##### Table of Contents


















Form 10-Q




[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2005


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 1-14365





El Paso Corporation




|                                                                                                      |  |                                                   
|----------------------------------------------------------------------------------------------------- |  | --------------------------------------------------
|Delaware(State or Other Jurisdiction
    of Incorporation or Organization)                            |  | 76-0568816(I.R.S. Employer
    Identification No.)
|El Paso Building
    1001 Louisiana Street
    Houston, Texas(Address of Principal Executive Offices) |  | 77002(Zip Code)                                   

(713) 420-2600




þ o


þ o


o þ














---










EL PASO CORPORATION


TABLE OF CONTENTS


|                                             |  |                                                                                                                                    |  |      |    | 
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                             |  | Caption                                                                                                                            |  | Page
|                                             |  |                                                                                                                                    |  |     
|                                             |  | PART I  Financial Information                                                                                                     |  |      |    | 
|Item 1.                                      |  | Financial Statements                                                                                                               |  |      | 1  | 
|Item 2.                                      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                          |  |      | 36 | 
|                                             |  | Cautionary Statements for Purposes of the
    Safe Harbor Provisions of the Private Securities
    Litigation Reform Act of 1995 |  |      | 62 | 
|Item 3.                                      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                                     |  |      | 63 | 
|Item 4.                                      |  | Controls and Procedures                                                                                                            |  |      | 64 | 
|                                             |  | PART II  Other Information                                                                                                        |  |      |    | 
|Item 1.                                      |  | Legal Proceedings                                                                                                                  |  |      | 66 | 
|Item 2.                                      |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                                                                    |  |      | 67 | 
|Item 3.                                      |  | Defaults Upon Senior Securities                                                                                                    |  |      | 67 | 
|Item 4.                                      |  | Submission of Matters to a Vote of Security
    Holders                                                                            |  |      | 67 | 
|Item 5.                                      |  | Other Information                                                                                                                  |  |      | 67 | 
|Item 6.                                      |  | Exhibits                                                                                                                           |  |      | 68 | 
|                                             |  | Signatures                                                                                                                         |  |      | 69 | 
|Certification of CEO Pursuant to Section 302
|Certification of CFO Pursuant to Section 302
|Certification of CEO Pursuant to Section 906
|Certification of CFO Pursuant to Section 906








|      |  |                                                 
|----- |  | ------------------------------------------------
|/d    |  | = per day                                       
|Bbl   |  | = barrels                                       
|BBtu  |  | = billion British thermal units                 
|Bcf   |  | = billion cubic feet                            
|Bcfe  |  | = billion cubic feet of natural gas equivalents 
|MBbls |  | = thousand barrels                              
|Mcf   |  | = thousand cubic feet                           
|Mcfe  |  | = thousand cubic feet of natural gas equivalents
|MMBtu |  | = million British thermal units                 
|MMcf  |  | = million cubic feet                            
|MMcfe |  | = million cubic feet of natural gas equivalents 
|MW    |  | = megawatt                                      
|NGL   |  | = natural gas liquids                           
|TBtu  |  | = trillion British thermal units                





i



---



##### 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)


|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |       |   |   |        |       |  
|----------------------------------------------------------------- | -------------------------------------------- | ------------- | ---- | ----- | ----------------- | - | ----- | ----- | - | - | ------ | ----- | - | - | ------ | ----- | -
|                                                                  |                                              | Quarter Ended |      |       | Nine Months Ended |  
|                                                                  |                                              | September 30, |      |       | September 30,     |  
|                                                                  |                                              |               |      |       |                   |  
|                                                                  |                                              | 2005          |      |       | 2004              |   |       | 2005  |   |   | 2004   |      
|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |      
|Operating revenues                                                |                                              | $             | 810  |       |                   | $ | 1,429 |       |   | $ | 3,176  |       |   | $ | 4,510  |      
|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |      
|Operating expenses                                                |                                              |               |      |       |                   |   |       |       |   |   |        |       |   |   |        |      
|                                                                  | Cost of products and services                |               |      | 118   |                   |   |       | 390   |   |   |        | 277   |   |   |        | 1,215 |  
|                                                                  | Operation and maintenance                    |               |      | 490   |                   |   |       | 475   |   |   |        | 1,370 |   |   |        | 1,249 |  
|                                                                  | Depreciation, depletion and amortization     |               |      | 275   |                   |   |       | 270   |   |   |        | 849   |   |   |        | 808   |  
|                                                                  | Loss on long-lived assets                    |               |      | 3     |                   |   |       | 582   |   |   |        | 384   |   |   |        | 837   |  
|                                                                  | Taxes, other than income taxes               |               |      | 75    |                   |   |       | 67    |   |   |        | 211   |   |   |        | 197   |  
|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |      
|                                                                  |                                              |               |      | 961   |                   |   |       | 1,784 |   |   |        | 3,091 |   |   |        | 4,306 |  
|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |      
|Operating income (loss)                                           |                                              |               | (151 | )     |                   |   | (355  | )     |   |   | 85     |       |   |   | 204    |      
|Earnings from unconsolidated affiliates                           |                                              |               | 13   |       |                   |   | 617   |       |   |   | 184    |       |   |   | 802    |      
|Other income, net                                                 |                                              |               | 51   |       |                   |   | 15    |       |   |   | 155    |       |   |   | 89     |      
|Interest and debt expense                                         |                                              |               | (344 | )     |                   |   | (396  | )     |   |   | (1,034 | )     |   |   | (1,229 | )    
|Distributions on preferred interests of consolidated subsidiaries |                                              |               |     |       |                   |   | (6    | )     |   |   | (9     | )     |   |   | (18    | )    
|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |      
|Loss before income taxes                                          |                                              |               | (431 | )     |                   |   | (125  | )     |   |   | (619   | )     |   |   | (152   | )    
|Income taxes                                                      |                                              |               | (108 | )     |                   |   | 77    |       |   |   | (165   | )     |   |   | 135    |      
|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |      
|Loss from continuing operations                                   |                                              |               | (323 | )     |                   |   | (202  | )     |   |   | (454   | )     |   |   | (287   | )    
|Discontinued operations, net of income taxes                      |                                              |               | 11   |       |                   |   | (12   | )     |   |   | 10     |       |   |   | (118   | )    
|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |      
|Net loss                                                          |                                              |               | (312 | )     |                   |   | (214  | )     |   |   | (444   | )     |   |   | (405   | )    
|Preferred stock dividends                                         |                                              |               | (9   | )     |                   |   |      |       |   |   | (17    | )     |   |   |       |      
|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |      
|Net loss available to common stockholders                         |                                              | $             | (321 | )     |                   | $ | (214  | )     |   | $ | (461   | )     |   | $ | (405   | )    
|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |      
|                                                                 
|Basic and diluted loss per common share                           |                                              |               |      |       |                   |   |       |       |   |   |        |       |   |   |        |      
|                                                                  | Loss from continuing operations              |               | $    | (0.51 | )                 |   | $     | (0.31 | ) |   | $      | (0.73 | ) |   | $      | (0.45 | )
|                                                                  | Discontinued operations, net of income taxes |               |      | 0.01  |                   |   |       | (0.02 | ) |   |        | 0.01  |   |   |        | (0.18 | )
|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |      
|                                                                  | Net loss per common share                    |               | $    | (0.50 | )                 |   | $     | (0.33 | ) |   | $      | (0.72 | ) |   | $      | (0.63 | )
|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |      
|Basic and diluted average common shares outstanding               |                                              |               | 648  |       |                   |   | 639   |       |   |   | 643    |       |   |   | 639    |      
|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |      
|Dividends declared per common share                               |                                              | $             | 0.04 |       |                   | $ | 0.04  |       |   | $ | 0.12   |       |   | $ | 0.12   |      
|                                                                  |                                              |               |      |       |                   |   |       |       |   |   |        |      



1



---



##### Table of Contents



EL PASO CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS


(In millions, except share amounts)


(Unaudited)


|                                       |                                                           |                                                             |                                          |        |              |        |        |        |       |        | 
|-------------------------------------- | --------------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------- | ------ | ------------ | ------ | ------ | ------ | ----- | ------ | 
|                                       |                                                           | September 30,                                               |                                          |        | December 31, |       
|                                       |                                                           | 2005                                                        |                                          |        | 2004         |       
|                                       |                                                           |                                                             |                                          |        |              |       
|ASSETS                                
|Current assets                         |                                                           |                                                             |                                          |        |              |        |        |       
|                                       | Cash and cash equivalents                                 |                                                             | $                                        | 887    |              |        | $      | 2,117  |      
|                                       | Accounts and notes receivable                             |                                                             |                                          |        |              |        |        |        |      
|                                       |                                                           | Customers, net of allowance of $64 in 2005 and $199 in 2004 |                                          |        | 1,227        |        |        |        | 1,388 |       
|                                       |                                                           | Affiliates                                                  |                                          |        | 58           |        |        |        | 133   |       
|                                       |                                                           | Other                                                       |                                          |        | 135          |        |        |        | 188   |       
|                                       | Assets from price risk management activities              |                                                             |                                          | 1,107  |              |        |        | 601    |      
|                                       | Margin and other deposits held by others                  |                                                             |                                          | 885    |              |        |        | 79     |      
|                                       | Deferred income taxes                                     |                                                             |                                          | 787    |              |        |        | 418    |      
|                                       | Other                                                     |                                                             |                                          | 533    |              |        |        | 708    |      
|                                       |                                                           |                                                             |                                          |        |              |       
|                                       |                                                           |                                                             | Total current assets                     |        |              | 5,619  |        |        |       | 5,632  | 
|                                       |                                                           |                                                             |                                          |        |              |       
|Property, plant and equipment, at cost |                                                           |                                                             |                                          |        |              |        |        |       
|                                       | Pipelines                                                 |                                                             |                                          | 19,696 |              |        |        | 19,418 |      
|                                       | Natural gas and oil properties, at full cost              |                                                             |                                          | 16,203 |              |        |        | 14,968 |      
|                                       | Power facilities                                          |                                                             |                                          | 957    |              |        |        | 1,550  |      
|                                       | Gathering and processing systems                          |                                                             |                                          | 53     |              |        |        | 171    |      
|                                       | Other                                                     |                                                             |                                          | 603    |              |        |        | 882    |      
|                                       |                                                           |                                                             |                                          |        |              |       
|                                       |                                                           |                                                             | 37,512                                   |        |              |        | 36,989 |       
|                                       | Less accumulated depreciation, depletion and amortization |                                                             |                                          | 18,349 |              |        |        | 18,177 |      
|                                       |                                                           |                                                             |                                          |        |              |       
|                                       |                                                           |                                                             | Total property, plant and equipment, net |        |              | 19,163 |        |        |       | 18,812 | 
|                                       |                                                           |                                                             |                                          |        |              |       
|Other assets                           |                                                           |                                                             |                                          |        |              |        |        |       
|                                       | Investments in unconsolidated affiliates                  |                                                             |                                          | 2,760  |              |        |        | 2,614  |      
|                                       | Assets from price risk management activities              |                                                             |                                          | 1,470  |              |        |        | 1,584  |      
|                                       | Goodwill and other intangible assets, net                 |                                                             |                                          | 413    |              |        |        | 428    |      
|                                       | Other                                                     |                                                             |                                          | 2,277  |              |        |        | 2,313  |      
|                                       |                                                           |                                                             |                                          |        |              |       
|                                       |                                                           |                                                             | 6,920                                    |        |              |        | 6,939  |       
|                                       |                                                           |                                                             |                                          |        |              |       
|                                       |                                                           |                                                             | Total assets                             |        | $            | 31,702 |        |        | $     | 31,383 | 
|                                       |                                                           |                                                             |                                          |        |              |       



2



---



##### Table of Contents



EL PASO CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS 
(Continued)


(In millions, except share amounts)


(Unaudited)


|                                                         |                                                                                                                                                                          |               |                                            |        |              |        |        |        |       |        | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------- | ------------------------------------------ | ------ | ------------ | ------ | ------ | ------ | ----- | ------ | 
|                                                         |                                                                                                                                                                          | September 30, |                                            |        | December 31, |       
|                                                         |                                                                                                                                                                          | 2005          |                                            |        | 2004         |       
|                                                         |                                                                                                                                                                          |               |                                            |        |              |       
|LIABILITIES AND STOCKHOLDERS EQUITY                    
|Current liabilities                                      |                                                                                                                                                                          |               |                                            |        |              |        |        |       
|                                                         | Accounts payable                                                                                                                                                         |               |                                            |        |              |        |        |        |      
|                                                         |                                                                                                                                                                          | Trade         |                                            | $      | 948          |        |        | $      | 1,052 |       
|                                                         |                                                                                                                                                                          | Affiliates    |                                            |        | 14           |        |        |        | 21    |       
|                                                         |                                                                                                                                                                          | Other         |                                            |        | 429          |        |        |        | 483   |       
|                                                         | Short-term financing obligations, including current maturities                                                                                                           |               |                                            | 1,267  |              |        |        | 955    |      
|                                                         | Liabilities from price risk management activities                                                                                                                        |               |                                            | 2,090  |              |        |        | 852    |      
|                                                         | Margin deposits held by us                                                                                                                                               |               |                                            | 245    |              |        |        | 131    |      
|                                                         | Accrued interest                                                                                                                                                         |               |                                            | 298    |              |        |        | 333    |      
|                                                         | Other                                                                                                                                                                    |               |                                            | 829    |              |        |        | 745    |      
|                                                         |                                                                                                                                                                          |               |                                            |        |              |       
|                                                         |                                                                                                                                                                          |               | Total current liabilities                  |        |              | 6,120  |        |        |       | 4,572  | 
|                                                         |                                                                                                                                                                          |               |                                            |        |              |       
|Long-term financing obligations, less current maturities |                                                                                                                                                                          |               | 16,657                                     |        |              |        | 18,241 |       
|                                                         |                                                                                                                                                                          |               |                                            |        |              |       
|Other                                                    |                                                                                                                                                                          |               |                                            |        |              |        |        |       
|                                                         | Liabilities from price risk management activities                                                                                                                        |               |                                            | 1,745  |              |        |        | 1,026  |      
|                                                         | Deferred income taxes                                                                                                                                                    |               |                                            | 1,786  |              |        |        | 1,312  |      
|                                                         | Other                                                                                                                                                                    |               |                                            | 1,893  |              |        |        | 2,427  |      
|                                                         |                                                                                                                                                                          |               |                                            |        |              |       
|                                                         |                                                                                                                                                                          |               | 5,424                                      |        |              |        | 4,765  |       
|                                                         |                                                                                                                                                                          |               |                                            |        |              |       
|Commitments and contingencies                            |                                                                                                                                                                          |               |                                            |        |              |        |        |       
|Securities of subsidiaries                               |                                                                                                                                                                          |               | 59                                         |        |              |        | 367    |       
|                                                         |                                                                                                                                                                          |               |                                            |        |              |       
|Stockholders equity                                     |                                                                                                                                                                          |               |                                            |        |              |        |        |       
|                                                         | 4.99% Convertible perpetual preferred stock, par value $0.01 per
    share; authorized 50,000,000 shares; issued
    750,000 shares in 2005; stated at liquidation value |               |                                            | 750    |              |        |        |       |      
|                                                         | Common stock, par value $3 per share; authorized
    1,500,000,000 shares; issued 666,891,281 shares in
    2005 and 651,064,508 shares in 2004                          |               |                                            | 2,001  |              |        |        | 1,953  |      
|                                                         | Additional paid-in capital                                                                                                                                               |               |                                            | 4,627  |              |        |        | 4,538  |      
|                                                         | Accumulated deficit                                                                                                                                                      |               |                                            | (3,253 | )            |        |        | (2,809 | )    
|                                                         | Accumulated other comprehensive income (loss)                                                                                                                            |               |                                            | (471   | )            |        |        | 1      |      
|                                                         | Treasury stock (at cost); 7,592,540 shares in 2005 and
    7,767,088 shares in 2004                                                                                      |               |                                            | (190   | )            |        |        | (225   | )    
|                                                         | Unamortized compensation                                                                                                                                                 |               |                                            | (22    | )            |        |        | (20    | )    
|                                                         |                                                                                                                                                                          |               |                                            |        |              |       
|                                                         |                                                                                                                                                                          |               | Total stockholders equity                 |        |              | 3,442  |        |        |       | 3,438  | 
|                                                         |                                                                                                                                                                          |               |                                            |        |              |       
|                                                         |                                                                                                                                                                          |               | Total liabilities and stockholders equity |        | $            | 31,702 |        |        | $     | 31,383 | 
|                                                         |                                                                                                                                                                          |               |                                            |        |              |       



3



---



##### Table of Contents



EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)


|                                     |                                                                                      |                                                                              |                                                     |        |      |      |     |        |        |        |  
|------------------------------------ | ------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------- | --------------------------------------------------- | ------ | ---- | ---- | --- | ------ | ------ | ------ | -
|                                     |                                                                                      | Nine Months Ended                                                            |                                                    
|                                     |                                                                                      | September 30,                                                                |                                                    
|                                     |                                                                                      |                                                                              |                                                    
|                                     |                                                                                      | 2005                                                                         |                                                     |        | 2004 |     
|                                     |                                                                                      |                                                                              |                                                     |        |      |     
|Cash flows from operating activities |                                                                                      |                                                                              |                                                     |        |      |      |     |       
|                                     | Net loss                                                                             |                                                                              | $                                                   | (444   | )    |      | $   | (405   | )     
|                                     |                                                                                      | Income (loss) from discontinued operations, net of income taxes              |                                                     |        | 10   |      |     |        | (118   | )     
|                                     |                                                                                      |                                                                              |                                                     |        |      |     
|                                     | Net loss from continuing operations                                                  |                                                                              |                                                     | (454   | )    |      |     | (287   | )     
|                                     | Adjustments to reconcile net loss to net cash from operating
    activities          |                                                                              |                                                     |        |      |      |     |        |       
|                                     |                                                                                      | Depreciation, depletion and amortization                                     |                                                     |        | 849  |      |     |        | 808    |       
|                                     |                                                                                      | Loss on long-lived assets                                                    |                                                     |        | 384  |      |     |        | 837    |       
|                                     |                                                                                      | Earnings from unconsolidated affiliates, adjusted for cash
    distributions |                                                     |        | 13   |      |     |        | (579   | )     
|                                     |                                                                                      | Deferred income taxes                                                        |                                                     |        | (67  | )    |     |        | 99     |       
|                                     |                                                                                      | Other non-cash items                                                         |                                                     |        | 58   |      |     |        | 114    |       
|                                     |                                                                                      | Change in margin and other deposits                                          |                                                     |        | (692 | )    |     |        | 62     |       
|                                     |                                                                                      | Other asset and liability changes                                            |                                                     |        | (484 | )    |     |        | (446   | )     
|                                     |                                                                                      |                                                                              |                                                     |        |      |     
|                                     |                                                                                      | Cash (used in) provided by continuing operations                             |                                                     |        | (393 | )    |     |        | 608    |       
|                                     |                                                                                      | Cash (used in) provided by discontinued operations                           |                                                     |        | (5   | )    |     |        | 191    |       
|                                     |                                                                                      |                                                                              |                                                     |        |      |     
|                                     |                                                                                      |                                                                              | Net cash (used in) provided by operating activities |        |      | (398 | )   |        |        | 799    |  
|                                     |                                                                                      |                                                                              |                                                     |        |      |     
|Cash flows from investing activities |                                                                                      |                                                                              |                                                     |        |      |      |     |       
|                                     | Capital expenditures                                                                 |                                                                              |                                                     | (1,266 | )    |      |     | (1,272 | )     
|                                     | Net proceeds from the sale of assets and investments                                 |                                                                              |                                                     | 1,113  |      |      |     | 1,758  |       
|                                     | Proceeds from settlement of a foreign currency derivative                            |                                                                              |                                                     | 131    |      |      |     |       |       
|                                     | Cash paid for acquisitions, net of cash acquired                                     |                                                                              |                                                     | (1,023 | )    |      |     | (47    | )     
|                                     | Net change in restricted cash                                                        |                                                                              |                                                     | 132    |      |      |     | 470    |       
|                                     | Other                                                                                |                                                                              |                                                     | 76     |      |      |     | 108    |       
|                                     |                                                                                      |                                                                              |                                                     |        |      |     
|                                     |                                                                                      | Cash (used in) provided by continuing operations                             |                                                     |        | (837 | )    |     |        | 1,017  |       
|                                     |                                                                                      | Cash provided by discontinued operations                                     |                                                     |        | 68   |      |     |        | 1,140  |       
|                                     |                                                                                      |                                                                              |                                                     |        |      |     
|                                     |                                                                                      |                                                                              | Net cash (used in) provided by investing activities |        |      | (769 | )   |        |        | 2,157  |  
|                                     |                                                                                      |                                                                              |                                                     |        |      |     
|Cash flows from financing activities |                                                                                      |                                                                              |                                                     |        |      |      |     |       
|                                     | Payments to retire long-term debt and other financing obligations                    |                                                                              |                                                     | (1,621 | )    |      |     | (1,705 | )     
|                                     | Net proceeds from the issuance of long-term debt and other
    financing obligations |                                                                              |                                                     | 1,225  |      |      |     | 50     |       
|                                     | Net proceeds from the issuance of preferred stock                                    |                                                                              |                                                     | 723    |      |      |     |       |       
|                                     | Redemption of preferred stock of subsidiary                                          |                                                                              |                                                     | (300   | )    |      |     |       |       
|                                     | Dividends paid                                                                       |                                                                              |                                                     | (85    | )    |      |     | (75    | )     
|                                     | Contributions from discontinued operations                                           |                                                                              |                                                     | 63     |      |      |     | 966    |       
|                                     | Issuances of common stock, net                                                       |                                                                              |                                                     |       |      |      |     | 73     |       
|                                     | Other                                                                                |                                                                              |                                                     | (5     | )    |      |     | (34    | )     
|                                     |                                                                                      |                                                                              |                                                     |        |      |     
|                                     |                                                                                      | Cash used in continuing operations                                           |                                                     |        |     |      |     |        | (725   | )     
|                                     |                                                                                      | Cash used in discontinued operations                                         |                                                     |        | (63  | )    |     |        | (1,331 | )     
|                                     |                                                                                      |                                                                              |                                                     |        |      |     
|                                     |                                                                                      |                                                                              | Net cash used in financing activities               |        |      | (63  | )   |        |        | (2,056 | )
|                                     |                                                                                      |                                                                              |                                                     |        |      |     
|Change in cash and cash equivalents  |                                                                                      |                                                                              | (1,230                                              | )      |      |      | 900 |       
|Cash and cash equivalents            |                                                                                      |                                                                              |                                                     |        |      |      |     |       
|                                     | Beginning of period                                                                  |                                                                              |                                                     | 2,117  |      |      |     | 1,429  |       
|                                     |                                                                                      |                                                                              |                                                     |        |      |     
|                                     | End of period                                                                        |                                                                              | $                                                   | 887    |      |      | $   | 2,329  |       
|                                     |                                                                                      |                                                                              |                                                     |        |      |     



