<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                             ---------------------

                                   FORM 10-Q
(MARK ONE)

     [X]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                      OF THE SECURITIES EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

                                       OR

     [  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

             FOR THE TRANSITION PERIOD FROM           TO

                         COMMISSION FILE NUMBER 1-7176

                             ---------------------

                              EL PASO CGP COMPANY
             (Exact Name of Registrant as Specified in its Charter)

<Table>
<S>                                            <C>
                   DELAWARE                                      74-1734212
       (State or Other Jurisdiction of                        (I.R.S. Employer
        Incorporation or Organization)                      Identification No.)

               EL PASO BUILDING
            1001 LOUISIANA STREET
                HOUSTON, TEXAS                                     77002
   (Address of Principal Executive Offices)                      (Zip Code)
</Table>

       Registrant's Telephone Number, Including Area Code: (713) 420-2600

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

     Common stock, par value $1.00 per share. Shares outstanding on November 6,
2001: 1,000

     EL PASO CGP COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION H(1)(a) AND
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH A REDUCED DISCLOSURE
FORMAT AS PERMITTED BY SUCH INSTRUCTION.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                        PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                              EL PASO CGP COMPANY

                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                 (IN MILLIONS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                            QUARTER ENDED     NINE MONTHS ENDED
                                                            SEPTEMBER 30,       SEPTEMBER 30,
                                                           ----------------   -----------------
                                                            2001      2000     2001      2000
                                                           -------   ------   -------   -------
<S>                                                        <C>       <C>      <C>       <C>
Operating revenues.......................................  $6,402    $6,443   $20,160   $18,173
                                                           ------    ------   -------   -------
Operating expenses
  Cost of natural gas and other products.................   5,507     5,615    17,186    15,778
  Operation and maintenance..............................     411       357     1,342     1,044
  Merger-related costs and asset impairments.............      15         3       999        10
  Ceiling test charges...................................     115        --       115        --
  Depreciation, depletion and amortization...............     185       155       542       459
  Taxes, other than income taxes.........................      43        36       168       114
                                                           ------    ------   -------   -------
                                                            6,276     6,166    20,352    17,405
                                                           ------    ------   -------   -------
Operating income (loss)..................................     126       277      (192)      768
                                                           ------    ------   -------   -------
Other income
  Earnings from unconsolidated affiliates................      51        64       156       196
  Other, net.............................................       9        16        50        89
                                                           ------    ------   -------   -------
                                                               60        80       206       285
                                                           ------    ------   -------   -------
Income before interest, income taxes and other charges...     186       357        14     1,053
                                                           ------    ------   -------   -------
Non-affiliated interest and debt expense.................     103       133       339       367
Affiliated interest expense, net.........................      12        --        34        --
Minority interest........................................      11        15        37        45
Income taxes.............................................      20        64       (31)      195
                                                           ------    ------   -------   -------
                                                              146       212       379       607
                                                           ------    ------   -------   -------
Income (loss) before extraordinary items.................      40       145      (365)      446
Extraordinary items, net of income taxes.................      (4)       --       (11)       --
                                                           ------    ------   -------   -------
Net income (loss)........................................  $   36    $  145   $  (376)  $   446
                                                           ======    ======   =======   =======
</Table>

                            See accompanying notes.

                                        1
<PAGE>

                              EL PASO CGP COMPANY

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                      (IN MILLIONS, EXCEPT SHARE AMOUNTS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                              SEPTEMBER 30,    DECEMBER 31,
                                                                  2001             2000
                                                              -------------    ------------
<S>                                                           <C>              <C>
                                          ASSETS
Current assets
  Cash and cash equivalents.................................     $   193         $    53
  Accounts and notes receivable, net
     Customer...............................................       2,157           2,549
     Affiliates.............................................         592              34
     Other..................................................         437             473
  Inventory.................................................         823           1,203
  Assets from price risk management activities..............         435             544
  Other.....................................................         582             223
                                                                 -------         -------
          Total current assets..............................       5,219           5,079
                                                                 -------         -------
Property, plant and equipment, at cost
  Pipelines.................................................       6,424           6,092
  Refining, crude oil and chemical facilities...............       2,324           2,338
  Power facilities..........................................         216             237
  Natural gas and oil properties, at full cost..............       6,641           5,100
  Gathering and processing systems..........................         359             340
  Other.....................................................         575             744
                                                                 -------         -------
                                                                  16,539          14,851
  Less accumulated depreciation, depletion and
     amortization...........................................       4,945           4,248
                                                                 -------         -------
          Total property, plant and equipment, net..........      11,594          10,603
                                                                 -------         -------
Other assets
  Intangible assets.........................................         469             464
  Investments in unconsolidated affiliates..................       1,674           1,596
  Assets from price risk management activities..............         454             138
  Other.....................................................         318             989
                                                                 -------         -------
                                                                   2,915           3,187
                                                                 -------         -------
          Total assets......................................     $19,728         $18,869
                                                                 =======         =======
</Table>

                            See accompanying notes.

                                        2
<PAGE>

                              EL PASO CGP COMPANY

              CONDENSED CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
                      (IN MILLIONS, EXCEPT SHARE AMOUNTS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                              SEPTEMBER 30,    DECEMBER 31,
                                                                  2001             2000
                                                              -------------    ------------
<S>                                                           <C>              <C>
                           LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
  Accounts and notes payable
     Trade..................................................     $ 2,298         $ 1,804
     Affiliates.............................................       1,610              13
     Other..................................................         522           1,552
  Short-term borrowings (including current maturities of
     long-term debt)........................................         677             945
  Liabilities from price risk management activities.........          --             546
  Other.....................................................         850             348
                                                                 -------         -------
          Total current liabilities.........................       5,957           5,208
                                                                 -------         -------
Long-term debt, less current maturities.....................       4,649           5,296
                                                                 -------         -------
Other
  Liabilities from price risk management activities.........          --             113
  Deferred income taxes.....................................       2,031           1,957
  Other.....................................................       1,308             994
                                                                 -------         -------
                                                                   3,339           3,064
                                                                 -------         -------
Commitments and contingencies
Securities of subsidiaries
  Company-obligated preferred securities of consolidated
     trusts.................................................         300             300
  Minority interests........................................         586             451
                                                                 -------         -------
                                                                     886             751
                                                                 -------         -------
Stockholder's equity
  Cumulative preferred stock, no shares outstanding in 2001;
     with aggregate liquidation preference of $7.3 million
     at December 31, 2000...................................          --              --
  Class A common stock, no shares outstanding in 2001; par
     value 33 1/3c, 311,377 shares issued in 2000...........          --              --
  Common stock, par value $1 per share, 1,000 shares
     authorized and issued in 2001; par value 33 1/3c per
     share, 219,604,836 shares issued in 2000...............          --              73
  Additional paid-in capital................................       1,265           1,044
  Retained earnings.........................................       3,197           3,573
  Accumulated other comprehensive income....................         435              (8)
  Treasury stock (at cost) no shares in 2001 and 4,394,651
     shares in 2000.........................................          --            (132)
                                                                 -------         -------
          Total stockholder's equity........................       4,897           4,550
                                                                 -------         -------
          Total liabilities and stockholder's equity........     $19,728         $18,869
                                                                 =======         =======
</Table>

                            See accompanying notes.

                                        3
<PAGE>

                              EL PASO CGP COMPANY

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN MILLIONS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                              NINE MONTHS ENDED
                                                                SEPTEMBER 30,
                                                              ------------------
                                                               2001       2000
                                                              -------    -------
<S>                                                           <C>        <C>
Cash flows from operating activities
  Net income (loss).........................................  $  (376)   $   446
  Adjustments to reconcile net income (loss) to net cash
     from operating activities
     Depreciation, depletion and amortization...............      542        459
     Ceiling test charges...................................      115         --
     Deferred income tax expense............................       11        167
     Extraordinary items....................................        6         --
     Undistributed earnings of unconsolidated affiliates....      (71)        (5)
     Non-cash portion of merger-related costs, asset
      impairments and changes in estimates..................    1,192         --
     Other..................................................       13         --
  Working capital changes, net of non-cash transactions.....     (379)      (384)
  Non-working capital changes and other.....................      255         (9)
                                                              -------    -------
          Net cash provided by operating activities.........    1,308        674
                                                              -------    -------
Cash flows from investing activities
  Additions to property, plant and equipment................   (1,559)    (1,462)
  Additions to investments..................................     (253)      (167)
  Net proceeds from the sale of assets......................      115          7
  Proceeds from the sale of investments.....................      336         79
  Repayment of notes receivable from unconsolidated
     affiliates.............................................      213         --
  Cash paid for acquisitions, net of cash acquired..........     (232)        --
                                                              -------    -------
          Net cash used in investing activities.............   (1,380)    (1,543)
                                                              -------    -------
Cash flows from financing activities
  Net repayments of commercial paper and short-term notes...     (795)       (46)
  Revolving credit borrowings...............................       30         --
  Revolving credit repayments...............................      (30)        --
  Payments to retire long-term debt.........................     (321)      (593)
  Net proceeds from the issuance of long-term debt..........      100      1,615
  Issuances of common stock.................................        2         26
  Dividends paid............................................      (13)       (40)
  Net proceeds from the issuance of minority interest in
     subsidiaries...........................................      139         --
  Change in affiliated advances payable.....................    1,093         --
  Other.....................................................        7         --
                                                              -------    -------
          Net cash provided by financing activities.........      212        962
                                                              -------    -------
Increase in cash and cash equivalents.......................      140         93
Cash and cash equivalents
  Beginning of period.......................................       53         44
                                                              -------    -------
  End of period.............................................  $   193    $   137
                                                              =======    =======
</Table>

                            See accompanying notes.

