##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    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 1-14365
 El Paso Corporation
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    76-0568816(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)El Paso Building 
1001 Louisiana Street 
Houston, Texas(Address of Principal Executive Offices)
    
    77002(Zip Code)
 Telephone Number: (713) 420-2600
Internet Website: www.elpaso.com
 þ o
  þ o o
 o þ
 Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.




---



##### 



EL PASO CORPORATION
TABLE OF CONTENTS
 Caption
    
    PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    42Item 4. Controls and Procedures
    
    43PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    44Item 1A. Risk Factors
    
    44Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    45Item 3. Defaults Upon Senior Securities
    
    45Item 4. Submission of Matters to a Vote of Security Holders
    
    45Item 5. Other Information
    
    45Item 6. Exhibits
    
    45Signatures
    
    46Ratio of Earnings to Combined Fixed Charges and Preferred Stock DividendsCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
   /d
    
    = per day
    Mcfe
    = thousand cubic feet of natural gas
equivalentsBbl
    
    = barrels
    MMBtu
    = million British thermal unitsBBtu
    
    = billion British thermal units
    MMcf
    = million cubic feetBcf
    
    = billion cubic feet
    MMcfe
    = million cubic feet of natural gas equivalentsLNG
    
    = liquefied natural gas
    NGL
    = natural gas liquidsMBbls
    
    = thousand barrels
    TBtu
    = trillion British thermal unitsMcf
    
    = thousand cubic feet
   2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1.  Financial Statements
 EL PASO CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per common share amounts)
(Unaudited)
 Quarters Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating revenues
    
    $
    1,166
    
    
    $
    942
    
    
    $
    3,386
    
    
    $
    3,368Operating expensesCost of products and services
    
    
    55
    
    
    
    69
    
    
    
    170
    
    
    
    201Operation and maintenance
    
    
    348
    
    
    
    334
    
    
    
    978
    
    
    
    957Depreciation, depletion and amortization
    
    
    293
    
    
    
    260
    
    
    
    850
    
    
    
    766Taxes, other than income taxes
    
    
    53
    
    
    
    61
    
    
    
    185
    
    
    
    180749
    
    
    
    724
    
    
    
    2,183
    
    
    
    2,104Operating income
    
    
    417
    
    
    
    218
    
    
    
    1,203
    
    
    
    1,264Earnings (losses) from unconsolidated affiliates
    
    
    (6
    )
    
    
    55
    
    
    
    75
    
    
    
    121Loss on debt extinguishment
    
    
    
    
    
    
    (17
    )
    
    
    (287
    )
    
    
    (26
    )Other income, net
    
    
    72
    
    
    
    51
    
    
    
    178
    
    
    
    142Interest and debt expense
    
    
    (228
    )
    
    
    (294
    )
    
    
    (742
    )
    
    
    (941
    )Income before income taxes from continuing operations
    
    
    255
    
    
    
    13
    
    
    
    427
    
    
    
    560Income taxes
    
    
    100
    
    
    
    (98
    )
    
    
    151
    
    
    
    14Income from continuing operations
    
    
    155
    
    
    
    111
    
    
    
    276
    
    
    
    546Discontinued operations, net of income taxes
    
    
    
    
    
    
    24
    
    
    
    674
    
    
    
    95Net income
    
    
    155
    
    
    
    135
    
    
    
    950
    
    
    
    641Preferred stock dividends
    
    
    9
    
    
    
    9
    
    
    
    28
    
    
    
    28Net income available to common stockholders
    
    $
    146
    
    
    $
    126
    
    
    $
    922
    
    
    $
    613Basic earnings per common shareIncome from continuing operations
    
    $
    0.21
    
    
    $
    0.15
    
    
    $
    0.36
    
    
    $
    0.77Discontinued operations, net of income taxes
    
    
    
    
    
    
    0.03
    
    
    
    0.97
    
    
    
    0.14Net income per common share
    
    $
    0.21
    
    
    $
    0.18
    
    
    $
    1.33
    
    
    $
    0.91Diluted earnings per common shareIncome from continuing operations
    
    $
    0.20
    
    
    $
    0.15
    
    
    $
    0.35
    
    
    $
    0.74Discontinued operations, net of income taxes
    
    
    
    
    
    
    0.03
    
    
    
    0.96
    
    
    
    0.13Net income per common share
    
    $
    0.20
    
    
    $
    0.18
    
    
    $
    1.31
    
    
    $
    0.87Dividends declared per common share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.12
    
    
    $
    0.12
  3




---



##### Table of Contents



EL PASO CORPORATION
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
(Unaudited)
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    389
    
    
    $
    537Accounts and notes receivableCustomers, net of allowance of $18 in 2007 and $28 in 2006
    
    
    445
    
    
    
    516Affiliates
    
    
    195
    
    
    
    192Other
    
    
    210
    
    
    
    495Assets from price risk management activities
    
    
    166
    
    
    
    436Assets held for sale and from discontinued operations
    
    
    
    
    
    
    4,161Deferred income taxes
    
    
    358
    
    
    
    478Other
    
    
    266
    
    
    
    352Total current assets
    
    
    2,029
    
    
    
    7,167Property, plant and equipment, at costPipelines
    
    
    16,407
    
    
    
    15,672Natural gas and oil properties, at full cost
    
    
    18,673
    
    
    
    16,572Other
    
    
    537
    
    
    
    56635,617
    
    
    
    32,810Less accumulated depreciation, depletion and amortization
    
    
    16,698
    
    
    
    16,132Total property, plant and equipment, net
    
    
    18,919
    
    
    
    16,678Other assetsInvestments in unconsolidated affiliates
    
    
    1,638
    
    
    
    1,707Assets from price risk management activities
    
    
    238
    
    
    
    414Other
    
    
    1,257
    
    
    
    1,2953,133
    
    
    
    3,416Total assets
    
    $
    24,081
    
    
    $
    27,261
  4




---



##### Table of Contents



EL PASO CORPORATION
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except for share amounts)
(Unaudited)
 September 30,
    
    
    December 31,2007
    
    
    2006LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payableTrade
    
    $
    381
    
    
    $
    478Affiliates
    
    
    1
    
    
    
    3Other
    
    
    498
    
    
    
    569Current maturities of long-term financing obligations
    
    
    567
    
    
    
    1,360Liabilities from price risk management activities
    
    
    276
    
    
    
    278Liabilities related to discontinued operations
    
    
    
    
    
    
    1,817Accrued interest
    
    
    250
    
    
    
    269Other
    
    
    804
    
    
    
    1,377Total current liabilities
    
    
    2,777
    
    
    
    6,151Long-term financing obligations, less current maturities
    
    
    12,445
    
    
    
    13,329OtherLiabilities from price risk management activities
    
    
    884
    
    
    
    924Deferred income taxes
    
    
    1,204
    
    
    
    950Other
    
    
    1,743
    
    
    
    1,6903,831
    
    
    
    3,564Commitments and contingencies (Note 7)Securities of subsidiaries
    
    
    22
    
    
    
    31Stockholders equityPreferred stock, par value $0.01 per share; authorized 50,000,000 shares;
issued 750,000 shares of 4.99% convertible perpetual stock; stated at
liquidation value
    
    
    750
    
    
    
    750Common stock, par value $3 per share; authorized 1,500,000,000 shares; issued
709,015,253 shares in 2007 and 705,833,206 shares in 2006
    
    
    2,127
    
    
    
    2,118Additional paid-in capital
    
    
    4,724
    
    
    
    4,804Accumulated deficit
    
    
    (1,994
    )
    
    
    (2,940
    )Accumulated other comprehensive loss
    
    
    (413
    )
    
    
    (343
    )Treasury stock (at cost); 8,475,883 shares in 2007 and 8,715,288 shares in 2006
    
    
    (188
    )
    
    
    (203
    )Total stockholders equity
    
    
    5,006
    
    
    
    4,186Total liabilities and stockholders equity
    
    $
    24,081
    
    
    $
    27,261
  5




---



##### Table of Contents



EL PASO CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    950
    
    
    $
    641Less income from discontinued operations, net of income taxes
    
    
    674
    
    
    
    95Income from continuing operations
    
    
    276
    
    
    
    546Adjustments to reconcile net income to net cash from operating activitiesDepreciation, depletion and amortization
    
    
    850
    
    
    
    766Deferred income taxes
    
    
    127
    
    
    
    (15
    )Earnings from unconsolidated affiliates, adjusted for cash distributions
    
    
    81
    
    
    
    16Loss on debt extinguishment
    
    
    287
    
    
    
    26Other
    
    
    (52
    )
    
    
    53Asset and liability changes
    
    
    (76
    )
    
    
    340Cash provided by continuing activities
    
    
    1,493
    
    
    
    1,732Cash provided by (used in) discontinued activities
    
    
    (31
    )
    
    
    280Net cash provided by operating activities
    
    
    1,462
    
    
    