4



---



##### Table of Contents



EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(In millions)


(Unaudited)


|                                                                                                                          |                                                                                                                                                             |                          |      |             |               |   |      |      |     |   |      |      |      |   |      |     |     |  
|------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ---- | ----------- | ------------- | - | ---- | ---- | --- | - | ---- | ---- | ---- | - | ---- | --- | --- | -
|                                                                                                                          |                                                                                                                                                             |                          |      | Nine Months |              
|                                                                                                                          |                                                                                                                                                             | Quarter Ended            |      |             | Ended         |  
|                                                                                                                          |                                                                                                                                                             | September 30,            |      |             | September 30, |  
|                                                                                                                          |                                                                                                                                                             |                          |      |             |               |  
|                                                                                                                          |                                                                                                                                                             | 2005                     |      |             | 2004          |   |      | 2005 |     |   | 2004 |     
|                                                                                                                          |                                                                                                                                                             |                          |      |             |               |   |      |      |     |   |      |     
|Net loss                                                                                                                  |                                                                                                                                                             | $                        | (312 | )           |               | $ | (214 | )    |     | $ | (444 | )    |      | $ | (405 | )  
|                                                                                                                          |                                                                                                                                                             |                          |      |             |               |   |      |      |     |   |      |     
|Foreign currency translation adjustments (net of income taxes of
    $11 and $4 in 2005 and less than $1 and $51 in 2004) |                                                                                                                                                             |                          | (5   | )           |               |   | 3    |      |     |   | 2    |      |      |   | (17  | )  
|Unrealized net gains (losses) from cash flow hedging activity                                                             |                                                                                                                                                             |                          |      |             |               |   |      |      |     |   |      |      |      |   |      |    
|                                                                                                                          | Unrealized mark-to-market losses arising during period (net of
    income taxes of $180 and $269 in 2005 and $33 and $45 in 2004)                           |                          |      | (325        | )             |   |      | (47  | )   |   |      | (497 | )    |   |      | (70 | )  
|                                                                                                                          | Reclassification adjustments for changes in initial value to the
    settlement date (net of income taxes of $15 and $3 in 2005 and
    $3 and $18 in 2004) |                          |      | 42          |               |   |      | 4    |     |   |      | 23   |      |   |      | 43  |    
|                                                                                                                          |                                                                                                                                                             |                          |      |             |               |   |      |      |     |   |      |     
|                                                                                                                          |                                                                                                                                                             | Other comprehensive loss |      |             | (288          | ) |      |      | (40 | ) |      |      | (472 | ) |      |     | (44 | )
|                                                                                                                          |                                                                                                                                                             |                          |      |             |               |   |      |      |     |   |      |     
|Comprehensive loss                                                                                                        |                                                                                                                                                             | $                        | (600 | )           |               | $ | (254 | )    |     | $ | (916 | )    |      | $ | (449 | )  
|                                                                                                                          |                                                                                                                                                             |                          |      |             |               |   |      |      |     |   |      |     



5



---



##### 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




Variable Interest
Entities


Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51




6



---



##### Table of Contents





|                                                              |  |               |     |   |      |   |     |  
|------------------------------------------------------------- |  | ------------- | --- | - | ---- | - | --- | -
|                                                              |  | 2005          |     |   | 2004 |  
|                                                              |  |               |     |   |      |  
|                                                              |  | (In millions) |    
|Operating revenues for the quarters ended September 30        |  | $             | 45  |   |      | $ | (27 | )
|Operating revenues for the nine months ended September 30     |  |               | (66 | ) |      |   | (30 |  
|Current liabilities from price risk management activities     |  |               | 18  |   |      |   | 20  |  
|Non-current liabilities from price risk management activities |  |               | 83  |   |      |   | 29  |  





| |                         
| | ------------------------
| | Stock-Based Compensation

Accounting for
Stock Issued to Employees, Accounting for Stock-Based Compensation,


|                                                                                                                   |                                |                                         |      |             |               |   |      |       |   |   |      |       |   |   |      |       |  
|------------------------------------------------------------------------------------------------------------------ | ------------------------------ | --------------------------------------- | ---- | ----------- | ------------- | - | ---- | ----- | - | - | ---- | ----- | - | - | ---- | ----- | -
|                                                                                                                   |                                |                                         |      | Nine Months |              
|                                                                                                                   |                                | Quarter Ended                           |      |             | Ended         |  
|                                                                                                                   |                                | September 30,                           |      |             | September 30, |  
|                                                                                                                   |                                |                                         |      |             |               |  
|                                                                                                                   |                                | 2005                                    |      |             | 2004          |   |      | 2005  |   |   | 2004 |      
|                                                                                                                   |                                |                                         |      |             |               |   |      |       |   |   |      |      
|                                                                                                                   |                                | (In millions, except per share amounts) |     
|Net loss available to common stockholders as reported                                                              |                                | $                                       | (321 | )           |               | $ | (214 | )     |   | $ | (461 | )     |   | $ | (405 | )    
|Add: Stock-based compensation expense in net loss, net of taxes                                                    |                                |                                         | 3    |             |               |   | 4    |       |   |   | 8    |       |   |   | 11   |      
|Deduct: Stock-based compensation expense determined under fair
    value-based method for all awards, net of taxes |                                |                                         | 5    |             |               |   | 9    |       |   |   | 15   |       |   |   | 28   |      
|                                                                                                                   |                                |                                         |      |             |               |   |      |       |   |   |      |      
|Net loss available to common stockholders, pro forma                                                               |                                | $                                       | (323 | )           |               | $ | (219 | )     |   | $ | (468 | )     |   | $ | (422 | )    
|                                                                                                                   |                                |                                         |      |             |               |   |      |       |   |   |      |      
|Loss per share:                                                                                                    |                                |                                         |      |             |               |   |      |       |   |   |      |       |   |   |      |      
|                                                                                                                   | Basic and diluted, as reported |                                         | $    | (0.50       | )             |   | $    | (0.33 | ) |   | $    | (0.72 | ) |   | $    | (0.63 | )
|                                                                                                                   |                                |                                         |      |             |               |   |      |       |   |   |      |      
|                                                                                                                   | Basic and diluted, pro forma   |                                         | $    | (0.50       | )             |   | $    | (0.34 | ) |   | $    | (0.73 | ) |   | $    | (0.66 | )
|                                                                                                                   |                                |                                         |      |             |               |   |      |       |   |   |      |      



| |                                                         
| | --------------------------------------------------------
| | New Accounting Pronouncements Issued But Not Yet Adopted



Accounting for Stock-Based Compensation. Share-Based Payment: an amendment of SFAS No. 123 and
95


7



---



##### Table of Contents





Accounting for Deferred Taxes on Foreign Earnings. Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs
Creation Act of 2004.


Accounting for Asset Retirement Obligations. Accounting for
Conditional Asset Retirement Obligations. Accounting for Asset Retirement Obligations


Accounting for Pipeline Integrity Costs.


2. Acquisitions








8



---



##### Table of Contents





|                                 |  |                                         |       |   |                   |   |       |         |  |   |       |   |  |   |       |  
|-------------------------------- |  | --------------------------------------- | ----- | - | ----------------- | - | ----- | ------- |  | - | ----- | - |  | - | ----- | -
|                                 |  | Quarter Ended                           |       |   | Nine Months Ended |  
|                                 |  | September 30,                           |       |   | September 30,     |  
|                                 |  |                                         |       |   |                   |  
|                                 |  | 2005(1)                                 |       |   | 2004              |   |       | 2005(1) |  |   | 2004  |  
|                                 |  |                                         |       |   |                   |   |       |         |  |   |       |  
|                                 |  | (In millions, except per share amounts) |      
|Revenues                         |  | $                                       | 821   |   |                   | $ | 1,436 |         |  | $ | 3,215 |   |  | $ | 4,546 |  
|Net loss                         |  |                                         | (312  | ) |                   |   | (217  | )       |  |   | (434  | ) |  |   | (417  | )
|Basic and diluted loss per share |  |                                         | (0.50 | ) |                   |   | (0.34 | )       |  |   | (0.70 | ) |  |   | (0.65 | )






|    |                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes a $13 million charge of Medicine Bow for change in
    control payments triggered as a result of the acquisition.

3. Divestitures




| |                                
| | -------------------------------
| | Sales of Assets and Investments



|                 |                |               |       |     |      |   |       |       | 
|---------------- | -------------- | ------------- | ----- | --- | ---- | - | ----- | ----- | 
|                 |                | 2005          |       |     | 2004 |  
|                 |                |               |       |     |      |  
|                 |                | (In millions) |      
|Regulated        |                |               |       |     |      |   |       |      
|                 | Pipelines      |               | $     | 49  |      |   | $     | 54    | 
|Non-regulated    |                |               |       |     |      |   |       |      
|                 | Production     |               |       |    |      |   |       | 24    | 
|                 | Power          |               |       | 468 |      |   |       | 699   | 
|                 | Field Services |               |       | 501 |      |   |       | 1,029 | 
|Other            |                |               |       |     |      |   |       |      
|                 | Corporate      |               |       | 121 |      |   |       | 16    | 
|                 |                |               |       |     |      |  
|Total continuing |                |               | 1,139 | (1) |      |   | 1,822 | (1)  
|Discontinued     |                |               | 87    |     |      |   | 1,293 |      
|                 |                |               |       |     |      |  
|Total            |                | $             | 1,226 |     |      | $ | 3,115 |      
|                 |                |               |       |     |      |  






|    |                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Proceeds exclude returns of invested capital and cash
    transferred with the assets sold and include costs incurred in
    preparing assets for disposal. These items decreased our sales
    proceeds by $26 million and $64 million for the nine
    months ended September 30, 2005 and 2004. Proceeds also
    exclude any non-cash consideration received in these sales.

9



---



##### Table of Contents





|               |  |                                                                                                                                                                                                                      |  |                                                                                                                                                                                       
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  | 2005                                                                                                                                                                                                                 |  | 2004                                                                                                                                                                                  
|               |  |                                                                                                                                                                                                                      |  |                                                                                                                                                                                       
|Pipelines      |  |  Facilities located in the southeastern U.S.                                                                                                                                                                        |  |  Australia pipeline                                                                                                                                                                  
|               |  |  Interest in a gathering system in the western U.S.                                                                                                                                                                 |  |  Aircraft
     Interest in several gathering systems                                                                                                                                
|              
|Production     |  |  None                                                                                                                                                                                                               |  |  Brazilian exploration and production assets                                                                                                                                         
|              
|Power          |  |  Cedar Brakes I and II
     Interest in a power facility in Korea
     Interest in a power plant in India
     Interest in a power plant in England
     4 domestic power facilities
     Power turbines       |  |  Mohawk River Funding IV
     Utility Contract Funding (UCF)
     Bastrop Company equity investment
     21 domestic power plants
     5 other domestic power plants and turbines
|              
|Field Services |  |  9.9% interest in general partner of
    Enterprise Products Partners, L.P.
     13.5 million common units in Enterprise
     Interest in Indian Springs natural gas gathering
    system and processing facility |  |  General partnership interest, common units and
    Series C units of GulfTerra
     South Texas processing plants
     Dauphin Island and Mobile Bay equity investments           
|              
|Corporate      |  |  Lakeside Technology Center                                                                                                                                                                                         |  |  Aircraft                                                                                                                                                                            
|              
|Discontinued   |  |  Interest in Paraxylene facility
     MTBE processing facility
     International natural gas and oil production
    properties                                                                                   |  |  Natural gas and oil production properties in Canada
    and other international production assets
     Aruba and Eagle Point refineries and other petroleum
    assets             



Accounting for the Impairment or
Disposal of Long-Lived Assets


10



---



##### Table of Contents





| |                        
| | -----------------------
| | Discontinued Operations

South Louisiana Gathering and Processing Operations.


International Natural Gas and Oil Production Operations.


Petroleum Markets.




|                                                         |  |               |     |               |            |       |           |            |  |   |       |   |  |   |      |  
|-------------------------------------------------------- |  | ------------- | --- | ------------- | ---------- | ----- | --------- | ---------- |  | - | ----- | - |  | - | ---- | -
|                                                         |  |               |     |               |            | South |           |            | 
|                                                         |  |               |     | International |            |       | Louisiana |            |  |  
|                                                         |  |               |     | Natural Gas   |            |       | Gathering |            |  |  
|                                                         |  |               |     | and Oil       |            |       | and       |            |  |  
|                                                         |  | Petroleum     |     |               | Production |       |           | Processing |  |   |      
|                                                         |  | Markets       |     |               | Operations |       |           | Operations |  |   | Total |  
|                                                         |  |               |     |               |            |       |           |            |  |   |       |  
|                                                         |  | (In millions) |    
|Quarter Ended September 30, 2005                         |  |               |     |               |            |       |           |            |  |   |       |   |  |   |      |  
|Revenues                                                 |  | $             | 26  |               |            | $     |          |            |  | $ | 99    |   |  | $ | 125  |  
|Costs and expenses                                       |  |               | (30 | )             |            |       |          |            |  |   | (89   | ) |  |   | (119 | )
|Gain on long-lived assets                                |  |               | 1   |               |            |       |          |            |  |   |      |   |  |   | 1    |  
|Other income                                             |  |               | 1   |               |            |       |          |            |  |   |      |   |  |   | 1    |  
|                                                         |  |               |     |               |            |       |           |            |  |   |       |  
|Income (loss) before income taxes                        |  |               | (2  | )             |            |       |          |            |  |   | 10    |   |  |   | 8    |  
|Income taxes                                             |  |               | (7  | )             |            |       |          |            |  |   | 4     |   |  |   | (3   | )
|                                                         |  |               |     |               |            |       |           |            |  |   |       |  
|Income from discontinued operations, net of income taxes |  | $             | 5   |               |            | $     |          |            |  | $ | 6     |   |  | $ | 11   |  
|                                                         |  |               |     |               |            |       |           |            |  |   |       |  
|Quarter Ended September 30, 2004                         |  |               |     |               |            |       |           |            |  |   |       |   |  |   |      |  
|Revenues                                                 |  | $             | 44  |               |            | $     | 1         |            |  | $ |      |   |  | $ | 45   |  
|Costs and expenses                                       |  |               | (52 | )             |            |       | (5        | )          |  |   |      |   |  |   | (57  | )
|Gain (loss) on long-lived assets                         |  |               | 1   |               |            |       | (5        | )          |  |   |      |   |  |   | (4   | )
|Other income                                             |  |               | 14  |               |            |       |          |            |  |   |      |   |  |   | 14   |  
|                                                         |  |               |     |               |            |       |           |            |  |   |       |  
|Income (loss) before income taxes                        |  |               | 7   |               |            |       | (9        | )          |  |   |      |   |  |   | (2   | )
|Income taxes                                             |  |               | 10  |               |            |       |          |            |  |   |      |   |  |   | 10   |  
|                                                         |  |               |     |               |            |       |           |            |  |   |       |  
|Loss from discontinued operations, net of income taxes   |  | $             | (3  | )             |            | $     | (9        | )          |  | $ |      |   |  | $ | (12  | )
|                                                         |  |               |     |               |            |       |           |            |  |   |       |  

11



---



##### Table of Contents



|                                                                |  |               |      |               |            |       |           |            |  |   |       |   |  |   |      |  
|--------------------------------------------------------------- |  | ------------- | ---- | ------------- | ---------- | ----- | --------- | ---------- |  | - | ----- | - |  | - | ---- | -
|                                                                |  |               |      |               |            | South |           |            | 
|                                                                |  |               |      | International |            |       | Louisiana |            |  |  
|                                                                |  |               |      | Natural Gas   |            |       | Gathering |            |  |  
|                                                                |  |               |      | and Oil       |            |       | and       |            |  |  
|                                                                |  | Petroleum     |      |               | Production |       |           | Processing |  |   |      
|                                                                |  | Markets       |      |               | Operations |       |           | Operations |  |   | Total |  
|                                                                |  |               |      |               |            |       |           |            |  |   |       |  
|                                                                |  | (In millions) |     
|Nine Months Ended September 30, 2005                            |  |               |      |               |            |       |           |            |  |   |       |   |  |   |      |  
|Revenues                                                        |  | $             | 100  |               |            | $     | 2         |            |  | $ | 276   |   |  | $ | 378  |  
|Costs and expenses                                              |  |               | (116 | )             |            |       | (2        | )          |  |   | (246  | ) |  |   | (364 | )
|Gain (loss) on long-lived assets                                |  |               | 4    |               |            |       | (5        | )          |  |   |      |   |  |   | (1   | )
|Other income                                                    |  |               | 12   |               |            |       |          |            |  |   |      |   |  |   | 12   |  
|                                                                |  |               |      |               |            |       |           |            |  |   |       |  
|Income (loss) before income taxes                               |  |               |     |               |            |       | (5        | )          |  |   | 30    |   |  |   | 25   |  
|Income taxes                                                    |  |               | 6    |               |            |       | (3        | )          |  |   | 12    |   |  |   | 15   |  
|                                                                |  |               |      |               |            |       |           |            |  |   |       |  
|Income (loss) from discontinued operations, net of income taxes |  | $             | (6   | )             |            | $     | (2        | )          |  | $ | 18    |   |  | $ | 10   |  
|                                                                |  |               |      |               |            |       |           |            |  |   |       |  
|Nine Months Ended September 30, 2004                            |  |               |      |               |            |       |           |            |  |   |       |   |  |   |      |  
|Revenues                                                        |  | $             | 737  |               |            | $     | 29        |            |  | $ |      |   |  | $ | 766  |  
|Costs and expenses                                              |  |               | (782 | )             |            |       | (52       | )          |  |   |      |   |  |   | (834 | )
|Loss on long-lived assets                                       |  |               | (37  | )             |            |       | (21       | )          |  |   |      |   |  |   | (58  | )
|Other income                                                    |  |               | 6    |               |            |       |          |            |  |   |      |   |  |   | 6    |  
|Interest and debt expense                                       |  |               | (3   | )             |            |       | 1         |            |  |   |      |   |  |   | (2   | )
|                                                                |  |               |      |               |            |       |           |            |  |   |       |  
|Loss before income taxes                                        |  |               | (79  | )             |            |       | (43       | )          |  |   |      |   |  |   | (122 | )
|Income taxes                                                    |  |               | 1    |               |            |       | (5        | )          |  |   |      |   |  |   | (4   | )
|                                                                |  |               |      |               |            |       |           |            |  |   |       |  
|Loss from discontinued operations, net of income taxes          |  | $             | (80  | )             |            | $     | (38       | )          |  | $ |      |   |  | $ | (118 | )
|                                                                |  |               |      |               |            |       |           |            |  |   |       |  

4. Restructuring Costs




Office relocation and consolidation.


Employee severance, retention and transition costs.


12



---



##### Table of Contents



5. (Gain) Loss on Long-Lived Assets




|                                                                                               |                |                                                                 |    |             |               |   |      |      |     |   |      |   |     |   |      |   |     | 
|---------------------------------------------------------------------------------------------- | -------------- | --------------------------------------------------------------- | -- | ----------- | ------------- | - | ---- | ---- | --- | - | ---- | - | --- | - | ---- | - | --- | 
|                                                                                               |                |                                                                 |    | Nine Months |              
|                                                                                               |                | Quarter Ended                                                   |    |             | Ended         |  
|                                                                                               |                | September 30,                                                   |    |             | September 30, |  
|                                                                                               |                |                                                                 |    |             |               |  
|                                                                                               |                | 2005                                                            |    |             | 2004          |   |      | 2005 |     |   | 2004 |  
|                                                                                               |                |                                                                 |    |             |               |   |      |      |     |   |      |  
|                                                                                               |                | (In millions)                                                   |   
|Net realized (gain) loss                                                                       |                | $                                                               |   |             |               | $ | 6    |      |     | $ | (13  | ) |     | $ | (8   | )
|                                                                                               |                |                                                                 |    |             |               |   |      |      |     |   |      |  
|Asset impairments                                                                              |                |                                                                 |    |             |               |   |      |      |     |   |      |   |     |   |      |  
|                                                                                               | Power          |                                                                 |    |             |               |   |      |      |     |   |      |   |     |   |      |   |    
|                                                                                               |                | Brazilian
    assets(1)                                         |    |             |              |   |      |      | 32  |   |      |   | 276 |   |      |   | 183 | 
|                                                                                               |                | Central American
    assets(2)                                  |    |             |              |   |      |      |    |   |      |   | 60  |   |      |   |    | 
|                                                                                               |                | Asian
    assets(2)                                             |    |             |              |   |      |      |    |   |      |   | 37  |   |      |   |    | 
|                                                                                               |                | Domestic assets and restructured power contract
    entities(2) |    |             |              |   |      |      | 51  |   |      |   |    |   |      |   | 159 | 
|                                                                                               |                | Turbines(2)                                                     |    |             |              |   |      |      |    |   |      |   | 15  |   |      |   |    | 
|                                                                                               | Field Services |                                                                 |    |             |               |   |      |      |     |   |      |   |     |   |      |   |    
|                                                                                               |                | Goodwill
    impairment(3)                                      |    |             |              |   |      |      | 480 |   |      |   |    |   |      |   | 480 | 
|                                                                                               |                | Indian Springs processing
    assets(2)                         |    |             |              |   |      |      | 13  |   |      |   |    |   |      |   | 13  | 
|                                                                                               |                | Other                                                           |    |             | 3             |   |      |      |    |   |      |   | 9   |   |      |   | 10  | 
|                                                                                               |                |                                                                 |    |             |               |   |      |      |     |   |      |  
|Total asset impairments                                                                        |                |                                                                 | 3  |             |               |   | 576  |      |     |   | 397  |   |     |   | 845  |  
|                                                                                               |                |                                                                 |    |             |               |   |      |      |     |   |      |  
|Loss on long-lived assets                                                                      |                |                                                                 | 3  |             |               |   | 582  |      |     |   | 384  |   |     |   | 837  |  
|(Gain) loss on sale of investments in unconsolidated affiliates,
    net of
    impairments(4) |                |                                                                 | 39 |             |               |   | (506 | )    |     |   | 7    |   |     |   | (464 | )
|                                                                                               |                |                                                                 |    |             |               |   |      |      |     |   |      |  
|Loss on long-lived assets and investments                                                      |                | $                                                               | 42 |             |               | $ | 76   |      |     | $ | 391  |   |     | $ | 373  |  
|                                                                                               |                |                                                                 |    |             |               |   |      |      |     |   |      |  






|    |                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These assets were impaired as a result of ongoing negotiations
    associated with the power contracts of these plants. See
    Note 10 for a further discussion of these matters.                                   
|(2) | We adjusted the carrying value of these assets to their expected
    sales price.                                                                                                                                    
|(3) | This impairment resulted from the sale of substantially all of
    our interests in GulfTerra, as well as the sale of our
    processing assets in south Texas to affiliates of Enterprise in
    2004 (see Note 14).
|(4) | See Note 14 for a further description of these gains,
    losses and impairments.                                                                                                                                    

6. Income Taxes




|                   |  |                             |      |             |               |   |     |      |  |   |      |   |  |   |     |   
|------------------ |  | --------------------------- | ---- | ----------- | ------------- | - | --- | ---- |  | - | ---- | - |  | - | --- | --
|                   |  |                             |      | Nine Months |              
|                   |  | Quarter Ended               |      |             | Ended         |  
|                   |  | September 30,               |      |             | September 30, |  
|                   |  |                             |      |             |               |  
|                   |  | 2005                        |      |             | 2004          |   |     | 2005 |  |   | 2004 |  
|                   |  |                             |      |             |               |   |     |      |  |   |      |  
|                   |  | (In millions, except rates) |     
|Income taxes       |  | $                           | (108 | )           |               | $ | 77  |      |  | $ | (165 | ) |  | $ | 135 |   
|Effective tax rate |  |                             | 25   | %           |               |   | (62 | )%   |  |   | 27   | % |  |   | (89 | )%





| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Impairments of certain foreign investments for which there was
    only a partial corresponding income tax benefit, as well as
    foreign income taxed at different rates;

13



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Benefits recorded on book versus tax differences related to
    certain of our Asian and Indian power assets as further
    described below;                                                                                                                                                                                     
|
| |  | A reduction of our liabilities for tax contingencies as a result
    of an IRS settlement on the 1995 to 1997 Coastal Corporation
    income tax returns, expiration of a tax indemnity claim, and
    approval and receipt of a 1986 refund claim; and                                                                          
|
| |  | Other items including (i) state income taxes (including
    valuation allowances) and adjustments to reflect income tax
    returns as filed; (ii) earnings/losses from unconsolidated
    affiliates where we anticipate receiving dividends; and
    (iii) non-deductible dividends on the preferred stock of
    subsidiaries.





