##### 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 June 30, 2006


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


12b-2


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##### 










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                                          |  |      | 31 | 
|Item 3.                                      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                                     |  |      | 50 | 
|Item 4.                                      |  | Controls and Procedures                                                                                                            |  |      | 51 | 
|                                             |  | PART II  Other Information                                                                                                        |  |      |    | 
|Item 1.                                      |  | Legal Proceedings                                                                                                                  |  |      | 52 | 
|Item 1A.                                     |  | Risk Factors                                                                                                                       |  |      | 52 | 
|                                             |  | Cautionary Statements for Purposes of the
    Safe Harbor Provisions of the Private Securities
    Litigation Reform Act of 1995 |  |      |    | 
|Item 2.                                      |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                                                                    |  |      | 53 | 
|Item 3.                                      |  | Defaults Upon Senior Securities                                                                                                    |  |      | 53 | 
|Item 4.                                      |  | Submission of Matters to a Vote of Security
    Holders                                                                            |  |      | 53 | 
|Item 5.                                      |  | Other Information                                                                                                                  |  |      | 54 | 
|Item 6.                                      |  | Exhibits                                                                                                                           |  |      | 54 | 
|                                             |  | Signatures                                                                                                                         |  |      | 56 | 
|Ratio of Earnings to Combined Fixed Charges 
|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                                       |  | Mcfe  |  | = thousand cubic feet of natural gas equivalents
|Bbl   |  | = barrels                                       |  | MMBtu |  | = million British thermal units                 
|BBtu  |  | = billion British thermal units                 |  | MMcf  |  | = million cubic feet                            
|Bcfe  |  | = billion cubic feet of natural gas equivalents |  | MMcfe |  | = million cubic feet of natural gas equivalents 
|LNG   |  | = liquefied natural gas                         |  | MW    |  | = megawatt                                      
|MBbls |  | = thousand barrels                              |  | NGL   |  | = natural gas liquids                           
|Mcf   |  | = thousand cubic feet                           |  | TBtu  |  | = trillion British thermal units                





i



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##### Table of Contents






PART I  FINANCIAL INFORMATION





Item 1. Financial Statements


EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF INCOME


(In millions, except per common share amounts)


(Unaudited)


|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |       |       |   |       |       |       |  
|-------------------------------------------------- | ---------------------------------------- | -------------------------------------------- | ----- | --- | ---------------- | - | ----- | ---- | ----- | - | ----- | ----- | ----- | - | ----- | ----- | ----- | -
|                                                   |                                          | Quarters Ended                               |       |     | Six Months Ended |  
|                                                   |                                          | June 30,                                     |       |     | June 30,         |  
|                                                   |                                          |                                              |       |     |                  |  
|                                                   |                                          | 2006                                         |       |     | 2005             |   |       | 2006 |       |   | 2005  |      
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      
|Operating revenues                                 |                                          | $                                            | 1,214 |     |                  | $ | 1,169 |      |       | $ | 2,745 |       |       | $ | 2,257 |      
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      
|Operating expenses                                 |                                          |                                              |       |     |                  |   |       |      |       |   |       |       |       |   |       |      
|                                                   | Cost of products and services            |                                              |       | 85  |                  |   |       | 54   |       |   |       | 146   |       |   |       | 148   |      
|                                                   | Operation and maintenance                |                                              |       | 385 |                  |   |       | 385  |       |   |       | 719   |       |   |       | 796   |      
|                                                   | Depreciation, depletion and amortization |                                              |       | 278 |                  |   |       | 284  |       |   |       | 550   |       |   |       | 553   |      
|                                                   | Loss on long-lived assets                |                                              |       |    |                  |   |       |     |       |   |       |      |       |   |       | 7     |      
|                                                   | Taxes, other than income taxes           |                                              |       | 70  |                  |   |       | 56   |       |   |       | 134   |       |   |       | 121   |      
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      
|                                                   |                                          |                                              |       | 818 |                  |   |       | 779  |       |   |       | 1,549 |       |   |       | 1,625 |      
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      
|Operating income                                   |                                          |                                              | 396   |     |                  |   | 390   |      |       |   | 1,196 |       |       |   | 632   |      
|Earnings (losses) from unconsolidated affiliates   |                                          |                                              | 52    |     |                  |   | (19   | )    |       |   | 97    |       |       |   | 171   |      
|Other income, net                                  |                                          |                                              | 39    |     |                  |   | 67    |      |       |   | 82    |       |       |   | 98    |      
|Interest and debt expense                          |                                          |                                              | (332  | )   |                  |   | (333  | )    |       |   | (680  | )     |       |   | (676  | )    
|Preferred interests of consolidated subsidiaries   |                                          |                                              |      |     |                  |   | (3    | )    |       |   |      |       |       |   | (9    | )    
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      
|Income before income taxes                         |                                          |                                              | 155   |     |                  |   | 102   |      |       |   | 695   |       |       |   | 216   |      
|Income taxes                                       |                                          |                                              | 2     |     |                  |   | 35    |      |       |   | 167   |       |       |   | 36    |      
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      
|Income from continuing operations                  |                                          |                                              | 153   |     |                  |   | 67    |      |       |   | 528   |       |       |   | 180   |      
|Discontinued operations, net of income taxes       |                                          |                                              | (3    | )   |                  |   | (305  | )    |       |   | (22   | )     |       |   | (312  | )    
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      
|Net income (loss)                                  |                                          |                                              | 150   |     |                  |   | (238  | )    |       |   | 506   |       |       |   | (132  | )    
|Preferred stock dividends                          |                                          |                                              | 9     |     |                  |   | 8     |      |       |   | 19    |       |       |   | 8     |      
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      
|Net income (loss) available to common stockholders |                                          | $                                            | 141   |     |                  | $ | (246  | )    |       | $ | 487   |       |       | $ | (140  | )    
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      
|                                                  
|Earnings (losses) per common share                 |                                          |                                              |       |     |                  |   |       |      |       |   |       |       |       |   |       |      
|                                                   | Basic                                    |                                              |       |     |                  |   |       |      |       |   |       |       |       |   |       |       |      
|                                                   |                                          | Income from continuing operations            |       | $   | 0.22             |   |       | $    | 0.09  |   |       | $     | 0.77  |   |       | $     | 0.27  |  
|                                                   |                                          | Discontinued operations, net of income taxes |       |     | (0.01            | ) |       |      | (0.47 | ) |       |       | (0.03 | ) |       |       | (0.49 | )
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      
|                                                   |                                          | Net income (loss)                            |       | $   | 0.21             |   |       | $    | (0.38 | ) |       | $     | 0.74  |   |       | $     | (0.22 | )
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      
|                                                   | Diluted                                  |                                              |       |     |                  |   |       |      |       |   |       |       |       |   |       |       |      
|                                                   |                                          | Income from continuing operations            |       | $   | 0.21             |   |       | $    | 0.09  |   |       | $     | 0.73  |   |       | $     | 0.26  |  
|                                                   |                                          | Discontinued operations, net of income taxes |       |     |                 |   |       |      | (0.47 | ) |       |       | (0.03 | ) |       |       | (0.45 | )
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      
|                                                   |                                          | Net income (loss)                            |       | $   | 0.21             |   |       | $    | (0.38 | ) |       | $     | 0.70  |   |       | $     | (0.19 | )
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      
|                                                  
|Dividends declared per common share                |                                          | $                                            | 0.04  |     |                  | $ | 0.04  |      |       | $ | 0.08  |       |       | $ | 0.08  |      
|                                                   |                                          |                                              |       |     |                  |   |       |      |       |   |       |      



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EL PASO CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS


(In millions, except share amounts)