    2,012Cash flows from investing activitiesCapital expenditures
    
    
    (1,796
    )
    
    
    (1,510
    )Cash paid for acquisitions, net of cash acquired
    
    
    (1,182
    )
    
    
    Net proceeds from the sale of assets and investments
    
    
    82
    
    
    
    501Net change in restricted cash
    
    
    33
    
    
    
    101Other
    
    
    17
    
    
    
    24Cash used in continuing activities
    
    
    (2,846
    )
    
    
    (884
    )Cash provided by discontinued activities
    
    
    3,660
    
    
    
    229Net cash provided by (used) in investing activities
    
    
    814
    
    
    
    (655
    )Cash flows from financing activitiesNet proceeds from issuance of long-term debt
    
    
    5,253
    
    
    
    125Payments to retire long-term debt and other financing obligations
    
    
    (7,286
    )
    
    
    (2,990
    )Dividends paid
    
    
    (112
    )
    
    
    (108
    )Net proceeds from issuance of common stock
    
    
    
    
    
    
    500Contributions from discontinued operations
    
    
    3,346
    
    
    
    277Other
    
    
    4
    
    
    
    (25
    )Cash provided by (used in) continuing activities
    
    
    1,205
    
    
    
    (2,221
    )Cash used in discontinued activities
    
    
    (3,629
    )
    
    
    (509
    )Net cash used in financing activities
    
    
    (2,424
    )
    
    
    (2,730
    )Change in cash and cash equivalents
    
    
    (148
    )
    
    
    (1,373
    )Cash and cash equivalentsBeginning of period
    
    
    537
    
    
    
    2,132End of period
    
    $
    389
    
    
    $
    759
  6




---



##### Table of Contents



EL PASO CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 Nine MonthsQuarters Ended
    
    
    EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    155
    
    
    $
    135
    
    
    $
    950
    
    
    $
    641Foreign currency translation adjustments (net of income taxes of less than
$1 in 2006)
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    5Net reclassification adjustments (net of income taxes of $3 and $10 in
2007) associated with pension and other postretirement obligations
    
    
    5
    
    
    
    
    
    
    
    18
    
    
    
    Cash flow hedging activities:Unrealized mark-to-market gains arising during period (net of income
taxes of $22 and $3 in 2007 and $51 and $174 in 2006)
    
    
    39
    
    
    
    92
    
    
    
    6
    
    
    
    311Reclassification adjustments for changes in initial value to the
settlement date (net of income taxes of $22 and $46 in 2007 and $3 and
$18 in 2006)
    
    
    (38
    )
    
    
    4
    
    
    
    (78
    )
    
    
    29Investments available for sale:Unrealized gains (losses) arising during period (net of income taxes $2
in 2007 and $1 and $4 in 2006)
    
    
    
    
    
    
    (2
    )
    
    
    3
    
    
    
    7Realized gains arising during period (net of income taxes of $8 in 2007)
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    Other comprehensive income (loss)
    
    
    6
    
    
    
    97
    
    
    
    (66
    )
    
    
    352Comprehensive income
    
    $
    161
    
    
    $
    232
    
    
    $
    884
    
    
    $
    993
  7




---



##### Table of Contents



EL PASO CORPORATION
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1.  Basis of Presentation and Significant Accounting Policies
 Basis of Presentation
  Significant Accounting Policies
  Accounting for Uncertainty in Income Taxes. Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes,
 Accounting for Offsetting Contractual Amounts. Offsetting of Amounts Related to Certain
Contracts
 2.  Acquisitions and Divestitures
 Acquisitions
  8




---



##### Table of Contents



Divestitures
 Accounting for the Impairment or Disposal of Long-Lived Assets
 Discontinued Operations.
  ANR andRelatedOperations
    
    
    Other
    
    
    Total(In millions)Nine Months Ended September 30, 2007Revenues
    
    $
    101
    
    
    $
    
    
    
    $
    101Costs and expenses
    
    
    (43
    )
    
    
    
    
    
    
    (43
    )Other expense(1)
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Interest and debt expense
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Income taxes
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )Income from operations
    
    
    26
    
    
    
    
    
    
    
    26Gain on sale, net of income taxes of $354 million
    
    
    648
    
    
    
    
    
    
    
    648Net income from discontinued operations
    
    $
    674
    
    
    $
    
    
    
    $
    674Quarter Ended September 30, 2006Revenues
    
    $
    120
    
    
    $
    28
    
    
    $
    148Costs and expenses
    
    
    (82
    )
    
    
    (33
    )
    
    
    (115
    )Other income
    
    
    14
    
    
    
    2
    
    
    
    16Interest and debt expense
    
    
    (16
    )
    
    
    (1
    )
    
    
    (17
    )Income taxes
    
    
    (12
    )
    
    
    4
    
    
    
    (8
    )Net income from discontinued operations
    
    $
    24
    
    
    $
    
    
    
    $
    24Nine Months Ended September 30, 2006Revenues
    
    $
    439
    
    
    $
    131
    
    
    $
    570Costs and expenses
    
    
    (251
    )
    
    
    (144
    )
    
    
    (395
    )Other income
    
    
    45
    
    
    
    4
    
    
    
    49Interest and debt expense
    
    
    (49
    )
    
    
    (14
    )
    
    
    (63
    )Income taxes
    
    
    (67
    )
    
    
    1
    
    
    
    (66
    )Net income (loss) from discontinued operations
    
    $
    117
    
    
    $
    (22
    )
    
    $
    95
 
 (1)
    
    Includes a loss of approximately $19 million associated with the extinguishment
of certain debt obligations. 9




---



##### Table of Contents



Continuing operations asset sales.
 3.  Income Taxes
  Quarters Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006(In millions, except rates)Income taxes
    
    $
    100
    
    
    $
    (98
    )
    
    $
    151
    
    
    $
    14Effective tax rate
    
    
    39
    %
    
    
    (754
    )%
    
    
    35
    %
    
    
    3
    %
      10




---



##### Table of Contents



4.  Earnings Per Share
  2007
    
    
    2006Basic
    
    
    Diluted
    
    
    Basic
    
    
    Diluted(In millions, except per share amounts)Quarter Ended September 30,Income from continuing operations
    
    $
    155
    
    
    $
    155
    
    
    $
    111
    
    
    $
    111Convertible preferred stock dividends
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )
    
    
    (9
    )Income from continuing operations available to common stockholders
    
    
    146
    
    
    
    155
    
    
    
    102
    
    
    
    102Discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    24Net income available to common stockholders
    
    $
    146
    
    
    $
    155
    
    
    $
    126
    
    
    $
    126Weighted average common shares outstanding
    
    
    696
    
    
    
    696
    
    
    
    693
    
    
    
    693Effect of dilutive securities:Options and restricted stock
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    4Convertible preferred stock
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    Weighted average common shares outstanding and dilutive securities
    
    
    696
    
    
    
    759
    
    
    
    693
    
    
    
    697Earnings per common share:Income from continuing operations
    
    $
    0.21
    
    
    $
    0.20
    
    
    $
    0.15
    
    
    $
    0.15Discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    0.03
    
    
    
    0.03Net income
    
    $
    0.21
    
    
    $
    0.20
    
    
    $
    0.18
    
    
    $
    0.18
 2007
    
    
    2006Basic
    
    
    Diluted
    
    
    Basic
    
    
    Diluted(In millions, except per share amounts)Nine Months Ended September 30,Income from continuing operations
    
    $
    276
    
    
    $
    276
    
    
    $
    546
    
    
    $
    546Convertible preferred stock dividends
    
    
    (28
    )
    
    
    (28
    )
    
    
    (28
    )
    
    
    Income from continuing operations available to common stockholders
    
    
    248
    
    
    
    248
    
    
    
    518
    
    
    
    546Discontinued operations, net of income taxes
    
    
    674
    
    
    
    674
    
    
    
    95
    
    
    
    95Net income available to common stockholders
    
    $
    922
    
    
    $
    922
    
    
    $
    613
    
    
    $
    641Weighted average common shares outstanding
    
    
    695
    
    
    
    695
    
    
    
    673
    
    
    
    673Effect of dilutive securities:Options and restricted stock
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57Weighted average common shares outstanding and dilutive securities
    
    
    695
    
    
    
    699
    
    
    
    673
    
    
    
    734Earnings per common share:Income from continuing operations
    
    $
    0.36
    
    
    $
    0.35
    
    
    $
    0.77
    
    
    $
    0.74Discontinued operations, net of income taxes
    
    
    0.97
    
    
    
    0.96
    
    
    
    0.14
    
    
    
    0.13Net income
    
    $
    1.33
    
    
    $
    1.31
    
    
    $
    0.91
    
    
    $
    0.87
  5.  Price Risk Management Activities
  11




---



##### Table of Contents



September 30,
    
    
    December 31,2007
    
    
    2006(In millions)Net assets (liabilities):Derivatives designated as accounting hedges
    