7. Earnings Per Share




8. Price Risk Management Activities




14



---



##### Table of Contents





|                         |                                                                |                                                                       |   |        |              |   |   |      |     | 
|------------------------ | -------------------------------------------------------------- | --------------------------------------------------------------------- | - | ------ | ------------ | - | - | ---- | --- | 
|                         |                                                                | September 30,                                                         |   |        | December 31, |  
|                         |                                                                | 2005                                                                  |   |        | 2004         |  
|                         |                                                                |                                                                       |   |        |              |  
|                         |                                                                | (In millions)                                                         |  
|Net assets (liabilities) |                                                                |                                                                       |   |        |              |   |   |     
|                         | Derivatives designated as
    hedges(1)(2)                     |                                                                       | $ | (1,046 | )            |   | $ | (536 | )  
|                         | Derivatives from power contract restructuring activities       |                                                                       |   | 56     |              |   |   | 665  |    
|                         | Other commodity-based derivative
    contracts(2)              |                                                                       |   | (281   | )            |   |   | (61  | )  
|                         |                                                                |                                                                       |   |        |              |  
|                         |                                                                | Total commodity-based derivatives                                     |   |        | (1,271       | ) |   |      | 68  | 
|                         | Interest rate and foreign currency hedging derivatives
    (3) |                                                                       |   | 13     |              |   |   | 239  |    
|                         |                                                                |                                                                       |   |        |              |  
|                         |                                                                | Net assets (liabilities) from price risk management
    activities(4) |   | $      | (1,258       | ) |   | $    | 307 | 
|                         |                                                                |                                                                       |   |        |              |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The increase in the liability during the nine months ended
    September 30, 2005 is due primarily to changes in natural
    gas prices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(2) | We have a derivative that hedges a portion of the production
    owned by UnoPaso, a wholly-owned subsidiary that owns natural
    gas and oil properties in Brazil. As a result of the earlier
    than expected payout of certain of UnoPasos natural gas
    and oil properties, which will reduce our interest in the
    properties and related production volumes, we recorded an
    $11 million loss in the third quarter of 2005 related to
    the elimination of the accumulated other comprehensive loss
    associated with this hedge and reclassified the hedge as an
    other commodity based derivative contract.
|(3) | In March 2005, we repurchased approximately
    528 million
    of debt, of which
    375 million
    was hedged with interest rate and foreign currency derivatives.
    As a result of the repurchase, we removed the hedging
    designation on these derivatives and cancelled substantially all
    of the contracts. We recorded a gain of approximately
    $2 million during the first quarter of 2005 upon the
    reversal of the related accumulated other comprehensive income
    associated with these derivatives.                                                                                                 
|(4) | Included in both current and non-current assets and liabilities
    on the balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           







15



---



##### Table of Contents



9. Debt, Other Financing Obligations and Other Credit
Facilities




|                                                               |  |               |        |  |              |   |        | 
|-------------------------------------------------------------- |  | ------------- | ------ |  | ------------ | - | ------ | 
|                                                               |  | September 30, |        |  | December 31, |  
|                                                               |  | 2005          |        |  | 2004         |  
|                                                               |  |               |        |  |              |  
|                                                               |  | (In millions) |       
|Short-term financing obligations, including current maturities |  | $             | 1,267  |  |              | $ | 955    | 
|Long-term financing obligations                                |  |               | 16,657 |  |              |   | 18,241 | 
|                                                               |  |               |        |  |              |  
|Total                                                          |  | $             | 17,924 |  |              | $ | 19,196 | 
|                                                               |  |               |        |  |              |  





| |                                
| | -------------------------------
| | Long-Term Financing Obligations



|                                               |                                             |                                      |                                    |               |  |               |            |      |       |               |  |   |       |     |    
|---------------------------------------------- | ------------------------------------------- | ------------------------------------ | ---------------------------------- | ------------- |  | ------------- | ---------- | ---- | ----- | ------------- |  | - | ----- | --- | ---
|                                               |                                             |                                      |                                    |               |  |               |            | Cash |      
|Company                                        |                                             | Type                                 |                                    | Interest Rate |  |               | Book Value |      |       | Received/Paid | 
|                                               |                                             |                                      |                                    |               |  |               |            |      |       |               | 
|                                               |                                             |                                      |                                    |               |  | (In millions) |           
|Issuances                                      |                                             |                                      |                                    |               |  |               |            |      |       |               |  |   |       |    
|                                               | Colorado Interstate Gas Company (CIG)       |                                      | Senior notes due 2015              |               |  | 5.95%         |            |      | $     | 200           |  |   | $     | 197 |    
|                                               | Cheyenne Plains Gas Pipeline
    Company(1) |                                      | Non-recourse term loan due 2015    |               |  | Variable      |            |      |       | 266           |  |   |       | 261 |    
|                                               | El Paso Production Holding Company          |                                      | Revolving credit facility due 2010 |               |  | LIBOR+1.875%  |            |      |       | 500           |  |   |       | 495 |    
|                                               | El
    Paso(2)                              |                                      | Senior notes due 2007              |               |  | 7.625%        |            |      |       | 272           |  |   |       | 272 |    
|                                               |                                             |                                      |                                    |               |  |               |            |      |       |               | 
|                                               |                                             | Increases through September 30, 2005 |                                    |               |  |               |            | $    | 1,238 |               |  | $ | 1,225 |    
|                                               | CIG                                         |                                      | Senior notes due 2015              |               |  | 6.8%          |            |      |       | 400           |  |   |       | 395 |    
|                                               |                                             |                                      |                                    |               |  |               |            |      |       |               | 
|                                               |                                             | Increases through filing date        |                                    |               |  |               |            | $    | 1,638 |               |  | $ | 1,620 |    
|                                               |                                             |                                      |                                    |               |  |               |            |      |       |               | 
|Repayments, repurchases, retirements and other |                                             |                                      |                                    |               |  |               |            |      |       |               |  |   |       |    
|                                               | El Paso                                     |                                      | Zero coupon
    debenture(3)       |               |  |              |            |      | $     | 236           |  |   | $     | 237 |    
|                                               | El Paso                                     |                                      | Notes                              |               |  | 6.88%         |            |      |       | 167           |  |   |       | 167 |    
|                                               | Cedar Brakes
    I(4)                       |                                      | Non-recourse notes                 |               |  | 8.5%          |            |      |       | 241           |  |   |       | 15  |    
|                                               | Cedar Brakes
    II(4)                      |                                      | Non-recourse notes                 |               |  | 9.88%         |            |      |       | 334           |  |   |       | 14  |    
|                                               | El
    Paso(5)                              |                                      | Euro notes                         |               |  | 5.75%         |            |      |       | 695           |  |   |       | 722 |    
|                                               | El Paso                                     |                                      | Senior notes due 2007              |               |  | 6.14%         |            |      |       | 272           |  |   |       |    | (2)
|                                               | CIG                                         |                                      | Debentures                         |               |  | 10.00%        |            |      |       | 180           |  |   |       | 180 |    
|                                               | Other                                       |                                      | Long-term debt                     |               |  | Various       |            |      |       | 385           |  |   |       | 286 |    
|                                               |                                             |                                      |                                    |               |  |               |            |      |       |               | 
|                                               |                                             | Decreases through September 30, 2005 |                                    |               |  |               |            | $    | 2,510 |               |  | $ | 1,621 |    
|                                               | Other                                       |                                      | Long-term debt                     |               |  | Various       |            |      |       | 56            |  |   |       | 27  |    
|                                               |                                             |                                      |                                    |               |  |               |            |      |       |               | 
|                                               |                                             | Decreases through filing date        |                                    |               |  |               |            | $    | 2,566 |               |  | $ | 1,648 |    
|                                               |                                             |                                      |                                    |               |  |               |            |      |       |               | 

16



---



##### Table of Contents








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In addition to the borrowing, we have an associated letter of
    credit facility for $12 million, under which we issued
    $6 million of letters of credit in May 2005. We also
    concurrently entered into swaps to convert the variable interest
    rate on approximately $213 million of this debt to a
    current fixed rate of 5.94%.                                                                                                                                                        
|(2) | In July 2005, we remarketed $272 million of notes which
    originally formed a portion of our 9.0% equity security units.
    Existing note holders utilized proceeds from the remarketing to
    satisfy their obligation under the equity security units to
    purchase common stock which had the effect of exchanging debt
    for equity. We have reflected this transaction as a non-cash
    financing transaction and the issuance of the new remarketed
    notes as a financing cash inflow.
|(3) | This security has a yield-to-maturity of approximately 4%.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(4) | Prior to the sale of Cedar Brakes I and II, we made
    $29 million of scheduled principal repayments. Upon the
    sale of these entities in March 2005, the remaining balance
    of the debt was eliminated.                                                                                                                                                                                                                                                                                         
|(5) | We recorded a $26 million loss on the early extinguishment
    of this debt.                                                                                                                                                                                                                                                                                                                                                                                                                            



Credit Facilities








Letters of Credit






|    |                              
|--- | -----------------------------
|10. | Commitments and Contingencies



| |                  
| | -----------------
| | Legal Proceedings

Western Energy Settlement.


17



---



##### Table of Contents







| |                                          
| | -----------------------------------------
| | Shareholder/ Derivative/ ERISA Litigation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Shareholder Litigation. Twenty-eight purported
    shareholder class action lawsuits have been pending since 2002
    and are consolidated in federal court in Houston, Texas. This
    consolidated lawsuit, which alleges violations of federal
    securities laws against us and several of our current and former
    officers and directors, includes allegations regarding the
    accuracy or completeness of press releases and other public
    statements made during the class period from 2000 through early
    2004 related to wash trades, mark-to-market accounting,
    off-balance sheet debt, the overstatement of oil and gas
    reserves and manipulation of the California energy market.
    Formal discovery in the consolidated lawsuit is currently stayed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | Derivative Litigation. Since 2002, six shareholder
    derivative actions have also been filed. Two of these actions
    were filed in federal court in Houston; two of these actions
    were filed in state court in Houston; and two of these
    derivative actions were filed in Delaware Chancery Court. The
    Houston federal court cases: The first federal court case
    was filed in 2002 and the second was filed in 2004. The 2002
    federal court case generally alleges the same claims pled in the
    consolidated shareholder class action described above, with the
    exception that there are no allegations related to the
    overstatement of oil and gas reserves. The 2004 federal court
    case includes allegations related to the overstatement of oil
    and gas reserves, in addition to the allegations alleged in the
    2002 federal court case. The two federal court actions in
    Houston are both currently stayed. The Houston state court
    cases: The two state court actions in Houston have been
    consolidated. The plaintiffs in those cases originally alleged
    that the manipulation of California gas prices exposed us to
    claims of antitrust conspiracy, FERC penalties and erosion of
    share value. The plaintiffs in the consolidated state court case
    recently amended their petition to add claims of unjust
    enrichment of certain former executives allegedly attributable
    to round trip trading and restructuring of energy contracts and
    breach of fiduciary duty claims for failure to recover 2001
    compensation paid to certain officers. Discovery is ongoing in
    this case. The Delaware Chancery Court cases: The first
    of these two cases was filed in 2002, and generally alleges the
    same claims pled in the consolidated shareholder class action
    described above, with the exception that there were no
    allegations related to the overstatement of oil and gas
    reserves. This lawsuit was voluntarily dismissed by plaintiffs
    in September 2005. The second Delaware derivative case was filed
    in April 2005 and seeks to recover the compensation paid to a
    former executive in 2001 alleging unjust enrichment allegedly
    attributable to round trip trading and restructuring of energy
    contracts and breach of fiduciary duty claims for failure to
    seek recovery of the 2001 compensation. Defendants have a motion
    pending seeking dismissal of this lawsuit based upon demand
    futility.
|
| | ERISA Class Action Suits. In December 2002, a
    purported class action lawsuit entitled William H.
    Lewis, III v. El Paso Corporation, et al.was filed in the U.S. District Court for the Southern
    District of Texas alleging generally that our direct and
    indirect communications with participants in the El Paso
    Corporation Retirement Savings Plan included misrepresentations
    and omissions that caused members of the class to hold and
    maintain investments in El Paso stock in violation of the
    Employee Retirement Income Security Act (ERISA). That lawsuit
    was subsequently amended to include allegations relating to our
    reporting of natural gas and oil reserves. Discovery in this
    lawsuit is currently stayed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

18



---



##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We and our representatives have insurance coverages that are
    applicable to each of these shareholder, derivative and ERISA
    lawsuits. There are certain deductibles and co-pay obligations
    under some of those insurance coverages for which we have
    established certain accruals we believe are adequate.

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. Cornerstone Propane
Partners, L.P. v. Reliant Energy Services Inc.,
et al. Roberto E. Calle Gracey v. American
Electric Power Company, Inc., et al. Dominick
Viola v. Reliant Energy Services Inc., et al. Leggett et al.
v. Duke Energy Corporation et al Farmland Industries, Inc. v. Oneok Inc. Learjet, Inc. v. Oneok Inc.


19



---



##### Table of Contents



Texas-Ohio Energy, Inc. v. CenterPoint Energy, Inc.,
et al Fairhaven
Power v. El Paso Corporation, et al Utility Savings and Refund
Services, et al. v. Reliant Energy, et al. Abelman Art Glass,
et al. v. Encana Corporation, et al. Ever-Bloom Inc. v. AEP
Energy Services Inc. et al Texas-Ohio


Grynberg. In re: Natural Gas Royalties Qui Tam Litigation, Qui Tam


Will Price (formerly Quinque). Will Price,
et al. v. Gas Pipelines and Their Predecessors,
et al.,


Hurricane Litigation. George Barasich, et al. v. Columbia
Gulf Transmission Company, et al. Charles Villa Jr.,
et al. v. Columbia Gulf Transmission Company, et al.


Bank of America. Bank of America, et al. v.
El Paso Natural Gas Company, et al., Deane
W. Moore, et al. v. Burlington Northern, Inc.,
et al.,


20



---



##### Table of Contents



Bank of America, et al. v.
El Paso Natural Gas and Burlington Resources Oil and Gas
Company, El Paso Natural Gas Company v. Burlington
Resources, Inc. and Burlington Resources Oil and Gas Company,
L.P.


Araucaria.


Macae.


21



---



##### Table of Contents





MTBE.


Wise Arbitration.




| |                          
| | -------------------------
| | Government Investigations

Wash Trades.


Price Reporting.


Reserve Revisions.


22



---



##### Table of Contents





Iraq Oil Sales.


Carlsbad.




Rates and Regulatory Matters


EPNG Rate Case.


23



---



##### Table of Contents



Other Contingencies


Navajo Nation.


Brazilian Matters.




24



---



##### Table of Contents



Environmental Matters






|              |  |               |     |  |      |   |     | 
|------------- |  | ------------- | --- |  | ---- | - | --- | 
|              |  | September 30, |    
|              |  | 2005          |    
|              |  |               |    
|Sites         |  | Expected      |     |  | High |  
|              |  |               |     |  |      |  
|              |  | (In millions) |    
|Operating     |  | $             | 86  |  |      | $ | 97  | 
|Non-operating |  |               | 253 |  |      |   | 387 | 
|Superfund     |  |               | 30  |  |      |   | 61  | 
|              |  |               |     |  |      |  
|Total         |  | $             | 369 |  |      | $ | 545 | 
|              |  |               |     |  |      |  



|                                                 |  |   |     |  
|------------------------------------------------ |  | - | --- | -
|Balance as of January 1, 2005                    |  | $ | 380 |  
|Additions/adjustments for remediation activities |  |   | 33  |  
|Payments for remediation activities              |  |   | (44 | )
|                                                 |  |   |    
|Balance as of September 30, 2005                 |  | $ | 369 |  
|                                                 |  |   |    



Polychlorinated Biphenyls (PCB) Cost Recoveries.


25



---



##### Table of Contents





CERCLA Matters.




Guarantees




26



---



##### Table of Contents



11. Retirement Benefits




|                                                                 |                  |                              |     |       |                                 |   |     |                  |       |                |          |   |  |      |    |   |      |   |      |      |  |   |      |   |  |   |    |    |  |   |    |    | 
|---------------------------------------------------------------- | ---------------- | ---------------------------- | --- | ----- | ------------------------------- | - | --- | ---------------- | ----- | -------------- | -------- | - |  | ---- | -- | - | ---- | - | ---- | ---- |  | - | ---- | - |  | - | -- | -- |  | - | -- | -- | 
|                                                                 |                  | Quarters Ended September 30, |     |       | Nine Months Ended September 30, |  
|                                                                 |                  |                              |     |       |                                 |  
|                                                                 |                  |                              |     | Other |                                 |   |     |                  | Other |               
|                                                                 |                  | Pension                      |     |       | Postretirement                  |   |     |                  |       | Postretirement |         
|                                                                 |                  | Benefits                     |     |       | Benefits                        |   |     | Pension Benefits |       |                | Benefits |  
|                                                                 |                  |                              |     |       |                                 |   |     |                  |       |                |          |  
|                                                                 |                  | 2005                         |     |       | 2004                            |   |     | 2005             |       |                | 2004     |   |  | 2005 |    |   | 2004 |   |      | 2005 |  |   | 2004 |  
|                                                                 |                  |                              |     |       |                                 |   |     |                  |       |                |          |   |  |      |    |   |      |   |      |      |  |   |      |  
|                                                                 |                  | (In millions)                |     |       | (In millions)                   |  
|Service cost                                                     |                  | $                            | 5   |       |                                 | $ | 8   |                  |       | $              |         |   |  | $    |   |   |      | $ | 17   |      |  | $ | 24   |   |  | $ |   |    |  | $ |   |   
|Interest cost                                                    |                  |                              | 29  |       |                                 |   | 30  |                  |       |                | 7        |   |  |      | 9  |   |      |   | 87   |      |  |   | 91   |   |  |   | 22 |    |  |   | 25 |   
|Expected return on plan assets                                   |                  |                              | (42 | )     |                                 |   | (47 | )                |       |                | (3       | ) |  |      | (3 | ) |      |   | (126 | )    |  |   | (142 | ) |  |   | (9 | )  |  |   | (9 | ) 
|Amortization of net actuarial loss                               |                  |                              | 16  |       |                                 |   | 12  |                  |       |                |         |   |  |      | 1  |   |      |   | 48   |      |  |   | 36   |   |  |   |   |    |  |   | 3  |   
|Amortization of transition obligation                            |                  |                              |    |       |                                 |   |    |                  |       |                | 2        |   |  |      | 2  |   |      |   |     |      |  |   |     |   |  |   | 6  |    |  |   | 6  |   
|Amortization of prior service
    cost(1)                        |                  |                              |    |       |                                 |   | (1  | )                |       |                |         |   |  |      |   |   |      |   | (2   | )    |  |   | (3   | ) |  |   |   |    |  |   |   |   
|Settlements, curtailment and special termination
    benefits(2) |                  |                              |    |       |                                 |   | (5  | )                |       |                |         |   |  |      |   |   |      |   |     |      |  |   | (5   | ) |  |   |   |    |  |   |   |   
|                                                                 |                  |                              |     |       |                                 |   |     |                  |       |                |          |   |  |      |    |   |      |   |      |      |  |   |      |  
|                                                                 | Net benefit cost |                              | $   | 8     |                                 |   | $   | (3               | )     |                | $        | 6 |  |      | $  | 9 |      |   | $    | 24   |  |   | $    | 1 |  |   | $  | 19 |  |   | $  | 25 | 
|                                                                 |                  |                              |     |       |                                 |   |     |                  |       |                |          |   |  |      |    |   |      |   |      |      |  |   |      |  






|    |                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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) | We recognized curtailments in 2004 related to a reduction in the
    number of employees that participate in our pension and other
    postretirement plans, which resulted from our various asset
    sales and employee severance efforts in 2004.