(Unaudited)


|                                       |                                                           |                                                            |                                          |        |              |        |        |        |       |        | 
|-------------------------------------- | --------------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------- | ------ | ------------ | ------ | ------ | ------ | ----- | ------ | 
|                                       |                                                           | June 30,                                                   |                                          |        | December 31, |       
|                                       |                                                           | 2006                                                       |                                          |        | 2005         |       
|                                       |                                                           |                                                            |                                          |        |              |       
|ASSETS                                
|Current assets                         |                                                           |                                                            |                                          |        |              |        |        |       
|                                       | Cash and cash equivalents                                 |                                                            | $                                        | 1,762  |              |        | $      | 2,132  |      
|                                       | Accounts and notes receivable                             |                                                            |                                          |        |              |        |        |        |      
|                                       |                                                           | Customers, net of allowance of $50 in 2006 and $67 in 2005 |                                          |        | 690          |        |        |        | 1,115 |       
|                                       |                                                           | Affiliates                                                 |                                          |        | 89           |        |        |        | 58    |       
|                                       |                                                           | Other                                                      |                                          |        | 411          |        |        |        | 141   |       
|                                       | Assets from price risk management activities              |                                                            |                                          | 275    |              |        |        | 641    |      
|                                       | Margin and other deposits held by others                  |                                                            |                                          | 391    |              |        |        | 1,124  |      
|                                       | Assets related to discontinued operations                 |                                                            |                                          | 38     |              |        |        | 230    |      
|                                       | Deferred income taxes                                     |                                                            |                                          | 263    |              |        |        | 396    |      
|                                       | Other                                                     |                                                            |                                          | 310    |              |        |        | 348    |      
|                                       |                                                           |                                                            |                                          |        |              |       
|                                       |                                                           |                                                            | Total current assets                     |        |              | 4,229  |        |        |       | 6,185  | 
|                                       |                                                           |                                                            |                                          |        |              |       
|Property, plant and equipment, at cost |                                                           |                                                            |                                          |        |              |        |        |       
|                                       | Pipelines                                                 |                                                            |                                          | 20,509 |              |        |        | 19,965 |      
|                                       | Natural gas and oil properties, at full cost              |                                                            |                                          | 16,197 |              |        |        | 15,738 |      
|                                       | Other                                                     |                                                            |                                          | 626    |              |        |        | 651    |      
|                                       |                                                           |                                                            |                                          |        |              |       
|                                       |                                                           |                                                            | 37,332                                   |        |              |        | 36,354 |       
|                                       | Less accumulated depreciation, depletion and amortization |                                                            |                                          | 17,977 |              |        |        | 17,567 |      
|                                       |                                                           |                                                            |                                          |        |              |       
|                                       |                                                           |                                                            | Total property, plant and equipment, net |        |              | 19,355 |        |        |       | 18,787 | 
|                                       |                                                           |                                                            |                                          |        |              |       
|Other assets                           |                                                           |                                                            |                                          |        |              |        |        |       
|                                       | Investments in unconsolidated affiliates                  |                                                            |                                          | 2,102  |              |        |        | 2,473  |      
|                                       | Assets from price risk management activities              |                                                            |                                          | 689    |              |        |        | 1,368  |      
|                                       | Other                                                     |                                                            |                                          | 2,402  |              |        |        | 3,025  |      
|                                       |                                                           |                                                            |                                          |        |              |       
|                                       |                                                           |                                                            | 5,193                                    |        |              |        | 6,866  |       
|                                       |                                                           |                                                            |                                          |        |              |       
|                                       |                                                           |                                                            | Total assets                             |        | $            | 28,777 |        |        | $     | 31,838 | 
|                                       |                                                           |                                                            |                                          |        |              |       



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EL PASO CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS


(In millions, except share amounts)


(Unaudited)


|                                                         |                                                                                                                                                                   |            |                                            |        |              |        |        |        |     |        | 
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ------------------------------------------ | ------ | ------------ | ------ | ------ | ------ | --- | ------ | 
|                                                         |                                                                                                                                                                   | June 30,   |                                            |        | December 31, |       
|                                                         |                                                                                                                                                                   | 2006       |                                            |        | 2005         |       
|                                                         |                                                                                                                                                                   |            |                                            |        |              |       
|LIABILITIES AND STOCKHOLDERS EQUITY                    
|Current liabilities                                      |                                                                                                                                                                   |            |                                            |        |              |        |        |       
|                                                         | Accounts payable                                                                                                                                                  |            |                                            |        |              |        |        |        |    
|                                                         |                                                                                                                                                                   | Trade      |                                            | $      | 533          |        |        | $      | 864 |       
|                                                         |                                                                                                                                                                   | Affiliates |                                            |        | 6            |        |        |        | 10  |       
|                                                         |                                                                                                                                                                   | Other      |                                            |        | 447          |        |        |        | 540 |       
|                                                         | Short-term financing obligations, including current maturities                                                                                                    |            |                                            | 838    |              |        |        | 986    |    
|                                                         | Liabilities from price risk management activities                                                                                                                 |            |                                            | 475    |              |        |        | 1,418  |    
|                                                         | Liabilities related to discontinued operations                                                                                                                    |            |                                            | 24     |              |        |        | 420    |    
|                                                         | Margin deposits held by us                                                                                                                                        |            |                                            | 456    |              |        |        | 497    |    
|                                                         | Accrued interest                                                                                                                                                  |            |                                            | 281    |              |        |        | 290    |    
|                                                         | Other                                                                                                                                                             |            |                                            | 1,027  |              |        |        | 687    |    
|                                                         |                                                                                                                                                                   |            |                                            |        |              |       
|                                                         |                                                                                                                                                                   |            | Total current liabilities                  |        |              | 4,087  |        |        |     | 5,712  | 
|                                                         |                                                                                                                                                                   |            |                                            |        |              |       
|Long-term financing obligations, less current maturities |                                                                                                                                                                   |            | 15,374                                     |        |              |        | 17,023 |       
|                                                         |                                                                                                                                                                   |            |                                            |        |              |       
|Other                                                    |                                                                                                                                                                   |            |                                            |        |              |        |        |       
|                                                         | Liabilities from price risk management activities                                                                                                                 |            |                                            | 1,173  |              |        |        | 2,005  |    
|                                                         | Deferred income taxes                                                                                                                                             |            |                                            | 1,653  |              |        |        | 1,405  |    
|                                                         | Other                                                                                                                                                             |            |                                            | 1,921  |              |        |        | 2,273  |    
|                                                         |                                                                                                                                                                   |            |                                            |        |              |       
|                                                         |                                                                                                                                                                   |            | 4,747                                      |        |              |        | 5,683  |       
|                                                         |                                                                                                                                                                   |            |                                            |        |              |       
|Commitments and contingencies                            |                                                                                                                                                                   |            |                                            |        |              |        |        |       
|Securities of subsidiaries                               |                                                                                                                                                                   |            | 31                                         |        |              |        | 31     |       
|                                                         |                                                                                                                                                                   |            |                                            |        |              |       
|Stockholders equity                                     |                                                                                                                                                                   |            |                                            |        |              |        |        |       
|                                                         | Preferred stock, par value $0.01 per share; authorized
    50,000,000 shares; issued 750,000, 4.99% convertible
    perpetual shares; stated at liquidation value |            |                                            | 750    |              |        |        | 750    |    
|                                                         | Common stock, par value $3 per share; authorized
    1,500,000,000 shares; issued 704,226,042 shares in
    2006 and 667,082,043 shares in 2005                   |            |                                            | 2,113  |              |        |        | 2,001  |    
|                                                         | Additional paid-in capital                                                                                                                                        |            |                                            | 4,860  |              |        |        | 4,592  |    
|                                                         | Accumulated deficit                                                                                                                                               |            |                                            | (2,909 | )            |        |        | (3,415 | )  
|                                                         | Accumulated other comprehensive loss                                                                                                                              |            |                                            | (77    | )            |        |        | (332   | )  
|                                                         | Treasury stock (at cost); 8,377,009 shares in 2006 and
    7,620,272 shares in 2005                                                                               |            |                                            | (199   | )            |        |        | (190   | )  
|                                                         | Unamortized compensation                                                                                                                                          |            |                                            |       |              |        |        | (17    | )  
|                                                         |                                                                                                                                                                   |            |                                            |        |              |       
|                                                         |                                                                                                                                                                   |            | Total stockholders equity                 |        |              | 4,538  |        |        |     | 3,389  | 
|                                                         |                                                                                                                                                                   |            |                                            |        |              |       
|                                                         |                                                                                                                                                                   |            | Total liabilities and stockholders equity |        | $            | 28,777 |        |        | $   | 31,838 | 
|                                                         |                                                                                                                                                                   |            |                                            |        |              |       