                                        4
<PAGE>

                              EL PASO CGP COMPANY

           CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
             AND CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME
                                 (IN MILLIONS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                        QUARTER ENDED       NINE MONTHS ENDED
                                                        SEPTEMBER 30,         SEPTEMBER 30,
                                                       ---------------      -----------------
COMPREHENSIVE INCOME                                   2001       2000       2001       2000
--------------------                                   -----      ----      ------      -----
<S>                                                    <C>        <C>       <C>         <C>
Net income (loss)....................................  $  36      $145      $(376)      $446
  Foreign currency translation adjustments...........    (10)       (2)        (8)        (8)
  Unrealized net gains (losses) from cash flow
     hedging activity
     Cumulative-effect transition adjustment (net of
       tax of $248)..................................     --        --       (459)        --
     Reclassification of initial cumulative-effect
       transition adjustment at original value (net
       of tax of $34 and $223).......................     63        --        411         --
     Additional reclassification adjustments for
       changes in initial value to settlement date
       (net of tax of $71 and $148)..................   (132)       --       (274)        --
     Unrealized mark-to-market gains arising during
       period (net of tax of $134 and $415)..........    253        --        773         --
                                                       -----      ----      -----       ----
Comprehensive income.................................  $ 210      $143      $  67       $438
                                                       =====      ====      =====       ====
</Table>

<Table>
<Caption>
ACCUMULATED OTHER COMPREHENSIVE INCOME                        2001     2000
--------------------------------------                        -----    ----
<S>                                                           <C>      <C>
Beginning balances as of December 31, 2000 and 1999.........  $  (8)   $ --
  Foreign currency translation adjustments..................     (8)     (8)
  Unrealized net gains (losses) from cash flow hedging
     activity
     Cumulative-effect transition adjustment, net of
      taxes.................................................   (459)     --
     Reclassification of initial cumulative-effect
      transition adjustment at original value, net of
      taxes.................................................    411      --
     Additional reclassification adjustments for changes in
      initial value to settlement date, net of taxes........   (274)     --
     Unrealized mark-to-market gains arising during period,
      net of taxes..........................................    773      --
                                                              -----    ----
Balance as of September 30,.................................  $ 435    $ (8)
                                                              =====    ====
</Table>

                            See accompanying notes.

                                        5
<PAGE>

                              EL PASO CGP COMPANY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

1. BASIS OF PRESENTATION

     Our 2000 Annual Report on Form 10-K includes a summary of our significant
accounting policies and other disclosures. You should read it in conjunction
with this Quarterly Report on Form 10-Q. The financial statements as of
September 30, 2001, and for the quarters and nine months ended September 30,
2001 and 2000, are unaudited. The balance sheet as of December 31, 2000, is
derived from the audited balance sheet included in our Annual Report on Form
10-K. These financial statements have been prepared pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission and do not include
all disclosures required by accounting principles generally accepted in the
United States. In our opinion, we have made all adjustments, all of which are of
a normal, recurring nature (except for merger-related costs, asset impairments,
changes in estimates and ceiling test charges, all discussed below), to fairly
present our interim period results. Information for interim periods may not
necessarily indicate the results of operations for the entire year due to the
seasonal nature of our businesses. The prior period information also includes
reclassifications which were made to conform to the current period presentation.
These reclassifications have no effect on our reported net income or
stockholder's equity.

     Our accounting policies are consistent with those discussed in our Form
10-K, except for Accounting for Price Risk Management Activities, which is
discussed below. You should refer to the Form 10-K for a further discussion of
those policies. In addition, we have made additional accounting policy
disclosures below to supplement those policies discussed in our Form 10-K.

  Accounting for Price Risk Management Activities

     Our business activities expose us to a variety of risks, including
commodity price risk, interest rate risk, and foreign currency risk. Our
corporate risk management group identifies risks associated with our businesses
and determines which risks we want to manage and which types of instruments we
should use to manage those risks.

     We record all derivative instruments on the balance sheet at their fair
value under the provisions of Statement of Financial Accounting Standards (SFAS)
No. 133, Accounting for Derivatives and Hedging Activities. These instruments
consist of two types, those derivatives entered into and held to mitigate, or
hedge a particular risk, and those that are entered into and held for purposes
other than risk mitigation, such as those in our trading activities. Our trading
activities are accounted for under the provisions of Emerging Issues Task Force
(EITF) 98-10, Accounting for Contracts Involved in Energy Trading and Risk
Management Activities. For those instruments entered into to hedge risk and
which qualify as hedges, we apply the provisions of SFAS No. 133, and the
accounting treatment depends on each instrument's intended use and how it is
designated. Derivative instruments that qualify as hedges may be designated as
fair value hedges, cash flow hedges, foreign currency hedges or net investment
hedges as defined in SFAS No. 133.

     In addition to its designation, a hedge must be effective. To be effective,
the value of the derivative or its resulting cash flows must substantially
offset changes in the value or cash flows of the item being hedged. If it is
determined that the hedge is no longer effective, hedge accounting is
discontinued prospectively. Hedge accounting is also discontinued when:

     - the derivative instrument expires or is sold, terminated or exercised;

     - it is no longer probable that the forecasted transaction will occur;

     - the hedged firm commitment no longer meets the definition of a firm
       commitment; or

     - management determines that the designation of the derivative instrument
       as a hedge is no longer appropriate.

                                        6
<PAGE>

     At the time we enter into a hedge, we formally document relationships
between the hedging instrument and the hedged item. This documentation includes:

     - the nature of the risk being hedged;

     - our risk management objectives and strategies for undertaking the hedging
       activity;

     - a description of the hedged item and the derivative instrument used to
       hedge the item;

     - a description of how effectiveness is tested at the inception of the
       hedge; and

     - how effectiveness will be tested on an ongoing basis.

     When hedge accounting is discontinued, the derivative instrument continues
to be carried on the balance sheet at its fair value. However, any further
changes in its fair value are recognized in current period earnings. Accounting
for the item that was being hedged differs depending on how the hedge was
originally designated. Our accounting policies for derivative instruments used
in our business that qualify as hedges are discussed below:

<Table>
<Caption>
                                                             IMPACT OF THE DISCONTINUATION OF HEDGE
TYPE OF HEDGE                 ACCOUNTING TREATMENT              ACCOUNTING ON ITEM BEING HEDGED
-------------                 --------------------           --------------------------------------
<S>                    <C>                                   <C>
Fair value             Changes in the fair value of the      When hedge accounting is discontinued,
                       derivative and changes in the fair    the hedged asset or liability is no
                       value of the related asset or         longer adjusted for changes in fair
                       liability attributable to the         value. When hedge accounting is
                       hedged risk are recorded in current   discontinued because the hedged item
                       period earnings, generally as a       no longer meets the definition of a
                       component of revenue in the case of   firm commitment, any asset or
                       a sale or as a component of the       liability that was recorded related to
                       cost of products in the case of a     the firm commitment is removed from
                       purchase.                             the balance sheet and recognized in
                                                             current period earnings.

Cash flow              Changes in the fair value of the      When hedge accounting is discontinued
                       derivative are recorded in other      because it is no longer probable that
                       comprehensive income for the          the forecasted transaction will occur,
                       portion of the change in value of     gains or losses that were accumulated
                       the derivative that is effective.     in other comprehensive income related
                       The ineffective portion of the        to the forecasted transaction will be
                       derivative is recorded in earnings    recognized immediately in earnings.
                       in the current period.                When a cash flow hedge is
                       Classification in the income          de-designated, but the forecasted
                       statement of the ineffective          transaction is still probable, the
                       portion is based on the income        accumulated amounts remain in other
                       classification of the item being      comprehensive income until the
                       hedged.                               forecasted transaction occurs. At that
                                                             time, the accumulated amounts are
                                                             recognized in earnings.

Foreign currency       Changes in the fair value of the      If hedge accounting is discontinued,
                       derivative are recorded in current    accounting for the hedged item depends
                       period earnings if it qualifies as    on whether the hedge is a fair value
                       a fair value hedge, or in other       hedge or a cash flow hedge, and
                       comprehensive income if it            follows the accounting discussed
                       qualifies as a cash flow hedge.       above.
</Table>

                                        7
<PAGE>

     Because our business activities encompass all aspects of the wholesale
energy marketplace, including the production, gathering, processing, treating,
transmission, refining and the purchase and sale of highly liquid energy
commodities, our normal business contracts may qualify as derivative instruments
under the provisions of SFAS No. 133. As a result, we evaluate each of our
commercial contracts to see if derivative accounting is appropriate. Contracts
that meet the criteria of a derivative are then evaluated to determine whether
they qualify as a "normal purchase" or a "normal sale" as those terms are
defined in SFAS No. 133. If they qualify as normal purchases and normal sales,
we may exclude them from SFAS No. 133 treatment. We also evaluate our contracts
for "embedded" derivatives. Embedded derivatives have terms that are not clearly
and closely related to the terms of the contract in which they are included. If
embedded derivatives exist, they are accounted for separately from the host
contract, with changes in their fair value recorded in current period earnings.

  Excise Taxes

     We account for excise taxes in two different ways. In our retail
activities, we record amounts billed to customers in operating revenues with a
corresponding entry for amounts owed in operating expenses. In our refining and
marketing operations, we do not record the amounts we bill and collect from
customers in revenues. Rather, we record a receivable from our customers and a
payable to the government agencies or suppliers. For the nine months ended
September 30, 2001, we had recorded approximately $330 million in excise taxes,
of which $69 million is related to our retail activities, and $261 million is
related to our refining and marketing activities.

  Trading Activities

     Our trading activities consist of domestic crude oil trading and natural
gas and power trading. We account for these activities using the mark-to-market
method of accounting under the provisions of EITF 98-10, Accounting for
Contracts Involved in Energy Trading and Risk Management Activities. Under the
mark-to-market method of accounting, commodity and energy related contracts are
reflected at quoted or estimated market value with resulting gains and losses
included in our income statement. Net gains or losses recognized in a period
result primarily from the impact of price movements on transactions originating
in that or previous periods. Assets and liabilities resulting from
mark-to-market accounting are included in our balance sheets and are classified
according to their term to maturity. Mark-to-market changes and financial
settlements are recorded in revenue, and all physical transactions are recorded
in revenue and cost of natural gas and other products, as appropriate. We
reflect receivables and payables that arise upon the actual settlement of these
contracts separately from price risk management activities in our balance sheet
as trade receivables or payables. Cash inflows and outflows associated with
these price risk management activities are recognized in operating cash flows as
transactions are settled.