Accounting and
Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003




12. Capital Stock


Common Stock




Convertible Perpetual Preferred
Stock




27



---



##### Table of Contents







Dividends








13. Business Segment Information






28



---



##### Table of Contents





|                                                                  |                                 |               |      |             |               |   |      |      |   |   |        |      |   |   |        |      |  
|----------------------------------------------------------------- | ------------------------------- | ------------- | ---- | ----------- | ------------- | - | ---- | ---- | - | - | ------ | ---- | - | - | ------ | ---- | -
|                                                                  |                                 |               |      | Nine Months |              
|                                                                  |                                 | Quarter Ended |      |             | Ended         |  
|                                                                  |                                 | September 30, |      |             | September 30, |  
|                                                                  |                                 |               |      |             |               |  
|                                                                  |                                 | 2005          |      |             | 2004          |   |      | 2005 |   |   | 2004   |     
|                                                                  |                                 |               |      |             |               |   |      |      |   |   |        |     
|                                                                  |                                 | (In millions) |     
|Total EBIT                                                        |                                 | $             | (87  | )           |               | $ | 277  |      |   | $ | 424    |      |   | $ | 1,095  |     
|Interest and debt expense                                         |                                 |               | (344 | )           |               |   | (396 | )    |   |   | (1,034 | )    |   |   | (1,229 | )   
|Distributions on preferred interests of consolidated subsidiaries |                                 |               |     |             |               |   | (6   | )    |   |   | (9     | )    |   |   | (18    | )   
|Income taxes                                                      |                                 |               | 108  |             |               |   | (77  | )    |   |   | 165    |      |   |   | (135   | )   
|                                                                  |                                 |               |      |             |               |   |      |      |   |   |        |     
|                                                                  | Loss from continuing operations |               | $    | (323        | )             |   | $    | (202 | ) |   | $      | (454 | ) |   | $      | (287 | )
|                                                                  |                                 |               |      |             |               |   |      |      |   |   |        |     



|                                                 |  |               |     |  |               |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       |  |   |     |   |  |   |       |    
|------------------------------------------------ |  | ------------- | --- |  | ------------- | --------- | --- | ------- |  | - | ----- | - |  | -------- | --- | - | ------------ | - | ---- | ----- |  | - | --- | - |  | - | ----- | ---
|                                                 |  | Regulated     |     |  | Non-regulated |           |     |         |  |  
|                                                 |  |               |     |  |               |           |     |         |  |  
|                                                 |  |               |     |  |               | Marketing |     |         |  |   |       |   | 
|                                                 |  |               |     |  |               | and       |     |         |  |   | Field |   |  |          |     |  
|Quarter Ended September 30,                      |  | Pipelines     |     |  | Production    |           |     | Trading |  |   | Power |   |  | Services |     |   | Corporate(1) |   |      | Total | 
|                                                 |  |               |     |  |               |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       | 
|                                                 |  | (In millions) |    
|2005                                             |  |               |     |  |               |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       |  |   |     |   |  |   |       |    
|Revenues from external customers                 |  | $             | 630 |  |               | $         | 155 | (2)     |  | $ | (95   | ) |  | $        | 45  |   |              | $ | 38   |       |  | $ | 15  |   |  | $ | 788   |    
|Intersegment revenues                            |  |               | 16  |  |               |           | 294 | (2)     |  |   | (294  | ) |  |          | 15  |   |              |   | 7    |       |  |   | (16 | ) |  |   | 22    | (3)
|Operation and maintenance                        |  |               | 218 |  |               |           | 94  |         |  |   | 14    |   |  |          | 55  |   |              |   | 29   |       |  |   | 80  |   |  |   | 490   |    
|Depreciation, depletion and amortization         |  |               | 108 |  |               |           | 153 |         |  |   | 1     |   |  |          | 6   |   |              |   | 1    |       |  |   | 6   |   |  |   | 275   |    
|Loss on long-lived assets                        |  |               |    |  |               |           |    |         |  |   |      |   |  |          |    |   |              |   | 3    |       |  |   |    |   |  |   | 3     |    
|                                                
|Operating income (loss)                          |  | $             | 207 |  |               | $         | 167 |         |  | $ | (404  | ) |  | $        | (16 | ) |              | $ | (26  | )     |  | $ | (79 | ) |  | $ | (151  | )  
|Earnings (losses) from unconsolidated affiliates |  |               | 51  |  |               |           |    |         |  |   |      |   |  |          | (42 | ) |              |   | 4    |       |  |   |    |   |  |   | 13    |    
|Other income, net                                |  |               | 14  |  |               |           | 2   |         |  |   | 6     |   |  |          | 17  |   |              |   |     |       |  |   | 12  |   |  |   | 51    |    
|                                                 |  |               |     |  |               |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       | 
|EBIT                                             |  | $             | 272 |  |               | $         | 169 |         |  | $ | (398  | ) |  | $        | (41 | ) |              | $ | (22  | )     |  | $ | (67 | ) |  | $ | (87   | )  
|                                                 |  |               |     |  |               |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       | 
|2004                                             |  |               |     |  |               |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       |  |   |     |   |  |   |       |    
|Revenues from external customers                 |  | $             | 582 |  |               | $         | 92  | (2)     |  | $ | 176   |   |  | $        | 188 |   |              | $ | 370  |       |  | $ | 21  |   |  | $ | 1,429 |    
|Intersegment revenues                            |  |               | 22  |  |               |           | 308 | (2)     |  |   | (296  | ) |  |          | (7  | ) |              |   | 56   |       |  |   | (83 | ) |  |   |      |    
|Operation and maintenance                        |  |               | 204 |  |               |           | 96  |         |  |   | 15    |   |  |          | 102 |   |              |   | 19   |       |  |   | 39  |   |  |   | 475   |    
|Depreciation, depletion and amortization         |  |               | 104 |  |               |           | 136 |         |  |   | 4     |   |  |          | 14  |   |              |   | 3    |       |  |   | 9   |   |  |   | 270   |    
|(Gain) loss on long-lived assets                 |  |               |    |  |               |           |    |         |  |   |      |   |  |          | 77  |   |              |   | 506  |       |  |   | (1  | ) |  |   | 582   |    
|                                                
|Operating income (loss)                          |  | $             | 218 |  |               | $         | 147 |         |  | $ | (139  | ) |  | $        | (48 | ) |              | $ | (477 | )     |  | $ | (56 | ) |  | $ | (355  | )  
|Earnings from unconsolidated affiliates          |  |               | 43  |  |               |           | 1   |         |  |   |      |   |  |          | 25  |   |              |   | 548  |       |  |   |    |   |  |   | 617   |    
|Other income (expense), net                      |  |               | 7   |  |               |           | 2   |         |  |   | 1     |   |  |          | 16  |   |              |   | (10  | )     |  |   | (1  | ) |  |   | 15    |    
|                                                 |  |               |     |  |               |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       | 
|EBIT                                             |  | $             | 268 |  |               | $         | 150 |         |  | $ | (138  | ) |  | $        | (7  | ) |              | $ | 61   |       |  | $ | (57 | ) |  | $ | 277   |    
|                                                 |  |               |     |  |               |           |     |         |  |   |       |   |  |          |     |   |              |   |      |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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. For the quarters ended
    September 30, 2005 and 2004, we recorded an intersegment
    revenue elimination of $16 million and $83 million and
    an operations and maintenance expense elimination of less than
    $1 million and $1 million, which is included in the
    Corporate column, to remove intersegment
    transactions.
|   
|(2) | 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 and Trading segment, which is responsible for
    marketing our production.                                                                                                                                                                                                                                                                   
|   
|(3) | Relates to intercompany activities between our continuing and
    our discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

29



---



##### Table of Contents



|                                                 |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |       |       |  |   |      |   |  |   |       |    
|------------------------------------------------ |  | ------------- | ----- | - | ------------- | --------- | --- | ------- |  | - | ----- | - |  | -------- | ---- | - | ------------ | - | ----- | ----- |  | - | ---- | - |  | - | ----- | ---
|                                                 |  | Regulated     |       |   | Non-regulated |           |     |         |  |  
|                                                 |  |               |       |   |               |           |     |         |  |  
|                                                 |  |               |       |   |               | Marketing |     |         |  |   |       |   | 
|                                                 |  |               |       |   |               | and       |     |         |  |   | Field |   |  |          |      |  
|Nine Months Ended September 30,                  |  | Pipelines     |       |   | Production    |           |     | Trading |  |   | Power |   |  | Services |      |   | Corporate(1) |   |       | Total | 
|                                                 |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |       |       | 
|                                                 |  | (In millions) |      
|2005                                             |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |       |       |  |   |      |   |  |   |       |    
|Revenues from external customers                 |  | $             | 2,012 |   |               | $         | 457 | (2)     |  | $ | 238   |   |  | $        | 236  |   |              | $ | 103   |       |  | $ | 66   |   |  | $ | 3,112 |    
|Intersegment revenues                            |  |               | 55    |   |               |           | 883 | (2)     |  |   | (823  | ) |  |          | 10   |   |              |   | 18    |       |  |   | (79  | ) |  |   | 64    | (3)
|Operation and maintenance                        |  |               | 635   |   |               |           | 277 |         |  |   | 33    |   |  |          | 184  |   |              |   | 32    |       |  |   | 209  |   |  |   | 1,370 |    
|Depreciation, depletion and amortization         |  |               | 327   |   |               |           | 456 |         |  |   | 3     |   |  |          | 28   |   |              |   | 3     |       |  |   | 32   |   |  |   | 849   |    
|(Gain) loss on long-lived assets                 |  |               | (10   | ) |               |           |    |         |  |   |      |   |  |          | 388  |   |              |   | 10    |       |  |   | (4   | ) |  |   | 384   |    
|                                                
|Operating income (loss)                          |  | $             | 831   |   |               | $         | 522 |         |  | $ | (622  | ) |  | $        | (411 | ) |              | $ | (29   | )     |  | $ | (206 | ) |  | $ | 85    |    
|Earnings (losses) from unconsolidated affiliates |  |               | 127   |   |               |           |    |         |  |   |      |   |  |          | (129 | ) |              |   | 186   |       |  |   |     |   |  |   | 184   |    
|Other income, net                                |  |               | 35    |   |               |           | 6   |         |  |   | 9     |   |  |          | 68   |   |              |   |      |       |  |   | 37   |   |  |   | 155   |    
|                                                 |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |       |       | 
|EBIT                                             |  | $             | 993   |   |               | $         | 528 |         |  | $ | (613  | ) |  | $        | (472 | ) |              | $ | 157   |       |  | $ | (169 | ) |  | $ | 424   |    
|                                                 |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |       |       | 
|2004                                             |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |       |       |  |   |      |   |  |   |       |    
|Revenues from external customers                 |  | $             | 1,875 |   |               | $         | 369 | (2)     |  | $ | 544   |   |  | $        | 539  |   |              | $ | 1,090 |       |  | $ | 93   |   |  | $ | 4,510 |    
|Intersegment revenues                            |  |               | 67    |   |               |           | 907 | (2)     |  |   | (964  | ) |  |          | 85   |   |              |   | 151   |       |  |   | (246 | ) |  |   |      |    
|Operation and maintenance                        |  |               | 556   |   |               |           | 258 |         |  |   | 38    |   |  |          | 296  |   |              |   | 70    |       |  |   | 31   |   |  |   | 1,249 |    
|Depreciation, depletion and amortization         |  |               | 305   |   |               |           | 407 |         |  |   | 10    |   |  |          | 42   |   |              |   | 10    |       |  |   | 34   |   |  |   | 808   |    
|(Gain) loss on long-lived assets                 |  |               | (1    | ) |               |           |    |         |  |   |      |   |  |          | 333  |   |              |   | 514   |       |  |   | (9   | ) |  |   | 837   |    
|                                                
|Operating income (loss)                          |  | $             | 826   |   |               | $         | 552 |         |  | $ | (468  | ) |  | $        | (196 | ) |              | $ | (460  | )     |  | $ | (50  | ) |  | $ | 204   |    
|Earnings from unconsolidated affiliates          |  |               | 117   |   |               |           | 4   |         |  |   |      |   |  |          | 65   |   |              |   | 616   |       |  |   |     |   |  |   | 802   |    
|Other income (expense), net                      |  |               | 19    |   |               |           | 2   |         |  |   | 14    |   |  |          | 57   |   |              |   | (32   | )     |  |   | 29   |   |  |   | 89    |    
|                                                 |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |       |       | 
|EBIT                                             |  | $             | 962   |   |               | $         | 558 |         |  | $ | (454  | ) |  | $        | (74  | ) |              | $ | 124   |       |  | $ | (21  | ) |  | $ | 1,095 |    
|                                                 |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |       |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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. For the nine months ended
    September 30, 2005 and 2004, we recorded an intersegment
    revenue elimination of $79 million and $246 million
    and an operations and maintenance expense elimination of less
    than $1 million and $1 million, which is included in
    the Corporate column, to remove intersegment
    transactions.
|   
|(2) | 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 and Trading segment, which is responsible for
    marketing our production.                                                                                                                                                                                                                                                                       
|   
|(3) | Relates to intercompany activities between our continuing
    operations and our discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                               



|                        |                       |                           |       |        |              |  |       |        |        | 
|----------------------- | --------------------- | ------------------------- | ----- | ------ | ------------ |  | ----- | ------ | ------ | 
|                        |                       | September 30,             |       |        | December 31, | 
|                        |                       | 2005                      |       |        | 2004         | 
|                        |                       |                           |       |        |              | 
|                        |                       | (In millions)             |      
|Regulated               |                       |                           |       |        |              |  |       |       
|                        | Pipelines             |                           | $     | 16,215 |              |  | $     | 15,988 |       
|Non-regulated           |                       |                           |       |        |              |  |       |       
|                        | Production            |                           |       | 5,681  |              |  |       | 4,080  |       
|                        | Marketing and Trading |                           |       | 4,258  |              |  |       | 2,404  |       
|                        | Power                 |                           |       | 1,971  |              |  |       | 3,599  |       
|                        | Field Services        |                           |       | 145    |              |  |       | 686    |       
|                        |                       |                           |       |        |              | 
|                        |                       | Total segment assets      |       |        | 28,270       |  |       |        | 26,757 | 
|Corporate               |                       |                           | 3,235 |        |              |  | 4,520 |       
|Discontinued operations |                       |                           | 197   |        |              |  | 106   |       
|                        |                       |                           |       |        |              | 
|                        |                       | Total consolidated assets |       | $      | 31,702       |  |       | $      | 31,383 | 
|                        |                       |                           |       |        |              | 

30



---



##### Table of Contents





|    |                                                                            
|--- | ---------------------------------------------------------------------------
|14. | Investments in Unconsolidated Affiliates and Related Party
    Transactions



|                                              |                                           |                |  |                |               |          |                |               |      |   |      |     |     |      |     |      |     |   |     |     |     | 
|--------------------------------------------- | ----------------------------------------- | -------------- |  | -------------- | ------------- | -------- | -------------- | ------------- | ---- | - | ---- | --- | --- | ---- | --- | ---- | --- | - | --- | --- | --- | 
|                                              |                                           |                |  |                |               | Earnings |               
|                                              |                                           |                |  | Earnings       |               |          | (Losses) from  |              
|                                              |                                           |                |  | (Losses) from  |               |          | Unconsolidated |              
|                                              |                                           |                |  | Unconsolidated |               |          | Affiliates     |              
|                                              |                                           |                |  | Affiliates     |               |          |                |              
|                                              |                                           | Net            |  |                |               |          |                |              
|                                              |                                           | Ownership      |  |                |               |          | Nine Months    |              
|                                              |                                           | Interest       |  |                | Quarter Ended |          |                | Ended         |     
|                                              |                                           |                |  |                | September 30, |          |                | September 30, |     
|                                              |                                           | September 30,  |  |                |               |          |                |               |     
|                                              |                                           | 2005           |  |                | 2005          |          |                | 2004          |      |   | 2005 |     |     | 2004 |    
|                                              |                                           |                |  |                |               |          |                |               |      |   |      |     |     |      |    
|                                              |                                           | (Percent)      |  |                | (In millions) |         
|Domestic:                                     |                                           |                |  |                |               |          |                |               |      |   |      |     |     |      |     |      |     |   |     |    
|                                              | Enterprise Products Partners,
    L.P.(1) |                |  |               |               |          | $              |              |      |   | $    |    |     |      | $   | 183  |     |   | $   |    |    
|                                              | GulfTerra Energy Partners,
    L.P.(1)    |                |  |               |               |          |                |              |      |   |      | 544 |     |      |     |     |     |   |     | 607 |    
|                                              | Citrus                                    |                |  | 50             |               |          |                | 19            |      |   |      | 18  |     |      |     | 52   |     |   |     | 46  |    
|                                              | Midland Cogeneration Venture
    (MCV)(2) |                |  | 44             |               |          |                | (159          | )    |   |      | (4  | )   |      |     | (162 | )   |   |     | (1  | )  
|                                              | Great Lakes Gas Transmission              |                |  | 50             |               |          |                | 15            |      |   |      | 14  |     |      |     | 46   |     |   |     | 50  |    
|                                              | Other Domestic
    Investments(3)         |                |  | various        |               |          |                | 16            |      |   |      | 27  |     |      |     | 22   |     |   |     | 36  |    
|                                              |                                           |                |  |                |               |          |                |               |      |   |      |     |     |      |    
|                                              |                                           | Total domestic |  |                |               |          |                |               | (109 | ) |      |     | 599 |      |     |      | 141 |   |     |     | 738 | 
|                                              |                                           |                |  |                |               |          |                |               |      |   |      |     |     |      |    
|Foreign:                                      |                                           |                |  |                |               |          |                |               |      |   |      |     |     |      |     |      |     |   |     |    
|                                              | Asia
    Investments(4)                   |                |  | various        |               |          |                | 110           |      |   |      | 13  |     |      |     | 42   |     |   |     | 54  |    
|                                              | Central American
    Investments(5)       |                |  | various        |               |          |                |              |      |   |      | 4   |     |      |     | (49  | )   |   |     | 7   |    
|                                              | PPN(6)                                    |                |  |               |               |          |                |              |      |   |      |    |     |      |     | 22   |     |   |     |    |    
|                                              | Other Foreign Investments                 |                |  | various        |               |          |                | 12            |      |   |      | 1   |     |      |     | 28   |     |   |     | 3   |    
|                                              |                                           |                |  |                |               |          |                |               |      |   |      |     |     |      |    
|                                              |                                           | Total foreign  |  |                |               |          |                |               | 122  |   |      |     | 18  |      |     |      | 43  |   |     |     | 64  | 
|                                              |                                           |                |  |                |               |          |                |               |      |   |      |     |     |      |    
|Total earnings from unconsolidated affiliates |                                           |                |  |                |               | $        | 13             |               |      | $ | 617  |     |     | $    | 184 |      |     | $ | 802 |    
|                                              |                                           |                |  |                |               |          |                |               |      |   |      |     |     |      |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In the third quarter of 2004, we sold our remaining interest in
    GulfTerra to Enterprise for cash and equity interests in
    Enterprise and recognized a $507 million gain. In
    January 2005, we sold all of our remaining interests to
    Enterprise and recognized a $183 million gain.                                                                                                                                                                                                                                                                                                                                                                                                     
|(2) | Includes our proportionate share of a significant impairment
    recorded by MCV during the third quarter of 2005. As a result of
    this impairment, our remaining investment in MCV consists solely
    of our share of MCVs accumulated other comprehensive
    income of approximately $78 million as of
    September 30, 2005.                                                                                                                                                                                                                                                                                                                                                                
|(3) | Other domestic investments includes our interest in the Javelina
    natural gas processing and pipeline assets. We sold Javelina in
    November 2005 and will record a gain of approximately
    $100 million in the fourth quarter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(4) | Consists of our investments in 12 power plants, including
    Korea Independent Energy Corporation (KIECO) (which we sold in
    the third quarter of 2005 and recorded a $109 million
    gain), Meizhou Wan Generating, Habibullah Power and Saba Power
    Company. Our proportionate share of earnings reported by our
    Asia investments was $5 million and $49 million, for
    the quarter and nine months ended September 30, 2005.
    We decreased our proportionate share of equity earnings for our
    Asia investments by $4 million and $23 million, for
    the quarter and nine months ended September 30, 2005,
    to reflect the amount of earnings we believe will be realized.
|(5) | Consists of our investments in 6 power plants. Our
    proportionate share of earnings reported by our Central American
    investments was $5 million and $13 million for the
    quarter and nine months ended September 30, 2005. We
    decreased our proportionate share of equity earnings for our
    Central America investments by $5 million for the quarter
    and nine months ended September 30, 2005, to reflect the
    amount of earnings we believe will be realized.                                                                                                                                                                                                               
|(6) | We sold our interest in March 2005 and recorded a
    $22 million gain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

31



---



##### Table of Contents





|                                    |                                           |                     |     |      |               |   |     |      |  
|----------------------------------- | ----------------------------------------- | ------------------- | --- | ---- | ------------- | - | --- | ---- | -
|                                    |                                           | Quarter             |     |      | Nine Months   |  
|                                    |                                           | Ended               |     |      | Ended         |  
|Investment                          |                                           | September 30,       |     |      | September 30, |  
|                                    |                                           |                     |     |      |               |  
|                                    |                                           | Pre-tax Gain (Loss) |    
|                                    |                                           |                     |    
|                                    |                                           | (In millions)       |    
|2005                                |                                           |                     |     |      |               |   |     |     
|Impairments                         |                                           |                     |     |      |               |   |     |     
|                                    | Asia power
    investments(1)             |                     | $   |     |               |   | $   | (93  | )
|                                    | Central American power
    investments(1) |                     |     |     |               |   |     | (57  | )
|                                    | Other foreign
    investments(1)          |                     |     |     |               |   |     | (17  | )
|                                    | Midland Cogeneration
    Venture(2)       |                     |     | (159 | )             |   |     | (162 | )
|Gain on sale of KIECO               |                                           |                     | 109 |      |               |   | 109 |     
|Gain on sale of PPN                 |                                           |                     |    |      |               |   | 22  |     
|Gain on sale of Enterprise          |                                           |                     |    |      |               |   | 183 |     
|Other                               |                                           |                     | 11  |      |               |   | 8   |     
|                                    |                                           |                     |     |      |               |  
|                                    |                                           | $                   | (39 | )    |               | $ | (7  | )   
|                                    |                                           |                     |     |      |               |  
|2004                                |                                           |                     |     |      |               |   |     |     
|Impairments                         |                                           |                     |     |      |               |   |     |     
|                                    | Milford power
    facility(1)             |                     | $   |     |               |   | $   | (2   | )
|                                    | Power plants held for
    sale(1)         |                     |     | (15  | )             |   |     | (50  | )
|Gain on sale of GulfTerra interests |                                           |                     | 507 |      |               |   | 507 |     
|Other                               |                                           |                     | 14  |      |               |   | 9   |     
|                                    |                                           |                     |     |      |               |  
|                                    |                                           | $                   | 506 |      |               | $ | 464 |     
|                                    |                                           |                     |     |      |               |  






|    |                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We impaired our interests in these investments based on
    information received regarding the potential value we may
    receive when we sell the investments.                                             
|(2) | Represents our proportionate share of losses from our investment
    in MCV, which substantially consists of our share of a
    significant impairment recorded by MCV during the third quarter
    of 2005.