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EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)


|                                     |                                                                                      |                                                                                       |                                                     |        |        |        |      |        |      |      |  
|------------------------------------ | ------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------- | --------------------------------------------------- | ------ | ------ | ------ | ---- | ------ | ---- | ---- | -
|                                     |                                                                                      | Six Months                                                                            |                                                    
|                                     |                                                                                      | June 30,                                                                              |                                                    
|                                     |                                                                                      |                                                                                       |                                                    
|                                     |                                                                                      | 2006                                                                                  |                                                     |        | 2005   |       
|                                     |                                                                                      |                                                                                       |                                                     |        |        |       
|Cash flows from operating activities |                                                                                      |                                                                                       |                                                     |        |        |        |      |       
|                                     | Net income (loss)                                                                    |                                                                                       | $                                                   | 506    |        |        | $    | (132   | )   
|                                     |                                                                                      | Loss from discontinued operations, net of income taxes                                |                                                     |        | (22    | )      |      |        | (312 | )   
|                                     |                                                                                      |                                                                                       |                                                     |        |        |       
|                                     | Net income from continuing operations                                                |                                                                                       |                                                     | 528    |        |        |      | 180    |     
|                                     | Adjustments to reconcile net income to net cash from operating
    activities        |                                                                                       |                                                     |        |        |        |      |        |     
|                                     |                                                                                      | Depreciation, depletion and amortization                                              |                                                     |        | 550    |        |      |        | 553  |     
|                                     |                                                                                      | Loss on long-lived assets                                                             |                                                     |        |       |        |      |        | 7    |     
|                                     |                                                                                      | Earnings (losses) from unconsolidated affiliates, adjusted for
    cash distributions |                                                     |        | 15     |        |      |        | (24  | )   
|                                     |                                                                                      | Deferred income taxes                                                                 |                                                     |        | 135    |        |      |        | 106  |     
|                                     |                                                                                      | Other non-cash items                                                                  |                                                     |        | 48     |        |      |        | 16   |     
|                                     |                                                                                      | Change in margin and other deposits                                                   |                                                     |        | 692    |        |      |        | (38  | )   
|                                     |                                                                                      | Other asset and liability changes                                                     |                                                     |        | (547   | )      |      |        | (770 | )   
|                                     |                                                                                      |                                                                                       |                                                     |        |        |       
|                                     |                                                                                      | Cash provided by continuing operations                                                |                                                     |        | 1,421  |        |      |        | 30   |     
|                                     |                                                                                      | Cash provided by (used in) discontinued operations                                    |                                                     |        | 1      |        |      |        | (20  | )   
|                                     |                                                                                      |                                                                                       |                                                     |        |        |       
|                                     |                                                                                      |                                                                                       | Net cash provided by operating activities           |        |        | 1,422  |      |        |      | 10   |  
|                                     |                                                                                      |                                                                                       |                                                     |        |        |       
|Cash flows from investing activities |                                                                                      |                                                                                       |                                                     |        |        |        |      |       
|                                     | Capital expenditures                                                                 |                                                                                       |                                                     | (1,024 | )      |        |      | (817   | )   
|                                     | Net proceeds from the sale of assets and investments                                 |                                                                                       |                                                     | 475    |        |        |      | 834    |     
|                                     | Proceeds from settlement of a foreign currency derivative                            |                                                                                       |                                                     |       |        |        |      | 131    |     
|                                     | Cash paid for acquisitions, net of cash acquired                                     |                                                                                       |                                                     |       |        |        |      | (178   | )   
|                                     | Other                                                                                |                                                                                       |                                                     | 22     |        |        |      | 52     |     
|                                     |                                                                                      |                                                                                       |                                                     |        |        |       
|                                     |                                                                                      | Cash provided by (used in) continuing operations                                      |                                                     |        | (527   | )      |      |        | 22   |     
|                                     |                                                                                      | Cash provided by discontinued operations                                              |                                                     |        | 355    |        |      |        | 128  |     
|                                     |                                                                                      |                                                                                       |                                                     |        |        |       
|                                     |                                                                                      |                                                                                       | Net cash provided by (used in) investing activities |        |        | (172   | )    |        |      | 150  |  
|                                     |                                                                                      |                                                                                       |                                                     |        |        |       
|Cash flows from financing activities |                                                                                      |                                                                                       |                                                     |        |        |        |      |       
|                                     | Payments to retire long-term debt and other financing obligations                    |                                                                                       |                                                     | (1,820 | )      |        |      | (1,512 | )   
|                                     | Net proceeds from the issuance of long-term debt and other
    financing obligations |                                                                                       |                                                     |       |        |        |      | 458    |     
|                                     | Dividends paid                                                                       |                                                                                       |                                                     | (71    | )      |        |      | (51    | )   
|                                     | Net proceeds from issuance of common stock                                           |                                                                                       |                                                     | 500    |        |        |      |       |     
|                                     | Net proceeds from issuance of preferred stock                                        |                                                                                       |                                                     |       |        |        |      | 723    |     
|                                     | Redemption of preferred stock of subsidiary                                          |                                                                                       |                                                     |       |        |        |      | (300   | )   
|                                     | Contributions from discontinued operations                                           |                                                                                       |                                                     | 126    |        |        |      | 57     |     
|                                     | Other                                                                                |                                                                                       |                                                     | 1      |        |        |      | (4     | )   
|                                     |                                                                                      |                                                                                       |                                                     |        |        |       
|                                     |                                                                                      | Cash used in continuing operations                                                    |                                                     |        | (1,264 | )      |      |        | (629 | )   
|                                     |                                                                                      | Cash used in discontinued operations                                                  |                                                     |        | (356   | )      |      |        | (108 | )   
|                                     |                                                                                      |                                                                                       |                                                     |        |        |       
|                                     |                                                                                      |                                                                                       | Net cash used in financing activities               |        |        | (1,620 | )    |        |      | (737 | )
|                                     |                                                                                      |                                                                                       |                                                     |        |        |       
|Change in cash and cash equivalents  |                                                                                      |                                                                                       | (370                                                | )      |        |        | (577 | )     
|Cash and cash equivalents            |                                                                                      |                                                                                       |                                                     |        |        |        |      |       
|                                     | Beginning of period                                                                  |                                                                                       |                                                     | 2,132  |        |        |      | 2,117  |     
|                                     |                                                                                      |                                                                                       |                                                     |        |        |       
|                                     | End of period                                                                        |                                                                                       | $                                                   | 1,762  |        |        | $    | 1,540  |     
|                                     |                                                                                      |                                                                                       |                                                     |        |        |       



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EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(In millions)


(Unaudited)


|                                                                                                                                                  |                                                                                                                                                             |                                   |     |            |          |   |      |      |    |   |      |     |     |   |      |      |      |  
|------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | --- | ---------- | -------- | - | ---- | ---- | -- | - | ---- | --- | --- | - | ---- | ---- | ---- | -
|                                                                                                                                                  |                                                                                                                                                             |                                   |     | Six Months |         
|                                                                                                                                                  |                                                                                                                                                             | Quarters Ended                    |     |            | Ended    |  
|                                                                                                                                                  |                                                                                                                                                             | June 30,                          |     |            | June 30, |  
|                                                                                                                                                  |                                                                                                                                                             |                                   |     |            |          |  
|                                                                                                                                                  |                                                                                                                                                             | 2006                              |     |            | 2005     |   |      | 2006 |    |   | 2005 |    
|                                                                                                                                                  |                                                                                                                                                             |                                   |     |            |          |   |      |      |    |   |      |    
|Net income (loss)                                                                                                                                 |                                                                                                                                                             | $                                 | 150 |            |          | $ | (238 | )    |    | $ | 506  |     |     | $ | (132 | )   
|                                                                                                                                                  |                                                                                                                                                             |                                   |     |            |          |   |      |      |    |   |      |    
|Foreign currency translation adjustments (net of income taxes of
    less than $1 in 2006 and $6 and $7 in 2005)                                  |                                                                                                                                                             |                                   | (1  | )          |          |   | (4   | )    |    |   | 2    |     |     |   | 7    |     
|Unrealized net gains (losses) from cash flow hedging activity                                                                                     |                                                                                                                                                             |                                   |     |            |          |   |      |      |    |   |      |     |     |   |      |     
|                                                                                                                                                  | Unrealized mark-to-market gains (losses) arising during period
    (net of income taxes of $47 and $123 in 2006 and $13 and $89 in
    2005)                |                                   |     | 88         |          |   |      | 17   |    |   |      | 219 |     |   |      | (172 | )   
|                                                                                                                                                  | Reclassification adjustments for changes in initial value to the
    settlement date (net of income taxes of $4 and $15 in 2006 and
    $1 and $12 in 2005) |                                   |     | 5          |          |   |      | 2    |    |   |      | 25  |     |   |      | (19  | )   
|Change in unrealized gains on available for sale securities, net
    of reclassification adjustments (net of income tax of $3 and $5
    in 2006) |                                                                                                                                                             |                                   | (6  | )          |          |   |     |      |    |   | 9    |     |     |   |     |     
|                                                                                                                                                  |                                                                                                                                                             |                                   |     |            |          |   |      |      |    |   |      |    
|                                                                                                                                                  |                                                                                                                                                             | Other comprehensive income (loss) |     |            | 86       |   |      |      | 15 |   |      |     | 255 |   |      |      | (184 | )
|                                                                                                                                                  |                                                                                                                                                             |                                   |     |            |          |   |      |      |    |   |      |    
|Comprehensive income (loss)                                                                                                                       |                                                                                                                                                             | $                                 | 236 |            |          | $ | (223 | )    |    | $ | 761  |     |     | $ | (316 | )   
|                                                                                                                                                  |                                                                                                                                                             |                                   |     |            |          |   |      |      |    |   |      |    



5



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EL PASO CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


1. Basis of Presentation and Significant Accounting
Policies


Basis of Presentation


10-Q 8-K 10-K 8-K


Significant Accounting Policies


8-K


Stock Based Compensation. Share-Based
Payment. Accounting for Stock Issued to Employees,


Accounting for Pipeline Integrity Costs.