     The market value of commodity and energy related contracts reflects our
best estimate, and considers factors including closing exchange and
over-the-counter quotations, time value, and volatility factors underlying these
contracts. The values are adjusted to reflect the potential impact of
liquidating our position in an orderly manner over a reasonable period of time
under present market conditions and to reflect other types of risks, including
model risk, credit risk and operational risks. In the absence of quoted market
prices, we utilize other valuation techniques to estimate fair value. The use of
these techniques requires us to make estimations of future prices and other
variables, including market volatility, price correlation and market liquidity.
As of September 30, 2001 we had a net gain of approximately $23 million related
to our trading activities.

  Planned Major Maintenance

     Repair and maintenance costs incurred in connection with planned major
maintenance activities at our domestic refineries and plants are accrued as a
liability in a systematic and rational manner over the period of time until the
planned major maintenance activities occur. Any difference between the accrued
liability and

                                        8
<PAGE>

the actual costs incurred in performing the maintenance activities are charged
or credited to expense at the time the maintenance occurs. At our international
refineries, the cost of each major maintenance activity is capitalized and
amortized to expense in a systematic and rational manner over the estimated
period extending to the next planned major maintenance activity. The types of
costs we accrue in conjunction with major maintenance at our refineries and
plants are outside contractor costs, materials and supplies, company labor and
other outside services. Our accrual was $35 million at September 30, 2001 and
$51 million at December 31, 2000.

  Stock-Based Compensation

     We have historically applied the provisions of Accounting Principles Board
Opinion No. 25 and its related interpretations in accounting for our stock
compensation plans. Accordingly, we did not recognize compensation expense for
stock options unless the options were granted at an exercise price that was
lower than the market price on the grant date. We also used fixed and variable
plan accounting for our fixed and variable compensation plans. As a result of
our merger with El Paso, all of our outstanding options were exchanged for El
Paso common stock, and we no longer have securities outstanding subject to this
accounting.

2. MERGER WITH EL PASO CORPORATION

     In January 2001, we became a wholly owned subsidiary of El Paso Corporation
through our merger with a wholly owned El Paso subsidiary. In the merger,
holders of our common stock and Class A common stock received 1.23 shares of El
Paso common stock on a tax-free basis for each outstanding common share; holders
of our Series A and Series B convertible preferred stock received 9.133 shares
of El Paso common stock on a tax-free basis for each outstanding convertible
share; and holders of our Series C convertible preferred stock received 17.98
shares of El Paso common stock on a tax-free basis for each outstanding
convertible preferred share. In addition, holders of our outstanding stock
options received shares of El Paso common stock based on the fair value of these
options on the date of the merger. As a result of the merger, El Paso owns 100
percent of our common equity.

     Under a Federal Trade Commission (FTC) order related to the merger, we sold
our Gulfstream pipeline project, our 50 percent interest in the Stingray and U-T
Offshore pipeline systems and our investments in the Empire State and Iroquois
pipeline systems. For the nine months ended September 30, 2001, net proceeds
from these sales were approximately $184 million, and we recognized
extraordinary net losses of approximately $11 million, net of income taxes of
approximately $5 million, including a third quarter 2001 charge of $4 million to
record additional estimated income taxes on these sales.

     We do not anticipate the impact from these sales to be material to our
ongoing financial position, operating results or cash flows.

3. MERGER-RELATED COSTS AND ASSET IMPAIRMENTS

     During the quarter and nine months ended September 30, we incurred
merger-related costs associated with our merger with El Paso and asset
impairments as follows:

<Table>
<Caption>
                                                                          NINE MONTHS
                                                        QUARTER ENDED        ENDED
                                                        SEPTEMBER 30,    SEPTEMBER 30,
                                                        -------------    --------------
                                                        2001     2000    2001      2000
                                                        ----     ----    ----      ----
                                                                 (IN MILLIONS)

<S>                                                     <C>      <C>     <C>       <C>
Merger-related costs..................................  $15      $ 3     $990      $10
Asset impairments.....................................   --       --        9       --
                                                        ---      ---     ----      ---
                                                        $15      $ 3     $999      $10
                                                        ===      ===     ====      ===
</Table>

                                        9
<PAGE>

  Merger-Related Costs

     Our merger-related costs consisted of the following:

<Table>
<Caption>
                                                                           NINE MONTHS
                                                        QUARTER ENDED         ENDED
                                                        SEPTEMBER 30,     SEPTEMBER 30,
                                                        --------------    --------------
                                                        2001     2000     2001      2000
                                                        -----    -----    ----      ----
                                                                 (IN MILLIONS)
<S>                                                     <C>      <C>      <C>       <C>
Employee severance, retention and transition costs....   $--      $--     $585      $--
Business and operational integration costs............    --       --      155       --
Merger-related asset impairments......................     5       --      158       --
Other.................................................    10        3       92       10
                                                         ---      ---     ----      ---
                                                         $15      $ 3     $990      $10
                                                         ===      ===     ====      ===
</Table>

     Employee severance, retention and transition costs include direct payments
to, and benefit costs for, severed employees and early retirees that occurred as
a result of the merger-related workforce reduction and consolidation. Following
the merger, we completed an employee restructuring across all of our operating
segments, resulting in the reduction of approximately 3,200 full-time positions
through a combination of early retirements and terminations. Employee severance
costs include actual severance payments and costs for pension and
post-retirement benefits settled and curtailed under existing benefit plans as a
result of this restructuring. Retention charges include payments to employees
who were retained following the merger and payments to employees to satisfy
contractual obligations. Transition costs relate to costs to relocate employees
and costs for severed and retired employees arising after their severance date
to transition their jobs into the ongoing workforce. Substantially all of the
costs accrued in connection with these activities had been paid as of September
30, 2001.

     Also included in employee severance, retention and transition costs for the
nine months ended September 30, 2001, was a charge of $278 million resulting
from the issuance of approximately 4 million shares of El Paso common stock in
exchange for the fair value of our employees' stock options.

     Business and operational integration costs include charges to consolidate
facilities and operations of our business segments, such as lease-related
charges and incremental fees under software and seismic license agreements.
Included in these charges are approximately $150 million in estimated
lease-related costs to relocate our pipeline operations from Detroit, Michigan
to Houston, Texas. These charges were estimated in the second quarter of 2001 at
the time we completed our relocation. Future developments, such as sub-leases of
our vacated space or other events, could impact our estimates, and these changes
could be material to the amounts we originally recorded.

     Merger-related asset impairments relate to write-offs or write-downs of
capitalized costs for duplicate systems, redundant facilities and assets whose
value was impaired as a result of decisions on the strategic direction of our
combined operations following our merger. These charges occurred primarily in
our Merchant Energy segment, and all of these assets have either been abandoned
or continue to be held for use.

     Other costs include investment banking, legal, accounting, consulting and
other advisory fees incurred to obtain federal and state regulatory approvals,
and take other actions necessary to complete our merger.

  Asset Impairments

     During the nine months ended September 30, 2001, we incurred an asset
impairment charge of approximately $9 million resulting from the
unrecoverability of capitalized costs of Merchant Energy's Corpus Christi
refinery and related assets. In June 2001, we entered into a 20-year lease
agreement on the Corpus Christi refinery and related assets with Valero Energy
Corporation. See Note 7 for a further discussion of this transaction.

                                        10
<PAGE>

4. CHANGES IN ACCOUNTING ESTIMATES

     Included in our operation and maintenance costs for the quarter and nine
months ended September 30, 2001, were approximately $113 million and $317
million in costs related to changes in our estimates of environmental
remediation liabilities, legal obligations and the usability of spare parts
inventory in our worldwide operations. These changes arose as a result of an
ongoing evaluation of our operating standards, strategies and plans following
our merger with El Paso. The evaluation related specifically to the sale of our
retail gas stations and the shutdown of our Kansas refining operations, a fire
at our Aruba refinery and the lease of our Corpus Christi refinery. These
changes in estimates reduced net income before extraordinary items and net
income for the quarter and nine months ended September 30, 2001, by
approximately $76 million and $210 million.

5. CEILING TEST CHARGES

     Under the full cost method of accounting for natural gas and oil
properties, we perform quarterly ceiling tests to evaluate whether the carrying
value of natural gas and oil properties exceeds the present value of future net
revenues, discounted at 10 percent, plus the lower of cost or fair market value
of unproved properties. At September 30, 2001, capitalized costs exceeded this
ceiling limit by $115 million, including $87 million for our Canadian full cost
pool and $28 million for our Brazilian full cost pool. These charges are based
on the November 1, 2001, daily posted oil and natural gas sales prices, adjusted
for oilfield or gas gathering hub and wellhead price differences as appropriate.
As described in Note 1, we use financial instruments (which qualify as hedges
under the provisions of SFAS No. 133) to hedge against volatility of natural gas
and oil prices, and we included the impact of our hedging program in our full
cost ceiling test calculations. Had we not included this impact, our charge
would not have materially changed since we do not significantly hedge our
international production activities. These non-cash write-downs are included as
ceiling test charges in our income statement.

     Had we computed the non-cash ceiling test charges based on the daily oil
and natural gas prices as of September 30, 2001, the charges would have been
approximately $255 million, including approximately $227 million for our
Canadian full cost pool and $28 million for our Brazilian full cost pool. Our
determination of these charges includes the impact on future cash flows of our
hedging program. Had the impact of our hedging program been excluded, the
charges would have been approximately the same for our international production
operations, but we would have incurred an additional charge of approximately
$576 million related to our domestic full cost pool.

6. ACCOUNTING FOR HEDGING ACTIVITIES

     On January 1, 2001, we adopted the provisions of SFAS No. 133 and recorded
a cumulative-effect adjustment of $459 million, net of income taxes, in
accumulated other comprehensive income to recognize the fair value of all
derivatives designated as hedging instruments. The majority of the initial
charge related to hedging cash flows from anticipated sales of natural gas for
2001 and 2002. During the quarter and nine months ended September 30, 2001, $63
million and $411 million, net of income taxes, of this initial transition
adjustment was reclassified to earnings as a result of hedged sales and
purchases during the periods, and an additional $44 million of this adjustment
is expected to be reclassified by the end of 2001. A discussion of our hedging
activities is as follows:

     Fair Value Hedges.  We have crude oil and refined products inventories that
change in value daily due to changes in the commodity markets. We use futures
and swaps to protect the value of these inventories. For the quarter and nine
months ended September 30, 2001, the financial statement impact of our hedges of
the fair value of these inventories was immaterial.