    $
    23
    
    
    $
    61Other commodity-based derivative contracts(1)
    
    
    (861
    )
    
    
    (456
    )Total commodity-based derivatives
    
    
    (838
    )
    
    
    (395
    )Interest rate and foreign currency derivatives
    
    
    82
    
    
    
    43Net liabilities from price risk management activities
    
    $
    (756
    )
    
    $
    (352
    )
 
 (1)
    
    During 2007, we settled derivative assets of approximately $381 million by
applying the related cash margin we held against amounts due to us under those contracts. This
non-cash transaction is not reflected in our statement of cash flows. 6.  Long-Term Financing Obligations and Other Credit Facilities
 September 30,
    
    
    December 31,2007
    
    
    2006(In millions)Current maturities of long-term financing obligations
    
    $
    567
    
    
    $
    1,360Long-term financing obligations
    
    
    12,445
    
    
    
    13,329Total
    
    $
    13,012
    
    
    $
    14,689
 Changes in Long-Term Financing Obligations.
 CashBook Value
    
    
    Received /Company
    
    Interest Rate
    
    
    Increase (Decrease)
    
    
    (Paid)IssuancesEl Paso Exploration and Production Company (EPEP)Revolving credit facility
    
    variable
    
    
    $
    955
    
    
    $
    952El PasoRevolving credit facility
    
    variable
    
    
    
    2,200
    
    
    
    2,200Notes due 2014
    
    
    6.875
    %
    
    
    374
    
    
    
    371Notes due 2017
    
    
    7.00
    %
    
    
    893
    
    
    
    886El Paso Natural Gas (EPNG) notes due 2017
    
    
    5.95
    %
    
    
    354
    
    
    
    350Southern Natural Gas (SNG) notes due 2017
    
    
    5.90
    %
    
    
    500
    
    
    
    494Increases through September 30, 2007
    
    
    
    
    
    $
    5,276
    
    
    $
    5,253Repayments, repurchases and otherEl Paso
    
    
    6.375%-10.75
    %
    
    $
    (2,880
    )
    
    $
    (3,054
    )El Paso-Euro
    
    
    7.125
    %
    
    
    (157
    )
    
    
    (165
    )EPEP
    
    
    7.75
    %
    
    
    (1,199
    )
    
    
    (1,267
    )SNG
    
    
    6.70
    %
    
    
    (52
    )
    
    
    (52
    )SNG
    
    
    8.875
    %
    
    
    (398
    )
    
    
    (418
    )EPNG
    
    
    7.625
    %
    
    
    (299
    )
    
    
    (314
    )Other
    
    various
    
    
    
    32
    
    
    
    (16
    )(4,953
    )
    
    
    (5,286
    )Revolving Credit FacilitiesEPEP
    
    variable
    
    
    
    (200
    )
    
    
    (200
    )El Paso
    
    variable
    
    
    
    (1,800
    )
    
    
    (1,800
    )Decreases through September 30, 2007
    
    
    
    
    
    $
    (6,953
    )
    
    $
    (7,286
    )
  12




---



##### Table of Contents



Other.
  Credit Facilities/Letters of Credit
 Credit Facilities.
 $1.75 billion credit agreement.
 EPEP $1.0 billion revolving credit agreement.
 Unsecured Credit Facility.
 Contingent Letter of Credit Facility.
 Letters of Credit.
 7.  Commitments and Contingencies
 Legal Proceedings
 ERISA Class Action Suit. William
H. Lewis, III v. El Paso Corporation, et al.
 13




---



##### Table of Contents



Cash Balance Plan Lawsuit. Tomlinson, et al. v. El Paso Corporation and El Paso Corporation Pension Plan
 Retiree Medical Benefits Matters. Yolton et
al. v. El Paso Tennessee Pipeline Co. and Case Corporation.
 Natural Gas Commodities Litigation. In re: Gas Commodity Litigation. In re: Western States Wholesale Natural Gas Antitrust
Litigation Farmland Industries v.
Oneok Inc. Missouri Public
Service Commission v. El Paso Corporation, et al. Leggett,
et al. v. Duke Energy Corporation, et al. Ever-Bloom Inc. v. AEP Energy Services Inc., et al. Learjet, Inc. v. Oneok Inc., Breckenridge, et al. v. Oneok Inc., et al. Arandell, et al. v. Xcel Energy, et al. Heartland, et al. v. Oneok
Inc., et al. Leggett Farmland, Learjet Breckenridge
 Gas Measurement Cases. In re: Natural Gas Royalties
Qui Tam Litigation,
 14




---



##### Table of Contents



Will Price, et al. v.
Gas Pipelines and Their Predecessors, et al.,
 MTBE.
 Government Investigations and Inquiries
 Reserve Revisions.
 Other Government Investigations.
  15




---



##### Table of Contents



Rates and Regulatory Matters
 EPNG Rate Case.
 Notice of Inquiry on Pipeline Fuel Retention Policies.
 Other Contingencies
 Iraq Imports.
 Navajo Nation.
 Cheyenne Plains (CP) Compression Station Fire
 Environmental Matters
  16




---



##### Table of Contents



September 30, 2007Sites
    
    Expected
    
    
    High(In millions)Operating
    
    $
    24
    
    
    $
    29Non-operating
    
    
    223
    
    
    
    406Superfund
    
    
    28
    
    
    
    51Total
    
    $
    275
    
    
    $
    486
  Balance as of January 1, 2007
    
    $
    314Additions/adjustments for remediation activities
    
    
    19Payments for remediation activities
    
    
    (58
    )Balance as of September 30, 2007
    
    $
    275
  Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) Matters.
  Guarantees and Indemnifications
  17




---



##### Table of Contents



Retiree Medical Benefits Matters
 8.  Retirement Benefits
  Quarters Ended September 30,
    
    
    Nine Months Ended September 30,Other
    
    
    
    
    
    
    
    
    
    
    OtherPension
    
    
    Postretirement
    
    
    Pension
    
    
    PostretirementBenefits
    
    
    Benefits
    
    
    Benefits
    
    
    Benefits2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Service cost
    
    $
    4
    
    
    $
    4
    
    
    $
    
    
    
    $
    
    
    
    $
    13
    
    
    $
    12
    
    
    $
    
    
    
    $
    Interest cost
    
    
    30
    
    
    
    29
    
    
    
    6
    
    
    
    7
    
    
    
    90
    
    
    
    87
    
    
    
    19
    
    
    
    21Expected return on plan assets
    
    
    (45
    )
    
    
    (44
    )
    
    
    (4
    )
    
    
    (4
    )
    
    
    (136
    )
    
    
    (132
    )
    
    
    (12
    )
    
    
    (12
    )Amortization of net actuarial loss
    
    
    11
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    42
    
    
    
    
    
    
    
    Amortization of prior service cost(1)
    
    
    (1
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    Special termination benefits(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Net benefit cost (income)
    
    $
    (1
    )
    
    $
    3
    
    
    $
    3
    
    
    $
    3
    
    
    $
    3
    
    
    $
    9
    
    
    $
    7
    
    
    $
    9
 
 (1)
    
    As permitted, the amortization of any prior service cost is determined using a
straight-line amortization of the cost over the average remaining service period of employees
expected to receive benefits under the plan.(2)
    
    Relates to providing enhanced benefits to former ANR employees, which is
included in discontinued operations in our income statement. Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements
No. 87, 88, 106 and 132(R) Employers Accounting for Postretirement
Benefits Other Than Pensions
  18




---



##### Table of Contents



9.  Stockholders Equity
  Common Stock
    
    Convertible Preferred Stock($0.04/Share per Qtr)
    
    (4.99%/Year)($ in millions)Amount paid through September 30, 2007
    
    $
    84
    
    
    $
    28Amount paid in October 2007
    
    $
    27
    
    
    $
    9Declared subsequent to September 30, 2007:Date of declaration
    
    October 25, 2007
    
    October 25, 2007Payable to shareholders on record
    
    December 7, 2007
    
    December 15, 2007Date payable
    
    January 7, 2008
    
    January 7, 2008
   10.  Business Segment Information
  Pipelines.
 Exploration and Production.
 Marketing.
 Power.
 19




---



##### Table of Contents



Quarters Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Segment EBIT
    
    $
    432
    
    
    $
    324
    
    
    $
    1,432
    
    
    $
    1,552Corporate and other EBIT
    
    
    51
    
    
    
    (17
    )
    
    
    (263
    )
    
    
    (51
    )Interest and debt expense
    
    
    (228
    )
    
    
    (294
    )
    
    
    (742
    )
    
    
    (941
    )Income taxes
    
    
    (100
    )
    
    
    98
    
    
    
    (151
    )
    
    
    (14
    )Income from continuing operations
    
    $
    155
    
    
    $
    111
    
    
    $
    276
    
    
    $
    546
  SegmentsExploration and
    
    
    