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New Accounting Pronouncements Issued But
Not Yet Adopted


Accounting for Uncertainty in Income Taxes. Accounting for Uncertainty in Income Taxes. Accounting for Income Taxes, more-likely-than-not more-likely-than-not


2. Acquisitions






|                                          |  |                      |       |   |                  |   |       |  
|----------------------------------------- |  | -------------------- | ----- | - | ---------------- | - | ----- | -
|                                          |  | Quarter Ended        |       |   | Six Months Ended |  
|                                          |  | June 30,             |       |   | June 30,         |  
|                                          |  | 2005                 |       |   | 2005             |  
|                                          |  |                      |       |   |                  |  
|                                          |  | (In millions, except |      
|                                          |  | per share amounts)   |      
|Revenues                                  |  | $                    | 1,184 |   |                  | $ | 2,285 |  
|Net loss available to common stockholders |  |                      | (242  | ) |                  |   | (130  | )
|Basic net loss per share                  |  |                      | (0.38 | ) |                  |   | (0.20 | )
|Diluted net loss per share                |  |                      | (0.38 | ) |                  |   | (0.17 | )

3. Divestitures




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



|                      |                            |                                    |   |     |      |  |   |     |     | 
|--------------------- | -------------------------- | ---------------------------------- | - | --- | ---- |  | - | --- | --- | 
|                      |                            | 2006                               |   |     | 2005 | 
|                      |                            |                                    |   |     |      | 
|                      |                            | (In millions)                      |  
|Continuing operations |                            |                                    |   |     |      |  |   |    
|                      | Pipelines                  |                                    | $ |    |      |  | $ | 35  |    
|                      | Exploration and Production |                                    |   | 81  |      |  |   |    |    
|                      | Power                      |                                    |   | 413 |      |  |   | 176 |    
|                      | Field Services             |                                    |   |    |      |  |   | 501 |    
|                      | Corporate                  |                                    |   | 2   |      |  |   | 121 |    
|                      |                            |                                    |   |     |      | 
|                      |                            | Total continuing
    operations(1) |   |     | 496  |  |   |     | 833 | 
|                      | Discontinued operations    |                                    |   | 358 |      |  |   | 85  |    
|                      |                            |                                    |   |     |      | 
|                      |                            | Total proceeds                     |   | $   | 854  |  |   | $   | 918 | 
|                      |                            |                                    |   |     |      | 

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|    |                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 $21 million for the six months ended
    June 30, 2006 and increased our sales proceeds by
    $1 million for the six months ended June 30, 2005.



|                           |  |                                                                                                                                     |  |                                                                                                                                                                                                                     
|-------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                           |  | 2006                                                                                                                                |  | 2005                                                                                                                                                                                                                
|                           |  |                                                                                                                                     |  |                                                                                                                                                                                                                     
|Pipelines                  |  |                                                                                                                                     |  |  Facilities located in the southeastern U.S.                                                                                                                                                                       
|                          
|Exploration and Production |  |  Natural gas and oil properties primarily in south
    Texas                                                                       |  |                                                                                                                                                                                                                     
|                          
|Power                      |  |  Interests in power plants in Brazil, Asia, Central
    America, Hungary and Peru
     Cost basis investments
     Power turbine |  |  Cedar Brakes I and II
     Interests in power plants in India, England and the
    U.S.
     Power turbine                                                                                                      
|                          
|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
|                          
|Corporate                  |  |                                                                                                                                     |  |  Lakeside Technology Center                                                                                                                                                                                        
|                          
|Discontinued               |  |  Macae power facility in Brazil                                                                                                    |  |  Interest in Paraxylene facility
     Methyl tertiary-butyl ether (MTBE) processing
    facility
     International natural gas and oil production
    properties                                                





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

Accounting for the Impairment or
Disposal of Long-Lived Assets


Macae and Other International Power Operations.


8



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South Louisiana Gathering and Processing Operations.


International Natural Gas and Oil Production Operations.


Petroleum Markets.


|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |     |   |  |   |      |  
|------------------------------------------------------ |  | ------------- | ---- | - | ------------- | - | --- | ------------- |  | - | --------- | - |  | ----- | --- | - |  | - | ---- | -
|                                                       |  | Macae and     |      |   | South         |   |     | International |  |   |           |   | 
|                                                       |  | Other         |      |   | Louisiana     |   |     | Natural Gas   |  |   |           |   | 
|                                                       |  | International |      |   | Gathering and |   |     | and Oil       |  |   |           |   | 
|                                                       |  | Power         |      |   | Processing    |   |     | Production    |  |   | Petroleum |   |  |      
|                                                       |  | Operations    |      |   | Operations    |   |     | Operations    |  |   | Markets   |   |  | Total |    
|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |    
|                                                       |  | (In millions) |     
|Quarter Ended June 30, 2006                            |  |               |      |   |               |   |     |               |  |   |           |   |  |       |     |   |  |   |      |  
|Revenues                                               |  | $             | 53   |   |               | $ |    |               |  | $ |          |   |  | $     |    |   |  | $ | 53   |  
|Costs and expenses                                     |  |               | (58  | ) |               |   |    |               |  |   |          |   |  |       |    |   |  |   | (58  | )
|Gain on long-lived assets                              |  |               | 7    |   |               |   | 5   |               |  |   |          |   |  |       |    |   |  |   | 12   |  
|Other income                                           |  |               | 2    |   |               |   |    |               |  |   |          |   |  |       |    |   |  |   | 2    |  
|Interest and debt expense                              |  |               | (6   | ) |               |   |    |               |  |   |          |   |  |       |    |   |  |   | (6   | )
|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |    
|Income (loss) before income taxes                      |  | $             | (2   | ) |               | $ | 5   |               |  | $ |          |   |  | $     |    |   |  |   | 3    |  
|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |    
|Income taxes                                           |  |               |      |   |               |   |     |               |  |   |           |   |  |       |     |   |  |   | 6    |  
|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |    
|Loss from discontinued operations, net of income taxes |  |               |      |   |               |   |     |               |  |   |           |   |  |       |     |   |  | $ | (3   | )
|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |    
|Quarter Ended June 30, 2005                            |  |               |      |   |               |   |     |               |  |   |           |   |  |       |     |   |  |   |      |  
|Revenues                                               |  | $             | 55   |   |               | $ | 90  |               |  | $ |          |   |  | $     | 30  |   |  | $ | 175  |  
|Costs and expenses                                     |  |               | (78  | ) |               |   | (79 | )             |  |   | (1        | ) |  |       | (33 | ) |  |   | (191 | )
|Loss on long-lived assets                              |  |               | (360 | ) |               |   |    |               |  |   | (4        | ) |  |       |    |   |  |   | (364 | )
|Other income (expense)                                 |  |               | 4    |   |               |   |    |               |  |   |          |   |  |       | (4  | ) |  |   |     |  
|Interest and debt expense                              |  |               | (7   | ) |               |   |    |               |  |   |          |   |  |       |    |   |  |   | (7   | )
|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |    
|Income (loss) before income taxes                      |  | $             | (386 | ) |               | $ | 11  |               |  | $ | (5        | ) |  | $     | (7  | ) |  |   | (387 | )
|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |    
|Income taxes                                           |  |               |      |   |               |   |     |               |  |   |           |   |  |       |     |   |  |   | (82  | )
|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |    
|Loss from discontinued operations, net of income taxes |  |               |      |   |               |   |     |               |  |   |           |   |  |       |     |   |  | $ | (305 | )
|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |    
|Six Months Ended June 30, 2006                         |  |               |      |   |               |   |     |               |  |   |           |   |  |       |     |   |  |   |      |  
|Revenues                                               |  | $             | 103  |   |               | $ |    |               |  | $ |          |   |  | $     |    |   |  | $ | 103  |  
|Costs and expenses                                     |  |               | (111 | ) |               |   |    |               |  |   |          |   |  |       |    |   |  |   | (111 | )
|Gain (loss) on long-lived assets                       |  |               | (5   | ) |               |   | 5   |               |  |   |          |   |  |       |    |   |  |   |     |  
|Other income                                           |  |               | 2    |   |               |   |    |               |  |   |          |   |  |       |    |   |  |   | 2    |  
|Interest and debt expense                              |  |               | (13  | ) |               |   |    |               |  |   |          |   |  |       |    |   |  |   | (13  | )
|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |    
|Income (loss) before income taxes                      |  | $             | (24  | ) |               | $ | 5   |               |  | $ |          |   |  | $     |    |   |  |   | (19  | )
|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |    
|Income taxes                                           |  |               |      |   |               |   |     |               |  |   |           |   |  |       |     |   |  |   | 3    |  
|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |    
|Loss from discontinued operations, net of income taxes |  |               |      |   |               |   |     |               |  |   |           |   |  |       |     |   |  | $ | (22  | )
|                                                       |  |               |      |   |               |   |     |               |  |   |           |   |  |       |    