32



---



##### Table of Contents





|                       |                                          |                             |   |       |                                 |  |       |       |       |  |             |    |  |       |   |     |        |  |   |      |   |  |       |     |  |             |   |      |       |  |   |    |  |  |   |     |  |  |   |       |  
|---------------------- | ---------------------------------------- | --------------------------- | - | ----- | ------------------------------- |  | ----- | ----- | ----- |  | ----------- | -- |  | ----- | - | --- | ------ |  | - | ---- | - |  | ----- | --- |  | ----------- | - | ---- | ----- |  | - | -- |  |  | - | --- |  |  | - | ----- | -
|                       |                                          | Quarter Ended September 30, |   |       | Nine Months Ended September 30, | 
|                       |                                          |                             |   |       |                                 | 
|                       |                                          |                             |   | Great |                                 |  | Other |       |       |  |             |    |  | Great |   |     | Other  |  |   |     
|                       |                                          | Citrus                      |   |       | MCV                             |  |       | Lakes |       |  | Investments |    |  | Total |   |     | Citrus |  |   | MCV  |   |  | Lakes |     |  | Investments |   |      | Total | 
|                       |                                          |                             |   |       |                                 |  |       |       |       |  |             |    |  |       |   |     |        |  |   |      |   |  |       |     |  |             |   |      |       | 
|                       |                                          | (In millions)               |  
|2005                   |                                          |                             |   |       |                                 |  |       |       |       |  |             |    |  |       |   |     |        |  |   |      |   |  |       |     |  |             |   |      |       |  |   |    |  |  |   |     |  |  |   |      
|Operating results data |                                          |                             |   |       |                                 |  |       |       |       |  |             |    |  |       |   |     |        |  |   |      |   |  |       |     |  |             |   |      |       |  |   |    |  |  |   |     |  |  |   |      
|                       | Revenues                                 |                             | $ | 66    |                                 |  | $     | 67    |       |  | $           | 32 |  |       | $ | 288 |        |  | $ | 453  |   |  | $     | 181 |  |             | $ | 194  |       |  | $ | 98 |  |  | $ | 732 |  |  | $ | 1,205 |  
|                       | Operating expenses                       |                             |   | 27    |                                 |  |       | 475   |       |  |             | 15 |  |       |   | 221 |        |  |   | 738  |   |  |       | 75  |  |             |   | 509  |       |  |   | 43 |  |  |   | 529 |  |  |   | 1,156 |  
|                       | Income (loss) from continuing operations |                             |   | 19    |                                 |  |       | (418  | )     |  |             | 9  |  |       |   | 38  |        |  |   | (352 | ) |  |       | 49  |  |             |   | (343 | )     |  |   | 30 |  |  |   | 121 |  |  |   | (143  | )
|                       | Net income
    (loss)(1)                 |                             |   | 19    |                                 |  |       | (418  | ) (2) |  |             | 9  |  |       |   | 38  |        |  |   | (352 | ) |  |       | 49  |  |             |   | (343 | ) (2) |  |   | 30 |  |  |   | 121 |  |  |   | (143  | )

|                       |                                          |                             |   |       |                                 |  |       |       |   |  |             |    |  |       |   |     |        |  |   |     |  |  |       |     |  |             |   |     |       |  |   |    |  |  |   |       |  |  |   |       | 
|---------------------- | ---------------------------------------- | --------------------------- | - | ----- | ------------------------------- |  | ----- | ----- | - |  | ----------- | -- |  | ----- | - | --- | ------ |  | - | --- |  |  | ----- | --- |  | ----------- | - | --- | ----- |  | - | -- |  |  | - | ----- |  |  | - | ----- | 
|                       |                                          | Quarter Ended September 30, |   |       | Nine Months Ended September 30, | 
|                       |                                          |                             |   |       |                                 | 
|                       |                                          |                             |   | Great |                                 |  | Other |       |   |  |             |    |  | Great |   |     | Other  |  |   |    
|                       |                                          | Citrus                      |   |       | MCV                             |  |       | Lakes |   |  | Investments |    |  | Total |   |     | Citrus |  |   | MCV |  |  | Lakes |     |  | Investments |   |     | Total | 
|                       |                                          |                             |   |       |                                 |  |       |       |   |  |             |    |  |       |   |     |        |  |   |     |  |  |       |     |  |             |   |     |       | 
|                       |                                          | (In millions)               |  
|2004                   |                                          |                             |   |       |                                 |  |       |       |   |  |             |    |  |       |   |     |        |  |   |     |  |  |       |     |  |             |   |     |       |  |   |    |  |  |   |       |  |  |   |      
|Operating results data |                                          |                             |   |       |                                 |  |       |       |   |  |             |    |  |       |   |     |        |  |   |     |  |  |       |     |  |             |   |     |       |  |   |    |  |  |   |       |  |  |   |      
|                       | Revenues                                 |                             | $ | 64    |                                 |  | $     | 72    |   |  | $           | 31 |  |       | $ | 422 |        |  | $ | 589 |  |  | $     | 178 |  |             | $ | 211 |       |  | $ | 99 |  |  | $ | 1,312 |  |  | $ | 1,800 | 
|                       | Operating expenses                       |                             |   | 21    |                                 |  |       | 66    |   |  |             | 15 |  |       |   | 302 |        |  |   | 404 |  |  |       | 69  |  |             |   | 179 |       |  |   | 41 |  |  |   | 919   |  |  |   | 1,208 | 
|                       | Income (loss) from continuing operations |                             |   | 18    |                                 |  |       | (4    | ) |  |             | 9  |  |       |   | 80  |        |  |   | 103 |  |  |       | 44  |  |             |   | (1  | )     |  |   | 33 |  |  |   | 244   |  |  |   | 320   | 
|                       | Net income
    (loss)(1)                 |                             |   | 18    |                                 |  |       | (4    | ) |  |             | 9  |  |       |   | 80  |        |  |   | 103 |  |  |       | 46  |  |             |   | (1  | )     |  |   | 33 |  |  |   | 244   |  |  |   | 322   | 






|    |                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes net income of $8 million and $3 million for
    the quarters ended September 30, 2005 and 2004, and
    $22 million and $24 million for the nine months ended
    September 30, 2005 and 2004, related to our proportionate
    share of affiliates in which we hold a greater than
    50 percent interest.
|   
|(2) | Includes $9 million and $26 million of earnings during
    the quarter and nine months ended September 30, 2005
    attributable to transactions with El Paso which were
    eliminated.                                                                                                                             



Related Party
Transactions




|                                     |  |               |    |  |                   |   |    |      |  |   |      |  |  |   |     | 
|------------------------------------ |  | ------------- | -- |  | ----------------- | - | -- | ---- |  | - | ---- |  |  | - | --- | 
|                                     |  | Quarter Ended |    |  | Nine Months Ended |  
|                                     |  | September 30, |    |  | September 30,     |  
|                                     |  |               |    |  |                   |  
|                                     |  | 2005          |    |  | 2004              |   |    | 2005 |  |   | 2004 | 
|                                     |  |               |    |  |                   |   |    |      |  |   |      | 
|                                     |  | (In millions) |   
|Operating revenue                    |  | $             | 26 |  |                   | $ | 49 |      |  | $ | 118  |  |  | $ | 167 | 
|Cost of sales                        |  |               | 4  |  |                   |   | 31 |      |  |   | 10   |  |  |   | 91  | 
|Reimbursement for operating expenses |  |               | 1  |  |                   |   | 28 |      |  |   | 2    |  |  |   | 93  | 
|Other income                         |  |               | 3  |  |                   |   | 3  |      |  |   | 12   |  |  |   | 12  | 



| |                                
| | -------------------------------
| | GulfTerra Energy Partners, L.P.



33



---



##### Table of Contents







Contingent Matters that Could Impact Our
Investments


Economic Conditions in the Dominican Republic.


Bolivia.


Berkshire Power Project.


34



---



##### Table of Contents



Brazil.


Duke Litigation.


35



---



##### Table of Contents






Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations






Overview










| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our Pipeline segment made further progress on its plans by
    settling a rate case at Southern Natural Gas Company (SNG),
    recontracting with large customers on the SNG and EPNG systems,
    and making progress on several pipeline expansion projects in
    our pipeline systems and at our Elba Island LNG facility;                                                                                                                                                                                             
|
| |  | Our Production segment continued to make progress on its
    turnaround and the stabilization of its production rates through
    its capital drilling program and four strategic acquisitions of
    natural gas and oil properties, including its recent acquisition
    of Medicine Bow;                                                                                                                                                                                                                                
|
| |  | We continued the exit of our legacy trading business through the
    assignment or termination of derivative contracts associated
    with Mohawk River Funding II and Cedar Brakes I and II;                                                                                                                                                                                                                                                                                                                              
|
| |  | We completed the sale of a number of assets and investments
    including, among others, our remaining general and limited
    partnership interests in Enterprise, interests in Cedar
    Brakes I and II, the Lakeside Technology Center, our
    interest in a Korean power facility, our south Louisiana
    gathering and processing assets, and our interest in the
    Javelina midstream assets. Total proceeds from these sales were
    approximately $1.9 billion ($1.2 billion through
    September 30, 2005);
|
| |  | We completed a private placement of $750 million of
    4.99% convertible perpetual preferred stock, the net
    proceeds from which were used to prepay our remaining deferred
    payment obligation on the                                                                                                                                                                                                                                                                                                              

36



---



##### Table of Contents



| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Western Energy Settlement for approximately $442 million
    and to redeem the $300 million of EPTP, 8.25%,
    Series A cumulative preferred stock; and                      
|
| |  | We issued approximately 13.6 million shares of common stock
    to the holders of our 9.0% equity security units in settlement
    of their commitment to purchase the shares.

Capital Resources and Liquidity






|                                                               |                                     |   |        |        | 
|-------------------------------------------------------------- | ----------------------------------- | - | ------ | ------ | 
|Short-term financing obligations, including current maturities |                                     | $ | 955    |       
|Long-term financing obligations                                |                                     |   | 18,241 |       
|                                                               |                                     |   |       
|                                                               | Total debt as of December 31, 2004  |   |        | 19,196 | 
|Principal amounts borrowed                                     |                                     |   | 1,238  |       
|Repayments/retirements of
    principal(1)                     |                                     |   | (1,964 | )     
|Sales of
    entities(2)                                       |                                     |   | (546   | )     
|                                                               |                                     |   |       
|                                                               | Total debt as of September 30, 2005 |   | $      | 17,924 | 
|                                                               |                                     |   |       






|    |                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Included in retirements is $272 million of notes which were
    exchanged for equity. This transaction is a non-cash financing
    transaction.
|(2) | Related to the sale of Cedar Brakes I and II.                                                                                                  











37



---



##### Table of Contents











Overview of Cash Flow Activities for 2005
Compared to 2004




|                          |                                 |                                                           |                                 |   |      |      |     |   |      |     | 
|------------------------- | ------------------------------- | --------------------------------------------------------- | ------------------------------- | - | ---- | ---- | --- | - | ---- | --- | 
|                          |                                 | 2005                                                      |                                 |   | 2004 |     
|                          |                                 |                                                           |                                 |   |      |     
|                          |                                 | (In billions)                                             |                                
|Cash Flow from Operations |                                 |                                                           |                                 |   |      |      |     |  
|                          | Continuing operating activities |                                                           |                                 |   |      |      |     |   |     
|                          |                                 | Net loss before discontinued operations                   |                                 | $ | (0.4 | )    |     | $ | (0.3 | )  
|                          |                                 | Non-cash income adjustments                               |                                 |   | 1.2  |      |     |   | 1.3  |    
|                          |                                 | Change in broker margin deposits                          |                                 |   | (0.7 | )    |     |   | 0.1  |    
|                          |                                 | Change in assets and liabilities                          |                                 |   | (0.5 | )    |     |   | (0.5 | )  
|                          |                                 |                                                           |                                 |   |      |     
|                          |                                 |                                                           | Total cash flow from operations |   | $    | (0.4 | )   |   | $    | 0.6 | 
|                          |                                 |                                                           |                                 |   |      |     
|Other Cash Inflows        |                                 |                                                           |                                 |   |      |      |     |  
|                          | Continuing investing activities |                                                           |                                 |   |      |      |     |   |     
|                          |                                 | Net proceeds from the sale of assets and investments      |                                 | $ | 1.1  |      |     | $ | 1.7  |    
|                          |                                 | Proceeds from settlement of a foreign currency derivative |                                 |   | 0.1  |      |     |   |     |    
|                          |                                 | Reduction of restricted cash                              |                                 |   | 0.1  |      |     |   | 0.5  |    
|                          |                                 | Other                                                     |                                 |   | 0.2  |      |     |   | 0.1  |    
|                          |                                 |                                                           |                                 |   |      |     
|                          |                                 |                                                           | 1.5                             |   |      |      | 2.3 |  
|                          |                                 |                                                           |                                 |   |      |     

38



---



##### Table of Contents



|                    |                                 |                                                        |                           |                    |      |     |      |   |     |     |     | 
|------------------- | ------------------------------- | ------------------------------------------------------ | ------------------------- | ------------------ | ---- | --- | ---- | - | --- | --- | --- | 
|                    |                                 | 2005                                                   |                           |                    | 2004 |    
|                    |                                 |                                                        |                           |                    |      |    
|                    |                                 | (In billions)                                          |                          
|                    | Continuing financing activities |                                                        |                           |                    |      |     |      |   |    
|                    |                                 | Net proceeds from the issuance of long-term debt       |                           |                    | 1.2  |     |      |   | 0.1 |    
|                    |                                 | Proceeds from the issuance of preferred stock          |                           |                    | 0.7  |     |      |   |    |    
|                    |                                 | Contributions from discontinued operations             |                           |                    | 0.1  |     |      |   | 1.0 |    
|                    |                                 |                                                        |                           |                    |      |    
|                    |                                 |                                                        | 2.0                       |                    |      |     | 1.1  |  
|                    |                                 |                                                        |                           |                    |      |    
|                    |                                 |                                                        | Total other cash inflows  |                    | $    | 3.5 |      |   | $   | 3.4 |    
|                    |                                 |                                                        |                           |                    |      |    
|Other Cash Outflows |                                 |                                                        |                           |                    |      |     |      |  
|                    | Continuing investing activities |                                                        |                           |                    |      |     |      |   |    
|                    |                                 | Capital expenditures                                   |                           | $                  | 1.3  |     |      | $ | 1.3 |    
|                    |                                 | Net cash paid for acquisitions                         |                           |                    | 1.0  |     |      |   |    |    
|                    |                                 |                                                        |                           |                    |      |    
|                    |                                 |                                                        | 2.3                       |                    |      |     | 1.3  |  
|                    |                                 |                                                        |                           |                    |      |    
|                   
|                    | Continuing financing activities |                                                        |                           |                    |      |     |      |   |    
|                    |                                 | Payments to retire debt and redeem preferred interests |                           |                    | 1.6  |     |      |   | 1.7 |    
|                    |                                 | Redemption of preferred stock of a subsidiary          |                           |                    | 0.3  |     |      |   |    |    
|                    |                                 | Dividends paid                                         |                           |                    | 0.1  |     |      |   | 0.1 |    
|                    |                                 |                                                        |                           |                    |      |    
|                    |                                 |                                                        | 2.0                       |                    |      |     | 1.8  |  
|                    |                                 |                                                        |                           |                    |      |    
|                    |                                 |                                                        | Total other cash outflows |                    | $    | 4.3 |      |   | $   | 3.1 |    
|                    |                                 |                                                        |                           |                    |      |    
|                    |                                 |                                                        |                           | Net change in cash |      | $   | (1.2 | ) |     | $   | 0.9 | 
|                    |                                 |                                                        |                           |                    |      |    

Cash From Continuing
Operating Activities






Cash From Continuing
Investing Activities




|                                                                 |                                       |   |      |      |  
|---------------------------------------------------------------- | ------------------------------------- | - | ---- | ---- | -
|Production exploration, development and acquisition expenditures |                                       | $ | (1.7 | )   
|Pipeline expansion, maintenance and integrity projects           |                                       |   | (0.6 | )   
|Decrease in restricted cash                                      |                                       |   | 0.1  |     
|Settlement of a foreign currency derivative                      |                                       |   | 0.1  |     
|Proceeds from sales of assets and investments                    |                                       |   | 1.1  |     
|Other                                                            |                                       |   | 0.2  |     
|                                                                 |                                       |   |     
|                                                                 | Total continuing investing activities |   | $    | (0.8 | )
|                                                                 |                                       |   |     



39



---



##### Table of Contents







Cash From Continuing
Financing Activities




Commodity-based Derivative Contracts




|                                                            |                                   |                                        |                                         |      |          |      |    |          |      |     |          |     |      |          |   |     |       |     |   |     |     |     |    |        |        |      |  
|----------------------------------------------------------- | --------------------------------- | -------------------------------------- | --------------------------------------- | ---- | -------- | ---- | -- | -------- | ---- | --- | -------- | --- | ---- | -------- | - | --- | ----- | --- | - | --- | --- | --- | -- | ------ | ------ | ---- | -
|                                                            |                                   | Maturity                               |                                         |      | Maturity |      |    | Maturity |      |     | Maturity |     |      | Maturity |   |     | Total |    
|                                                            |                                   | Less Than                              |                                         |      | 1 to 3   |      |    | 4 to 5   |      |     | 6 to 10  |     |      | Beyond   |   |     | Fair  |    
|Source of Fair Value                                        |                                   | 1 year                                 |                                         |      | Years    |      |    | Years    |      |     | Years    |     |      | 10 Years |   |     | Value |    
|                                                            |                                   |                                        |                                         |      |          |      |    |          |      |     |          |     |      |          |   |     |       |    
|                                                            |                                   | (In millions)                          |                                        
|Derivatives designated as hedges                            |                                   |                                        |                                         |      |          |      |    |          |      |     |          |     |      |          |   |     |       |     |   |     |     |     |    |       
|                                                            | Assets                            |                                        | $                                       | 36   |          |      | $  | 8        |      |     | $        |    |      |          | $ |    |       |     | $ |    |     |     | $  | 44     |       
|                                                            | Liabilities                       |                                        |                                         | (846 | )        |      |    | (196     | )    |     |          | (30 | )    |          |   | (18 | )     |     |   |    |     |     |    | (1,090 | )     
|                                                            |                                   |                                        |                                         |      |          |      |    |          |      |     |          |     |      |          |   |     |       |    
|                                                            |                                   | Total derivatives designated as hedges |                                         |      | (810     | )    |    |          | (188 | )   |          |     | (30  | )        |   |     | (18   | )   |   |     |    |     |    |        | (1,046 | )   
|                                                            |                                   |                                        |                                         |      |          |      |    |          |      |     |          |     |      |          |   |     |       |    
|Assets from power contract restructuring
    derivatives(1) |                                   |                                        | 21                                      |      |          |      | 35 |          |      |     |         |     |      |          |  |     |       |     |  |     |     |     | 56 |       
|                                                            |                                   |                                        |                                         |      |          |      |    |          |      |     |          |     |      |          |   |     |       |    
|Other commodity-based derivatives                           |                                   |                                        |                                         |      |          |      |    |          |      |     |          |     |      |          |   |     |       |     |   |     |     |     |    |       
|                                                            | Exchange-traded
    positions(2)  |                                        |                                         |      |          |      |    |          |      |     |          |     |      |          |   |     |       |     |   |     |     |     |    |        |       
|                                                            |                                   | Assets                                 |                                         |      | 290      |      |    |          | 306  |     |          |     | 136  |          |   |     | 8     |     |   |     |    |     |    |        | 740    |     
|                                                            |                                   | Liabilities                            |                                         |      | (422     | )    |    |          | (15  | )   |          |     |     |          |   |     |      |     |   |     |    |     |    |        | (437   | )   
|                                                            | Non-exchange-traded positions     |                                        |                                         |      |          |      |    |          |      |     |          |     |      |          |   |     |       |     |   |     |     |     |    |        |       
|                                                            |                                   | Assets                                 |                                         |      | 763      |      |    |          | 566  |     |          |     | 235  |          |   |     | 155   |     |   |     | 23  |     |    |        | 1,742  |     
|                                                            |                                   | Liabilities(1)                         |                                         |      | (826     | )    |    |          | (900 | )   |          |     | (374 | )        |   |     | (187  | )   |   |     | (39 | )   |    |        | (2,326 | )   
|                                                            |                                   |                                        |                                         |      |          |      |    |          |      |     |          |     |      |          |   |     |       |    
|                                                            |                                   |                                        | Total other commodity-based derivatives |      |          | (195 | )  |          |      | (43 | )        |     |      | (3       | ) |     |       | (24 | ) |     |     | (16 | )  |        |        | (281 | )
|                                                            |                                   |                                        |                                         |      |          |      |    |          |      |     |          |     |      |          |   |     |       |    
|                                                            | Total commodity-based derivatives |                                        | $                                       | (984 | )        |      | $  | (196     | )    |     | $        | (33 | )    |          | $ | (42 | )     |     | $ | (16 | )   |     | $  | (1,271 | )     
|                                                            |                                   |                                        |                                         |      |          |      |    |          |      |     |          |     |      |          |   |     |       |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In October 2005, we sold our interest in Mohawk River
    Funding II, a wholly-owned subsidiary which held our only
    remaining restructured power contract. In connection with this
    sale, we also assigned to a third party other commodity-based
    derivatives that had a fair value of $9 million as of
    September 30, 2005, and terminated $18 million of
    intercompany derivatives that eliminate in consolidation.
|(2) | Exchange-traded positions are those traded on active exchanges
    such as the New York Mercantile Exchange, the International
    Petroleum Exchange and the London Clearinghouse.                                                                                                                                                                                                                                                   

40



---



##### Table of Contents





|                                                          |                                                                         |                                                       |        |             |               |   |       |             |      |       |             |      |      |   |        |        |        |  
|--------------------------------------------------------- | ----------------------------------------------------------------------- | ----------------------------------------------------- | ------ | ----------- | ------------- | - | ----- | ----------- | ---- | ----- | ----------- | ---- | ---- | - | ------ | ------ | ------ | -
|                                                          |                                                                         |                                                       |        | Derivatives |               |   |       |             |     
|                                                          |                                                                         |                                                       |        | from Power  |               |   | Other |             |      | Total |            
|                                                          |                                                                         | Derivatives                                           |        |             | Contract      |   |       | Commodity-  |      |       | Commodity-  |     
|                                                          |                                                                         | Designated                                            |        |             | Restructuring |   |       | Based       |      |       | Based       |     
|                                                          |                                                                         | as Hedges                                             |        |             | Activities    |   |       | Derivatives |      |       | Derivatives |     
|                                                          |                                                                         |                                                       |        |             |               |   |       |             |      |       |             |     
|                                                          |                                                                         | (In millions)                                         |       
|Fair value of contracts outstanding at January 1, 2005    |                                                                         | $                                                     | (536   | )           |               | $ | 665   |             |      | $     | (61         | )    |      | $ | 68     |       
|                                                          |                                                                         |                                                       |        |             |               |   |       |             |      |       |             |     
|                                                          | Fair value of contract settlements during the period                    |                                                       |        | 367         |               |   |       | (620        | )    |       |             | 332  |      |   |        | 79     |       
|                                                          | Change in fair value of contracts                                       |                                                       |        | (888        | )             |   |       | 11          |      |       |             | (568 | )    |   |        | (1,445 | )     
|                                                          | Reclassification of derivatives that no longer qualify as
    hedges(1) |                                                       |        | 11          |               |   |       |            |      |       |             | (11  | )    |   |        |       |       
|                                                          | Option premiums paid, net                                               |                                                       |        |            |               |   |       |            |      |       |             | 27   |      |   |        | 27     |       
|                                                          |                                                                         |                                                       |        |             |               |   |       |             |      |       |             |     
|                                                          |                                                                         | Net change in contracts outstanding during the period |        |             | (510          | ) |       |             | (609 | )     |             |      | (220 | ) |        |        | (1,339 | )
|                                                          |                                                                         |                                                       |        |             |               |   |       |             |      |       |             |     
|Fair value of contracts outstanding at September 30, 2005 |                                                                         | $                                                     | (1,046 | )           |               | $ | 56    |             |      | $     | (281        | )    |      | $ | (1,271 | )     
|                                                          |                                                                         |                                                       |        |             |               |   |       |             |      |       |             |     






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We have a derivative that hedges the production owned by
    UnoPaso, a wholly-owned subsidiary that owns natural gas and oil
    properties in Brazil. As a result of the earlier than expected
    payout to us of certain of UnoPasos natural gas and oil
    properties, which will reduce our interest in the properties and
    related production volumes, we reclassified an $11 million
    liability associated with a hedge of this production to other
    commodity-based derivatives.







