El Paso yesterday conceded it would need additional restatements of its financial reports after the US energy group said some deals conducted by its energy trading division did not qualify under hedge accounting guidelines.
The company said the hedge revisions and a previously announced cut to its proven oil and gas reserves would wipe $3.7 billion (€3.04 billion) from shareholders' equity.
The changes will have no impact on cashflow, and lower depreciation charges and gas prices at historic highs are expected to lead to higher net profits in 2004.
El Paso has yet to file financial reports for 2003 and the first two quarters of this year, but pledged to deliver its 2003 report by September 30th and those for the first half by November 30th.
It also said asset sales were expected to trim net debt to $16.9 billion by the end of the year, ahead of its internal target of $15 billion by the end of 2005.
While the financial data remain unaudited, and new accounting treatments will need to be cleared by the Securities and Exchange Committee, analysts welcomed the update following months of uncertainty over the likely financial impact of changes to El Paso's trading division.
"We believe we are starting to see the clouds part," Mr Doug Foshee, chief executive, told an analysts' call.
The company, which produces gas and operates the largest gas pipeline network in the US, had told investors it was restating results from 1999 to 2003 after it was forced in February to revise down its proven oil and gas reserves by 41 per cent.
This month it said that further restatements were likely. Yesterday it said that the hedge adjustments were expected to cut shareholders' equity by $1 billion as of December 31st, 2003 while the reserve changes would take a further $2.7 billion from its equity base.
The revised accounting treatment leaves El Paso's production virtually unhedged going forward, leading to increased earnings volatility. It pledged to report on a new risk management policy by the end of the year.
The company said it expected production to decline in the second half of the year compared with the first six months. - (Financial Times Service)
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