    
    
    
    
    
    
    CorporatePipelines
    
    Production
    
    Marketing
    
    Power
    
    and Other(1)
    
    Total(In millions)Quarter Ended September 30,
2007Revenue from external customers
    
    $
    572
    
    
    $
    290
    (4)
    
    $
    284
    
    
    $
    
    
    
    $
    20
    
    
    $
    1,166Intersegment revenue
    
    
    14
    
    
    
    285
    (4)
    
    
    (293
    )
    
    
    
    
    
    
    (6
    )
    
    
    Operation and maintenance
    
    
    199
    
    
    
    106
    
    
    
    4
    
    
    
    5
    
    
    
    34
    
    
    
    348Depreciation, depletion, and amortization
    
    
    94
    
    
    
    194
    
    
    
    
    
    
    
    1
    
    
    
    4
    
    
    
    293Earnings (losses) from unconsolidated affiliates
    
    
    28
    
    
    
    2
    
    
    
    
    
    
    
    (36
    )(2)
    
    
    
    
    
    
    (6
    )EBIT
    
    
    275
    
    
    
    232
    
    
    
    (8
    )
    
    
    (67
    )(2)
    
    
    51
    (3)
    
    
    4832006Revenue from external customers
    
    $
    567
    
    
    $
    186
    (4)
    
    $
    162
    
    
    $
    1
    
    
    $
    26
    
    
    $
    942Intersegment revenue
    
    
    15
    
    
    
    270
    (4)
    
    
    (267
    )
    
    
    2
    
    
    
    (20
    )
    
    
    Operation and maintenance
    
    
    198
    
    
    
    109
    
    
    
    6
    
    
    
    14
    
    
    
    7
    
    
    
    334Depreciation, depletion, and amortization
    
    
    92
    
    
    
    163
    
    
    
    1
    
    
    
    
    
    
    
    4
    
    
    
    260Earnings from unconsolidated affiliates
    
    
    25
    
    
    
    2
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    55EBIT
    
    
    253
    
    
    
    141
    
    
    
    (108
    )
    
    
    38
    
    
    
    (17
    )
    
    
    307
 
 (1)
    
    Includes eliminations of intercompany transactions. Our intersegment revenues,
along with our intersegment operating expenses, were incurred in the normal course of business
between our operating segments. During the quarter ended September 30, 2007, we recorded an
intersegment revenue elimination of $6 million, and for the quarter ended September 30, 2006,
we recorded an intersegment revenue elimination of $19 million and an operation and
maintenance expense elimination of $13 million, which is included in the Corporate and other
column to remove intersegnment transactions.(2)
    
    Includes a loss associated with our equity investment in and note receivable
from the Porto Velho project, which is further discussed in Note 11.(3)
    
    Includes a $77 million gain associated with the reversal of a liability related
to The Coastal Corporations legacy crude oil marketing and trading business which is further
discussed in Note 7.(4)
    
    Revenues from external customers include gains and losses related to our
hedging of price risk associated with our natural gas and oil production. Intersegment
revenues represent sales to our Marketing segment, which is responsible for marketing the
majority of our production. 20




---



##### Table of Contents



SegmentsExploration and
    
    
    
    
    
    
    
    
    
    CorporatePipelines
    
    Production
    
    Marketing
    
    Power
    
    and Other(1)
    
    Total(In millions)Nine Months Ended September 30,
2007Revenue from external customers
    
    $
    1,803
    
    
    $
    778
    (4)
    
    $
    744
    
    
    $
    
    
    
    $
    61
    
    
    $
    3,386Intersegment revenue
    
    
    41
    
    
    
    877
    (4)
    
    
    (904
    )
    
    
    
    
    
    
    (14
    )
    
    
    Operation and maintenance
    
    
    541
    
    
    
    326
    
    
    
    7
    
    
    
    16
    
    
    
    88
    
    
    
    978Depreciation, depletion, and amortization
    
    
    279
    
    
    
    553
    
    
    
    2
    
    
    
    1
    
    
    
    15
    
    
    
    850Earnings (losses) from unconsolidated affiliates
    
    
    83
    
    
    
    4
    
    
    
    
    
    
    
    (12
    )(2)
    
    
    
    
    
    
    75EBIT
    
    
    957
    
    
    
    646
    
    
    
    (138
    )
    
    
    (33
    )(2)
    
    
    (263
    )(3)
    
    
    1,1692006Revenue from external customers
    
    $
    1,759
    
    
    $
    501
    (4)
    
    $
    1,015
    
    
    $
    4
    
    
    $
    89
    
    
    $
    3,368Intersegment revenue
    
    
    46
    
    
    
    883
    (4)
    
    
    (897
    )
    
    
    2
    
    
    
    (34
    )
    
    
    Operation and maintenance
    
    
    540
    
    
    
    295
    
    
    
    18
    
    
    
    44
    
    
    
    60
    
    
    
    957Depreciation, depletion, and amortization
    
    
    278
    
    
    
    465
    
    
    
    3
    
    
    
    1
    
    
    
    19
    
    
    
    766Earnings (losses) from unconsolidated affiliates
    
    
    69
    
    
    
    10
    
    
    
    
    
    
    
    43
    
    
    
    (1
    )
    
    
    121EBIT
    
    
    885
    
    
    
    503
    
    
    
    113
    
    
    
    51
    
    
    
    (51
    )
    
    
    1,501
 
 (1)
    
    Includes eliminations of intercompany transactions. Our intersegment revenues,
along with our intersegment operating expenses, were incurred in the normal course of business
between our operating segments. During the nine months ended September 30, 2007, we recorded
an intersegment revenue elimination of $15 million, and for the nine months ended September
30, 2006, we recorded an intersegment revenue elimination of $32 million and an operation and
maintenance expense elimination of $13 million, which is included in the Corporate column to
remove intersegment transactions.(2)
    
    Includes a loss associated with our equity investment in and note receivable
from the Porto Velho project, which is further discussed in Note 11.(3)
    
    Debt and treasury management activities, which are part of Corporate and
Other, includes debt extinguishment costs of $287 million, $86 million of which related to
refinancing EPEPs $1.2 billion notes. This amount also includes a $77 million gain
associated with the reversal of a liability related to The Coastal Corporations legacy crude
oil marketing and trading business, which is further discussed in Note 7.(4)
    
    Revenues from external customers include gains and losses related to our
hedging of price risk associated with our natural gas and oil production. Intersegment
revenues represent sales to our Marketing segment, which is responsible for marketing the
majority of our production.  September 30,
    
    
    December 31,2007
    
    
    2006(In millions)Pipelines
    
    $
    13,599
    
    
    $
    13,105Exploration and Production
    
    
    7,814
    
    
    
    6,262Marketing
    
    
    499
    
    
    
    1,143Power
    
    
    563
    
    
    
    618Total segment assets
    
    
    22,475
    
    
    
    21,128Corporate and Other
    
    
    1,606
    
    
    
    2,000Discontinued operations
    
    
    
    
    
    
    4,133Total assets
    
    $
    24,081
    
    
    $
    27,261
 21




---



##### Table of Contents



11.  Investments in, Earnings from and Transactions with Unconsolidated Affiliates
  Earnings (Losses) fromUnconsolidated AffiliatesNet investment and earnings (losses)
    
    Investment
    
    
    Quarters Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    December 31,
    
    
    September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)
    
    
    (In millions)Domestic:Four Star(1)
    
    $
    708
    
    
    $
    723
    
    
    $
    2
    
    
    $
    2
    
    
    $
    4
    
    
    $
    10Citrus
    
    
    560
    
    
    
    597
    
    
    
    21
    
    
    
    19
    
    
    
    65
    
    
    
    48Other
    
    
    38
    
    
    
    36
    
    
    
    2
    
    
    
    11
    
    
    
    3
    
    
    
    15Foreign:Bolivia to Brazil Pipeline
    
    
    110
    
    
    
    105
    
    
    
    3
    
    
    
    5
    
    
    
    8
    
    
    
    10Manaus/Rio Negro
    
    
    81
    
    
    
    96
    
    
    
    (7
    )
    
    
    4
    
    
    
    2
    
    
    
    15Porto Velho(2)
    
    
    (60
    )
    
    
    (34
    )
    
    
    (31
    )
    
    
    2
    
    
    
    (24
    )
    
    
    1Asian and Central American Investments(2)
    
    
    26
    
    
    
    27
    
    
    
    
    
    
    
    2
    
    
    
    (1
    )
    
    
    (3
    )Other(2)
    
    
    175
    
    
    
    157
    
    
    
    4
    
    
    
    10
    
    
    
    18
    
    
    
    25Total
    
    $
    1,638
    
    
    $
    1,707
    
    
    $
    (6
    )
    
    $
    55
    
    
    $
    75
    
    
    $
    121
 
 (1)
    