Segment Results






41



---



##### Table of Contents





|                                                                  |                                 |                                              |      |      |                   |   |      |      |     |  |        |      |     |  |        |      |       | 
|----------------------------------------------------------------- | ------------------------------- | -------------------------------------------- | ---- | ---- | ----------------- | - | ---- | ---- | --- |  | ------ | ---- | --- |  | ------ | ---- | ----- | 
|                                                                  |                                 | Quarter Ended                                |      |      | Nine Months Ended |  
|                                                                  |                                 | September 30,                                |      |      | September 30,     |  
|                                                                  |                                 |                                              |      |      |                   |  
|                                                                  |                                 | 2005                                         |      |      | 2004              |   |      | 2005 |     |  | 2004   |     
|                                                                  |                                 |                                              |      |      |                   |   |      |      |     |  |        |     
|                                                                  |                                 | (In millions)                                |     
|Regulated Business                                                |                                 |                                              |      |      |                   |   |      |      |     |  |        |      |     |  |        |     
|                                                                  | Pipelines                       |                                              | $    | 272  |                   |   | $    | 268  |     |  | $      | 993  |     |  | $      | 962  |      
|Non-regulated Businesses                                          |                                 |                                              |      |      |                   |   |      |      |     |  |        |      |     |  |        |     
|                                                                  | Production                      |                                              |      | 169  |                   |   |      | 150  |     |  |        | 528  |     |  |        | 558  |      
|                                                                  | Marketing and Trading           |                                              |      | (398 | )                 |   |      | (138 | )   |  |        | (613 | )   |  |        | (454 | )    
|                                                                  | Power                           |                                              |      | (41  | )                 |   |      | (7   | )   |  |        | (472 | )   |  |        | (74  | )    
|                                                                  | Field Services                  |                                              |      | (22  | )                 |   |      | 61   |     |  |        | 157  |     |  |        | 124  |      
|                                                                  |                                 |                                              |      |      |                   |   |      |      |     |  |        |     
|                                                                  |                                 | Segment EBIT                                 |      |      | (20               | ) |      |      | 334 |  |        |      | 593 |  |        |      | 1,116 | 
|Corporate                                                         |                                 |                                              | (67  | )    |                   |   | (57  | )    |     |  | (169   | )    |     |  | (21    | )   
|                                                                  |                                 |                                              |      |      |                   |   |      |      |     |  |        |     
|                                                                  |                                 | Consolidated EBIT from continuing operations |      |      | (87               | ) |      |      | 277 |  |        |      | 424 |  |        |      | 1,095 | 
|Interest and debt expense                                         |                                 |                                              | (344 | )    |                   |   | (396 | )    |     |  | (1,034 | )    |     |  | (1,229 | )   
|Distributions on preferred interests of consolidated subsidiaries |                                 |                                              |     |      |                   |   | (6   | )    |     |  | (9     | )    |     |  | (18    | )   
|Income taxes                                                      |                                 |                                              | 108  |      |                   |   | (77  | )    |     |  | 165    |      |     |  | (135   | )   
|                                                                  |                                 |                                              |      |      |                   |   |      |      |     |  |        |     
|                                                                  | Loss from continuing operations |                                              |      | (323 | )                 |   |      | (202 | )   |  |        | (454 | )   |  |        | (287 | )    
|Discontinued operations, net of income taxes                      |                                 |                                              | 11   |      |                   |   | (12  | )    |     |  | 10     |      |     |  | (118   | )   
|                                                                  |                                 |                                              |      |      |                   |   |      |      |     |  |        |     
|                                                                  | Net loss                        |                                              | $    | (312 | )                 |   | $    | (214 | )   |  | $      | (444 | )   |  | $      | (405 | )    
|                                                                  |                                 |                                              |      |      |                   |   |      |      |     |  |        |     

Overview of Segment Results






|                      |  |                                                                                                                                                                                                                                                                                                                                  
|--------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Pipelines             |  | Our Pipelines segment generated EBIT of $993 million, which
    was slightly above our expectations for the period.                                                                                                                                                                                                              
|                     
|Production            |  | Our Production segment generated EBIT of $528 million,
    which was slightly above our expectations for the period. Higher
    than expected commodity prices more than offset lower than
    expected production volumes and higher depletion and production
    costs.                                                        
|                     
|Marketing and Trading |  | Our Marketing and Trading segment generated an EBIT loss of
    $613 million, which was a greater loss than our
    expectations. The performance was primarily a result of
    significant mark-to-market losses on our production-related
    derivatives due to substantial natural gas price increases
    during the period.

42



---



##### Table of Contents





|               |  |                                                                                                                                                                                                                                                                                                                                                                                       
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Power          |  | Our Power segment generated an EBIT loss of $472 million,
    which was a greater loss than expected, and was impacted by
    significant impairments of our Macae project in Brazil and our
    Asian and Central American power assets and losses from our
    investment in Midland Cogeneration Venture resulting from a
    significant impairment at the underlying power plant.
|              
|Field Services |  | Our Field Services segment generated EBIT of $157 million,
    which was consistent with our expectations and was primarily due
    to the gain on the sale of our remaining interests in Enterprise.                                                                                                                                                                                 



Regulated Business  Pipelines Segment


Operating Results




|                            |                  |                                     |        |     |                   |   |        |      |  |   |        |     |  |   |        |     | 
|--------------------------- | ---------------- | ----------------------------------- | ------ | --- | ----------------- | - | ------ | ---- |  | - | ------ | --- |  | - | ------ | --- | 
|                            |                  | Quarter Ended                       |        |     | Nine Months Ended |  
|                            |                  | September 30,                       |        |     | September 30,     |  
|                            |                  |                                     |        |     |                   |  
|Pipelines Segment Results   |                  | 2005                                |        |     | 2004              |   |        | 2005 |  |   | 2004   |    
|                            |                  |                                     |        |     |                   |   |        |      |  |   |        |    
|                            |                  | (In millions except volume amounts) |       
|Operating revenues          |                  | $                                   | 646    |     |                   | $ | 604    |      |  | $ | 2,067  |     |  | $ | 1,942  |    
|Operating expenses          |                  |                                     | (439   | )   |                   |   | (386   | )    |  |   | (1,236 | )   |  |   | (1,116 | )  
|                            |                  |                                     |        |     |                   |   |        |      |  |   |        |    
|                            | Operating income |                                     |        | 207 |                   |   |        | 218  |  |   |        | 831 |  |   |        | 826 | 
|Other income                |                  |                                     | 65     |     |                   |   | 50     |      |  |   | 162    |     |  |   | 136    |    
|                            |                  |                                     |        |     |                   |   |        |      |  |   |        |    
|                            | EBIT             |                                     | $      | 272 |                   |   | $      | 268  |  |   | $      | 993 |  |   | $      | 962 | 
|                            |                  |                                     |        |     |                   |   |        |      |  |   |        |    
|Throughput volumes (BBtu/d) |                  |                                     | 20,900 |     |                   |   | 19,480 |      |  |   | 21,260 |     |  |   | 20,637 |    
|                            |                  |                                     |        |     |                   |   |        |      |  |   |        |    

43



---



##### Table of Contents





|                                                                                              |                      |                             |    |    |                                 |   |     |       |   |   |      |    |  |         |     |   |         |   |     |       |  |   |      |      |   |   |    |    |  |   |     |    | 
|--------------------------------------------------------------------------------------------- | -------------------- | --------------------------- | -- | -- | ------------------------------- | - | --- | ----- | - | - | ---- | -- |  | ------- | --- | - | ------- | - | --- | ----- |  | - | ---- | ---- | - | - | -- | -- |  | - | --- | -- | 
|                                                                                              |                      | Quarter Ended September 30, |    |    | Nine Months Ended September 30, |  
|                                                                                              |                      |                             |    |    |                                 |  
|                                                                                              |                      | Revenue                     |    |    | Expense                         |   |     | Other |   |   | EBIT |    |  | Revenue |     |   | Expense |   |     | Other |  |   | EBIT |     
|                                                                                              |                      |                             |    |    |                                 |   |     |       |   |   |      |    |  |         |     |   |         |   |     |       |  |   |      |     
|                                                                                              |                      | Favorable/(Unfavorable)     |    |    | Favorable/(Unfavorable)         |  
|                                                                                              |                      | (In millions)               |    |    | (In millions)                   |  
|Pipeline expansions                                                                           |                      | $                           | 19 |    |                                 | $ | (7  | )     |   | $ | (1   | )  |  | $       | 11  |   |         | $ | 57  |       |  | $ | (22  | )    |   | $ | 1  |    |  | $ | 36  |   
|Contract modifications/terminations/ settlements                                              |                      |                             |   |    |                                 |   |    |       |   |   |     |    |  |         |    |   |         |   | 48  |       |  |   |     |      |   |   | 1  |    |  |   | 49  |   
|Gas not used in operations, revaluations, processing revenues
    and other natural gas sales |                      |                             | 16 |    |                                 |   | (24 | )     |   |   |     |    |  |         | (8  | ) |         |   | 35  |       |  |   | (20  | )    |   |   |   |    |  |   | 15  |   
|Favorable resolution in 2004 of measurement dispute at a
    processing plant                 |                      |                             |   |    |                                 |   |    |       |   |   |     |    |  |         |    |   |         |   | (10 | )     |  |   |     |      |   |   |   |    |  |   | (10 | ) 
|Higher allocated costs                                                                        |                      |                             |   |    |                                 |   | (10 | )     |   |   |     |    |  |         | (10 | ) |         |   |    |       |  |   | (56  | )    |   |   |   |    |  |   | (56 | ) 
|Higher operating costs                                                                        |                      |                             |   |    |                                 |   | (7  | )     |   |   |     |    |  |         | (7  | ) |         |   |    |       |  |   | (20  | )    |   |   |   |    |  |   | (20 | ) 
|Equity earnings from our investment in Citrus                                                 |                      |                             |   |    |                                 |   |    |       |   |   | 1    |    |  |         | 1   |   |         |   |    |       |  |   |     |      |   |   | 6  |    |  |   | 6   |   
|Sale of interest in Ft. Union gathering system                                                |                      |                             |   |    |                                 |   |    |       |   |   | 11   |    |  |         | 11  |   |         |   |    |       |  |   |     |      |   |   | 11 |    |  |   | 11  |   
|Other(1)                                                                                      |                      |                             | 7  |    |                                 |   | (5  | )     |   |   | 4    |    |  |         | 6   |   |         |   | (5  | )     |  |   | (2   | )    |   |   | 7  |    |  |   |    |   
|                                                                                              |                      |                             |    |    |                                 |   |     |       |   |   |      |    |  |         |     |   |         |   |     |       |  |   |      |     
|                                                                                              | Total impact on EBIT |                             | $  | 42 |                                 |   | $   | (53   | ) |   | $    | 15 |  |         | $   | 4 |         |   | $   | 125   |  |   | $    | (120 | ) |   | $  | 26 |  |   | $   | 31 | 
|                                                                                              |                      |                             |    |    |                                 |   |     |       |   |   |      |    |  |         |     |   |         |   |     |       |  |   |      |     






|    |                                                                                         
|--- | ----------------------------------------------------------------------------------------
|(1) | Consists of individually insignificant items across several of
    our pipeline systems.



Expansions












44



---



##### Table of Contents







Contract Modifications/ Terminations/ Settlements






Gas Not Used in Operations, Revaluations, Processing Revenues
and Other Natural Gas Sales




Allocated Costs




45



---



##### Table of Contents





Higher Operating Costs




Regulatory and Other Matters




EPNG Rate Case.






Accounting for Pipeline
Integrity Costs.


Other.


46



---



##### Table of Contents





Non-regulated Business  Production Segment


Overview




Significant Operational Factors
Since December 31, 2004






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Higher realized prices. During the first nine months of
    2005, we continued to benefit from a strong commodity pricing
    environment. Realized natural gas prices, which include the
    impact of our hedges, increased 11 percent while oil,
    condensate and NGL prices increased 35 percent compared to 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Average daily production of 770 MMcfe/d (including
    8 MMcfe/d from our unconsolidated affiliate).Our
    average daily production in the third quarter of 2005 decreased
    from the second quarter of 2005 due primarily to several
    hurricanes in the Gulf of Mexico during the quarter which caused
    us to shut in significant volumes in our offshore region. In the
    third quarter of 2005, our average daily production volumes were
    impacted by the loss of approximately 39 MMcfe/d as a result of
    hurricanes. We have continued to increase production volumes in
    our onshore region as a result of our drilling programs and the
    impact of the acquisitions discussed below. However, production
    volumes in our offshore and Texas Gulf Coast regions continued
    to decrease gradually as drilling programs and overall lower
    capital spending in those areas have not been sufficient to
    offset the historically steep production decline rates in these
    regions. During 2005, our production volumes in Brazil have
    remained steady, averaging 53 MMcfe/d, but we expect these
    volumes to decrease by about 30 MMcfe/d in 2006 due to a
    decrease in our interest in Brazilian production as further
    described in Production Hedge Position below.
|
| |  | Impact of hurricanes on production volumes. Prior to
    Hurricane Katrina in late August 2005, our production from the
    Gulf of Mexico was about 205 MMcfe/d. A substantial portion of
    our shut-in production from Hurricane Katrina was brought back
    online during September 2005 to a level of about
    170 MMcfe/d just prior to Hurricane Rita. We continue to
    experience substantial shut-in volumes from Hurricane Rita;
    however Gulf of Mexico production levels have returned to
    approximately 90 MMcfe/d at November 1, 2005 and we
    expect that it will approach 135 MMcfe/d by December 1,
    2005. The majority of the remaining Gulf of Mexico production is
    expected to come back online during the first quarter of 2006.
    Also impacted were our onshore Texas Gulf Coast and Arklatex
    areas, where damage from Hurricane Rita initially impacted
    approximately 60 MMcfe/d. Repairs to these facilities have been
    completed, and this production is back on stream.                                                                                                                                                                                                                                                                                          
|
| |  | Acquisitions and other capital expenditures. During the
    first nine months of 2005, our capital expenditures totaled
    $1.7 billion including the acquisition of Medicine Bow (as
    further discussed in Item 1, Financial Statements,
    Note 2), acquisitions in east and south Texas and the
    purchase of the interest held by one of our partners under a net
    profits interest agreement. These acquisitions added properties
    with approximately 523 Bcfe of proved reserves, including
    reserves owned by an                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

47



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | unconsolidated affiliate of Medicine Bow. The Texas acquisitions
    offer additional exploration upside in two of our key operating
    areas, while the Medicine Bow acquisition increases our presence
    in the Rocky Mountains, complements our existing core
    operations, diversifies our commodity mix and increases our
    reserve life.                                                                                                                                                                                                                                                                                                                                     
|
| |  | Drilling Results. In 2005, we announced deep shelf
    discoveries at West Cameron Block 75 and West Cameron
    Block 62 in the Gulf of Mexico. At West Cameron
    Block 75, we have a 36 percent working interest and an
    approximate 30 percent net revenue interest. We have tested
    the discovery and anticipate deliverability of approximately
    40 MMcfe/d. At West Cameron Block 62, we have a
    54 percent working interest and an approximate
    45 percent net revenue interest. We have tested the well at
    rates up to 15 MMcfe/d. We expect both discoveries to come
    on line during the first quarter of 2006, after the installation
    of facilities.

Outlook for the last three
months of 2005






| |   |                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Daily production volumes for the year to average approximately
    760 MMcfe/d, including approximately 24 MMcfe/d from
    our interest in an unconsolidated affiliate of Medicine Bow;                                                        
|
| |  | Cash operating costs to average approximately $1.65/ Mcfe for
    the year;                                                                                                                                                                     
|
| |  | Industry-wide increases in drilling and oilfield service costs
    that will require constant monitoring of capital spending
    programs;                                                                                                      
|
| |  | Domestic unit of production depletion rate of $2.16/ Mcfe in the
    fourth quarter of 2005 as compared to $2.11/ Mcfe in the third
    quarter of 2005, due to higher finding and development costs and
    the costs of acquired reserves; and
|
| |  | Brazilian unit of production depletion rate of $2.39/Mcfe in the
    fourth quarter of 2005 as compared to $2.34/Mcfe in the third
    quarter of 2005 due to factors described in Production Hedge
    Position below.                         
|
| |  | Capital expenditures of approximately $0.2 billion for the last
    three months of 2005.                                                                                                                                                       

Production Hedge Position








48



---



##### Table of Contents





Operating Results




|                                            |                                          |                                          |     |      |                   |   |     |      |      |   |      |       |       |   |     |       |       |  
|------------------------------------------- | ---------------------------------------- | ---------------------------------------- | --- | ---- | ----------------- | - | --- | ---- | ---- | - | ---- | ----- | ----- | - | --- | ----- | ----- | -
|                                            |                                          | Quarter Ended                            |     |      | Nine Months Ended |  
|                                            |                                          | September 30,                            |     |      | September 30,     |  
|                                            |                                          |                                          |     |      |                   |  
|Production Segment Results                  |                                          | 2005                                     |     |      | 2004              |   |     | 2005 |      |   | 2004 |      
|                                            |                                          |                                          |     |      |                   |   |     |      |      |   |      |      
|                                            |                                          | (In millions, except volumes and prices) |    
|Operating Revenues:                         |                                          |                                          |     |      |                   |   |     |      |      |   |      |       |       |   |     |      
|                                            | Natural gas                              |                                          | $   | 354  |                   |   | $   | 325  |      |   | $    | 1,061 |       |   | $   | 1,056 |      
|                                            | Oil, condensate and NGL                  |                                          |     | 105  |                   |   |     | 75   |      |   |      | 286   |       |   |     | 218   |      
|                                            | Other                                    |                                          |     | (10  | )                 |   |     |     |      |   |      | (7    | )     |   |     | 2     |      
|                                            |                                          |                                          |     |      |                   |   |     |      |      |   |      |      
|                                            |                                          | Total operating revenues                 |     |      | 449               |   |     |      | 400  |   |      |       | 1,340 |   |     |       | 1,276 |  
|Transportation and net product
    costs(1) |                                          |                                          | (11 | )    |                   |   | (13 | )    |      |   | (36  | )     |       |   | (40 | )    
|                                            |                                          |                                          |     |      |                   |   |     |      |      |   |      |      
|                                            |                                          | Total operating margin                   |     |      | 438               |   |     |      | 387  |   |      |       | 1,304 |   |     |       | 1,236 |  
|Operating Expenses:                         |                                          |                                          |     |      |                   |   |     |      |      |   |      |       |       |   |     |      
|                                            | Depreciation, depletion and amortization |                                          |     | (153 | )                 |   |     | (136 | )    |   |      | (456  | )     |   |     | (407  | )    
|                                            | Production
    costs(2)                  |                                          |     | (72  | )                 |   |     | (58  | )    |   |      | (186  | )     |   |     | (144  | )    
|                                            | Restructuring charges                    |                                          |     |     |                   |   |     | (1   | )    |   |      | (2    | )     |   |     | (12   | )    
|                                            | General and administrative expenses      |                                          |     | (45  | )                 |   |     | (47  | )    |   |      | (129  | )     |   |     | (120  | )    
|                                            | Taxes other than production and income   |                                          |     | (1   | )                 |   |     | 2    |      |   |      | (9    | )     |   |     | (1    | )    
|                                            |                                          |                                          |     |      |                   |   |     |      |      |   |      |      
|                                            |                                          | Total operating
    expenses(1)          |     |      | (271              | ) |     |      | (240 | ) |      |       | (782  | ) |     |       | (684  | )
|                                            |                                          |                                          |     |      |                   |   |     |      |      |   |      |      
|                                            | Operating income                         |                                          |     | 167  |                   |   |     | 147  |      |   |      | 522   |       |   |     | 552   |      
|Other income                                |                                          |                                          | 2   |      |                   |   | 3   |      |      |   | 6    |       |       |   | 6   |      
|                                            |                                          |                                          |     |      |                   |   |     |      |      |   |      |      
|                                            | EBIT                                     |                                          | $   | 169  |                   |   | $   | 150  |      |   | $    | 528   |       |   | $   | 558   |      
|                                            |                                          |                                          |     |      |                   |   |     |      |      |   |      |      

