Posted on 05/03/2004 2:38:14 PM PDT by Willie Green
For education and discussion only. Not for commercial use.
NEW YORK (Reuters) - Some El Paso Corp. (NYSE:EP - news) employees may knowingly have used incorrect estimates to boost proven natural gas reserves over five years, the natural gas pipeline operator said on Monday.
An independent review, which the Houston-based natural gas pipeline operator launched after it slashed its proven natural gas reserves by 41 percent in February, also found that some El Paso employees used methods that were aggressive and unsupportable, or inconsistent with guidelines, to book proven reserves.
El Paso's move to slash its reserves came just weeks after oil giant Royal Dutch/Shell Group (RD.AS) shocked investors by wiping off 20 percent from its proven reserves.
Proven reserves are quantities of oil and that a company expects to be commercially recoverable from known fields.
"Certain employees provided proved reserve estimates that they knew or should have known were incorrect at the time they were reported," El Paso said in a statement on the findings of the review conducted by Texas law firm Haynes and Boone LLP over the last two months.
El Paso's senior management team, however, did not participate in the reserves overstatement, the probe found. The questionable booking was done from the beginning of 1999 through the end of 2003.
El Paso said it was cooperating with the U.S. Securities and Exchange, which has been investigating its cut in reserves, and the U.S. Attorney's office on the finding.
The findings confirmed El Paso's previous reckoning that it would have to restate its financial statements. The company said it would delay its first-quarter reports until the restated books are filed with U.S. regulators. It has yet to report its fourth-quarter results.
The review, which involved more than 200 interviews and 100,000 documents, is continuing but El Paso said it did not expect any material changes to the findings once it is complete.
Shares of El Paso fell 14 cents, or 2 percent, to $6.87 in early trade on the New York Stock Exchange (news - web sites).
El Paso said it would discuss its plans to restate its books with the SEC and file the restated financials and its annual report for 2003 as soon as possible. The process will also involve restating the books of its El Paso CGP Co. and El Paso Production Holding Co. units.
The company said it is in the process of improving its controls, including forming an internal committee to routinely review its oil and natural gas reserves as well as revising its documentation procedures and controls for estimating proved reserves.
It also said it would continue using an independent third-party engineering firm that will report each year to the Audit Committee.
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