     Cash Flow Hedges.  A majority of our commodity sales and purchases are at
spot market or forward market prices. We use futures, forward contracts and
swaps to limit our exposure to fluctuations in the commodity markets and allow
for a fixed cash flow stream from these activities. As of September 30, 2001,
the value of cash flow hedges included in accumulated other comprehensive income
was an unrealized gain of $451 million, net of income taxes. Of this amount, we
estimate that $280 million will be reclassified from accumulated other
comprehensive income over the next 12 months. Reclassifications occur upon
physical

                                        11
<PAGE>

delivery of the hedged commodity and the corresponding expiration of the hedge.
The maximum term of our cash flow hedges is 2 years; however, most of our cash
flow hedges expire within the next 12 months.

     Our other comprehensive income also includes our proportionate share of
amounts recorded in other comprehensive income by our unconsolidated affiliates
who use derivatives as cash flow hedges.

     For the quarter and nine months ended September 30, 2001, we recognized net
losses of $1 million, net of income taxes, related to the ineffective portion of
all our cash flow hedges.

7. PROPERTY, PLANT AND EQUIPMENT

     In June 2001, we entered into a 20-year lease agreement related to our
Corpus Christi refinery and related assets with Valero. Under the lease, Valero
pays us a quarterly amount that escalates after the second year of the lease. In
addition, Valero has the option to purchase the plant and related assets at the
end of the second year of the lease for approximately $294 million, and a
similar option each year thereafter at an annually increasing amount. Based on
its terms, the lease qualified as an operating lease. Future minimum lease
payments total $811 million: $14 million in 2001; $19 million in 2002; $37
million in 2003; $43 million in 2004 and 2005; and a total of $655 million
thereafter.

8. INVENTORY

     Our inventory consisted of the following:

<Table>
<Caption>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2001            2000
                                                              -------------   ------------
                                                                     (IN MILLIONS)
<S>                                                           <C>             <C>
Refined products, crude oil and chemicals...................      $692           $1,004
Coal, materials and supplies and other......................       131              163
Natural gas in storage......................................        --               36
                                                                  ----           ------
          Total.............................................      $823           $1,203
                                                                  ====           ======
</Table>

9. DEBT AND OTHER CREDIT FACILITIES

     At December 31, 2000, our weighted average interest rate on short-term
borrowings was 7.15%. We had the following short-term borrowings, including
current maturities of long-term debt:

<Table>
<Caption>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2001            2000
                                                              -------------   ------------
                                                                     (IN MILLIONS)
<S>                                                           <C>             <C>
Notes payable...............................................      $ --            $343
Notes payable to affiliates.................................        12              --
Commercial paper............................................        --             455
Current maturities of long-term debt........................       665             147
                                                                  ----            ----
                                                                  $677            $945
                                                                  ====            ====
</Table>

     In January 2001, we terminated approximately $1.5 billion in revolving
credit facilities and became a designated borrower under El Paso's 364-day and
3-year revolving credit and competitive advance facilities. In June 2001, El
Paso replaced its $2 billion, 364-day revolving credit facility, and we are not
a designated borrower under this new facility. The interest rate on the 3-year
revolving credit and competitive advance facility varies and was based on the
London Interbank Offered Rate (LIBOR) plus 50 basis points on September 30,
2001. No amounts were outstanding under this facility as of September 30, 2001.

     In addition to the items discussed above, during the nine months ended
September 30, 2001, we issued $100 million of long-term debt and retired debt
with the aggregate principal amount of approximately $138 million.

     In October 2001, we borrowed approximately $238 million under a loan
agreement. The interest rate on the loan varies based on LIBOR plus 1.425%, and
the loan matures in 2004. The loan is collateralized by the lease payments from
Valero for the Corpus Christi refinery and related assets. The proceeds from the
loan were used to repay short-term indebtedness and for general corporate
purposes.

                                        12
<PAGE>

10. COMMITMENTS AND CONTINGENCIES

  Legal Proceedings

     In May 1999, we were named as defendants in a suit filed in the 319th
Judicial District Court, Nueces County, Texas by an individual employed by one
of our contractors (Rolando Lopez and Rosanna Barton v. Coastal Refining &
Marketing, Inc. and The Coastal Corporation). The suit sought damages for
injuries sustained at the time of an explosion at one of our refining plants,
and was settled in August 2000 for a total payment of $7 million, of which $5
million was covered by insurance. Three of our refinery employees intervened in
the suit and sought damages for injuries sustained in the explosion. Those
claims were tried in August 2000, resulting in a $122 million verdict, for which
there is insurance coverage. The case has been appealed to the Thirteenth Court
of Appeals of Texas, and all appellate briefing in that court has been
completed.

     In 1997, a number of our subsidiaries were named defendants in actions
brought by Jack Grynberg on behalf of the U.S. Government under the False Claims
Act. Generally, these complaints allege an industry-wide conspiracy to under
report the heating value as well as the volumes of the natural gas produced from
federal and Native American lands, which deprived the U.S. Government of
royalties. These matters have been consolidated for pretrial purposes (In re:
Natural Gas Royalties Qui Tam Litigation, U.S. District Court for the District
of Wyoming). In May 2001, the court denied the defendants' motions to dismiss.

     A number of our subsidiaries were named defendants in Quinque Operating
Company, et al v. Gas Pipelines and Their Predecessors, et al, filed in 1999 in
the District Court of Stevens County, Kansas. This class action complaint
alleges that the defendants mismeasured natural gas volumes and heating content
of natural gas on non-federal and non-Native American lands. The Quinque
complaint was transferred to the same court handling the Grynberg complaint and
has now been sent back to Kansas State Court for further proceedings. A motion
to dismiss this case is pending.

     In October 1992, several property owners in McAllen, Texas, filed suit in
the 93rd Judicial District Court, Hidalgo County, Texas, against, among others,
one of our subsidiaries (Timely Adventures, Inc. et al, v. Phillips Properties,
Inc., et al and Garza v. Coastal Mart, Inc.). The suit sought damages for the
alleged diminution of property value and damages related to the exposure to
hazardous chemicals arising from the operation of service stations and storage
facilities. In July 2000, the trial court entered a judgment for approximately
$1.2 million in actual damages for property diminution and approximately $100
million in punitive damages. The judgment is being appealed.

     We are also a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of our
business.

     While the outcome of the matters discussed above cannot be predicted with
certainty, based on information known to date, we do not expect the ultimate
resolution of these matters to have a material adverse effect on our financial
position, operating results, or cash flows.

  Environmental

     We are subject to extensive federal, state and local laws and regulations
governing environmental quality and pollution control. These laws and
regulations require us to remove or remedy the effect on the environment of the
disposal or release of specified substances at current and former operating
sites. As of September 30, 2001, we had a reserve of approximately $259 million
for expected remediation costs. In addition, we expect to make capital
expenditures for environmental matters of approximately $141 million in the
aggregate for the years 2001 through 2006. These expenditures primarily relate
to compliance with clean air regulations.

     From March to October 2000, our Eagle Point Oil Company received several
Administrative Order Notices of Civil Administrative Penalty Assessment from the
New Jersey Department of Environmental Protection. All of the assessments are
related to similar alleged noncompliances with the New Jersey Air Pollution
Control Act pertaining to occurrences of air pollution from the second quarter
1998 through the third quarter 2000 by Eagle Point's refinery in Westville, New
Jersey. The New Jersey Department of Environmental Protection has assessed
penalties totaling approximately $1 million for these alleged violations.

                                        13
<PAGE>

Eagle Point has been granted an administrative hearing on issues raised by the
assessments and, concurrently, is in negotiations to settle these assessments.

     We have been designated and have received notice that we could be
designated, or have been asked for information to determine whether we could be
designated, as a Potentially Responsible Party (PRP) with respect to 25 active
sites under the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) or state equivalents. We have sought to resolve our liability as a
PRP at these CERCLA sites, as appropriate, through indemnification by third
parties and/or settlements which provide for payment of our allocable share of
remediation costs. As of September 30, 2001, we have estimated our share of the
remediation costs at these sites to be approximately $5 million and have
provided reserves that we believe are adequate for such costs. Since the cleanup
costs are estimates and are subject to revision as more information becomes
available about the extent of remediation required, and because in some cases we
have asserted a defense to any liability, our estimates could change. Moreover,
liability under the federal CERCLA statute is joint and several, meaning that we
could be required to pay in excess of our pro rata share of remediation costs.
Our understanding of the financial strength of other PRPs has been considered,
where appropriate, in the determination of our estimated liabilities. We
presently believe that the costs associated with these CERCLA sites will not
have a material adverse effect on our financial position, operating results or
cash flows.

     In Michigan, the Michigan Environmental Response Act requires individuals,
including corporations, who have caused contamination to remediate the
contamination to regulatory standards. Owners or operators of contaminated
property who did not cause the contamination are not required to remediate the
contamination, but must exercise due care in their use of the property so that
the contamination is not exacerbated and the property does not pose a threat to
human health. We estimate that our costs to comply with the Michigan regulations
will be approximately $21 million, which will be expended over a period of
several years and for which appropriate reserves have been made.

     It is possible that new information or future developments could require us
to reassess our potential exposure related to environmental matters. We may
incur significant costs and liabilities in order to comply with existing
environmental laws and regulations. It is also possible that other developments,
such as increasingly strict environmental laws and regulations and claims for
damages to property, employees, other persons and the environment resulting from
our current or past operations, could result in substantial costs and
liabilities in the future. As this information becomes available, or other
relevant developments occur, we will adjust our accrual amounts accordingly.
While there are still uncertainties relating to the ultimate costs we may incur,
based upon our evaluation and experience to date, we believe the recorded
reserves are adequate. For a further discussion of specific environmental
matters, see Legal Proceedings above.

  Rates and Regulatory Matters

     In September 2001, the Federal Energy Regulatory Commission (FERC) issued a
Notice of Proposed Rulemaking (NOPR). The NOPR proposes to apply the standards
of conduct governing the relationship between interstate pipelines and marketing
affiliates to all energy affiliates. The proposed regulations, if adopted by
FERC, would dictate how all our energy affiliates conduct business and interact
with our interstate pipelines. We cannot predict the outcome of the NOPR, but
adoption of the regulations in substantially the form proposed would, at a
minimum, place additional administrative and operational burdens on us.