49



---



##### Table of Contents



|                                                    |                                  |                                                            |                              |                   |               |      |  |          |         |      |      |    |     |      |   |         |          |      |  |         |         |      |  |    |     |    |  
|--------------------------------------------------- | -------------------------------- | ---------------------------------------------------------- | ---------------------------- | ----------------- | ------------- | ---- |  | -------- | ------- | ---- | ---- | -- | --- | ---- | - | ------- | -------- | ---- |  | ------- | ------- | ---- |  | -- | --- | -- | -
|                                                    |                                  |                                                            |                              | Nine Months Ended |              
|                                                    |                                  | Quarter Ended September 30,                                |                              |                   | September 30, |     
|                                                    |                                  |                                                            |                              |                   |               |     
|                                                    |                                  |                                                            |                              | Percent           |               |      |  |          | Percent |     
|                                                    |                                  | 2005                                                       |                              |                   | 2004          |      |  | Variance |         |      | 2005 |    |     | 2004 |   |         | Variance |     
|                                                    |                                  |                                                            |                              |                   |               |      |  |          |         |      |      |    |     |      |   |         |          |     
|Consolidated volumes, prices and costs:             |                                  |                                                            |                              |                   |               |      |  |          |         |      |      |    |     |      |   |         |          |      |  |         |         |      |  |   
|                                                    | Natural gas                      |                                                            |                              |                   |               |      |  |          |         |      |      |    |     |      |   |         |          |      |  |         |         |      |  |    |    
|                                                    |                                  | Volumes (MMcf)                                             |                              |                   | 55,280        |      |  |          | 59,282  |      |      |    | (7  | )%   |   |         | 169,228  |      |  |         | 186,516 |      |  |    | (9  | )%
|                                                    |                                  | Average realized prices including hedges
    ($/Mcf)(3)(4) |                              | $                 | 6.40          |      |  | $        | 5.48    |      |      |    | 17  | %    |   | $       | 6.27     |      |  | $       | 5.66    |      |  |    | 11  | % 
|                                                    |                                  | Average realized prices excluding hedges
    ($/Mcf)(3)    |                              | $                 | 7.74          |      |  | $        | 5.53    |      |      |    | 40  | %    |   | $       | 6.59     |      |  | $       | 5.73    |      |  |    | 15  | % 
|                                                    |                                  | Average transportation costs ($/Mcf)                       |                              | $                 | 0.18          |      |  | $        | 0.18    |      |      |    |    |      |   | $       | 0.18     |      |  | $       | 0.16    |      |  |    | 13  | % 
|                                                    | Oil, condensate and NGL          |                                                            |                              |                   |               |      |  |          |         |      |      |    |     |      |   |         |          |      |  |         |         |      |  |    |    
|                                                    |                                  | Volumes (MBbls)                                            |                              |                   | 2,068         |      |  |          | 2,013   |      |      |    | 3   | %    |   |         | 6,464    |      |  |         | 6,660   |      |  |    | (3  | )%
|                                                    |                                  | Average realized prices including hedges
    ($/Bbl)(3)    |                              | $                 | 50.77         |      |  | $        | 37.32   |      |      |    | 36  | %    |   | $       | 44.23    |      |  | $       | 32.81   |      |  |    | 35  | % 
|                                                    |                                  | Average realized prices excluding hedges
    ($/Bbl)(3)    |                              | $                 | 51.88         |      |  | $        | 37.44   |      |      |    | 39  | %    |   | $       | 44.94    |      |  | $       | 32.85   |      |  |    | 37  | % 
|                                                    |                                  | Average transportation costs ($/Bbl)                       |                              | $                 | 0.60          |      |  | $        | 1.00    |      |      |    | (40 | )%   |   | $       | 0.64     |      |  | $       | 1.24    |      |  |    | (48 | )%
|                                                    | Total equivalent volumes (MMcfe) |                                                            |                              | 67,684            |               |      |  | 71,359   |         |      |      | (5 | )%  |      |   | 208,011 |          |      |  | 226,474 |         |      |  | (8 | )% 
|                                                    | Production costs ($/Mcfe)        |                                                            |                              |                   |               |      |  |          |         |      |      |    |     |      |   |         |          |      |  |         |         |      |  |    |    
|                                                    |                                  | Average lease operating cost                               |                              | $                 | 0.74          |      |  | $        | 0.67    |      |      |    | 10  | %    |   | $       | 0.71     |      |  | $       | 0.55    |      |  |    | 29  | % 
|                                                    |                                  | Average production taxes                                   |                              |                   | 0.32          |      |  |          | 0.14    |      |      |    | 129 | %    |   |         | 0.19     |      |  |         | 0.09    |      |  |    | 111 | % 
|                                                    |                                  |                                                            |                              |                   |               |      |  |          |         |      |      |    |     |      |   |         |          |     
|                                                    |                                  |                                                            | Total production
    cost(2) |                   | $             | 1.06 |  |          | $       | 0.81 |      |    |     | 31   | % |         | $        | 0.90 |  |         | $       | 0.64 |  |    |     | 41 | %
|                                                    |                                  |                                                            |                              |                   |               |      |  |          |         |      |      |    |     |      |   |         |          |     
|                                                    |                                  | Average general and administrative cost ($/Mcfe)           |                              | $                 | 0.65          |      |  | $        | 0.65    |      |      |    |    |      |   | $       | 0.62     |      |  | $       | 0.53    |      |  |    | 17  | % 
|                                                    |                                  | Unit of production depletion cost ($/ Mcfe)                |                              | $                 | 2.11          |      |  | $        | 1.75    |      |      |    | 21  | %    |   | $       | 2.05     |      |  | $       | 1.66    |      |  |    | 23  | % 
|Unconsolidated affiliate volumes (Four
    Star)(5) |                                  |                                                            |                              |                   |               |      |  |          |         |      |      |    |     |      |   |         |          |      |  |         |         |      |  |   
|                                                    |                                  | Natural Gas (MMcf)                                         |                              |                   | 1,605         |      |  |          |         |      |      |    |     |      |   |         | 1,605    |      |  |         |         |      |  |    |     |   
|                                                    |                                  | Oil, condensate and NGL (MBbls)                            |                              |                   | 92            |      |  |          |         |      |      |    |     |      |   |         | 92       |      |  |         |         |      |  |    |     |   
|                                                    |                                  | Total equivalent volumes (MMcfe)                           |                              |                   | 2,156         |      |  |          |         |      |      |    |     |      |   |         | 2,156    |      |  |         |         |      |  |    |     |   






|    |                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Transportation and net product costs are included in operating
    expenses on our consolidated statement of income.                                                                                                                                                                                                                                           
|(2) | Production costs include lease operating costs and production
    related taxes (including ad valorem and severance taxes).                                                                                                                                                                                                                                    
|(3) | Prices are stated before transportation costs.                                                                                                                                                                                                                                                                                                                 
|(4) | The average realized prices for natural gas, including hedges
    listed above, reflect the amounts recorded by the Production
    segment for sales of natural gas volumes. On a consolidated
    basis, El Paso receives a lower cash price on a portion of
    the volumes sold as further discussed in our 2004 Annual Report
    on Form 10-K, as amended.
|(5) | Represents our proportionate share of Four Stars volumes.
    Our equity interest in Four Star was acquired in connection with
    our acquisition of Medicine Bow in August 2005.                                                                                                                                                                            

50



---



##### Table of Contents





| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | Quarter and Nine months Ended September 30, 2005
    Compared to Quarter and Nine Months Ended September 30,
    2004



|                                                  |                                                |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |     |    | 
|------------------------------------------------- | ---------------------------------------------- | ----------------------- | - | --- | --------- |  | - | -------- | --- | ---- | ------ | - | - |  | - | --- | -- | 
|                                                  |                                                | Variance                |  
|                                                  |                                                |                         |  
|                                                  |                                                | Operating               |   |     | Operating |  |   |          |     | EBIT |       
|Quarter Ended September 30,                       |                                                | Revenue                 |   |     | Expense   |  |   | Other(1) |     |      | Impact |  
|                                                  |                                                |                         |   |     |           |  |   |          |     |      |        |  
|                                                  |                                                | Favorable/(Unfavorable) |  
|                                                  |                                                | (In millions)           |  
|Natural Gas Revenue                               |                                                |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher realized prices in 2005                 |                         | $ | 122 |           |  | $ |         |     |      | $      |  |   |  | $ | 122 |   
|                                                  | Lower volumes in 2005                          |                         |   | (22 | )         |  |   |         |     |      |        |  |   |  |   | (22 | ) 
|                                                  | Impact from hedge program in 2005 versus 2004  |                         |   | (71 | )         |  |   |         |     |      |        |  |   |  |   | (71 | ) 
|Oil, Condensate, and NGL Revenue                  |                                                |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher realized prices in 2005                 |                         |   | 30  |           |  |   |         |     |      |        |  |   |  |   | 30  |   
|                                                  | Higher volumes in 2005                         |                         |   | 2   |           |  |   |         |     |      |        |  |   |  |   | 2   |   
|                                                  | Impact from hedge program in 2005 versus 2004  |                         |   | (2  | )         |  |   |         |     |      |        |  |   |  |   | (2  | ) 
|Depreciation, Depletion, and Amortization Expense |                                                |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher depletion rate in 2005                  |                         |   |    |           |  |   | (24      | )   |      |        |  |   |  |   | (24 | ) 
|                                                  | Lower production volumes in 2005               |                         |   |    |           |  |   | 6        |     |      |        |  |   |  |   | 6   |   
|Production Costs                                  |                                                |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher lease operating costs in 2005           |                         |   |    |           |  |   | (2       | )   |      |        |  |   |  |   | (2  | ) 
|                                                  | Higher production taxes in 2005                |                         |   |    |           |  |   | (12      | )   |      |        |  |   |  |   | (12 | ) 
|Other                                             |                                                |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Lower general and administrative costs in 2005 |                         |   |    |           |  |   | 2        |     |      |        |  |   |  |   | 2   |   
|                                                  | Other                                          |                         |   | (10 | )         |  |   | (1       | )   |      |        | 1 |   |  |   | (10 | ) 
|                                                  |                                                |                         |   |     |           |  |   |          |     |      |        |  
|                                                  |                                                | Total Variances         |   | $   | 49        |  |   | $        | (31 | )    |        | $ | 1 |  |   | $   | 19 | 
|                                                  |                                                |                         |   |     |           |  |   |          |     |      |        |  

|                                                  |                                                 |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |     |     |  
|------------------------------------------------- | ----------------------------------------------- | ----------------------- | - | --- | --------- |  | - | -------- | --- | ---- | ------ | - | - |  | - | --- | --- | -
|                                                  |                                                 | Variance                |  
|                                                  |                                                 |                         |  
|                                                  |                                                 | Operating               |   |     | Operating |  |   |          |     | EBIT |       
|Nine Months Ended September 30,                   |                                                 | Revenue                 |   |     | Expense   |  |   | Other(1) |     |      | Impact |  
|                                                  |                                                 |                         |   |     |           |  |   |          |     |      |        |  
|                                                  |                                                 | Favorable/(Unfavorable) |  
|                                                  |                                                 | (In millions)           |  
|Natural Gas Revenue                               |                                                 |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher realized prices in 2005                  |                         | $ | 146 |           |  | $ |         |     |      | $      |  |   |  | $ | 146 |    
|                                                  | Lower volumes in 2005                           |                         |   | (99 | )         |  |   |         |     |      |        |  |   |  |   | (99 | )  
|                                                  | Impact from hedge program in 2005 versus 2004   |                         |   | (42 | )         |  |   |         |     |      |        |  |   |  |   | (42 | )  
|Oil, Condensate, and NGL Revenue                  |                                                 |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher realized prices in 2005                  |                         |   | 78  |           |  |   |         |     |      |        |  |   |  |   | 78  |    
|                                                  | Lower volumes in 2005                           |                         |   | (6  | )         |  |   |         |     |      |        |  |   |  |   | (6  | )  
|                                                  | Impact from hedge program in 2005 versus 2004   |                         |   | (4  | )         |  |   |         |     |      |        |  |   |  |   | (4  | )  
|Depreciation, Depletion, and Amortization Expense |                                                 |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher depletion rate in 2005                   |                         |   |    |           |  |   | (81      | )   |      |        |  |   |  |   | (81 | )  
|                                                  | Lower production volumes in 2005                |                         |   |    |           |  |   | 31       |     |      |        |  |   |  |   | 31  |    
|Production Costs                                  |                                                 |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher lease operating costs in 2005            |                         |   |    |           |  |   | (21      | )   |      |        |  |   |  |   | (21 | )  
|                                                  | Higher production taxes in 2005                 |                         |   |    |           |  |   | (21      | )   |      |        |  |   |  |   | (21 | )  
|Other                                             |                                                 |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher general and administrative costs in 2005 |                         |   |    |           |  |   | (9       | )   |      |        |  |   |  |   | (9  | )  
|                                                  | Other                                           |                         |   | (9  | )         |  |   | 3        |     |      |        | 4 |   |  |   | (2  | )  
|                                                  |                                                 |                         |   |     |           |  |   |          |     |      |        |  
|                                                  |                                                 | Total Variances         |   | $   | 64        |  |   | $        | (98 | )    |        | $ | 4 |  |   | $   | (30 | )
|                                                  |                                                 |                         |   |     |           |  |   |          |     |      |        |  






|    |                                                                            
|--- | ---------------------------------------------------------------------------
|(1) | Consists primarily of charges in transportation costs and other
    income.

51



---



##### Table of Contents



Operating Revenues.


Depreciation, depletion, and amortization expense.


Production costs.


Other.


52



---



##### Table of Contents



Non-regulated Business  Marketing and Trading
Segment




Operating Results




|                                           |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |      |      |      |   |      |      |      |  
|------------------------------------------ | ---------------------------------------------------- | ---------------------------------------------------------------------------- | ---------------------------------------------------------- | ----------- | ------------- | ---- | - | ---- | ---- | ---- | ---- | ---- | ---- | ---- | - | ---- | ---- | ---- | -
|                                           |                                                      |                                                                              |                                                            | Nine Months |              
|                                           |                                                      | Quarter Ended                                                                |                                                            |             | Ended         |     
|                                           |                                                      | September 30,                                                                |                                                            |             | September 30, |     
|                                           |                                                      |                                                                              |                                                            |             |               |     
|                                           |                                                      | 2005                                                                         |                                                            |             | 2004          |      |   | 2005 |      |      | 2004 |     
|                                           |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |     
|                                           |                                                      | (In millions)                                                                |                                                           
|Overall EBIT:                              |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |      |      |      |   |     
|                                           | Gross
    margin(1)                                  |                                                                              | $                                                          | (389        | )             |      | $ | (120 | )    |      | $    | (585 | )    |      | $ | (420 | )   
|                                           | Operating expenses                                   |                                                                              |                                                            | (15         | )             |      |   | (19  | )    |      |      | (37  | )    |      |   | (48  | )   
|                                           |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |     
|                                           |                                                      | Operating loss                                                               |                                                            |             | (404          | )    |   |      | (139 | )    |      |      | (622 | )    |   |      | (468 | )   
|                                           | Other income                                         |                                                                              |                                                            | 6           |               |      |   | 1    |      |      |      | 9    |      |      |   | 14   |     
|                                           |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |     
|                                           |                                                      | EBIT                                                                         |                                                            | $           | (398          | )    |   | $    | (138 | )    |      | $    | (613 | )    |   | $    | (454 | )   
|                                           |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |     
|Gross margin by significant contract type: |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |      |      |      |   |     
|Natural gas and oil contracts              |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |      |      |      |   |     
|                                           | Production-related and other natural gas derivatives |                                                                              |                                                            |             |               |      |   |      |      |      |      |      |      |      |   |      |     
|                                           |                                                      | Changes in fair value on positions designated as hedges in
    December 2004 |                                                            | $           |              |      |   | $    | (143 | )    |      | $    |     |      |   | $    | (403 | )   
|                                           |                                                      | Changes in fair value on other production-related contracts                  |                                                            |             | (390          | )    |   |      |     |      |      |      | (508 | )    |   |      |     |     
|                                           |                                                      | Changes in fair value on other natural gas positions                         |                                                            |             | (67           | )    |   |      | 19   |      |      |      | 52   |      |   |      | 27   |     
|                                           |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |     
|                                           |                                                      |                                                                              | Total production-related and other natural gas derivatives |             |               | (457 | ) |      |      | (124 | )    |      |      | (456 | ) |      |      | (376 | )
|                                           |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |     
|                                           | Transportation-related contracts                     |                                                                              |                                                            |             |               |      |   |      |      |      |      |      |      |      |   |      |     
|                                           |                                                      | Demand charges                                                               |                                                            |             | (39           | )    |   |      | (39  | )    |      |      | (118 | )    |   |      | (118 | )   
|                                           |                                                      | Settlements(2)                                                               |                                                            |             | 36            |      |   |      | 64   |      |      |      | 84   |      |   |      | 111  |     
|                                           |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |     
|                                           |                                                      |                                                                              | Total transportation-related contracts                     |             |               | (3   | ) |      |      | 25   |      |      |      | (34  | ) |      |      | (7   | )
|                                           |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |     
|                                           | Total gross margin  natural gas contracts           |                                                                              |                                                            | (460        | )             |      |   | (99  | )    |      |      | (490 | )    |      |   | (383 | )   
|                                           |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |     
|Power contracts                            |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |      |      |      |   |     
|                                           | Changes in fair value on Cordova tolling agreement   |                                                                              |                                                            | 45          |               |      |   | (27  | )    |      |      | (66  | )    |      |   | (30  | )   
|                                           | Changes in fair value on other power derivatives     |                                                                              |                                                            | 20          |               |      |   | (13  | )    |      |      | (52  | )    |      |   | (26  | )   
|                                           | Other                                                |                                                                              |                                                            | 6           |               |      |   | 19   |      |      |      | 23   |      |      |   | 19   |     
|                                           |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |     
|                                           | Total gross margin  power contracts                 |                                                                              |                                                            | 71          |               |      |   | (21  | )    |      |      | (95  | )    |      |   | (37  | )   
|                                           |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |     
|                                           |                                                      |                                                                              | Total gross margin                                         |             | $             | (389 | ) |      | $    | (120 | )    |      | $    | (585 | ) |      | $    | (420 | )
|                                           |                                                      |                                                                              |                                                            |             |               |      |   |      |      |      |      |     






|    |                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross margin for our Marketing and Trading segment consists of
    revenues from commodity trading and origination activities less
    the costs of commodities sold, including changes in the fair
    value of our derivative contracts.
|   
|(2) | Includes a $50 million gain related to the early
    termination of an LNG contract in 2004.                                                                                                                                              



53



---



##### Table of Contents







| |                              
| | -----------------------------
| | Natural Gas and Oil Contracts



| |                                                     
| | ----------------------------------------------------
| | Production-related and other natural gas derivatives



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Derivatives designated as hedges.Losses for the quarter
    and nine months ended September 30, 2004 on our
    contracts designated as hedges on December 1, 2004, were a
    result of increases in natural gas prices relative to the fixed
    prices in these contracts. Following their designation as
    accounting hedges in the fourth quarter of 2004, the income
    impacts of these contracts were reflected in our Production
    segment.
|
| |  | Other production-related derivatives. These option
    contracts, which are not accounting hedges and are marked to
    market in our results each period, provide us with various floor
    and ceiling prices on our future natural gas and oil production.
    We paid a total net premium of $91 million for these option
    contracts.                                                                                                             



| |                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In addition to the options described above, we hold several
    derivative contracts that, on a net basis, obligate us to sell
    31 TBtu and 1,289 MBbls of our Production segments
    anticipated 2005 and 2006 natural gas and oil production at
    fixed prices.
|
| | Due to increases in natural gas and oil prices, the fair value
    of these contracts significantly decreased during the quarter
    and nine months ended September 30, 2005.                                                                                          



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Other natural gas derivatives. Other natural gas
    derivatives consist of physical and financial natural gas
    contracts. These contracts obligate us to either purchase or
    sell natural gas at fixed prices. Our exposure to natural gas
    price changes vary from period to period based on whether we
    purchase more or less natural gas than we sell under these
    contracts. Under certain of these contracts, we supply gas to
    power plants that we partially own, including the MCV and
    Berkshire power projects. Due to their affiliated nature, we do
    not recognize mark-to-market gains or losses on these contracts
    to the extent of our ownership interests. However, should we
    sell our interests in these plants, we would record the
    cumulative unrecognized mark-to-market losses on these
    contracts, which totaled approximately $139 million as of
    September 30, 2005, net of related hedges.



| |                                 
| | --------------------------------
| | Transportation-related contracts



|                                       |                      |               |   |             |               |  |   |      |   |  |      |    |   |  |   |    |  
|-------------------------------------- | -------------------- | ------------- | - | ----------- | ------------- |  | - | ---- | - |  | ---- | -- | - |  | - | -- | -
|                                       |                      |               |   | Nine Months |              
|                                       |                      | Quarter Ended |   |             | Ended         | 
|                                       |                      | September 30, |   |             | September 30, | 
|                                       |                      |               |   |             |               | 
|                                       |                      | 2005          |   |             | 2004          |  |   | 2005 |   |  | 2004 |   
|                                       |                      |               |   |             |               |  |   |      |   |  |      |   
|Alliance Pipeline                      |                      |               |   |             |               |  |   |      |   |  |      |    |   |  |   |   
|                                       | Demand charges       |               | $ | 16          |               |  | $ | 15   |   |  | $    | 48 |   |  | $ | 45 |  
|                                       | Percentage recovered |               |   | 100         | %             |  |   | 84   | % |  |      | 78 | % |  |   | 71 | %
|Texas Interstate                       |                      |               |   |             |               |  |   |      |   |  |      |    |   |  |   |   
|                                       | Demand charges       |               | $ | 7           |               |  | $ | 7    |   |  | $    | 21 |   |  | $ | 20 |  
|                                       | Percentage recovered |               |   | 33          | %             |  |   | 6    | % |  |      | 42 | % |  |   | 14 | %
|Other Transportation-related Contracts |                      |               |   |             |               |  |   |      |   |  |      |    |   |  |   |   
|                                       | Demand charges       |               | $ | 16          |               |  | $ | 17   |   |  | $    | 49 |   |  | $ | 53 |  
|                                       | Percentage recovered |               |   | 108         | %             |  |   | 9    | % |  |      | 82 | % |  |   | 50 | %

54



---



##### Table of Contents





| |                
| | ---------------
| | Power Contracts



| |                          
| | -------------------------
| | Cordova tolling agreement





| |                        
| | -----------------------
| | Other power derivatives



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | During the first quarter of 2005, we assigned our contracts to
    supply power to our Power segments Cedar Brakes I and
    II entities to Constellation Energy Commodities Group, Inc.
    These contracts decreased in fair value by $13 million and
    $51 million in the quarter and nine months ended
    September 30, 2004. In conjunction with the transfer,
    we also entered into derivative contracts with Constellation
    that swap the locational differences in power prices at the
    Camden, Bayonne and Newark Bay power plants and the
    Pennsylvania-New Jersey-Maryland power pools West Hub
    through 2013. The fair value of these swaps decreased by
    $9 million and $22 million during the quarter and nine
    months ended September 30, 2005, due to unfavorable
    changes in the power prices at each location.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have a contract to supply power to Morgan Stanley at a fixed
    price through 2016. This contract decreased in fair value by
    $146 million and $236 million during the quarter and
    nine months ended September 30, 2005, and decreased in
    fair value by $23 million and $68 million during the
    quarter and nine months ended September 30, 2004. The
    overall decrease in the fair value of these derivatives resulted
    from increasing power prices related to these obligations during
    these periods.
|
| |  | During the nine months ended September 30, 2005 and
    2004, we were required to purchase power under several remaining
    power contracts, which include those used to manage risk on our
    power supply obligations. Due to changes in power prices, the
    fair value of these contracts increased by $175 million and
    $206 million during the quarter and nine months ended
    September 30, 2005, and increased by $23 million
    and $93 million during the same periods of 2004.                                  



| |      
| | -----
| | Other



| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On March 24, 2005, a bankruptcy court entered an order
    allowing Mohawk River Funding IIIs bankruptcy claims
    with USGen New England. We received payment on this claim and
    recognized a gain of $17 million.
|
| |  | During the third quarter of 2004, we recorded a $25 million
    gain related to the termination of a power contract with our
    Power segment, which was eliminated in El Pasos
    consolidated results.             

