El Paso slashes proved reserves estimate last year by 41 %

El Paso said poor drilling results in the first half of last year led the company to report production and reserve replacement numbers short of its expectations. The Houston-based natural-gas pipeline and production company slashed its proved reserves estimate last year by 41 %.
Subsequently, the company was forced to take steep charges and restate financial results. The Securities and Exchange Commission launched a formal investigation.

El Paso said it had 2.2 bn tcf of proved reserves as of Dec. 31, 2004. Total additions were 205 bn cf. The company also had to negatively revise 173 bn cf of reserves after selling its Canadian production and its reserves in Indonesia and transferring Hungarian reserves to discontinued operations.
"While we have made significant improvements throughout our production business, overall 2004 drilling and reserve replacement results did not meet our expectations," said Doug Foshee, president and CEO. "Much of our effort in the second half of 2004 was directed at moving proved undeveloped reserves into the producing category."

Overall proved developed reserves increased to more than 70 % of total proved reserves.
"Going into 2005, we have high expectations for this segment," Foshee said. "With the early acquisition of 124 bn cf of reserves and today's deep shelf discovery announcement, we are already a long way toward replacing anticipated 2005 production."

El Paso Production said it made a discovery at West Cameron Block 75 in the Gulf of Mexico, an area where the company had been underperforming. The company said its Jan. 2005 average daily production was 754 mm cf compared with 779 mm cf in the fourth quarter of 2004. El Paso had expected to average between 850 and 950 mm cf of production each day in 2004.
Noting that current output is below its expectations, El Paso nonetheless expects 2005 daily production to average 800 mm cf or more.