                                        14
<PAGE>

  Other

     Our foreign investments are subject to risks and unforeseen obstacles that,
in many cases may be beyond our control or ability to manage. We attempt to
manage or mitigate these risks through our due diligence and partner selection
processes, through the denomination of foreign transactions, where possible, in
U.S. Dollars, and by maintaining insurance coverage, whenever obtainable. We
currently have two power plants in Pakistan, with a total investment, including
financial guarantees on these projects, of approximately $226 million. While we
are aware of no specific threats or actions against these investments, events in
that region, including possible retaliation for American military actions, could
impact these projects and our related investments. At this time, we believe that
through a combination of commercial insurance, political insurance and rights
under contractual obligations, our financial exposure in Pakistan from acts of
war, hostility, terrorism or political instability is not material. It is
possible, however, that new information, future developments in the region or
the inability of a party or parties to fulfill their contractual obligations
could cause us to reassess our potential exposure.

11. SEGMENT INFORMATION

     Following our merger with El Paso, we aligned our segments to reflect the
way they are currently being managed. As a result, we now segregate our business
activities into four distinct operating segments: Pipelines, Merchant Energy,
Production and Field Services. These segments are strategic business units that
provide a variety of energy products and services. They are managed separately
as each business unit requires different technology and marketing strategies. We
measure segment performance using earnings before interest expense and income
taxes (EBIT). All periods presented have been restated for these changes. The
following are our results as of and for the periods ended September 30:

<Table>
<Caption>
                                                            QUARTER ENDED SEPTEMBER 30, 2001
                                            -----------------------------------------------------------------
                                                        MERCHANT                 FIELD
                                            PIPELINES    ENERGY    PRODUCTION   SERVICES   OTHER(1)    TOTAL
                                            ---------   --------   ----------   --------   --------   -------
                                                                      (IN MILLIONS)
<S>                                         <C>         <C>        <C>          <C>        <C>        <C>
Revenues from external customers..........   $  191      $5,594      $  420       $137      $   60    $ 6,402
Intersegment revenues.....................       26          32          27         13         (98)        --
Merger-related costs and asset
  impairments.............................        6          (1)         --          8           2         15
Ceiling test charges......................       --          --         115         --          --        115
Operating income (loss)...................       65         (31)        143          8         (59)       126
EBIT......................................       86          15         143          7         (65)       186
Segment assets............................    5,412       6,500       6,596        622         598     19,728
</Table>

<Table>
<Caption>
                                                            QUARTER ENDED SEPTEMBER 30, 2000
                                            -----------------------------------------------------------------
                                                        MERCHANT                 FIELD
                                            PIPELINES    ENERGY    PRODUCTION   SERVICES   OTHER(1)    TOTAL
                                            ---------   --------   ----------   --------   --------   -------
                                                                      (IN MILLIONS)
<S>                                         <C>         <C>        <C>          <C>        <C>        <C>
Revenues from external customers..........   $  206     $ 5,444      $  251       $235      $  307    $ 6,443
Intersegment revenues.....................       22          92          12         19        (145)        --
Merger-related costs and asset
  impairments.............................       --          --          --         --           3          3
Operating income (loss)...................       65          95         105         22         (10)       277
EBIT......................................       90         146          97         28          (4)       357
Segment assets............................    5,278       6,040       3,858        471       1,437     17,084
</Table>

---------------
(1) Includes Corporate and eliminations as well as retail operations.

                                        15
<PAGE>

<Table>
<Caption>
                                                          NINE MONTHS ENDED SEPTEMBER 30, 2001
                                            -----------------------------------------------------------------
                                                        MERCHANT                 FIELD
                                            PIPELINES    ENERGY    PRODUCTION   SERVICES   OTHER(1)    TOTAL
                                            ---------   --------   ----------   --------   --------   -------
                                                                      (IN MILLIONS)
<S>                                         <C>         <C>        <C>          <C>        <C>        <C>
Revenues from external customers..........   $  733     $16,948      $1,421       $703      $ 355     $20,160
Intersegment revenues.....................       60         340         (84)        58       (374)         --
Merger-related costs and asset
  impairments.............................      217         154          61         13        554         999
Ceiling test charges......................       --          --         115         --         --         115
Operating income (loss)...................       71        (130)        554         50       (737)       (192)
EBIT......................................      147          --         554         50       (737)         14
Segment assets............................    5,412       6,500       6,596        622        598      19,728
</Table>

<Table>
<Caption>
                                                          NINE MONTHS ENDED SEPTEMBER 30, 2000
                                            -----------------------------------------------------------------
                                                        MERCHANT                 FIELD
                                            PIPELINES    ENERGY    PRODUCTION   SERVICES   OTHER(1)    TOTAL
                                            ---------   --------   ----------   --------   --------   -------
                                                                      (IN MILLIONS)
<S>                                         <C>         <C>        <C>          <C>        <C>        <C>
Revenues from external customers..........   $  686     $15,387      $  742       $474     $   884    $18,173
Intersegment revenues.....................       50         232          40         37        (359)        --
Merger-related costs and asset
  impairments.............................       --          --          --         --          10         10
Operating income (loss)...................      281         119         329         61         (22)       768
EBIT......................................      361         296         313         81           2      1,053
Segment assets............................    5,278       6,040       3,858        471       1,437     17,084
</Table>

---------------
(1) Includes Corporate and eliminations as well as retail operations.

12. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

     We hold investments in various affiliates which we account for using the
equity method of accounting. Summarized financial information for our
proportionate share of these investments is as follows:

<Table>
<Caption>
                                                QUARTER ENDED      NINE MONTHS ENDED
                                                SEPTEMBER 30,        SEPTEMBER 30,
                                               ----------------    ------------------
                                               2001      2000       2001       2000
                                               -----    -------    -------    -------
                                                           (IN MILLIONS)
<S>                                            <C>      <C>        <C>        <C>
Operating results data
  Revenues and other income..................  $ 324    $ 2,646    $ 1,226    $ 5,946
  Costs and expenses.........................   (269)    (2,570)    (1,051)    (5,728)
  Income from continuing operations..........     55         76        175        218
  Net income.................................     51         64        156        196
</Table>

13. TRANSACTIONS WITH RELATED PARTIES

     During 2000, El Paso formed Clydesdale Associates, L.P., a limited
partnership, and several other legal entities, for the purpose of generating
funds for El Paso to invest in capital projects and other assets. The proceeds
are collateralized by various assets of El Paso and, effective June 2001, by the
net assets of our wholly owned subsidiary, Colorado Interstate Gas Company,
which had a net asset value of $604 million as of September 30, 2001. We also
contributed $61 million of natural gas and oil properties to an affiliate of El
Paso as part of this transaction, in exchange for an equity investment in that
affiliate.

     After our merger, we began to participate in El Paso's cash management
program which matches short-term cash excesses and requirements of participating
affiliates, thus minimizing total borrowing from outside sources. We had
borrowed $1,127 million at September 30, 2001, at a market rate of interest
which was 3.7%.

     At September 30, 2001, we had accounts and notes receivable from other
related parties of $592 million and $34 million at December 31, 2000. In
addition, we had accounts and notes payable to other related parties of $483
million at September 30, 2001, versus $13 million at December 31, 2000. These
balances were incurred in the normal course of business.

                                        16
<PAGE>

14. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

  Business Combinations

     In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, Business Combinations. This statement requires that all transactions
that fit the definition of a business combination be accounted for using the
purchase method and prohibits the use of the pooling of interests method for all
business combinations initiated after June 30, 2001. This statement also
establishes specific criteria for the recognition of intangible assets
separately from goodwill and requires unallocated negative goodwill to be
written off immediately as an extraordinary item. This standard will have an
impact on any business combination we undertake in the future. We are currently
evaluating the effects of this pronouncement on our historical financial
statements.

  Goodwill and Other Intangible Assets

     In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This statement requires that goodwill no longer be amortized but
intermittently tested for impairment at least on an annual basis. Other
intangible assets are to be amortized over their useful life and reviewed for
impairment in accordance with the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of. An
intangible asset with an indefinite useful life can no longer be amortized until
its useful life becomes determinable. This statement has various effective
dates, the most significant of which is January 1, 2002. We are currently
evaluating the effects of this pronouncement.

  Accounting for Asset Retirement Obligations

     In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This statement requires companies to record a liability
relating to the retirement and removal of assets used in their business. The
liability is discounted to its present value, and the related asset value is
increased by the amount of the resulting liability. Over the life of the asset,
the liability will be accreted to its future value and eventually extinguished
when the asset is taken out of service. The provisions of this statement are
effective for fiscal years beginning after June 15, 2002. We are currently
evaluating the effects of this pronouncement.

  Accounting for the Impairment or Disposal of Long-Lived Assets

     In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement requires that
long-lived assets that are to be disposed of by sale be measured at the lower of
book value or fair value less cost to sell. The standard also expanded the scope
of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will
be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of this statement are effective for fiscal years
beginning after December 15, 2001. We are currently evaluating the effects of
this pronouncement.

  Derivatives Implementation Group Issue C-16

     In September 2001, the Derivatives Implementation Group of the FASB cleared
guidance on Issue C-16, Scope Exceptions: Applying the Normal Purchases and
Normal Sales Exception to Contracts that Combine a Forward Contract and a
Purchased Option Contract. This guidance impacts the accounting for fuel supply
contracts that require delivery of a contractual minimum quantity of fuel at a
fixed price and have an option that permits the holder to take specified
additional amounts of fuel at the same fixed price at various times. We use fuel
supply contracts such as these in our power producing operations and currently
do not reflect them in our balance sheet since they are considered normal
purchases that are not classified as derivative instruments under SFAS No. 133.
This guidance becomes effective in the second quarter of 2002, and we will be
required to account for these contracts as derivative instruments under SFAS No.
133, which will require us to record them on the balance sheet at fair value. We
are currently evaluating the impact of this guidance on our financial
statements.

                                        17
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.(1)

     The information contained in Item 2 updates, and you should read it in
conjunction with, information disclosed in Part II, Items 7, 7A, and 8, in our
Annual Report on Form 10-K for the year ended December 31, 2000, in addition to
the financial statements and notes presented in Item 1, Financial Statements, of
this Quarterly Report on Form 10-Q.