Non-regulated Business  Power Segment




55



---



##### Table of Contents





| |                                                                                
| | -------------------------------------------------------------------------------
| | Significant developments in our operations since
    December 31, 2004 include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Brazil.Our Macae project in Brazil has a contract that
    requires Petrobras to make minimum revenue payments until
    August 2007. Petrobras has not paid amounts due under the
    contract since December 2004, and has initiated arbitration
    proceedings related to that obligation. As a result of continued
    negotiations with Petrobras, we recorded an impairment of this
    investment in the second quarter of 2005. This impairment was
    based on information regarding the potential value we would
    receive from the resolution of this matter. The future financial
    performance of the Macae plant will be affected by the ultimate
    outcome of this dispute, the timing of that outcome, and by
    regional changes in the Brazilian power markets. In addition, in
    October 2004, our Porto Velho project experienced an outage with
    a steam turbine, which resulted in a partial reduction in the
    plants capacity. The project expects to have the steam
    turbine back in service by the first quarter of 2006. The Porto
    Velho project is also negotiating certain provisions of its
    power purchase agreement and the outcome of these negotiations
    may impact the future financial performance of the project. For
    further discussion of these matters, see Item 1, Financial
    Statements, Note 10.
|
| |  | Asia.During 2005, we announced the sale of our Asian
    power assets. We recorded impairments on certain of these assets
    based on information received regarding the potential value we
    may receive when we sell them. In the third quarter of 2005, we
    recorded a gain of $109 million upon the sale of our
    50 percent interest in the KIECO power facility in Korea.
    We expect to substantially complete the sale of our remaining
    Asian assets in early 2006. We will continue to assess the fair
    value of those assets throughout the sales process, which may
    result in additional impairments or gains in future periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Other International Power.During the second quarter of
    2005, we engaged an investment banker to facilitate the sale of
    our Central American power assets. We recorded an impairment in
    the second quarter of 2005 based on information received about
    the value we may receive upon the sale of these assets. We will
    continue to assess the value of these assets throughout the
    sales process, which may result in additional impairments that
    may be significant. See Item 1, Financial Statements,
    Note 3 for further information on our divestitures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Midland Cogeneration Venture. In the fourth quarter of
    2004, we impaired our investment in MCV based on a decline in
    the carrying value of the investment due to increased fuel
    costs. During the third quarter of 2005, we recorded our
    proportionate share of a significant impairment recorded by MCV.
    As a result of this impairment, our remaining investment
    consists solely of our share of MCVs accumulated other
    comprehensive income. MCVs project owners are pursuing
    various alternatives which could result in the recovery of some
    of our previously impaired investment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

56



---



##### Table of Contents





| |                  
| | -----------------
| | Operating Results



|              |                                         |                                               |                |             |               |     |   |      |      |     |      |     |      |      |   |     |      |      |  
|------------- | --------------------------------------- | --------------------------------------------- | -------------- | ----------- | ------------- | --- | - | ---- | ---- | --- | ---- | --- | ---- | ---- | - | --- | ---- | ---- | -
|              |                                         |                                               |                | Nine Months |              
|              |                                         | Quarter Ended                                 |                |             | Ended         |    
|              |                                         | September 30,                                 |                |             | September 30, |    
|              |                                         |                                               |                |             |               |    
|              |                                         | 2005                                          |                |             | 2004          |     |   | 2005 |      |     | 2004 |    
|              |                                         |                                               |                |             |               |     |   |      |      |     |      |    
|              |                                         | (In millions)                                 |               
|Overall EBIT: |                                         |                                               |                |             |               |     |   |      |      |     |      |     |      |      |   |    
|              | Gross
    margin(1)                     |                                               | $              | 52          |               |     | $ | 155  |      |     | $    | 212 |      |      | $ | 509 |     
|              | Operating expenses                      |                                               |                |             |               |     |   |      |      |     |      |     |      |      |   |     |     
|              |                                         | Loss on long-lived assets                     |                |             |              |     |   |      | (77  | )   |      |     | (388 | )    |   |     | (333 | )   
|              |                                         | Other operating expenses                      |                |             | (68           | )   |   |      | (126 | )   |      |     | (235 | )    |   |     | (372 | )   
|              |                                         |                                               |                |             |               |     |   |      |      |     |      |    
|              |                                         |                                               | Operating loss |             |               | (16 | ) |      |      | (48 | )    |     |      | (411 | ) |     |      | (196 | )
|              | Earnings from unconsolidated affiliates |                                               |                |             |               |     |   |      |      |     |      |     |      |      |   |     |     
|              |                                         | Losses from impairments, net of gains on sale |                |             | (50           | )   |   |      | (11  | )   |      |     | (198 | )    |   |     | (49  | )   
|              |                                         | Equity in earnings                            |                |             | 8             |     |   |      | 36   |     |      |     | 69   |      |   |     | 114  |     
|              | Other income                            |                                               |                | 17          |               |     |   | 16   |      |     |      | 68  |      |      |   | 57  |     
|              |                                         |                                               |                |             |               |     |   |      |      |     |      |    
|              |                                         | EBIT                                          |                | $           | (41           | )   |   | $    | (7   | )   |      | $   | (472 | )    |   | $   | (74  | )   
|              |                                         |                                               |                |             |               |     |   |      |      |     |      |    






|    |                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross margin for our Power segment consists of revenues from our
    power plants and the revenues, cost of electricity purchases and
    changes in fair value of restructured power contracts. The cost
    of fuel used in the power generation process is included in
    operating expenses.

|                                   |                                                                |                                          |    |             |               |   |     |      |    |   |      |      |      |   |     |      |     |  
|---------------------------------- | -------------------------------------------------------------- | ---------------------------------------- | -- | ----------- | ------------- | - | --- | ---- | -- | - | ---- | ---- | ---- | - | --- | ---- | --- | -
|                                   |                                                                |                                          |    | Nine Months |              
|                                   |                                                                | Quarter Ended                            |    |             | Ended         |  
|                                   |                                                                | September 30,                            |    |             | September 30, |  
|                                   |                                                                |                                          |    |             |               |  
|                                   |                                                                | 2005                                     |    |             | 2004          |   |     | 2005 |    |   | 2004 |     
|                                   |                                                                |                                          |    |             |               |   |     |      |    |   |      |     
|                                   |                                                                | (In millions)                            |   
|EBIT by Area:                      |                                                                |                                          |    |             |               |   |     |      |    |   |      |      |      |   |     |     
|Brazil                             |                                                                |                                          |    |             |               |   |     |      |    |   |      |      |      |   |     |     
|                                   | Impairments                                                    |                                          | $  |            |               |   | $   | (32  | )  |   | $    | (294 | )    |   | $   | (183 | )  
|                                   | Earnings from consolidated and unconsolidated plant operations |                                          |    | 12          |               |   |     | 57   |    |   |      | 38   |      |   |     | 163  |    
|Asia and Other International Power |                                                                |                                          |    |             |               |   |     |      |    |   |      |      |      |   |     |     
|                                   | Impairments,
    net(1)                                        |                                          |    |            |               |   |     |     |    |   |      | (258 | )    |   |     | (5   | )  
|                                   | Gain on sale of KIECO power plant                              |                                          |    | 109         |               |   |     |     |    |   |      | 109  |      |   |     |     |    
|                                   | Dividend on investment fund                                    |                                          |    | 1           |               |   |     |     |    |   |      | 17   |      |   |     |     |    
|                                   | Gain on sale of PPN power plant                                |                                          |    |            |               |   |     |     |    |   |      | 22   |      |   |     |     |    
|                                   | Earnings from consolidated and unconsolidated plant operations |                                          |    | 5           |               |   |     | 17   |    |   |      | 36   |      |   |     | 53   |    
|Domestic Power                     |                                                                |                                          |    |             |               |   |     |      |    |   |      |      |      |   |     |     
|                                   | Power Contract Restructurings:                                 |                                          |    |             |               |   |     |      |    |   |      |      |      |   |     |      |    
|                                   |                                                                | Favorable resolution of bankruptcy claim |    |             |              |   |     |      |   |   |      |      | 53   |   |     |      |    |  
|                                   |                                                                | Impairments,
    net(1)                  |    |             |              |   |     |      |   |   |      |      |     |   |     |      | (96 | )
|                                   |                                                                | Change in fair value of contracts        |    |             |              |   |     |      | 21 |   |      |      | 11   |   |     |      | 79  |  
|                                   | Losses from MCV investment                                     |                                          |    | (159        | )             |   |     |     |    |   |      | (162 | )    |   |     |     |    
|                                   | Other Domestic Operations                                      |                                          |    | (2          | )             |   |     | (54  | )  |   |      | (7   | )    |   |     | (48  | )  
|Other(2)                           |                                                                |                                          | (7 | )           |               |   | (16 | )    |    |   | (37  | )    |      |   | (37 | )   
|                                   |                                                                |                                          |    |             |               |   |     |      |    |   |      |     
|                                   |                                                                | EBIT                                     |    | $           | (41           | ) |     | $    | (7 | ) |      | $    | (472 | ) |     | $    | (74 | )
|                                   |                                                                |                                          |    |             |               |   |     |      |    |   |      |     






|    |                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes impairment charges and gains (losses) on sales of
    assets and investments, net of any related minority interest.                                                                                                                              
|(2) | Other consists of the indirect expenses and general and
    administrative costs associated with our domestic and
    international operations. It also includes a $15 million
    impairment of power turbines recorded in the first quarter of
    2005.

57



---



##### Table of Contents



Brazil.


Asia and Other International Power.




Domestic Power Contract Restructurings.




Other Domestic Operations.


Non-regulated Business  Field Services Segment






58



---



##### Table of Contents





|                                                           |                                                                                                            |                                   |     |      |                    |   |      |      |    | 
|---------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | --------------------------------- | --- | ---- | ------------------ | - | ---- | ---- | -- | 
|                                                           |                                                                                                            | Favorable                         |     |      | Favorable          |  
|                                                           |                                                                                                            | (Unfavorable) EBIT                |     |      | (Unfavorable) EBIT |  
|                                                           |                                                                                                            | Impact For the                    |     |      | Impact For the     |  
|                                                           |                                                                                                            | Quarter Ended                     |     |      | Nine Months Ended  |  
|                                                           |                                                                                                            | September 30, 2005                |     |      | September 30, 2005 |  
|                                                           |                                                                                                            | Compared to 2004                  |     |      | Compared to 2004   |  
|                                                           |                                                                                                            |                                   |     |      |                    |  
|                                                           |                                                                                                            | (In millions)                     |    
|Gathering and processing margins                           |                                                                                                            | $                                 | (46 | )    |                    | $ | (125 | )   
|Operating expenses                                         |                                                                                                            |                                   | 22  |      |                    |   | 78   |     
|Enterprise/GulfTerra related transactions                  |                                                                                                            |                                   |     |      |                    |   |      |     
|                                                           | Gain on sale of GP interest and common units to Enterprise in
    2005                                     |                                   |     |     |                    |   |      | 183  |   
|                                                           | Gain on sale of interest in GulfTerra and south Texas processing
    assets to Enterprise in 2005 and 2004 |                                   |     | (500 | )                  |   |      | (500 | ) 
|                                                           | Goodwill impairment in 2004                                                                                |                                   |     | 480  |                    |   |      | 480  |   
|                                                           | Equity earnings                                                                                            |                                   |     | (32  | )                  |   |      | (98  | ) 
|                                                           | Minority interest                                                                                          |                                   |     | 11   |                    |   |      | 32   |   
|                                                           | Impairment of Indian Springs in 2004                                                                       |                                   |     | 13   |                    |   |      | 13   |   
|Termination of Needle Mountain gas supply contract in 2005 |                                                                                                            |                                   | (28 | )    |                    |   | (28  | )   
|Other                                                      |                                                                                                            |                                   | (3  | )    |                    |   | (2   | )   
|                                                           |                                                                                                            |                                   |     |      |                    |  
|                                                           |                                                                                                            | Total increase (decrease) in EBIT |     | $    | (83                | ) |      | $    | 33 | 
|                                                           |                                                                                                            |                                   |     |      |                    |  





Corporate, Net




59



---



##### Table of Contents





|                                                        |                        |                    |     |     |                    |   |     |      |  
|------------------------------------------------------- | ---------------------- | ------------------ | --- | --- | ------------------ | - | --- | ---- | -
|                                                        |                        | Favorable          |     |     | Favorable          |  
|                                                        |                        | (Unfavorable) EBIT |     |     | (Unfavorable) EBIT |  
|                                                        |                        | Impact For         |     |     | Impact For         |  
|                                                        |                        | Quarter Ended      |     |     | Nine Months Ended  |  
|                                                        |                        | September 30, 2005 |     |     | September 30, 2005 |  
|                                                        |                        | Compared to 2004   |     |     | Compared to 2004   |  
|                                                        |                        |                    |     |     |                    |  
|                                                        |                        | (In millions)      |    
|Western Energy Settlement charge in
    2005(1)         |                        | $                  |    |     |                    | $ | (59 | )   
|Losses on early extinguishment of debt in 2005 and 2004 |                        |                    | 5   |     |                    |   | (24 | )   
|Lease termination costs due to office consolidation     |                        |                    | 30  |     |                    |   | 3   |     
|Change in litigation, insurance and other reserves      |                        |                    | (46 | )   |                    |   | (62 | )   
|Other                                                   |                        |                    | 1   |     |                    |   | (6  | )   
|                                                        |                        |                    |     |     |                    |  
|                                                        | Total decrease in EBIT |                    | $   | (10 | )                  |   | $   | (148 | )
|                                                        |                        |                    |     |     |                    |  






|    |                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In the first quarter of 2005, we incurred this $59 million
    charge associated with the payment of the Western Energy
    Settlement obligation earlier than originally expected. This
    charge has been recorded in operations and maintenance expense.





Interest and Debt Expense




|                                             |                                 |               |     |             |               |   |     |      |  |   |       |       |  |   |       |       | 
|-------------------------------------------- | ------------------------------- | ------------- | --- | ----------- | ------------- | - | --- | ---- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                                             |                                 |               |     | Nine Months |              
|                                             |                                 | Quarter Ended |     |             | Ended         |  
|                                             |                                 | September 30, |     |             | September 30, |  
|                                             |                                 |               |     |             |               |  
|                                             |                                 | 2005          |     |             | 2004          |   |     | 2005 |  |   | 2004  |      
|                                             |                                 |               |     |             |               |   |     |      |  |   |       |      
|                                             |                                 | (In millions) |    
|Long-term debt, including current maturities |                                 | $             | 332 |             |               | $ | 376 |      |  | $ | 1,006 |       |  | $ | 1,171 |      
|Other                                        |                                 |               | 12  |             |               |   | 20  |      |  |   | 28    |       |  |   | 58    |      
|                                             |                                 |               |     |             |               |   |     |      |  |   |       |      
|                                             | Total interest and debt expense |               | $   | 344         |               |   | $   | 396  |  |   | $     | 1,034 |  |   | $     | 1,229 | 
|                                             |                                 |               |     |             |               |   |     |      |  |   |       |      



60



---



##### Table of Contents



Income Taxes




|                   |  |                                 |      |             |               |   |     |      |  |   |      |   |  |   |     |   
|------------------ |  | ------------------------------- | ---- | ----------- | ------------- | - | --- | ---- |  | - | ---- | - |  | - | --- | --
|                   |  |                                 |      | Nine Months |              
|                   |  | Quarter Ended                   |      |             | Ended         |  
|                   |  | September 30,                   |      |             | September 30, |  
|                   |  |                                 |      |             |               |  
|                   |  | 2005                            |      |             | 2004          |   |     | 2005 |  |   | 2004 |  
|                   |  |                                 |      |             |               |   |     |      |  |   |      |  
|                   |  | (In millions, except for rates) |     
|Income taxes       |  | $                               | (108 | )           |               | $ | 77  |      |  | $ | (165 | ) |  | $ | 135 |   
|Effective tax rate |  |                                 | 25   | %           |               |   | (62 | )%   |  |   | 27   | % |  |   | (89 | )%





Discontinued Operations






Commitments and Contingencies




61



---



##### Table of Contents






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 performance;                                                                        
|
| |  | operating income;                                                                                   
|
| |  | managements plans; and                                                                             
|
| |  | goals and objectives for future operations.                                                         



62



---



##### Table of Contents








|        |                                                           
|------- | ----------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market Risk





Market Risk




Interest Rate Risk




63



---



##### Table of Contents








|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Material Weaknesses Previously Disclosed




Evaluation of Disclosure Controls and Procedures




Changes in Internal Control Over Financial Reporting






| |   |                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Implemented automated and manual controls for our primary
    financial system to monitor unauthorized password changes;                                                                                                                                                
|
| |  | Performed an in-depth analysis of our primary financial
    accounting system to examine existing functional access to
    identify any potentially incompatible duties and developed an
    enhanced segregation of duties matrix based on this analysis;              
|
| |  | Modified our primary financial accounting system to eliminate or
    modify potentially conflicting functionality;                                                                                                                                                      
|
| |  | Rewrote the computer programs for Marketing and Tradings
    mark-to-market accounting system to significantly reduce the
    number of different combinations of user access and to modify
    remaining capabilities to eliminate potentially conflicting
    duties;
|
| |  | Implemented a process to evaluate all new user access requests
    against segregation of duties matrices to ensure no new
    conflicts are created for our applications described above;                                                                              
|
| |  | Separated security administration rights from system update
    capabilities for our applications described above;                                                                                                                                                      
|
| |  | Implemented monitoring procedures to monitor activities of
    security administration roles for our applications described
    above;                                                                                                                                  
|
| |  | Formalized, issued and implemented various accounting policies
    including a company-wide account reconciliation policy and an
    accounting policy that requires a higher level of review of
    non-routine transactions;                                          
|
| |  | Implemented an account reconciliation monitoring tool that also
    allows for aggregation of unreconciled amounts;                                                                                                                                                     

64



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Provided additional training regarding the company-wide account
    reconciliation policy and appropriate use of the account
    reconciliation monitoring tool;                                                                                                           
|
| |  | Developed and improved processes to ensure adequate
    communication between commercial and accounting personnel to
    allow for the complete and timely identification, communication
    and review of information required to record non-routine
    transactions; and
|
| |  | Established a more rigorous top-down review of the financial
    statements at the management, corporate and Disclosure Committee
    levels.                                                                                                                              





| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | Conducted further training on company-wide accounting policies.                         
|
| |  | Improved our procedures for managing information systems
    changes; and               
|
| |  | Enhanced the automated controls over the preparation and posting
    of journal entries.



65



---



##### Table of Contents






PART II  OTHER INFORMATION





Item 1. Legal Proceedings




Coastal Eagle Point Air Issues.


Corpus Christi Refinery Air Violations.


EPNG Arizona Pipe-Coating.


Natural Buttes.


Shoup Natural Gas Processing Plant.


66



---



##### 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




67



---



##### Table of Contents






Item 6. Exhibits




|        |      |             |  |                                                                                                                                                                                                                                                                                    
|------- | ---- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 4    | .A          |  | Ninth Supplemental Indenture dated as of July 1, 2005
    between El Paso Corporation and HSBC Bank USA, National
    Association, as trustee (Exhibit 4.A to our Form 8-K
    filed on July 1, 2005).                                                                             
|        | 4    | .B          |  | Form of 7.625% Senior Note Due August 16, 2007 (included in
    Exhibit 4.A to our Form 8-K filed July 1, 2005).                                                                                                                                                                   
|        | 10   | .A          |  | El Paso Corporation Employee Stock Purchase Plan, Amended and
    Restated Effective as of July 1, 2005 (Exhibit 10.E to
    our Form 10-Q filed on August 5, 2005).                                                                                                               
|        | 10   | .B          |  | Registration Rights Agreement as of July 1, 2005 between El
    Paso Corporation and Credit Suisse First Boston LLC
    (Exhibit 10.A to our Form 8-K filed on July 1,
    2005).                                                                                                  
|        | 10   | .C          |  | Form of Indemnification Agreement executed by El Paso for the
    benefit of each officer listed in Schedule A thereto,
    effective August 4, 2005 (Exhibit 10.G to our
    Form 10-Q filed on August 5, 2005).                                                                  
|        | 10   | .D          |  | Credit Agreement among El Paso Corporation and El Paso
    Production Oil & Gas USA, L.P., as Borrowers, Fortis
    Capital Corp., as Administrative Agent, Arranger and Bookrunner,
    dated as of November 3, 2005 (Exhibit 10.A to our
    Form 8-K filed on November 4, 2005).
|        | *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.                                                                                                                                                                            





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 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.

68



---



##### Table of Contents






SIGNATURES






| |  |                    
| |  | -------------------
| |  | EL PASO CORPORATION



| |                              
| | -----------------------------
| | /s/ D. Mark Leland           
| |                              
| | D. Mark Leland               
| | Executive Vice President and 
| | Chief Financial Officer      
| | (Principal Financial Officer)



| |                                     
| | ------------------------------------
| | /s/ Jeffrey I. Beason               
| |                                     
| | Jeffrey I. Beason                   
| | Senior Vice President and Controller
| | (Principal Accounting Officer)      

69



---



##### Table of Contents



EL PASO CORPORATION


EXHIBIT INDEX




|        |      |             |  |                                                                                                                                                                                                                                                                                    
|------- | ---- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 4    | .A          |  | Ninth Supplemental Indenture dated as of July 1, 2005
    between El Paso Corporation and HSBC Bank USA,
    National Association, as trustee (Exhibit 4.A to our Form 8-K
    filed on July 1, 2005).                                                                             
|        | 4    | .B          |  | Form of 7.625% Senior Note Due August 16, 2007 (included in
    Exhibit 4.A to our Form 8-K filed July 1, 2005).                                                                                                                                                                   
|        | 10   | .A          |  | El Paso Corporation Employee Stock Purchase Plan, Amended
    and Restated Effective as of July 1, 2005 (Exhibit 10.E to
    our Form 10-Q filed on August 5, 2005).                                                                                                               
|        | 10   | .B          |  | Registration Rights Agreement dated as of July 1, 2005
    between El Paso Corporation and Credit Suisse First Boston
    LLC (Exhibit 10.A to our Form 8-K filed on July 1,
    2005).                                                                                            
|        | 10   | .C          |  | Form of Indemnification Agreement executed by El Paso for
    the benefit of each officer listed in Schedule A thereto,
    effective August 4, 2005 (Exhibit 10.G to our Form 10-Q
    filed on August 5, 2005).                                                                  
|        | 10   | .D          |  | Credit Agreement among El Paso Corporation and El Paso
    Production Oil & Gas USA, L.P., as Borrowers, Fortis
    Capital Corp., as Administrative Agent, Arranger and Bookrunner,
    dated as of November 3, 2005 (Exhibit 10.A to our
    Form 8-K filed on November 4, 2005).
|        | *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.