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|                                                       |  |               |      |   |               |   |      |               |  |   |           |   |  |       |     |   |  |   |      |  
|------------------------------------------------------ |  | ------------- | ---- | - | ------------- | - | ---- | ------------- |  | - | --------- | - |  | ----- | --- | - |  | - | ---- | -
|                                                       |  | Macae and     |      |   | South         |   |      | International |  |   |           |   | 
|                                                       |  | Other         |      |   | Louisiana     |   |      | Natural Gas   |  |   |           |   | 
|                                                       |  | International |      |   | Gathering and |   |      | and Oil       |  |   |           |   | 
|                                                       |  | Power         |      |   | Processing    |   |      | Production    |  |   | Petroleum |   |  |      
|                                                       |  | Operations    |      |   | Operations    |   |      | Operations    |  |   | Markets   |   |  | Total |    
|                                                       |  |               |      |   |               |   |      |               |  |   |           |   |  |       |    
|                                                       |  | (In millions) |     
|Six Months Ended June 30, 2005                         |  |               |      |   |               |   |      |               |  |   |           |   |  |       |     |   |  |   |      |  
|Revenues                                               |  | $             | 109  |   |               | $ | 177  |               |  | $ | 2         |   |  | $     | 74  |   |  | $ | 362  |  
|Costs and expenses                                     |  |               | (131 | ) |               |   | (157 | )             |  |   | (2        | ) |  |       | (86 | ) |  |   | (376 | )
|Gain (loss) on long-lived assets                       |  |               | (374 | ) |               |   |     |               |  |   | (5        | ) |  |       | 3   |   |  |   | (376 | )
|Other income                                           |  |               | 6    |   |               |   |     |               |  |   |          |   |  |       | 11  |   |  |   | 17   |  
|Interest and debt expense                              |  |               | (14  | ) |               |   |     |               |  |   |          |   |  |       |    |   |  |   | (14  | )
|                                                       |  |               |      |   |               |   |      |               |  |   |           |   |  |       |    
|Income (loss) before income taxes                      |  | $             | (404 | ) |               | $ | 20   |               |  | $ | (5        | ) |  | $     | 2   |   |  |   | (387 | )
|                                                       |  |               |      |   |               |   |      |               |  |   |           |   |  |       |    
|Income taxes                                           |  |               |      |   |               |   |      |               |  |   |           |   |  |       |     |   |  |   | (75  | )
|                                                       |  |               |      |   |               |   |      |               |  |   |           |   |  |       |    
|Loss from discontinued operations, net of income taxes |  |               |      |   |               |   |      |               |  |   |           |   |  |       |     |   |  | $ | (312 | )
|                                                       |  |               |      |   |               |   |      |               |  |   |           |   |  |       |    



4. Loss on Long-Lived Assets


long-lived


5. Income Taxes




|                   |  |                             |   |   |                  |   |    |      |  |   |      |   |  |   |    |  
|------------------ |  | --------------------------- | - | - | ---------------- | - | -- | ---- |  | - | ---- | - |  | - | -- | -
|                   |  | Quarters Ended              |   |   | Six Months Ended |  
|                   |  | June 30,                    |   |   | June 30,         |  
|                   |  |                             |   |   |                  |  
|                   |  | 2006                        |   |   | 2005             |   |    | 2006 |  |   | 2005 |  
|                   |  |                             |   |   |                  |   |    |      |  |   |      |  
|                   |  | (In millions, except rates) |  
|Income taxes       |  | $                           | 2 |   |                  | $ | 35 |      |  | $ | 167  |   |  | $ | 36 |  
|Effective tax rate |  |                             | 1 | % |                  |   | 34 | %    |  |   | 24   | % |  |   | 17 | %





Other Tax Matters.


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6. Earnings Per Share




|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |       |       |   |     |       |       |  
|----------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------------------------------------- | --- | ----- | ------- | - | --- | ----- | ---- | - | ------- | ----- | ----- | - | --- | ----- | ----- | -
|                                                                                    |                                              | 2006                                                                   |     |       | 2005    |  
|                                                                                    |                                              |                                                                        |     |       |         |  
|                                                                                    |                                              | Basic                                                                  |     |       | Diluted |   |     | Basic |      |   | Diluted |      
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|                                                                                    |                                              | (in millions, except per share amounts)                                |    
|Quarter Ended June 30,                                                              |                                              |                                                                        |     |       |         |   |     |       |      |   |         |       |       |   |     |      
|Income from continuing operations                                                   |                                              | $                                                                      | 153 |       |         | $ | 153 |       |      | $ | 67      |       |       | $ | 67  |      
|Convertible preferred stock dividends                                               |                                              |                                                                        | (9  | )     |         |   |    |       |      |   | (8      | )     |       |   | (8  | )    
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|                                                                                    |                                              | Income from continuing operations available to
    common stockholders |     |       | 144     |   |     |       | 153  |   |         |       | 59    |   |     |       | 59    |  
|                                                                                    | Discontinued operations                      |                                                                        |     | (3    | )       |   |     | (3    | )    |   |         | (305  | )     |   |     | (305  | )    
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|                                                                                    |                                              | Net income (loss) available to common stockholders                     |     | $     | 141     |   |     | $     | 150  |   |         | $     | (246  | ) |     | $     | (246  | )
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|Weighted average common shares outstanding                                          |                                              |                                                                        | 671 |       |         |   | 671 |       |      |   | 641     |       |       |   | 641 |      
|Effect of dilutive securities:                                                      |                                              |                                                                        |     |       |         |   |     |       |      |   |         |       |       |   |     |      
|                                                                                    | Options and restricted stock                 |                                                                        |     |      |         |   |     | 4     |      |   |         |      |       |   |     | 2     |      
|                                                                                    | Convertible preferred stock                  |                                                                        |     |      |         |   |     | 57    |      |   |         |      |       |   |     |      |      
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|Weighted average common shares outstanding and dilutive
    potential common shares |                                              |                                                                        | 671 |       |         |   | 732 |       |      |   | 641     |       |       |   | 643 |      
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|Earnings per common share:                                                          |                                              |                                                                        |     |       |         |   |     |       |      |   |         |       |       |   |     |      
|                                                                                    | Income from continuing operations            |                                                                        | $   | 0.22  |         |   | $   | 0.21  |      |   | $       | 0.09  |       |   | $   | 0.09  |      
|                                                                                    | Discontinued operations, net of income taxes |                                                                        |     | (0.01 | )       |   |     |      |      |   |         | (0.47 | )     |   |     | (0.47 | )    
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|                                                                                    |                                              | Net income (loss)                                                      |     | $     | 0.21    |   |     | $     | 0.21 |   |         | $     | (0.38 | ) |     | $     | (0.38 | )
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      