                              RECENT DEVELOPMENTS

  Merger with El Paso Corporation

     In January 2001, we merged with El Paso. El Paso accounted for the merger
as a pooling of interests and converted each share of our common stock and Class
A common stock on a tax-free basis into 1.23 shares of El Paso common stock. El
Paso also exchanged our outstanding convertible preferred stock with its common
stock on the same basis as if the preferred stock had been converted into our
common stock immediately prior to the merger. El Paso issued a total of
approximately 271 million shares, including 4 million shares issued to holders
of our stock options.

  Merger-Related Costs, Asset Impairments and Other Charges

     During the quarters and nine months ended September 30, 2001 and 2000, we
incurred charges that had a significant impact on our results of operations,
financial position and cash flows, and that are not expected to continue as
follows:

<Table>
<Caption>
                                                            QUARTER ENDED     NINE MONTHS ENDED
                                                            SEPTEMBER 30,       SEPTEMBER 30,
                                                            -------------     -----------------
                                                            2001     2000      2001       2000
                                                            ----     ----     -------     -----
                                                                       (IN MILLIONS)
<S>                                                         <C>      <C>      <C>         <C>
Merger-related costs......................................  $ 15     $ 3      $  990       $10
Asset impairments.........................................    --      --           9        --
                                                            ----     ---      ------       ---
          Total merger-related costs and asset
            impairments...................................    15       3         999        10
Changes in estimates......................................   113      --         317        --
                                                            ----     ---      ------       ---
                                                             128       3       1,316        10
Ceiling test charges......................................   115      --         115        --
                                                            ----     ---      ------       ---
                                                            $243     $ 3      $1,431       $10
                                                            ====     ===      ======       ===
</Table>

     Merger-related costs include employee severance, retention and transition
charges; write-offs and write-downs of assets; charges to relocate assets and
employees and to consolidate operations; contract termination charges; and other
charges related to our merger with El Paso. Although we expect to incur
additional merger-related charges during the fourth quarter of 2001, we expect
the level of those charges to be significantly less than those levels incurred
in the first nine months of 2001.
---------------

(1) Below is a list of terms that are common to our industry and used throughout
    our Management's Discussion and Analysis:

<Table>
<S>    <C>  <C>                                              <C>    <C>  <C>
/d     =    per day                                          MBbls  =    thousand barrels
Bbl    =    barrel                                           MMBtu  =    million British thermal units
BBtu   =    billion British thermal units                    Mcf    =    thousand cubic feet
BBtue  =    billion British thermal unit equivalents         MTons  =    thousand tons
Btu    =    British thermal unit                             MMWh   =    thousand megawatt hours
</Table>

    When we refer to natural gas and oil in "equivalents," we are doing so to
compare quantities of oil with quantities of natural gas or to express these
different commodities in a common unit. In calculating equivalents, we use a
generally recognized standard in which one Bbl is equal to six Mcf of natural
gas. Also, when we refer to cubic feet measurements, all measurements are at
14.73 pounds per square inch.

                                        18
<PAGE>

     The asset impairment charge resulted from the unrecoverability of
capitalized costs of Merchant Energy's Corpus Christi refinery and related
assets. In June 2001, we leased the refinery and related assets to Valero under
an operating lease.

     Changes in estimates consist of changes in our estimated environmental
remediation liabilities, legal obligations and the usability of spare parts
inventories in our operations. These charges were necessitated by an ongoing
evaluation of our operating standards, strategies and plans following our merger
with El Paso.

     The ceiling test charge resulted from the write-downs of the carrying value
of natural gas and oil properties associated with our international production
operations.

     Each of these charges is discussed more fully in Item 1, Financial
Statements, Notes 3, 4 and 5. By segment, these charges were recorded as
follows:

<Table>
<Caption>
                                                   QUARTER ENDED       NINE MONTHS ENDED
                                                   SEPTEMBER 30,         SEPTEMBER 30,
                                                  ---------------      -----------------
                                                  2001      2000        2001       2000
                                                  ----      -----      ------      -----
                                                              (IN MILLIONS)
<S>                                               <C>       <C>        <C>         <C>
  Pipelines.....................................  $  4      $ --       $  235      $  --
  Merchant Energy...............................    60        --          288         --
  Production....................................   119        --          187         --
  Field Services................................    16        --           22         --
                                                  ----      -----      ------      -----
     Segment total..............................   199        --          732         --
  Corporate and other...........................    44         3          699         10
                                                  ----      -----      ------      -----
     Consolidated total.........................  $243      $  3       $1,431      $  10
                                                  ====      =====      ======      =====
</Table>

                             RESULTS OF OPERATIONS

     For the quarter ended September 30, 2001, we had net income of $36 million
versus $145 million for the quarter ended September 30, 2000. The 2001 results
included the charges discussed above totaling $243 million, or $165 million
after taxes. We also recorded net extraordinary losses totaling $4 million, net
of income taxes, as a result of additional income tax accruals associated with
FTC ordered sales which occurred during the first and second quarters of 2001.
During the third quarter of 2000, merger-related costs were $3 million, or $2
million net of income taxes. Net income, excluding the effects of these charges
and extraordinary items, would have been $205 million in 2001 versus $147
million in 2000.

     For the nine months ended September 30, 2001, we had a net loss of $376
million versus net income of $446 million for the nine months ended September
30, 2000. The 2001 loss was a result of the charges discussed above which
totaled $1,431 million, or $1,051 million after taxes. We also recorded net
extraordinary losses totaling $11 million, net of income taxes, as a result of
FTC ordered sales of our Gulfstream pipeline project and our investments in the
Empire State, U-T Offshore and Iroquois pipeline systems. For the nine months
ended September 30, 2000, merger-related charges were $10 million, or $7 million
net of income taxes. Net income, excluding the after-tax effects of these
charges and extraordinary items, would have been $686 million in 2001 versus
$453 million in 2000.

                                SEGMENT RESULTS

     Our business activities are segregated into four segments: Pipelines,
Merchant Energy, Production and Field Services. These segments are strategic
business units that offer a variety of different energy products and services,
and each requires different technology and marketing strategies. These segments
have been restated to reflect the manner in which we are currently operating
them, and all prior period information has been restated to reflect this segment
presentation. The results presented in this analysis are not necessarily
indicative of the results that would have been achieved had the revised business
segment structure been in place during those periods. Operating revenues and
expenses by segment include intersegment revenues and

                                        19
<PAGE>

expenses which are eliminated in consolidation. Because changes in energy
commodity prices have a similar impact on both our operating revenues and cost
of products sold from period to period, we believe that gross margin (revenue
less cost of products sold) provides a more accurate and meaningful basis for
analyzing operating results for the trading and refining portions of Merchant
Energy and the Field Services segment. For a further discussion of our
individual segments, see Item 1, Financial Statements, Note 11. The segment
results presented below include the charges discussed under "Recent
Developments" above:

<Table>
<Caption>
                                                       QUARTER ENDED       NINE MONTHS ENDED
                                                       SEPTEMBER 30,         SEPTEMBER 30,
                                                       --------------      -----------------
                                                       2001      2000      2001        2000
                                                       ----      ----      -----      ------
                                                                   (IN MILLIONS)
<S>                                                    <C>       <C>       <C>        <C>
       EARNINGS BEFORE INTEREST EXPENSE AND INCOME
TAXES
Pipelines............................................  $ 86      $ 90      $ 147      $  361
Merchant Energy......................................    15       146         --         296
Production...........................................   143        97        554         313
Field Services.......................................     7        28         50          81
                                                       ----      ----      -----      ------
  Segment total......................................   251       361        751       1,051
Corporate and other, net.............................   (65)       (4)      (737)          2
                                                       ----      ----      -----      ------
  Consolidated EBIT..................................  $186      $357      $  14      $1,053
                                                       ====      ====      =====      ======
</Table>

PIPELINES

     Our Pipelines segment operates our interstate pipeline businesses. Each
pipeline system operates under a separate tariff that governs its operations and
rates. Operating results for our pipeline systems have generally been stable
because the majority of the revenues are based on fixed reservation charges. As
a result, we expect changes in this aspect of our business to be primarily
driven by regulatory actions and contractual events. Commodity or
throughput-based revenues account for a smaller portion of our operating
results. These revenues vary from period to period, and system to system, and
are impacted by factors such as weather, operating efficiencies, competition
from other pipelines and fluctuations in natural gas prices. Results of
operations of the Pipelines segment were as follows for the periods ended
September 30:

<Table>
<Caption>
                                                      QUARTER ENDED         NINE MONTHS ENDED
                                                    ------------------      ------------------
                                                     2001        2000        2001        2000
                                                    ------      ------      ------      ------
                                                       (IN MILLIONS, EXCEPT VOLUME AMOUNTS)
<S>                                                 <C>         <C>         <C>         <C>
Operating revenues................................  $  217      $  228      $  793      $  736
Operating expenses................................    (152)       (163)       (722)       (455)
Other income......................................      21          25          76          80
                                                    ------      ------      ------      ------
  EBIT............................................  $   86      $   90      $  147      $  361
                                                    ======      ======      ======      ======
Throughput volumes (BBtu/d).......................   7,145       6,769       7,453       7,066
                                                    ======      ======      ======      ======
</Table>

  Third Quarter 2001 Compared to Third Quarter 2000

     Operating revenues for the quarter ended September 30, 2001, were $11
million lower than the same period in 2000. The decrease was due to the lower
sales of excess natural gas in 2001, sales of base gas from abandoned storage
fields in 2000 and lower realized prices on the sales of natural gas purchased
from the Dakota gasification facility in 2001. Partially offsetting the decrease
was the impact of completed system expansions and new storage and transportation
contracts during 2001 and higher realized prices on segment-owned production.

                                        20
<PAGE>

     Operating expenses for the quarter ended September 30, 2001, were $11
million lower than the same period in 2000. The decrease was primarily due to
the impact of reduced prices on natural gas imbalances, the impact of lower
prices on natural gas purchased from the Dakota gasification facility and
accruals for the replacement of system balancing gas in 2000. The decrease was
partially offset by merger-related costs, asset impairments and other charges
discussed previously under "Recent Developments" and higher corporate
allocations.

