Howard Weil 2011: A 'Simple' Bull Case For El Paso Corp.

Doug Foshee, chairman, president and chief executive of El Paso Corp. (NYSE: EP), presented Monday, March 28, at Howard Weil's 39th Annual Energy Conference in New Orleans and repeatedly stressed the simplicity of his company's 2011 strategy.

Foshee began his address by referring to his presentation slide which relayed the vision of El Paso to be "the place to work, the neighbor to have, the company to own."

Foshee told attendees that "We spend a lot of time at El Paso trying to live up to this vision."

"Certainly we were a stock to own in 2010. The stock did very well and we are equally excited about 2011 as we move into it," Foshee stated.

"We think our story this year is really quite simple," Foshee said, before launching into the fundamental drivers and highlights for 2011 across the company's three main operational segments. Foshee began his walkthrough of the 2011 plan by stating that "Firstly, in the pipelines, it is to take the balance of an $8 billion backlog and put it in service this year. It is to conclude successfully three rate cases on our system."

Foshee noted the existing and pending strengths of El Paso's natural gas pipeline operations. "We own the premier interstate natural gas pipeline transmission in North America. We touch about 30% of the gas that is moved everyday in the U.S. We serve most major market areas and we have unsurpassed connectivity into most producing regions of the U.S."

"Those attributes have translated into an investment opportunity that is really unmatched in the interstate natural gas pipeline industry," Foshee said, noting that it doesn't stop there.

"We are now in the final stages of completion of a nearly $8 billion backlog of growth projects" which will "increase our rate base by 75%" from a proportionate rate base of $8.5 billion at year-end 2007 to $14.9 by year-end 2011.

This $8 billion of growth project backlog of pipeline projects are "90% subscribed from a revenue standpoint," Foshee told attendees.

"In the E&P (exploration and production) business," Foshee said the 2011 strategy is "to make out of our Eagle Ford acreage what we made out of the Haynesville in 2009 and 2010, and it is also to set up the Wolfcamp acreage to do the same thing and, in the process, grow our volumes by 30 or 40 percent."

Since 2007, Foshee noted, "We have had a significant amount of portfolio shift," as the company moved from diverse gas-directed E&P activity to oil-directed activity. As 2011 unfolds, the E&P segment will show that oil-directed drilling programs are "ramping up," and "volumes will show rapid growth," according to Foshee's slides.

Formerly, El Paso's E&P program consisted largely of projects offshore in the Gulf of Mexico, in deep inland South Texas and in North American coldbed methane projects. Foshee said his company still owns much of these assets but the firm now has four onshore U.S. "core" areas that weren't "even on the radar" a few years ago.

Foshee's slides showed the El Paso Core Program consisted of oil-directed drilling programs ramping up throughout the year at Altamont in the Rocky Mountain region, at Wolfcamp in West Texas, in the Eagle Ford in South Texas, and in the Haynesville in the East Texas/Louisiana area.

One example Foshee gave was the drilling program at the Eagle Ford trend, where presently there are four rigs drilling for oil and 14 wells producing oil. The gross production has "doubled from year-end 2010," according to Foshee, to a current level of 4,700 barrels per day of oil and an additional 8 million cubic feed per day of gas.

By year-end 2011, Foshee said the company "could be operating six rigs" in Eagle Ford, all drilling for oil.

Touching on the last of the three major El Paso operating segments that Foshee addressed, the El Paso CEO said the plan "In our nascent midstream business, it is to compete for and win one or both of the two major infrastructure projects we are going after. One is to move ethane out of the Marcellus and the other is to gather and process gas out of the Eagle Ford shale."

Beyond the operational strategic plan for 2011, Foshee also noted plans for progress on the financial side.

"On the balance sheet side," Foshee said the 2011 plan is to "continue to process our MLP strategy and use those proceeds to de-lever the balance sheet."

"That's our story for 2011...we think it is pretty simple and it offers the proposition to add a lot of value both for us and for our shareholders."

Established in 1946, Howard Weil is an energy investment boutique that provides equity research, institutional sales and trading, and investment banking services. Howard Weil's Annual Energy Conference is one of the premier energy-investor conferences in the industry.

Entering its 39th year, the Howard Weil conference attracts institutional investors from all over the world to New Orleans for presentations by, and interaction with, CEOs and other top-level management representing a broad range of energy companies.

Contact the author, Greg Haas, at ghaas@hartenergy.com.