HOUSTON, Dec. 13 -- In a move to clean up its balance sheet, Houston-based El Paso Corp. said Thursday it plans to sell all of its deepwater operations in the Gulf of Mexico, its Midcontinent US oil and gas assets, and "a significant component" of its Rocky Mountain properties.
It also put on the block the coal properties and the 140,000 b/d Eagle Point refinery in Westville, NJ, obtained through its acquisition of Coastal Corp., Houston, early this year. Sale of all of those assets is expected to generate $2.25 billion in cash.
El Paso executives apparently are still deciding how many and which upstream properties will be marketed.
Company executives anticipate a quick sale, however. "We believe all of these are highly attractive assets, and so we expect to execute that first phase of the plan largely during the first quarter," said Ralph Eads III, president of the El Paso Merchant Energy group, in a teleconference with financial analysts.
He also said, "A lot of these assets are pent up things that we would have sold previously, but we really couldn't. Now we're in a position where, as part of this program, we're going to do this."
El Paso Chairman and CEO William A. Wise told analysts, "We were in a post-pooling period after completing two large pooling transactions. We weren't contemplating disposing of any of the assets." In addition to its merger of Coastal, El Paso expanded into Canada this year with its acquisition of Velvet Exploration Ltd. in Calgary.
However, Wise said, "Circumstances are completely changed now, impacted by Enron's bankruptcy and changes in the ratings standards by one of the rating agencies, which gives us the opportunity to monetize some assets that, when pooling permitted, we would have looked at."
The assets being offered are nonstrategic and will not significantly impact the company's reserves and production, said company officials.
The upstream properties are "uncomplicated" and should be liquidated fairly easily, said Eads. "There is a lot of liquidity out there in the acquisition market for this sort of thing," he said. But sale of the refinery and coal properties will be "more complicated" and likely will take longer to complete.
In corporate publications, El Paso Production Co., the exploration and production arm, earlier claimed to be the largest lease holder and most active driller in the Gulf of Mexico, with a highly successful deep-drilling program on the Outer Continental Shelf and significant deepwater potential.
But Eads told analysts Thursday, "We don't have a large position in the deep water. It's not a place where we're a significant factor, so we're going to divest those (properties)."
He seemed to indicate that some of El Paso's properties in the gulf's shallower waters also may be offered for sale. "We have additional shelf assets, so there's going to be a Gulf of Mexico package," Eads said.
"We're going to divest our Midcontinent assets. These are very attractive assets, so there will be a lot of people interested in these," he said, without providing any breakdown or even a summary of those properties. "We've thought for some time, that we either needed to be bigger in the Midcontinent or exit."
In addition, he said, "We're going to have a significant component of our Rockies assets that is going to be sold."
Under subsequent questioning by analysts, El Paso officials said only that the earmarked properties included "hundreds of fields" and "properties late in their life."
Company publications describe El Paso Production as the third largest North American producer, with a reserve base of 6.4 tcfe, 90% gas. Its operations are focused in the salt basins of East Texas and northern Louisiana; the Wilcox and Vicksburg trends in South Texas; the producing areas of the Gulf of Mexico, both onshore and offshore; and the Piceance, Wind River, and Uintah basins in the Rocky Mountains.
"We're going to divest the Eagle Point refinery," said Eads. "We're not going to divest our Aruba refinery. It's an asset that is profitable even in the current environment. It's also an important asset in our trading business. But Eagle Point is not important."
El Paso's 280,000 b/d distillates refinery in Wicklund, Aruba, was part of the Coastal acquisition.
As for the former Coastal coal operations, Eads said, "We are going to monetize that."
In addition, he said, "Texas midstream assets will be sold to the master limited partnership, continuing our track record of having done that successfully."
That sale "is a factor of how fast we can move the price through. That could happen in the first quarter, too," said Eads.
El Paso Midstream Group provides gathering, treating, processing, compression, and intrastate transmission services to producers throughout the southern United States and the Gulf of Mexico. El Paso Energy Partners LP is an El Paso affiliate.
El Paso's proposed program to reduce its total debt-to-capital ratio also includes:
-- Reduction of capital spending to $3.1 billion next year and generation of more than $1.5 billion of free cash flow.
-- Increasing common equity by at least 1.3 billion through retained earnings and equity financings.
-- Elimination or renegotiation of rating triggers in certain financing.
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