    During the third quarter of 2007, we increased our ownership interest in Four
Star from 43 percent to 49 percent. Amortization of our purchase cost in excess of the
underlying net assets of Four Star was $10 million and $13 million for the quarters ended
September 30, 2007 and 2006 and $37 million and $40 million for the nine months ended
September 30, 2007 and 2006. For a further discussion, see our 2006 Annual Report on
Form 10-K.(2)
    
    As of September 30, 2007 and December 31, 2006, we had outstanding advances
and receivables of $349 million and $380 million related to our foreign investments of which
$335 million and $350 million related to our investment in Porto Velho. Earnings above do not
reflect income (loss) recognized on these outstanding advances and receivables of
approximately $(24) million and $11 million for the quarters ended September 30, 2007 and 2006
and less than $1 million and $34 million for the nine months ended September 30, 2007 and
2006. For further information, see the Porto Velho discussion below. Quarters Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,Summarized Financial Information
    
    2007
    
    2006
    
    2007
    
    2006(In millions)Operating results data:Revenues
    
    $
    222
    
    
    $
    276
    
    
    $
    638
    
    
    $
    896Operating expenses
    
    
    132
    
    
    
    138
    
    
    
    375
    
    
    
    619Income from continuing operations
    
    
    51
    
    
    
    92
    
    
    
    164
    
    
    
    121Net income(1)
    
    
    51
    
    
    
    92
    
    
    
    164
    
    
    
    121
 
 (1)
    
    Includes net income of less than $1 million and $2 million for the quarters
ended September 30, 2007 and 2006, and $9 million and $11 million for the nine months ended
September 30, 2007 and 2006, related to our proportionate share of affiliates in which we hold
a greater than 50 percent interest.  22




---



##### Table of Contents



Quarter Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,Revenues and charges with unconsolidated affiliates
    
    2007
    
    2006
    
    2007
    
    2006(In millions)Operating revenue
    
    $
    1
    
    
    $
    1
    
    
    $
    4
    
    
    $
    61Operating expense
    
    
    2
    
    
    
    
    
    
    
    4
    
    
    
    2Other income
    
    
    
    
    
    
    2
    
    
    
    2
    
    
    
    5Interest income
    
    
    (24
    )(1)
    
    
    11
    
    
    
    
    
    
    
    34
 
 (1)
    
    Included is an impairment of our Porto Velho note receivable as further
described below. Matters that Could Impact Our Investments
 Porto Velho.
  Manaus/Rio Negro.
 Asian and Central American power investments.
 Investment in Bolivia.
 23




---



##### Table of Contents



Investment in Argentina.
 24




---



##### Table of Contents



Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
 Financial Update.
  What to Expect Going Forward.
   25




---



##### Table of Contents



Segment Results
   Quarters Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)SegmentPipelines
    
    $
    275
    
    
    $
    253
    
    
    $
    957
    
    
    $
    885Exploration and Production
    
    
    232
    
    
    
    141
    
    
    
    646
    
    
    
    503Marketing
    
    
    (8
    )
    
    
    (108
    )
    
    
    (138
    )
    
    
    113Power
    
    
    (67
    )
    
    
    38
    
    
    
    (33
    )
    
    
    51Segment EBIT
    
    
    432
    
    
    
    324
    
    
    
    1,432
    
    
    
    1,552Corporate and other
    
    
    51
    
    
    
    (17
    )
    
    
    (263
    )
    
    
    (51
    )Consolidated EBIT
    
    
    483
    
    
    
    307
    
    
    
    1,169
    
    
    
    1,501Interest and debt expense
    
    
    (228
    )
    
    
    (294
    )
    
    
    (742
    )
    
    
    (941
    )Income taxes
    
    
    (100
    )
    
    
    98
    
    
    
    (151
    )
    
    
    (14
    )Income from continuing operations
    
    
    155
    
    
    
    111
    
    
    
    276
    
    
    
    546Discontinued operations, net of income taxes
    
    
    
    
    
    
    24
    
    
    
    674
    
    
    
    95Net income
    
    $
    155
    
    
    $
    135
    
    
    $
    950
    
    
    $
    641
 26




---



##### Table of Contents



Pipelines Segment
 Operating Results.
 Quarters Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions, except volume amounts)Operating revenues
    
    $
    586
    
    
    $
    582
    
    
    $
    1,844
    
    
    $
    1,805Operating expenses
    
    
    (352
    )
    
    
    (361
    )
    
    
    (1,010
    )
    
    
    (1,012
    )Operating income
    
    
    234
    
    
    
    221
    
    
    
    834
    
    
    
    793Other income
    
    
    41
    
    
    
    32
    
    
    
    123
    
    
    
    92EBIT
    
    $
    275
    
    
    $
    253
    
    
    $
    957
    
    
    $
    885Throughput volumes (BBtu/d)(1)
    
    
    18,512
    
    
    
    17,770
    
    
    
    17,909
    
    
    
    17,021
 
 (1)
    
    Throughput volumes include volumes associated with our proportionate share of
unconsolidated affiliates.  Quarter Ended September 30, 2007
    
    
    Nine Months Ended September 30, 2007Variance
    
    
    VarianceRevenue
    
    
    Expense
    
    
    Other
    
    
    EBIT
    
    
    Revenue
    
    
    Expense
    
    
    Other
    
    
    EBITImpact
    
    
    Impact
    
    
    Impact
    
    
    Impact
    
    
    Impact
    
    
    Impact
    
    
    Impact
    
    
    ImpactFavorable/(Unfavorable)(In millions)Expansions
    
    $
    14
    
    
    $
    (3
    )
    
    $
    1
    
    
    $
    12
    
    
    $
    33
    
    
    $
    (6
    )
    
    $
    5
    
    
    $
    32Reservation and usage revenues
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    13Bankruptcy settlements
    
    
    (14
    )
    
    
    (4
    )
    
    
    
    
    
    
    (18
    )
    
    
    (2
    )
    
    
    (4
    )
    
    
    
    
    
    
    (6
    )Operational gas and revaluations
    
    
    (3
    )
    
    
    8
    
    
    
    
    
    
    
    5
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    (10
    )Hurricanes Katrina and Rita
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    14Losses on development projects
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    12Equity earnings from Citrus
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    18Other(1)
    
    
    (1
    )
    
    
    (11
    )
    
    
    5
    
    
    
    (7
    )
    
    
    5
    
    
    
    (14
    )
    
    
    8
    
    
    
    (1
    )Total impact on EBIT
    
    $
    4
    
    
    $
    9
    
    
    $
    9
    
    
    $
    22
    
    
    $
    39
    
    
    $
    2
    
    
    $
    31
    
    
    $
    72
 
 (1)
    
    Consists of individually insignificant items on several of our pipeline
systems. Expansions.
  Reservation and Usage Revenues.
 27




---



##### Table of Contents



Bankruptcy Settlements.
 Operational Gas and Revaluations.
 Hurricanes Katrina and Rita.
 Losses on Development Projects.
 Equity Earnings from Citrus.
 Regulatory Matters/Rate Cases.
 
    
    EPNG In August 2007, EPNG received approval of the settlement of its rate case
from the FERC. The settlement provides benefits for both EPNG and its customers for a
three year period ending December 31, 2008. Under the terms of the settlement, EPNG is
required to file a new rate case to be effective January 1, 2009. EPNG has received
approval from the FERC to begin billing the settlement rates on October 1, 2007 and it
will refund amounts, with interest, within 120 days of that date. Our financial
statements reflect EPNGs proposed rates and we have reserved a sufficient amount to meet
the refund obligations under this settlement. For a further discussion, see Item 1,
Financial Statements, Note 7.
    
    Mojave Pipeline (MPC) In February 2007, as required by its prior rate case
settlement, MPC filed with the FERC a general rate case proposing a 33 percent decrease
in its base tariff rates resulting from a variety of factors, including a decline in rate
base and various changes in rate design since the last rate case. No new services were
proposed. We anticipate a decrease in revenues of approximately $13 million annually due
to these rate changes. The new base rates were effective March 1, 2007 and are subject to
further adjustment upon the outcome of the rate case proceeding. In October 2007, MPC
filed an offer of settlement to resolve all issues in the rate case. The offer has either
been supported or unopposed by all participants, and the Presiding Judge over the
preceding has certified the settlement offer to the FERC for its review.
    
    CIG/WIC  In August 2007, CIG filed a tariff change with the FERC to modify its
fuel recovery mechanism to recover all cost impacts, or flow through to shippers any
revenue impacts, of all fuel imbalance revaluations and related gas balance items. CIG
currently experiences variability in cash flow and earnings under its fuel recovery
mechanism, but its earnings variability related to price fluctuations will be
substantially reduced if the FERC approves the fuel tracker. This tariff filing was
protested by certain shippers and the FERC has suspended the effective date to March 1,
2008 subject to the outcome of a technical conference on the proposed tariff change that
is scheduled for November 2007. In addition, WIC filed a tariff change with the FERC in
September 2007 to establish a fuel and related gas balance recovery mechanism, which if
approved, will recover all cost impacts, or flow through to shippers any revenue impacts
of all such items. This tariff filing was protested by certain shippers and the FERC has
suspended the effective date to April 1, 2008, subject to the outcome of a technical
conference on the proposed tariff change, which has not been scheduled.
 