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|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |       |       |   |     |       |       |  
|----------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------------------------------------- | --- | ----- | ------- | - | --- | ----- | ---- | - | ------- | ----- | ----- | - | --- | ----- | ----- | -
|                                                                                    |                                              | 2006                                                                   |     |       | 2005    |  
|                                                                                    |                                              |                                                                        |     |       |         |  
|                                                                                    |                                              | Basic                                                                  |     |       | Diluted |   |     | Basic |      |   | Diluted |      
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|Six Months Ended June 30,                                                           |                                              |                                                                        |     |       |         |   |     |       |      |   |         |       |       |   |     |      
|Income from continuing operations                                                   |                                              | $                                                                      | 528 |       |         | $ | 528 |       |      | $ | 180     |       |       | $ | 180 |      
|Convertible preferred stock dividends                                               |                                              |                                                                        | (19 | )     |         |   |    |       |      |   | (8      | )     |       |   |    |      
|Interest on trust preferred securities                                              |                                              |                                                                        |    |       |         |   | 5   |       |      |   |        |       |       |   |    |      
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|                                                                                    |                                              | Income from continuing operations available to
    common stockholders |     |       | 509     |   |     |       | 533  |   |         |       | 172   |   |     |       | 180   |  
|                                                                                    | Discontinued operations                      |                                                                        |     | (22   | )       |   |     | (22   | )    |   |         | (312  | )     |   |     | (312  | )    
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|                                                                                    |                                              | Net income (loss) available to common stockholders                     |     | $     | 487     |   |     | $     | 511  |   |         | $     | (140  | ) |     | $     | (132  | )
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|Weighted average common shares outstanding                                          |                                              |                                                                        | 664 |       |         |   | 664 |       |      |   | 640     |       |       |   | 640 |      
|Effect of dilutive securities:                                                      |                                              |                                                                        |     |       |         |   |     |       |      |   |         |       |       |   |     |      
|                                                                                    | Options and restricted stock                 |                                                                        |     |      |         |   |     | 3     |      |   |         |      |       |   |     | 2     |      
|                                                                                    | Convertible preferred stock                  |                                                                        |     |      |         |   |     | 57    |      |   |         |      |       |   |     | 57    |      
|                                                                                    | Trust preferred securities                   |                                                                        |     |      |         |   |     | 8     |      |   |         |      |       |   |     |      |      
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|Weighted average common shares outstanding and dilutive
    potential common shares |                                              |                                                                        | 664 |       |         |   | 732 |       |      |   | 640     |       |       |   | 699 |      
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|Earnings per common share:                                                          |                                              |                                                                        |     |       |         |   |     |       |      |   |         |       |       |   |     |      
|                                                                                    | Income from continuing operations            |                                                                        | $   | 0.77  |         |   | $   | 0.73  |      |   | $       | 0.27  |       |   | $   | 0.26  |      
|                                                                                    | Discontinued operations, net of income taxes |                                                                        |     | (0.03 | )       |   |     | (0.03 | )    |   |         | (0.49 | )     |   |     | (0.45 | )    
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|                                                                                    |                                              | Net income (loss)                                                      |     | $     | 0.74    |   |     | $     | 0.70 |   |         | $     | (0.22 | ) |     | $     | (0.19 | )
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      



7. Price Risk Management Activities




12



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|                         |                                                |                                                               |   |      |              |   |   |      |        |  
|------------------------ | ---------------------------------------------- | ------------------------------------------------------------- | - | ---- | ------------ | - | - | ---- | ------ | -
|                         |                                                | June 30,                                                      |   |      | December 31, |  
|                         |                                                | 2006                                                          |   |      | 2005         |  
|                         |                                                |                                                               |   |      |              |  
|                         |                                                | (In millions)                                                 |  
|Net assets (liabilities) |                                                |                                                               |   |      |              |   |   |     
|                         | Derivatives designated as hedges               |                                                               | $ | (157 | )            |   | $ | (653 | )     
|                         | Other commodity-based derivative contracts     |                                                               |   | (533 | )            |   |   | (763 | )     
|                         |                                                |                                                               |   |      |              |  
|                         |                                                | Total commodity-based
    derivatives(1)                      |   |      | (690         | ) |   |      | (1,416 | )
|                         | Interest rate and foreign currency derivatives |                                                               |   | 6    |              |   |   | 2    |       
|                         |                                                |                                                               |   |      |              |  
|                         |                                                | Net liabilities from price risk management activities
    (2) |   | $    | (684         | ) |   | $    | (1,414 | )
|                         |                                                |                                                               |   |      |              |  






|    |                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|(1) | The decrease in the net liability during the six months ended
    June 30, 2006 is primarily due to changes in natural gas
    prices.
|(2) | Included in both current and non-current assets and liabilities
    on the balance sheet.                                             

8. Debt, Other Financing Obligations and Other Credit
Facilities




|                                                                      |  |               |        |  |              |   |        | 
|--------------------------------------------------------------------- |  | ------------- | ------ |  | ------------ | - | ------ | 
|                                                                      |  | June 30,      |        |  | December 31, |  
|                                                                      |  | 2006          |        |  | 2005         |  
|                                                                      |  |               |        |  |              |  
|                                                                      |  | (In millions) |       
|Short-term financing obligations, including current
    maturities(1) |  | $             | 838    |  |              | $ | 986    | 
|Long-term financing obligations                                       |  |               | 15,374 |  |              |   | 17,023 | 
|                                                                      |  |               |        |  |              |  
|Total                                                                 |  | $             | 16,212 |  |              | $ | 18,009 | 
|                                                                      |  |               |        |  |              |  






|    |                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes Macae project debt of $225 million in 2005, which
    was reported in liabilities related to discontinued operations.



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



|                                                |                                          |                                 |                                       |               |  |                |                     |   |        |      |   |   |        |      |  
|----------------------------------------------- | ---------------------------------------- | ------------------------------- | ------------------------------------- | ------------- |  | -------------- | ------------------- | - | ------ | ---- | - | - | ------ | ---- | -
|                                                |                                          |                                 |                                       |               |  | Book Value     |                     |   | Cash   |     
|Company                                         |                                          | Type                            |                                       | Interest Rate |  |                | Increase (Decrease) |   |        | Paid |  
|                                                |                                          |                                 |                                       |               |  |                |                     |   |        |      |  
|                                                |                                          |                                 |                                       |               |  | (In millions)  |                    
|Repayments, repurchases, retirements and others |                                          |                                 |                                       |               |  |                |                     |   |        |      |   |   |        |     
|                                                | Coastal Finance I                        |                                 | Trust originated preferred securities |               |  | 8.375%         |                     |   |        | (300 | ) |   |        | (300 | )
|                                                | El Paso                                  |                                 | Zero coupon debentures                |               |  |               |                     |   |        | (615 | ) |   |        | (615 | )
|                                                | El Paso                                  |                                 | Euro notes                            |               |  | 5.75%          |                     |   |        | (26  | ) |   |        | (26  | )
|                                                | El Paso                                  |                                 | Term Loan                             |               |  | LIBOR + 2.75%  |                     |   |        | (260 | ) |   |        | (260 | )
|                                                | El Paso Exploration & Production Company |                                 | Revolving credit facility due 2010    |               |  | LIBOR + 1.875% |                     |   |        | (500 | ) |   |        | (500 | )
|                                                | El Paso                                  |                                 | Notes due 2006                        |               |  | 6.50%          |                     |   |        | (110 | ) |   |        | (110 | )
|                                                | Macae(1)                                 |                                 | Non-recourse notes due 2007 and  2008 |               |  | Variable       |                     |   |        | (229 | ) |   |        | (229 | )
|                                                | Other                                    |                                 | Long-term debt                        |               |  | Various        |                     |   |        | 14   |   |   |        | (9   | )
|                                                |                                          |                                 |                                       |               |  |                |                     |   |        |      |  
|                                                |                                          | Decreases through June 30, 2006 |                                       |               |  |                |                     |   | (2,026 | )    |   |   | (2,049 | )   
|                                                | El Paso                                  |                                 | Term Loan                             |               |  | LIBOR + 2.75%  |                     |   |        | (965 | ) |   |        | (965 | )
|                                                |                                          |                                 |                                       |               |  |                |                     |   |        |      |  
|                                                |                                          | Decreases through July 31, 2006 |                                       |               |  |                |                     | $ | (2,991 | )    |   | $ | (3,014 | )   
|                                                |                                          |                                 |                                       |               |  |                |                     |   |        |      |  






|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(1) | Included in liabilities related to discontinued operations on
    our balance sheet at December 31, 2005.



Credit Facilities and Letters of Credit


Available Capacity under Credit Agreements.


Letters of Credit.


Credit Agreement Restructuring.


