Fitch: El Paso Corp.'s Purchase of Peoples Energy Production Co. Won't Affect Rtgs

NEW YORK--(BUSINESS WIRE)--Fitch Ratings said Monday that El Paso Corporation's (El Paso) announcement that it has entered into an agreement with Integrys Energy Group (Integrys) to acquire Peoples Energy Production Company (Peoples Production), a subsidiary of Integrys, for $875 million in cash will not affect the ratings of El Paso or its subsidiaries. El Paso plans to permanently finance the transaction primarily through proceeds from its ongoing divestiture program of non-core upstream assets. The Rating Outlook for El Paso and its subsidiaries is Stable. A complete list of the ratings is included at the end of this release.

Through the acquisition of Peoples Production, El Paso will add approximately 305 billion cubic feet equivalent (Bcfe) of proven reserves, approximately 42% of which are developed and 94% natural gas. The transaction values the reserves at approximately $2.87 per thousand cubic feet equivalent (mcfe) of reserves. The reserves are primarily located in the ArkLaTex and Texas Gulf Coast region, with significant overlap of El Paso's existing reserve base. Production from the reserves is currently 72 million cubic feet equivalent per day (mmcfe/d) for an estimated proven reserve life of 11.6 years.

While Fitch typically views a proven developed percentage of between 60 and 80 percent as an indication of a balanced portfolio of upstream assets, the Peoples Production reserves will provide immediate production to El Paso as well as a significant source of future exploration and development opportunities with more than 600 probable and possible drilling locations. The reserve life of El Paso's assets should also improve with the acquisition. El Paso estimates that the investment required to develop the proven undeveloped (PUD) reserves will total approximately $300 million. Overall production expenses should improve marginally as El Paso estimates the lifting costs of the acquired reserves at $0.60 per mcfe as compared with its existing portfolio at $0.80 per mcfe. The transaction is expected to close in the third quarter of 2007.

On Aug. 7, 2007, El Paso announced plans to divest of between 220 and 270 bcfe of proven reserves as part of an effort to upgrade its oil and gas portfolio with divestments expected to be completed by the first quarter of 2008. The divestiture program represents up to 10% of the company's estimated year-end 2006 reserves and 15% of production. As a result of the Peoples Production acquisition, El Paso also expects to benefit from like kind exchange tax treatment for its divestment program. Given the net minimal near-term impact on overall leverage, production, operating costs and total reserves as a result of the acquisition and divestiture program, the transactions will not result in an immediate impact on El Paso's credit quality.

The Ratings of El Paso and subsidiaries are as follows:

El Paso Corporation

-- Issuer Default Rating (IDR) 'BB+';

-- $500 million secured letter of credit facility (2011) 'BBB-';

-- $1.25 billion senior secured revolving credit facility (2009) 'BBB-';

-- $500 million senior unsecured credit facility (2011) 'BB+';

-- Senior unsecured notes and debentures 'BB+';

-- Perpetual preferred stock 'BB-'.

El Paso Energy Capital Trust I

-- Trust convertible preferred securities 'BB-'.

Colorado Interstate Gas Company (CIG)

-- Issuer Default Rating (IDR) 'BBB-';

-- Senior unsecured debt 'BBB-'.

El Paso Natural Gas Company (EPNG)

-- Issuer Default Rating (IDR) 'BBB-';

-- Senior unsecured debt 'BBB-'.

El Paso Exploration & Production Company (EEPC)

-- Issuer Default Rating (IDR) 'BB+';

-- Senior secured revolving credit facility (2011) 'BBB-';

-- Senior unsecured debt 'BB+'.

Southern Natural Gas Company (SNG)

-- Issuer Default Rating (IDR) 'BBB-';

-- Senior unsecured debt 'BBB-'.

Tennessee Gas Pipeline Company (TGP)

-- Issuer Default Rating (IDR) 'BBB-';

-- Senior unsecured debt 'BBB-'.

El Paso owns North America's largest interstate natural gas pipeline network comprised of approximately 43,000 miles of pipe, 220 billion cubic feet (Bcf) of storage capacity, and a liquefied natural gas (LNG) import facility with 1.2 Bcf per day of send-out capacity. The company's upstream operations included year-end 2006 estimated reserves of approximately 2.4 billion cubic feet equivalent (bcfe) of consolidated proven reserves and 222 bcfe of proven reserves for El Paso's interest in Four Star.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The issuer did not participate in the rating process other than through the medium of its public disclosure.