 28




---



##### Table of Contents



Exploration and Production Segment
 Overview and Strategy
    Operating Results for the Periods Ended September 30, 2007
 Average Daily Production.
 Nine Months EndedSeptember 30,2007
    
    
    2006(MMcfe/d)United StatesOnshore
    
    
    364
    
    
    
    342Texas Gulf Coast
    
    
    199
    
    
    
    189Gulf of Mexico Shelf /south Louisiana
    
    
    196
    
    
    
    162InternationalBrazil
    
    
    15
    
    
    
    26Total Consolidated
    
    
    774
    
    
    
    719Four Star(1)
    
    
    67
    
    
    
    67
 
 (1)
    
    Amounts represent our proportionate share of the production of Four Star.  29




---



##### Table of Contents



Drilling
  Onshore.
 Texas Gulf Coast.
 Gulf of Mexico Shelf /south Louisiana.
 Brazil.
 Egypt.
 Cash Operating Costs.
 Capital Expenditures.
 Outlook
  
    
    Average daily production volumes of approximately 785 MMcfe/d to 800 MMcfe/d, which
excludes approximately 65 MMcfe/d to 70 MMcfe/d from our equity investment in Four Star;
    
    Total capital expenditures, excluding acquisitions, between $1.4 billion and
$1.5 billion. While more than 80 percent of the 2007 capital program is allocated to our
domestic program, we have invested approximately $179 million internationally through
September 2007, primarily in our Brazil exploration and development program;
    
    Average cash operating costs which include production costs, general and
administrative expenses and taxes (other than production and income) of approximately
$1.85/Mcfe to $1.95/Mcfe; and
    
    An overall depreciation, depletion, and amortization rate between $2.60/Mcfe and
$2.75/Mcfe.
 30




---



##### Table of Contents



Price Risk Management Activities
   Fixed Price
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BasisSwaps(1)
    
    Floors(1)
    
    Ceilings(1)
    
    Swaps(1)(2)Average
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    Texas Gulf Coast
    
    Onshore-RatonVolumes
    
    Price
    
    Volumes
    
    Price
    
    Volumes
    
    Price
    
    Volumes
    
    Avg. Price
    
    Volumes
    
    Avg. PriceNatural Gas2007
    
    
    22
    
    
    $
    7.66
    
    
    
    14
    
    
    $
    8.00
    
    
    
    14
    
    
    $
    16.89
    
    
    
    20
    
    
    $
    (0.66
    )
    
    
    7
    
    
    $
    (1.09
    )2008
    
    
    33
    
    
    $
    7.65
    
    
    
    104
    
    
    $
    8.00
    
    
    
    104
    
    
    $
    10.82
    
    
    
    51
    
    
    $
    (0.33
    )
    
    
    26
    
    
    $
    (1.13
    )2009
    
    
    5
    
    
    $
    3.56
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2010-2012
    
    
    11
    
    
    $
    3.81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Oil2007
    
    
    48
    
    
    $
    35.15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Volumes presented are TBtu for natural gas and MBbl for oil. Prices presented
are per MMBtu of natural gas and per Bbl of oil.(2)
    
    Our basis swaps effectively limit our exposure to differences between the NYMEX
gas price and the price at the location where we sell our gas. The average prices listed above
are the amounts we will pay per MMBtu relative to the NYMEX price to lock-in these
locational price differences.    31




---



##### Table of Contents



Financial Results and Analysis
 Quarters Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Operating Revenues:Natural gas
    
    $
    431
    
    
    $
    357
    
    
    $
    1,298
    
    
    $
    1,049Oil, condensate and NGL
    
    
    129
    
    
    
    119
    
    
    
    328
    
    
    
    327Other
    
    
    15
    
    
    
    (20
    )
    
    
    29
    
    
    
    8Total operating revenues
    
    
    575
    
    
    
    456
    
    
    
    1,655
    
    
    
    1,384Operating Expenses:Depreciation, depletion and amortization
    
    
    (194
    )
    
    
    (163
    )
    
    
    (553
    )
    
    
    (465
    )Production costs
    
    
    (79
    )
    
    
    (92
    )
    
    
    (249
    )
    
    
    (235
    )Cost of products and services
    
    
    (25
    )
    
    
    (23
    )
    
    
    (68
    )
    
    
    (67
    )General and administrative expenses
    
    
    (46
    )
    
    
    (38
    )
    
    
    (141
    )
    
    
    (121
    )Other
    
    
    (3
    )
    
    
    (2
    )
    
    
    (10
    )
    
    
    (6
    )Total operating expenses
    
    
    (347
    )
    
    
    (318
    )
    
    
    (1,021
    )
    
    
    (894
    )Operating income
    
    
    228
    
    
    
    138
    
    
    
    634
    
    
    
    490Other income(1)
    
    
    4
    
    
    
    3
    
    
    
    12
    
    
    
    13EBIT
    
    $
    232
    
    
    $
    141
    
    
    $
    646
    
    
    $
    503
 
 (1)
    
    Includes equity earnings from our investment in Four Star. Quarters Ended September 30,
    
    
    Nine Months Ended September 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent2007
    
    
    2006
    
    
    Variance
    
    
    2007
    
    
    2006
    
    
    VarianceConsolidated volumes, prices and costs per unit:Natural gasVolumes (MMcf)
    
    
    60,705
    
    
    
    56,736
    
    
    
    7
    %
    
    
    177,222
    
    
    
    162,403
    
    
    
    9
    %Average realized prices including hedges ($/Mcf)
    
    $
    7.12
    
    
    $
    6.30
    
    
    
    13
    %
    
    $
    7.33
    
    
    $
    6.46
    
    
    
    13
    %Average realized prices excluding hedges ($/Mcf)
    
    $
    5.92
    
    
    $
    6.31
    
    
    
    (6
    )%
    
    $
    6.52
    
    
    $
    6.79
    
    
    
    (4
    )%Average transportation costs ($/Mcf)
    
    $
    0.29
    
    
    $
    0.23
    
    
    
    26
    %
    
    $
    0.28
    
    
    $
    0.23
    
    
    
    22
    %Oil, condensate and NGLVolumes (MBbls)
    
    
    1,948
    
    
    
    1,959
    
    
    
    (1
    )%
    
    
    5,684
    
    
    
    5,662
    
    
    
    
    %Average realized prices including hedges ($/Bbl)
    
    $
    66.26
    
    
    $
    60.81
    
    
    
    9
    %
    
    $
    57.71
    
    
    $
    57.81
    
    
    
    
    %Average realized prices excluding hedges ($/Bbl)
    
    $
    66.82
    
    
    $
    60.81
    
    
    
    10
    %
    
    $
    58.36
    
    
    $
    58.22
    
    
    
    
    %Average transportation costs ($/Bbl)
    
    $
    0.84
    
    
    $
    0.71
    
    
    
    18
    %
    
    $
    0.76
    
    
    $
    0.91
    
    
    
    (16
    )%Total equivalent volumesMMcfe
    
    
    72,392
    
    
    
    68,490
    
    
    
    6
    %
    
    
    211,327
    
    
    
    196,376
    
    
    
    8
    %MMcfe/d
    
    
    787
    
    
    
    744
    
    
    
    6
    %
    
    
    774
    
    
    
    719
    
    
    
    8
    %Production costs and other cash operating costs ($/Mcfe)Average lease operating cost
    
    $
    0.83
    
    
    $
    1.03
    
    
    
    (19
    )%
    
    $
    0.87
    
    
    $
    0.89
    
    
    
    (2
    )%Average production taxes(1)
    
    
    0.26
    
    
    
    0.32
    
    
    
    (19
    )%
    
    
    0.31
    
    
    
    0.31
    
    
    
    
    %Total production cost
    
    
    1.09
    
    
    
    1.35
    
    
    
    (19
    )%
    
    
    1.18
    
    
    
    1.20
    
    
    
    (2
    )%Average general and administrative cost
    
    
    0.64
    
    
    
    0.57
    
    
    
    12
    %
    
    
    0.67
    
    
    
    0.62
    
    
    
    8
    %Average taxes, other than production and income
    
    
    0.04
    
    
    
    0.03
    
    
    
    33
    %
    
    
    0.04
    
    
    
    0.03
    
    
    
    33
    %Total cash operating costs
    
    $
    1.77
    
    
    $
    1.95
    
    
    
    (9
    )%
    
    $
    1.89
    
    
    $
    1.85
    
    
    
    2
    %Unit of production depletion cost ($/Mcfe)
    
    $
    2.56
    
    
    $
    2.27
    
    
    
