze. We're about $1- to $2 billion away from an investment-grade rating, though you've got to hold onto your stats for some duration before Moody's and Fitch Ratings will acknowledge them." Despite the drastic changes within the company during recent years, Lisa Stewart, president, E&P, says El Paso had its anchors. "A lot was broken about the E&P company, but the one thing that wasn't was the acreage position. And we've put together and retained a talented group of people that made that position possible." One recent addition to that position is a fractured-shale play in Indiana. El Paso is the operator and it shares a 50% interest in the 225,000-gross-acre play with Pogo Producing Co. Although the pressure is on to develop such plays as quickly as possible, Foshee and Stewart aren't anxious to own drilling rigs. "Competition for talent is hard enough-I'd hate to have to start managing rig crews," Stewart says. Foshee adds, "I've seen what happens when service-side companies tried to get into E&P, and it's hard for them to attract the best talent. And folks on the E&P side can't run a service company like it's an E&P company. Going that route may make you feel good that you have your rigs today, but long-term, it doesn't always work out."

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