14



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##### Table of Contents









| |     |                                                                                                                                                                                                                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Our ratio of Debt to Consolidated EBITDA, each as defined in the
    credit agreement, shall not exceed 5.75 to 1 at anytime prior to
    June 30, 2007. Thereafter it shall not exceed 5.5 to 1
    until June 29, 2008 and 5.25 to 1 from June 30, 2008
    until maturity;                                                 
|
| | (b) | Our ratio of Consolidated EBITDA, as defined in the credit
    agreement, to interest expense plus dividends paid shall not be
    less than 1.75 to 1 at anytime prior to December 31, 2006.
    Thereafter it shall not be less than 1.80 to 1 until
    June 29, 2008, and 2.00 to 1 from June 30, 2008 until
    maturity.



Unsecured revolving credit facility.


9. Commitments and Contingencies


Legal Proceedings


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. The
    consolidated lawsuit alleges violations of federal securities
    laws against us and several of our current and former officers
    and directors. In July 2006, the parties executed a Memorandum
    of Understanding (MOU) agreeing to settle these class action
    lawsuits, subject to the execution of definitive settlement
    documents and final court approval. Under the terms of the MOU,
    El Paso and its insurers will pay a total of $273 million
    to the plaintiffs. El Paso will contribute approximately
    $48 million and its insurers will contribute approximately
    $225 million. An additional $12 million will be
    separately contributed by a third party under the terms of the
    MOU.
|
| | Derivative Litigation. Three shareholder derivative
    actions were filed, including two in federal court in Houston
    and one in state court in Houston. The federal court cases
    generally allege the same claims pled in the consolidated
    shareholder litigation. We recently settled the state court
    lawsuit, which involved the payment of approximately
    $17 million which was fully funded by our insurers, of
    which approximately $12 million will be used to fund the
    settlement of the shareholder litigation. At a June 2006
    hearing, the judge granted final approval to the settlement
    reached by the parties. As a result of the settlement of the
    state court derivative lawsuit, one of the federal lawsuits has
    been dismissed and we expect to file a motion to dismiss the
    remaining derivative lawsuit.                                                 
|
| | 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
    communication with participants in our 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                                                                                                                                                                                                                                                        

15



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| |                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | oil reserves. Formal discovery in this lawsuit is currently
    stayed. In June 2006, the parties participated in a mediated
    settlement negotiation.                                                                                                       
|
| | There are insurance coverages applicable to each of these
    shareholder, derivative and ERISA lawsuits, subject to certain
    deductibles and co-pay obligations. We have established certain
    accruals for these matters, which 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. In re: Gas Commodity Litigation. In re Western States Wholesale Natural Gas Antitrust
Litigation Leggett
et al. v. Duke Energy Corporation et al. Ever-Bloom Inc. v. AEP Energy
Services Inc. et al. Farmland
Industries, Inc. v. Oneok Inc.


16



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##### Table of Contents



Learjet, Inc. v. Oneok Inc. Breckenridge, et al v.
Oneok Inc., et al. Leggett Breckenridge


Gas Measurement Cases. In
re: Natural Gas Royalties Qui Tam Litigation, 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., Bank of America,
et al. v. El Paso Natural Gas and Burlington
Resources Oil and Gas Company, L.P., El Paso Natural Gas Company v. Burlington
Resources, Inc. and Burlington Resources Oil and Gas Company,
L.P.


17



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##### Table of Contents



MTBE.


Government Investigations and Inquiries


Reserve Revisions.


Iraq Oil Sales.


Other Government Investigations.


Other Contingencies


EPNG Rate Case.


CIG Rate Case.


18



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##### Table of Contents



Iraq Imports.


Navajo Nation. rights-of rights-of rights-of rights-of rights-of




Environmental Matters






19



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|              |  |               |     |  |      |   |     | 
|------------- |  | ------------- | --- |  | ---- | - | --- | 
|              |  | June 30, 2006 |    
|              |  |               |    
|Sites         |  | Expected      |     |  | High |  
|              |  |               |     |  |      |  
|              |  | (In millions) |    
|Operating     |  | $             | 76  |  |      | $ | 82  | 
|Non-operating |  |               | 269 |  |      |   | 452 | 
|Superfund     |  |               | 36  |  |      |   | 58  | 
|              |  |               |     |  |      |  
|Total         |  | $             | 381 |  |      | $ | 592 | 
|              |  |               |     |  |      |  



|                                                 |  |   |     |  
|------------------------------------------------ |  | - | --- | -
|Balance as of January 1, 2006                    |  | $ | 379 |  
|Additions/adjustments for remediation activities |  |   | 34  |  
|Payments for remediation activities              |  |   | (32 | )
|                                                 |  |   |    
|Balance as of June 30, 2006                      |  | $ | 381 |  
|                                                 |  |   |    

clean-up


Polychlorinated Biphenyls (PCB) Cost Recoveries.


CERCLA Matters. clean-up


20



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##### Table of Contents







Guarantees


8-K


Retiree Medical
Benefits Matters


10. Retirement Benefits




|                                          |                  |                         |     |       |                           |   |     |          |       |   |                |   |  |      |    |   |      |   |     |      |  |   |      |    |  |   |    |   |  |   |    |    | 
|----------------------------------------- | ---------------- | ----------------------- | --- | ----- | ------------------------- | - | --- | -------- | ----- | - | -------------- | - |  | ---- | -- | - | ---- | - | --- | ---- |  | - | ---- | -- |  | - | -- | - |  | - | -- | -- | 
|                                          |                  | Quarters Ended June 30, |     |       | Six Months Ended June 30, |  
|                                          |                  |                         |     |       |                           |  
|                                          |                  |                         |     | Other |                           |   |     |          | Other |  
|                                          |                  | Pension                 |     |       | Postretirement            |   |     | Pension  |       |   | Postretirement |  
|                                          |                  | Benefits                |     |       | Benefits                  |   |     | Benefits |       |   | Benefits       |  
|                                          |                  |                         |     |       |                           |   |     |          |       |   |                |  
|                                          |                  | 2006                    |     |       | 2005                      |   |     | 2006     |       |   | 2005           |   |  | 2006 |    |   | 2005 |   |     | 2006 |  |   | 2005 |   
|                                          |                  |                         |     |       |                           |   |     |          |       |   |                |   |  |      |    |   |      |   |     |      |  |   |      |   
|                                          |                  | (In millions)           |    
|Service cost                              |                  | $                       | 4   |       |                           | $ | 6   |          |       | $ |               |   |  | $    |   |   |      | $ | 8   |      |  | $ | 12   |    |  | $ |   |   |  | $ |   |   
|Interest cost                             |                  |                         | 29  |       |                           |   | 29  |          |       |   | 7              |   |  |      | 8  |   |      |   | 58  |      |  |   | 58   |    |  |   | 14 |   |  |   | 15 |   
|Expected return on plan assets            |                  |                         | (44 | )     |                           |   | (42 | )        |       |   | (4             | ) |  |      | (3 | ) |      |   | (88 | )    |  |   | (84  | )  |  |   | (8 | ) |  |   | (6 | ) 
|Amortization of net actuarial loss        |                  |                         | 14  |       |                           |   | 16  |          |       |   |               |   |  |      |   |   |      |   | 28  |      |  |   | 32   |    |  |   |   |   |  |   |   |   
|Amortization of transition obligation     |                  |                         |    |       |                           |   |    |          |       |   |               |   |  |      | 2  |   |      |   |    |      |  |   |     |    |  |   |   |   |  |   | 4  |   
|Amortization of prior service
    cost(1) |                  |                         |    |       |                           |   | (1  | )        |       |   |               |   |  |      |   |   |      |   |    |      |  |   | (2   | )  |  |   |   |   |  |   |   |   
|                                          |                  |                         |     |       |                           |   |     |          |       |   |                |   |  |      |    |   |      |   |     |      |  |   |      |   
|                                          | Net benefit cost |                         | $   | 3     |                           |   | $   | 8        |       |   | $              | 3 |  |      | $  | 7 |      |   | $   | 6    |  |   | $    | 16 |  |   | $  | 6 |  |   | $  | 13 | 
|                                          |                  |                         |     |       |                           |   |     |          |       |   |                |   |  |      |    |   |      |   |     |      |  |   |      |   






|    |                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.