    13
    %
    
    $
    2.50
    
    
    $
    2.24
    
    
    
    12
    %Unconsolidated affiliate volumes (Four Star)Natural gas (MMcf)
    
    
    4,107
    
    
    
    4,379
    
    
    
    
    
    
    
    13,854
    
    
    
    13,342Oil, condensate and NGL (MBbls)
    
    
    254
    
    
    
    278
    
    
    
    
    
    
    
    756
    
    
    
    847Total equivalent volumesMMcfe
    
    
    5,634
    
    
    
    6,049
    
    
    
    
    
    
    
    18,389
    
    
    
    18,424MMcfe/d
    
    
    61
    
    
    
    66
    
    
    
    
    
    
    
    67
    
    
    
    67
 
 (1)
    
    Production taxes include ad valorem and severance taxes. 32




---



##### Table of Contents



Quarter Ended September 30, 2007
    
    
    Nine Months Ended September 30, 2007Variance
    
    
    VarianceOperating
    
    
    Operating
    
    
    
    
    
    
    
    
    
    
    Operating
    
    
    OperatingRevenue
    
    
    Expense
    
    
    Other
    
    
    EBIT
    
    
    Revenue
    
    
    Expense
    
    
    Other
    
    
    EBITFavorable/(Unfavorable)(In millions)Natural Gas RevenueLower realized prices in 2007
    
    $
    (23
    )
    
    $
    
    
    
    $
    
    
    
    $
    (23
    )
    
    $
    (48
    )
    
    $
    
    
    
    $
    
    
    
    $
    (48
    )Impact of hedges
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    196
    
    
    
    
    
    
    
    
    
    
    
    196Higher volumes in 2007
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    101Oil, Condensate and NGL RevenueHigher realized prices in 2007
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Impact of hedges
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Higher (lower )volumes in 2007
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Other RevenueChange in fair value of
derivatives not designated as
accounting hedges
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    45Other
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    (24
    )Depreciation, Depletion and
Amortization ExpenseHigher depletion rate in 2007
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    (55
    )
    
    
    
    
    
    
    (55
    )Higher production volumes in 2007
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (33
    )
    
    
    
    
    
    
    (33
    )Production CostsLower (higher) lease operating
costs in 2007
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Lower (higher) production taxes
in 2007
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )General and Administrative Expenses
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    (20
    )OtherEarnings from investment in Four
Star
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Other
    
    
    
    
    
    
    (4
    )
    
    
    1
    
    
    
    (3
    )
    
    
    
    
    
    
    (5
    )
    
    
    5
    
    
    
    Total Variances
    
    $
    119
    
    
    $
    (29
    )
    
    $
    1
    
    
    $
    91
    
    
    $
    271
    
    
    $
    (127
    )
    
    $
    (1
    )
    
    $
    143
 Operating revenues.
 Other revenue.
 Depreciation, depletion and amortization expense.
 Production costs.
 33




---



##### Table of Contents



General and administrative expenses.
 Marketing Segment
 Overview.
 Operating Results.
 Quarters Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Gross Margin by Significant Contract Type:Production-Related Natural Gas and Oil Derivative Contracts:Changes in fair value of derivative contracts
    
    $
    15
    
    
    $
    67
    
    
    $
    (63
    )
    
    $
    256Contracts Related to Legacy Trading Operations:Natural gas transportation-related natural gas contracts:Demand charges
    
    
    (27
    )
    
    
    (28
    )
    
    
    (82
    )
    
    
    (97
    )Settlements
    
    
    18
    
    
    
    15
    
    
    
    54
    
    
    
    52Changes in fair value of other natural gas derivative contracts (1)
    
    
    (4
    )
    
    
    (186
    )
    
    
    (26
    )
    
    
    (157
    )Changes in fair value of power contracts(2)
    
    
    (11
    )
    
    
    27
    
    
    
    (43
    )
    
    
    64Total gross margin(3)
    
    
    (9
    )
    
    
    (105
    )
    
    
    (160
    )
    
    
    118Operating expenses
    
    
    (4
    )
    
    
    (8
    )
    
    
    (9
    )
    
    
    (23
    )Operating income (loss)
    
    
    (13
    )
    
    
    (113
    )
    
    
    (169
    )
    
    
    95Other income, net(4)
    
    
    5
    
    
    
    5
    
    
    
    31
    
    
    
    18EBIT
    
    $
    (8
    )
    
    $
    (108
    )
    
    $
    (138
    )
    
    $
    113
 
 (1)
    
    During the third quarter of 2006, we recognized a loss of $133 million on our MCV
natural gas supply agreements upon our Power segments sale of its interest in that
facility.(2)
    
    Includes $2 million and $23 million of revenue during the quarter and nine
months ended September 30, 2007, related to the settlement of outstanding California power
price disputes.(3)
    
    Gross margin consists of revenues from commodity marketing activities less
costs of commodities sold, including changes in the fair value of derivative contracts.(4)
    
    We recognized a $23 million gain on the sale of our investment in the NYMEX
during the first quarter of 2007 and recognized $5 million of interest income during the third
quarter of 2007 related to the settlement of outstanding California power price disputes.
Amounts in 2006 primarily represent interest on cash margin deposits. Production-related Natural Gas and Oil Derivative Contracts
 Option
contracts.
 34




---



##### Table of Contents



Floors(1)
    
    Ceilings(1)Average
    
    
    
    
    
    AverageVolumes
    
    Price
    
    Volumes
    
    PriceNatural Gas2007(2)
    
    
    22
    
    
    $
    7.50
    
    
    
    
    
    
    $
    2008 (2)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    2009
    
    
    17
    
    
    $
    6.00
    
    
    
    17
    
    
    $
    8.75Oil2007
    
    
    239
    
    
    $
    55.00
    
    
    
    239
    
    
    $
    58.752008
    
    
    930
    
    
    $
    55.00
    
    
    
    930
    
    
    $
    57.03
 
 (1)
    
    Volumes presented are TBtu for natural gas and MBbl for oil. Prices presented are per
MMBtu of natural gas and per Bbl of oil.(2)
    
    In the third quarter of 2007, we paid approximately $3 million to terminate our 2008
contracts. In October 2007, we also terminated 6 TBtu of our 2007 floors in connection with
additional positions entered into by our Exploration and Production segment.  Contracts Related to Legacy Trading Operations
 Natural gas transportation-related contracts.
 Quarters Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Alliance:Demand charges
    
    $
    17
    
    
    $
    16
    
    
    $
    50
    
    
    $
    48Recovery
    
    
    47
    %
    
    
    72
    %
    
    
    47
    %
    
    
    53
    %Other:Demand charges
    
    $
    10
    
    
    $
    12
    
    
    $
    32
    
    
    $
    49Recovery
    
    
    100
    %
    
    
    25
    %
    
    
    100
    %
    
    
    54
    %
 Other natural gas derivative contracts.
 35




---



##### Table of Contents



Power Contracts.
 Power Segment
  Area
    
    AmountBrazilPorto Velho
    
    $
    275Manaus & Rio Negro
    
    
    83Pipeline projects
    
    
    147Asia & Central America
    
    
    77Total investment, guarantees and letters of credit
    
    $
    582
 Operating Results.
   36




---



##### Table of Contents



Corporate and Other Expenses, Net
  Quarter Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Loss on extinguishment of debt
    
    $
    
    
    
    $
    (17
    )
    
    $
    (287
    )
    
    $
    (26
    )Foreign currency fluctuations on Euro-denominated debt
    
    
    (4
    )
    
    
    2
    
    
    
    (7
    )
    
    
    (12
    )Change in litigation, insurance and other liabilities
    
    
    56
    
    
    
    (18
    )
    
    
    21
    
    
    
    (60
    )Other
    
    
    (1
    )
    
    
    16
    
    
    
    10
    
    
    
    47Total EBIT
    
    $
    51
    
    
    $
    (17
    )
    
    $
    (263
    )
    
    $
    (51
    )
 Extinguishment of Debt.
 Litigation, Insurance, and Other Liabilities.
 Interest and Debt Expense
  Income Taxes
 Quarters Ended
    
    Nine Months EndedSeptember 30,
    

September 30,2007
    
    2006
    
    2007
    
    2006(In millions, except for rates)Income taxes
    
    $
    100
    
    
    $
    (98
    )
    
    $
    151
    
    
    $
    14Effective tax rate
    
    
    39
    %
    
    
    (754
    )%
    
    
    35
    %
    
    
    3
    %
  Discontinued Operations
  Commitments and Contingencies
  37




---



##### Table of Contents



Liquidity and Capital Resources
 Sources and Uses of Cash.
 Overview of Cash Flow Activities.
 2007
    
    
    2006(In billions)Cash Flow from OperationsContinuing operating activitiesIncome from continuing operations
    
    $
    0.3
    
    
    $
    0.5Loss on debt extinguishment
    
    
    0.3
    
    
    