     Other income for the quarter ended September 30, 2001, was $4 million lower
than the same period in 2000. The decrease was due primarily to lower equity
income in 2001 as a result of the sales of our investments in the Empire State
and Iroquois pipeline systems in the first and second quarters of 2001 and
higher expenses in 2001 related to expansion and development projects. Partially
offsetting the decrease was increased earnings from our investment in the
Alliance Pipeline project which commenced operations in the fourth quarter of
2000.

  Nine Months Ended 2001 Compared to Nine Months Ended 2000

     Operating revenues for the nine months ended September 30, 2001, were $57
million higher than the same period in 2000. The increase was due to the impact
of higher realized prices on segment-owned production and on sales of natural
gas purchased from the Dakota gasification facility as well as higher sales of
excess natural gas in the first nine months of 2001. Also contributing to the
increase was the impact of completed system expansions and new storage and
transportation contracts during 2001. Partially offsetting the increase was
higher sales of base gas from abandoned storage fields in 2000.

     Operating expenses for the nine months ended September 30, 2001, were $267
million higher than the same period in 2000. The increase was primarily the
result of merger-related costs, asset impairments and other charges discussed
above, along with the impact of higher natural gas prices on system fuel costs
and gas purchases from the Dakota gasification facility and higher corporate
allocations.

     Other income for the nine months ended September 30, 2001, was $4 million
lower than the same period in 2000. The decrease was due to lower equity income
in 2001 as a result of the sales of our investments in the Empire State and
Iroquois pipeline systems in the first and second quarters of 2001, higher
expenses in 2001 related to expansion and development projects and other
non-operating charges. Partially offsetting the decrease was increased earnings
from our investment in the Alliance Pipeline project which commenced operations
in the fourth quarter of 2000.

MERCHANT ENERGY

     Merchant Energy is involved in a wide range of activities in the wholesale
energy marketplace, including petroleum trading and risk management and asset
ownership of power plants, refineries and chemical facilities. Each market
served by Merchant Energy is highly competitive and is influenced directly or
indirectly by energy market economics. Prior to October 2000, we conducted our
marketing and trading activities through Engage Energy US, L.P. and Engage
Energy Canada, L.P., a joint venture between us and Westcoast Energy Inc., a
Canadian natural gas company. During the fourth quarter of 2000, we terminated
the Engage joint venture and assumed the U.S. portion of Engage. As a result, we
consolidated the U.S. trading contracts. In February 2001, we transferred these
contracts, which included Engage's marketing contracts and other assets to El
Paso Merchant Energy, an affiliate and subsidiary of El Paso, in exchange for 22
percent interest in El Paso Merchant Energy, L.P. In September of 2001, El Paso
Merchant Energy redeemed our interest in the partnership for $114 million.

                                        21
<PAGE>

     Below are Merchant Energy's operating results and an analysis of these
results for the periods ended September 30:

<Table>
<Caption>
                                                   QUARTER ENDED       NINE MONTHS ENDED
                                                -------------------   -------------------
                                                  2001       2000       2001       2000
                                                --------   --------   --------   --------
                                                  (IN MILLIONS, EXCEPT VOLUME AMOUNTS)
<S>                                             <C>        <C>        <C>        <C>
Trading and refining gross margin.............  $    190   $    280   $    741   $    711
Operating and other revenues..................        69         85        247        245
Operating expenses............................      (290)      (270)    (1,118)      (837)
Other income..................................        46         51        130        177
                                                --------   --------   --------   --------
  EBIT........................................  $     15   $    146   $     --   $    296
                                                ========   ========   ========   ========
Volumes
  Physical
     Natural gas (BBtue/d)....................        --         --      3,457         --
     Power (MMWh).............................       164         51        356        219
     Crude oil and refined products (MBbls)...   168,698    163,092    499,145    484,275
     Coal (MTons).............................     2,406      2,531      7,734      7,624
  Financial Settlements (BBtue/d).............    90,593     46,983     78,254     46,659
</Table>

  Third Quarter 2001 Compared to Third Quarter 2000

     Trading and refining gross margin consists of revenues from our refineries
and commodity trading activities less the costs of the feedstocks used in the
refining process and the costs of commodities sold. For the quarter ended
September 30, 2001, trading and refining gross margin was $90 million lower than
the same period in 2000. The decrease was primarily due to lower refining
margins resulting from weaker fuel and heavy crude product prices relative to
crude oil prices during the third quarter of 2001 and lower refining throughput
following a fire at our Aruba facility in April 2001, as well as the lease of
our Corpus Christi refinery and related assets to Valero in June 2001. Partially
offsetting the decrease were increased crude oil and refined products trading
margins resulting from increased trading volumes.

     Operating and other revenues consist of revenues from consolidated domestic
power generation facilities and coal operations. For the quarter ended September
30, 2001, operating and other revenues were $16 million lower than the same
period in 2000. The decrease resulted from the transfer of index swaps on our
Fulton and Rensselaer power facilities to El Paso Merchant Energy in February
2001 and lower realized coal prices in the third quarter of 2001.

     Operating expenses for the quarter ended September 30, 2001, were $20
million higher than the same period in 2000. The increase was primarily a result
of changes in our estimates of environmental remediation costs and legal
obligations arising out of an ongoing evaluation of our business processes and
strategies following the merger with El Paso. These increases were partially
offset by lower operating expenses resulting from the lease of our Corpus
Christi refinery and related assets to Valero in June 2001.

     Other income for the quarter ended September 30, 2001, was $5 million lower
than the same period in 2000. The decrease resulted from lower equity earnings
on unconsolidated investments, primarily due to our investments in the Javelina
gas processing facility and Engage which was fully consolidated in October 2000.

  Nine Months Ended 2001 Compared to Nine Months Ended 2000

     For the nine months ended September 30, 2001, trading and refining gross
margin was $30 million higher than the same period in 2000. The increase was
primarily due to increased crude oil and refined products trading margins
resulting from increased trading volumes. Also contributing to the increase were
higher refining and chemical margins in the first and second quarters of 2001
due to higher throughput resulting from

                                        22
<PAGE>

stronger commodity prices in the first quarter of 2001, partially offset by
weaker prices in the third quarter of 2001 and lower refining throughput
following a fire at our Aruba facility in April 2001. Also offsetting the
increase was the impact of the leasing of our Corpus Christi refinery and
related assets to Valero in June 2001.

     Operating expenses for the nine months ended September 30, 2001, were $281
million higher than the same period in 2000. The increase was primarily a result
of merger-related costs and assets impairments associated with combining
operations and implementing our combined strategy with El Paso and changes in
our estimates of environmental remediation costs, legal obligations and spare
parts inventory usability. The increase also resulted from higher fuel costs at
our refineries due to higher natural gas prices. All increases were partially
offset by lower operating expenses resulting from the lease of our Corpus
Christi refinery and related assets to Valero in June 2001.

     Other income for the nine months ended September 30, 2001, was $47 million
lower than the same period in 2000. The decrease resulted from lower equity
earnings on unconsolidated investments, primarily due to our investment in the
Javelina gas processing facility and Engage which was fully consolidated in
October 2000. Also contributing to the decrease was a gain recorded from the
sale of our interest in a power project in Guatemala in the first quarter of
2000.

PRODUCTION

     Production's operating results are driven by a variety of factors including
its ability to locate and develop economic gas and oil reserves, extract those
reserves with minimal production costs, sell the products at attractive
commodity prices and operate at the lowest cost level possible.

     Production engages in hedging activities on its natural gas and oil
production in order to stabilize cash flows and reduce the risk of downward
commodity price movements on sales of its production. This is achieved primarily
through natural gas and oil swaps. Our hedging program is designed to hedge
approximately 75 percent of our anticipated current year production,
approximately 50 percent of our anticipated succeeding year production and a
lesser percentage thereafter. Production's hedged positions are closely
monitored and evaluated in an effort to achieve its earnings objectives and
reduce the risks associated with spot-market price volatility. Below are the
operating results and an analysis of these results for the periods ended
September 30:

<Table>
<Caption>
                                                       QUARTER ENDED       NINE MONTHS ENDED
                                                     -----------------    --------------------
                                                      2001      2000        2001        2000
                                                     -------   -------    --------    --------
                                                     (IN MILLIONS, EXCEPT VOLUMES AND PRICES)
<S>                                                  <C>       <C>        <C>         <C>
Natural gas........................................  $   394   $   222    $  1,166    $    658
Oil, condensate and liquids........................       50        38         157         115
Other..............................................        3         3          14           9
                                                     -------   -------    --------    --------
          Total operating revenues.................      447       263       1,337         782
Operating expenses.................................     (304)     (158)       (783)       (453)
Other income (loss)................................       --        (8)         --         (16)
                                                     -------   -------    --------    --------
  EBIT.............................................  $   143   $    97    $    554    $    313
                                                     =======   =======    ========    ========
Volumes and prices
  Natural gas
     Volumes (MMcf)................................   99,235    80,677     288,363     246,156
                                                     =======   =======    ========    ========
     Average realized prices ($/Mcf)...............  $  3.98   $  2.76    $   4.05    $   2.67
                                                     =======   =======    ========    ========
  Oil, condensate and liquids
     Volumes (MBbls)...............................    2,263     1,518       6,409       4,558
                                                     =======   =======    ========    ========
     Average realized prices ($/Bbl)...............  $ 21.91   $ 25.18    $  24.50    $  25.21
                                                     =======   =======    ========    ========
</Table>

                                        23
<PAGE>

  Third Quarter 2001 Compared to Third Quarter 2000

     For the quarter ended September 30, 2001, operating revenues were $184
million higher than the same period in 2000. The increase was the combined
result of higher realized natural gas prices coupled with higher production.
Realized natural gas sales prices were 44 percent higher than the third quarter
of 2000, and natural gas production volumes rose during the third quarter of
2001 by 23 percent over the same period in 2000. Oil, condensate and liquids
production volumes were 49 percent higher than the same period in 2000, with
realized average prices decreasing 13 percent.

     Operating expenses for the quarter ended September 30, 2001, were $146
million higher than the same period in 2000 as a result of a non-cash full cost
ceiling test charge related to our Canadian and Brazilian production operations
incurred in the current quarter, higher depletion expense in 2001 as a result of
the increased production volumes, higher capitalized costs in the full cost pool
and other charges related to our combined operations. The increase was partially
offset by decreased general and administrative costs.