    Other income adjustments
    
    
    1.0
    
    
    
    0.9Change in other assets and liabilities
    
    
    (0.1
    )
    
    
    0.3Total cash flow from operations
    
    $
    1.5
    
    
    $
    1.7Other Cash InflowsContinuing investing activitiesNet proceeds from the sale of assets and investments
    
    $
    0.1
    
    
    $
    0.5Net change in restricted cash and other
    
    
    0.1
    
    
    
    0.10.2
    
    
    
    0.6Continuing financing activitiesNet proceeds from the issuance of long-term debt
    
    
    5.2
    
    
    
    0.1Contribution from discontinued operations
    
    
    3.4
    
    
    
    0.3Net proceeds from the issuance of common stock
    
    
    
    
    
    
    0.58.6
    
    
    
    0.9Total other cash inflows
    
    $
    8.8
    
    
    $
    1.5Cash OutflowsContinuing investing activitiesCapital expenditures
    
    $
    1.8
    
    
    $
    1.5Cash paid for acquisitions, net of cash acquired
    
    
    1.2
    
    
    
    3.0
    
    
    
    1.5Continuing financing activitiesPayments to retire long-term debt and other financing obligations
    
    
    7.3
    
    
    
    3.0Dividends and other
    
    
    0.1
    
    
    
    0.17.4
    
    
    
    3.1Total cash outflows
    
    $
    10.4
    
    
    $
    4.6Net change in cash
    
    $
    (0.1
    )
    
    $
    (1.4
    )
  (In billions)Proceeds from sale of ANR and related assets
    
    $
    3.7Payments to retire ANR debt obligations
    
    
    (0.3
    )Contribution from discontinued operations
    
    $
    3.4
 38




---



##### Table of Contents



Nine Months EndedSeptember 30, 2007
    
    
    2007 Remaining
    
    
    TotalMaintenancePipelines
    
    $
    0.3
    
    
    $
    0.1
    
    
    $
    0.4Exploration and Production
    
    
    1.1
    
    
    
    0.1
    
    
    
    1.2GrowthPipelines
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.7Exploration and Production
    
    
    1.2
    
    
    
    0.2
    
    
    
    1.4$
    3.0
    
    
    $
    0.7
    
    
    $
    3.7
  Liquidity/Cash Flow Outlook.
 Factors That Could Impact Our Future Liquidity.
 Price Risk Management Activities and Cash Margining Requirements.
 39




---



##### Table of Contents



Fixed Price
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BasisSwaps(1)
    
    Floors(1)
    
    Ceilings(1)
    
    Swaps(1)(2)Average
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    Texas Gulf Coast
    
    Onshore-RatonVolumes
    
    Price
    
    Volumes
    
    Price
    
    Volumes
    
    Price
    
    Volumes
    
    Avg. Price
    
    Volumes
    
    Avg. PriceNatural Gas2007
    
    
    22
    
    
    $
    7.66
    
    
    
    36
    
    
    $
    7.69
    
    
    
    14
    
    
    $
    16.89
    
    
    
    20
    
    
    $
    (0.66
    )
    
    
    7
    
    
    $
    (1.09
    )2008
    
    
    33
    
    
    $
    7.65
    
    
    
    104
    
    
    $
    8.00
    
    
    
    104
    
    
    $
    10.82
    
    
    
    51
    
    
    $
    (0.33
    )
    
    
    26
    
    
    $
    (1.13
    )2009
    
    
    5
    
    
    $
    3.56
    
    
    
    17
    
    
    $
    6.00
    
    
    
    17
    
    
    $
    8.752010-2012
    
    
    11
    
    
    $
    3.81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Oil2007
    
    
    48
    
    
    $
    35.15
    
    
    
    239
    
    
    $
    55.00
    
    
    
    239
    
    
    $
    58.752008
    
    
    
    
    
    
    
    
    
    
    930
    
    
    $
    55.00
    
    
    
    930
    
    
    $
    57.03
 
 (1)
    
    Volumes presented are TBtu for natural gas and MBbl for oil. Prices presented
are per MMBtu of natural gas and per Bbl of oil.(2)
    
    Our basis swaps effectively limit our exposure to differences between the NYMEX
gas price and the price at the location where we sell our gas. The average prices listed above
are the amounts we will pay per MMBtu relative to the NYMEX price to lock-in these
locational price differences.    Hurricanes.
 40




---



##### Table of Contents



Commodity-Based Derivative Contracts
  Maturity
    
    
    Maturity
    
    
    Maturity
    
    
    Maturity
    
    
    Maturity
    
    
    TotalLess Than
    
    
    1 to 3
    
    
    4 to 5
    
    
    6 to 10
    
    
    Beyond
    
    
    Fair1 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    10 Years
    
    
    Value(In millions)Derivatives designated as accounting hedgesAssets
    
    $
    93
    
    
    $
    13
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    106Liabilities
    
    
    (19
    )
    
    
    (38
    )
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    (83
    )Total derivatives designated as accounting hedges
    
    
    74
    
    
    
    (25
    )
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    23Other commodity-based derivativesExchange-traded positions(1)Liabilities
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Non-exchange traded positionsAssets
    
    
    72
    
    
    
    56
    
    
    
    54
    
    
    
    28
    
    
    
    6
    
    
    
    216Liabilities
    
    
    (257
    )
    
    
    (365
    )
    
    
    (262
    )
    
    
    (177
    )
    
    
    (4
    )
    
    
    (1,065
    )Total other commodity-based derivatives
    
    
    (185
    )
    
    
    (321
    )
    
    
    (208
    )
    
    
    (149
    )
    
    
    2
    
    
    
    (861
    )Total commodity-based derivatives
    
    $
    (111
    )
    
    $
    (346
    )
    
    $
    (234
    )
    
    $
    (149
    )
    
    $
    2
    
    
    $
    (838
    )
 
 (1)
    
    These positions are traded on active exchanges such as the New York Mercantile
Exchange, the International Petroleum Exchange and the London Clearinghouse.  Derivatives
    
    
    Other
    
    
    TotalDesignated as
    
    
    Commodity-
    
    
    Commodity-Accounting
    
    
    Based
    
    
    BasedHedges
    
    
    Derivatives
    
    
    Derivatives(In millions)Fair value of contracts outstanding at January 1, 2007
    
    $
    61
    
    
    $
    (456
    )
    
    $
    (395
    )Fair value of contract settlements during the period(1)
    
    
    (84
    )
    
    
    (281
    )
    
    
    (365
    )Change in fair value of contracts
    
    
    25
    
    
    
    (148
    )
    
    
    (123
    )Assignment of contracts
    
    
    
    
    
    
    18
    
    
    
    18Option premiums paid(2)
    
    
    21
    
    
    
    6
    
    
    
    27Net change in contracts outstanding during the period
    
    
    (38
    )
    
    
    (405
    )
    
    
    (443
    )Fair value of contracts outstanding at September 30, 2007
    
    $
    23
    
    
    $
    (861
    )
    
    $
    (838
    )
 
 (1)
    
    During 2007, we settled derivative assets of approximately $381 million by
applying the related cash margin we held against amounts due to us under those
contracts.(2)
    
    Amounts are net of premiums received. 41




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Commodity Price Risk
 Production-Related Derivatives.
 10 Percent Increase
    
    10 Percent DecreaseFair Value
    
    Fair Value
    
    (Decrease)
    
    Fair Value
    
    IncreaseImpact of changes
in commodity prices
on
production-related
derivative assets
(liabilities)September 30, 2007
    
    $
    11
    
    
    $
    (111
    )
    
    $
    (122
    )
    
    $
    138
    
    
    $
    127December 31, 2006
    
    $
    124
    
    
    $
    (9
    )
    
    $
    (133
    )
    
    $
    264
    
    
    $
    140
 Other Commodity-Based Derivatives.
  42




---



##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  43




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  Fort Morgan Storage Field.
 Rawlins Plant Notice of Probable Violation
 
 Item 1A. Risk Factors
 
 CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
  
    
    earnings per share;
    
    capital and other expenditures;
    
    dividends;
    
    financing plans;
    
    capital structure;
    
    liquidity and cash flow;
    
    pending legal proceedings, claims and governmental proceedings, including
environmental matters;
    
    future economic and operating performance;
    
    operating income;
    
    managements plans; and
    
    goals and objectives for future operations.
 44




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  45




---



##### Table of Contents



SIGNATURES
  EL PASO CORPORATIONDate: November 6, 2007
    
    /s/ D. Mark Leland

D. Mark Leland
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)Date: November 6, 2007
    
    /s/ John R. Sult

John R. Sult
Senior Vice President and Controller
(Principal Accounting Officer)
 46




---



##### Table of Contents



EL PASO CORPORATION
EXHIBIT INDEX
  ExhibitNumber
    
    Description12
    
    Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.31.A
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.B
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.A
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.B
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 47