  Nine Months Ended 2001 Compared to Nine Months Ended 2000

     For the nine months ended September 30, 2001, operating revenues were $555
million higher than the same period in 2000. The increase was the combined
result of higher realized natural gas prices coupled with higher production. For
the nine months ended September 30, 2001, realized natural gas sales prices were
52 percent higher than the same period in 2000, and natural gas production
volumes rose by 17 percent over the same period in 2000. Oil, condensate and
liquids production volumes were also 41 percent higher than the same period in
2000, with realized average prices slightly lower than 2000 levels.

     Operating expenses for the nine months ended September 30, 2001, were $330
million higher than the same period in 2000 as a result of a non-cash full cost
ceiling test charge related to our Canadian and Brazilian production operations
incurred in the third quarter of 2001, higher depletion expense in 2001 as a
result of the increased production volumes and higher capitalized costs in the
full cost pool and merger-related costs and other charges related to our
combined production operations. Also contributing to the increase were higher
severance and other production taxes in 2001, which are generally tied to
natural gas and oil prices, higher costs under a production commitment with
Alliance Pipeline, which commenced operations in the fourth quarter of 2000 and
higher oilfield services costs.

FIELD SERVICES

     Field Services provides a variety of services for the midstream component
of our operations, including gathering and treating of natural gas, processing
and fractionation of natural gas, natural gas liquids and natural gas derivative
products, such as ethane, propane and butane.

     Our gathering and treating operations earn margins substantially from
fixed-fee-based services; however, some of these operations earn margins from
market-based rates. Revenues for these commodity rate services are the product
of the market price, usually related to the monthly natural gas price index and
the volume gathered.

     Processing and fractionation operations earn a margin based on fixed-fee
contracts, percentage-of-proceeds contracts and make-whole contracts.
Percentage-of-proceeds contracts allow us to retain a percentage of the product
as a fee for processing or fractionation service. Make-whole contracts allow us
to retain the extracted liquid products and to return to the producer a Btu
equivalent amount of natural gas. Under our percentage-of-proceeds contracts and
make-whole contracts, Field Services may have more sensitivity to price changes
during periods when natural gas and natural gas liquids prices are volatile.

                                        24
<PAGE>

     Field Services' operating results and an analysis of these results are as
follows for the periods ended September 30:

<Table>
<Caption>
                                                         QUARTER ENDED        NINE MONTHS ENDED
                                                        ----------------      ------------------
                                                        2001       2000        2001        2000
                                                        -----      -----      ------      ------
                                                        (IN MILLIONS, EXCEPT VOLUMES AND PRICES)
<S>                                                     <C>        <C>        <C>         <C>
Gathering, treating and processing margin.............  $  41      $  48      $ 126       $ 136
Operating expenses....................................    (33)       (26)       (76)        (75)
Other income..........................................     (1)         6         --          20
                                                        -----      -----      -----       -----
  EBIT................................................  $   7      $  28      $  50       $  81
                                                        =====      =====      =====       =====
Volumes and prices
  Gathering and treating
     Volumes (BBtu/d).................................    750        950        906         960
                                                        =====      =====      =====       =====
     Prices ($/MMBtu).................................  $0.18      $0.16      $0.14       $0.14
                                                        =====      =====      =====       =====
  Processing
     Volumes (inlet BBtu/d)...........................  1,964      1,999      1,947       1,970
                                                        =====      =====      =====       =====
     Prices ($/MMBtu).................................  $0.15      $0.16      $0.15       $0.16
                                                        =====      =====      =====       =====
</Table>

  Third Quarter 2001 Compared to Third Quarter 2000

     Total gathering, treating and processing margin for the quarter ended
September 30, 2001, was $7 million lower than the same period in 2000. The
decrease was due to lower natural gas liquids prices in the Mid-Continent and
Rocky Mountain regions and lower gathering, treating and processing volumes due
to natural declines in production volumes in our operating regions and a slow
down in drilling activities.

     Operating expenses for the quarter ended September 30, 2001, were $7
million higher than the same period in 2000. The increase was primarily a result
of merger-related costs and other charges arising from merging our operations
with El Paso and higher depreciation expense due to plant additions and capital
expenditures, partially offset by lower operating and maintenance expenses due
to cost savings following the merger.

     Other income for the quarter ended September 30, 2001, was $7 million lower
than the same period in 2000 as a result of equity investment losses from our
Mobile Bay and Aux Sable liquids processing facilities, lower equity earnings on
Deepwater Holdings in 2001 and gains in 2000 from the sale of assets.

  Nine Months Ended 2001 Compared to Nine Months Ended 2000

     Total gathering, treating and processing margin for the nine months ended
September 30, 2001, was $10 million lower than the same period in 2000. The
decrease was a result of lower natural gas liquids prices and volumes in 2001
and lower gathering and treating volumes in 2001 due to natural declines in
production volumes in our operating regions.

     Operating expenses were $1 million higher than the same period in 2000. The
increase was primarily a result of merger-related costs and other charges
arising from the combined operations with El Paso, higher depreciation expense
due to plant additions and capital expenditures and higher ad valorem and other
taxes, partially offset by lower operating and maintenance expenses due to cost
savings following the merger.

     Other income for the nine months ended September 30, 2001, was $20 million
lower than the same period in 2000. Equity investment losses from our Mobile Bay
and Aux Sable liquids processing facilities and gains in 2000 from the sale of
assets contributed to the decrease.

                                        25
<PAGE>

CORPORATE AND OTHER, NET

     Corporate expenses for the quarter and nine months ended September 30,
2001, were $61 million and $739 million higher than the same periods in 2000.
The increase was primarily a result of merger-related charges in connection with
our January 2001 merger with El Paso and changes in estimates discussed
previously under "Recent Developments".

NON-AFFILIATED AND AFFILIATED INTEREST AND DEBT EXPENSE

     Total interest and debt expense for the quarter ended September 30, 2001,
was $18 million lower than 2000 primarily due to retirement of all
non-affiliated short-term borrowings, consisting of approximately $1 billion of
commercial paper and short-term bank credit facilities. This decrease was
partially offset by increased affiliated interest when these debt instruments
were replaced with advances from El Paso in the second quarter of 2001.

     Total interest and debt expense for the nine months ended September 30,
2001, was $6 million higher than 2000 primarily due to increased affiliated
interest on the advances from El Paso, partially offset by retirement of all
non-affiliated short-term debt.

INCOME TAXES

     The income tax expense for the quarter and the income tax benefit for the
nine months ended September 30, 2001, were $20 million and $31 million,
resulting in effective tax rates of 33 percent and 8 percent. Our effective tax
rates were different than the statutory rate of 35 percent primarily due to the
following:

     - the non-deductible portion of merger-related costs and, for the nine
       months ended September 30, 2001, other tax adjustments to provide for
       revised estimated liabilities;

     - state income taxes; and

     - foreign income not taxed in the U.S., but taxed at foreign rates.

     The income tax expense for the quarter and nine months ended September 30,
2000, were $64 million and $195 million, resulting in effective tax rates of 31
percent and 30 percent. Our effective tax rates were different than the
statutory tax rate of 35 percent primarily due to the following:

     - state income taxes; and

     - foreign income not taxed in the U.S., but taxed at foreign rates.

OTHER

     In August 2001, we completed the acquisition of Velvet Exploration Ltd., at
a cost of approximately $230 million (approximately C$353 million) plus the
assumption of $52 million (approximately C$80 million) in debt. Velvet is a
Canadian exploration and development company, with a majority of its properties
located in the Foothills and Deep Basin areas of western Alberta Province.

                         COMMITMENTS AND CONTINGENCIES

     See Item 1, Financial Statements, Note 10, which is incorporated herein by
reference.

                 NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

     See Item 1, Financial Statements, Note 14, which is incorporated herein by
reference.

                                        26
<PAGE>

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
                    SECURITIES LITIGATION REFORM ACT OF 1995

     This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Where any forward-looking statement includes a statement of the
assumptions or bases underlying the forward-looking statement, we caution that,
while we believe these assumptions or bases to be reasonable and to be made in
good faith, assumed facts or bases almost always vary from the actual results,
and the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, we or our management express an expectation or belief as to future
results, that expectation or belief is expressed in good faith and is believed
to have a reasonable basis. We cannot assure you, however, that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect," "estimate," "anticipate" and similar expressions will
generally identify forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     This information updates, and you should read it in conjunction with,
information disclosed in Part II, Item 7A in our Annual Report on Form 10-K for
the year ended December 31, 2000, in addition to the information presented in
Items 1 and 2 of this Quarterly Report on Form 10-Q.

     As a result of transferring Engage's contracts to El Paso Merchant Energy,
we no longer conduct unregulated natural gas and power marketing and trading
activities and are no longer exposed to the market risk associated with these
activities.

     Except as discussed above, there are no material changes in market risk
from those reported in our Annual Report on Form 10-K for the year ended
December 31, 2000.

                                        27
<PAGE>

                          PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     See Part I, Item 1, Financial Statements, Note 10, which is incorporated
herein by reference.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

ITEM 5. OTHER INFORMATION

     None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

  a. Exhibits.

     None.

     Undertaking

          We hereby undertake, pursuant to Regulation S-K, Item 601(b),
     paragraph (4)(iii), to furnish to the U.S. Securities and Exchange
     Commission, upon request, all constituent instruments defining the rights
     of holders of our long-term debt and of our consolidated subsidiaries not
     filed herewith for the reason that the total amount of securities
     authorized under any of such instruments does not exceed 10 percent of our
     total consolidated assets.

  b. Reports on Form 8-K

     None.

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<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                            EL PASO CGP COMPANY

Date: November 9, 2001                             /s/ H. BRENT AUSTIN
                                            ------------------------------------
                                                      H. Brent Austin
                                                Executive Vice President and
                                                  Chief Financial Officer

Date: November 9, 2001                            /s/ JEFFREY I. BEASON
                                            ------------------------------------
                                                     Jeffrey I. Beason
                                            Senior Vice President and Controller
                                                 (Chief Accounting Officer)

                                        29