21



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##### Table of Contents



11. Capital Stock




|                                      |                                   |               |                   |                 |                   
|------------------------------------- | --------------------------------- | ------------- | ----------------- | --------------- | ------------------
|                                      |                                   |               |                   | Convertible    
|                                      |                                   | Common Stock  |                   | Preferred Stock
|                                      |                                   | ($0.04/share) |                   | (4.99%/year)   
|                                      |                                   |               |                   |                
|Amount paid through June 30, 2006     |                                   | $52           |                   | $19            
|Amount paid in July 2006              |                                   | $27           |                   | $ 9            
|Declared subsequent to June 30, 2006: |                                   |               |                   |                
|                                      | Date of declaration               |               | July 20, 2006     |                 | July 20, 2006     
|                                      | Date payable                      |               | October 2, 2006   |                 | October 2, 2006   
|                                      | Payable to shareholders of record |               | September 1, 2006 |                 | September 15, 2006

8-K


12. Stock-Based Compensation








22



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|                                                                                                                          |                      |               |      |            |               |   |      |       |  
|------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------------- | ---- | ---------- | ------------- | - | ---- | ----- | -
|                                                                                                                          |                      |               |      | Six Months |              
|                                                                                                                          |                      | Quarter Ended |      |            | Ended         |  
|                                                                                                                          |                      | June 30, 2005 |      |            | June 30, 2005 |  
|                                                                                                                          |                      |               |      |            |               |  
|Net loss available to common stockholders, as reported                                                                    |                      | $             | (246 | )          |               | $ | (140 | )    
|Add: Stock-based employee compensation expense included in
    reported net loss, net of taxes                            |                      |               | 3    |            |               |   | 5    |      
|Deduct: Total stock-based compensation expense, determined under
    fair-value based method for all awards, net of taxes |                      |               | 5    |            |               |   | 9    |      
|                                                                                                                          |                      |               |      |            |               |  
|Net loss available to common stockholders, pro forma                                                                      |                      | $             | (248 | )          |               | $ | (144 | )    
|                                                                                                                          |                      |               |      |            |               |  
|Loss per share:                                                                                                           |                      |               |      |            |               |   |      |      
|                                                                                                                          | Basic, as reported   |               | $    | (0.38      | )             |   | $    | (0.22 | )
|                                                                                                                          |                      |               |      |            |               |  
|                                                                                                                          | Basic, pro forma     |               | $    | (0.39      | )             |   | $    | (0.23 | )
|                                                                                                                          |                      |               |      |            |               |  
|                                                                                                                          | Diluted, as reported |               | $    | (0.38      | )             |   | $    | (0.19 | )
|                                                                                                                          |                      |               |      |            |               |  
|                                                                                                                          | Diluted, pro forma   |               | $    | (0.39      | )             |   | $    | (0.19 | )
|                                                                                                                          |                      |               |      |            |               |  

stock-based


Non-Qualified Stock Options




|                                                          |  |            |            |          |                |          |           |             |  |  |                 |  |  |   |    | 
|--------------------------------------------------------- |  | ---------- | ---------- | -------- | -------------- | -------- | --------- | ----------- |  |  | --------------- |  |  | - | -- | 
|                                                          |  |            |            |          |                | Weighted |           |             | 
|                                                          |  |            |            |          |                | Average  |           |             | 
|                                                          |  |            |            | Weighted |                |          | Remaining |             |  | 
|                                                          |  | # Shares   |            |          | Average        |          |           | Contractual |  |  | Aggregate       | 
|                                                          |  | Underlying |            |          | Exercise Price |          |           | Term        |  |  | Intrinsic Value | 
|                                                          |  | Options    |            |          | Per Share      |          |           | (In years)  |  |  | (In millions)   | 
|                                                          |  |            |            |          |                |          |           |             |  |  |                 | 
|Outstanding at December 31, 2005                          |  |            | 28,083,485 |          |                | $        | 37.12     |             |  |  |                 |  |  |   |    | 
|Granted                                                   |  |            | 2,235,675  |          |                | $        | 12.21     |             |  |  |                 |  |  |   |    | 
|Exercised                                                 |  |            | (249,325   | )        |                | $        | 7.99      |             |  |  |                 |  |  |   |    | 
|Forfeited or canceled                                     |  |            | (338,997   | )        |                | $        | 10.50     |             |  |  |                 |  |  |   |    | 
|Expired                                                   |  |            | (2,855,642 | )        |                | $        | 38.77     |             |  |  |                 |  |  |   |    | 
|                                                          |  |            |            |          |                |          |           |             |  |  |                 | 
|Outstanding at June 30, 2006                              |  |            | 26,875,196 |          |                | $        | 35.48     |             |  |  | 5.3             |  |  | $ | 59 | 
|                                                          |  |            |            |          |                |          |           |             |  |  |                 | 
|Vested at June 30, 2006 or expected to vest in the future |  |            | 26,504,758 |          |                | $        | 35.83     |             |  |  | 5.2             |  |  | $ | 57 | 
|                                                          |  |            |            |          |                |          |           |             |  |  |                 | 
|Exercisable at June 30, 2006                              |  |            | 19,466,428 |          |                | $        | 45.16     |             |  |  | 4.0             |  |  | $ | 22 | 
|                                                          |  |            |            |          |                |          |           |             |  |  |                 | 



23



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Fair Value Assumptions.


|                        |  |          |      |   |            |  |      |      |  |  |      |   |  |  |      |  
|----------------------- |  | -------- | ---- | - | ---------- |  | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                        |  | Quarters |      |   | Six Months | 
|                        |  | Ended    |      |   | Ended      | 
|                        |  | June 30, |      |   | June 30,   | 
|                        |  |          |      |   |            | 
|                        |  | 2006     |      |   | 2005       |  |      | 2006 |  |  | 2005 |  
|                        |  |          |      |   |            |  |      |      |  |  |      |  
|Expected Term in Years  |  |          | 6.25 |   |            |  | 4.83 |      |  |  | 6.25 |   |  |  | 4.83 |  
|Expected Volatility     |  |          | 38   | % |            |  | 42   | %    |  |  | 38   | % |  |  | 42   | %
|Expected Dividends      |  |          | 1.3  | % |            |  | 1.5  | %    |  |  | 1.3  | % |  |  | 1.5  | %
|Risk-Free Interest Rate |  |          | 5.0  | % |            |  | 3.7  | %    |  |  | 5.0  | % |  |  | 3.7  | %



Restricted Stock




|                               |  |          |            |            |           |   |       | 
|------------------------------ |  | -------- | ---------- | ---------- | --------- | - | ----- | 
|                               |  |          |            | Weighted-  |          
|                               |  |          |            | Average    |          
|                               |  |          |            | Grant Date |          
|                               |  |          |            | Fair Value |          
|Nonvested Shares               |  | # Shares |            |            | Per Share |  
|                               |  |          |            |            |           |  
|Nonvested at December 31, 2005 |  |          | 3,916,030  |            |           | $ | 10.83 | 
|Granted                        |  |          | 1,133,701  |            |           | $ | 12.26 | 
|Vested                         |  |          | (1,819,455 | )          |           | $ | 12.32 | 
|Forfeited                      |  |          | (142,914   | )          |           | $ | 10.34 | 
|                               |  |          |            |            |           |  
|Nonvested at June 30, 2006     |  |          | 3,087,362  |            |           | $ | 10.50 | 
|                               |  |          |            |            |           |  





24



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##### Table of Contents





Employee Stock Purchase Plan




13. Business Segment Information






|                                                 |                                   |                |      |     |                  |   |      |      |  |   |       |     |  |   |      |     | 
|------------------------------------------------ | --------------------------------- | -------------- | ---- | --- | ---------------- | - | ---- | ---- |  | - | ----- | --- |  | - | ---- | --- | 
|                                                 |                                   | Quarters Ended |      |     | Six Months Ended |  
|                                                 |                                   | June 30,       |      |     | June 30,         |  
|                                                 |                                   |                |      |     |                  |  
|                                                 |                                   | 2006           |      |     | 2005             |   |      | 2006 |  |   | 2005  |    
|                                                 |                                   |                |      |     |                  |   |      |      |  |   |       |    
|                                                 |                                   | (In millions)  |     
|Total EBIT                                       |                                   | $              | 487  |     |                  | $ | 438  |      |  | $ | 1,375 |     |  | $ | 901  |    
|Interest and debt expense                        |                                   |                | (332 | )   |                  |   | (333 | )    |  |   | (680  | )   |  |   | (676 | )  
|Preferred interests of consolidated subsidiaries |                                   |                |     |     |                  |   | (3   | )    |  |   |      |     |  |   | (9   | )  
|Income taxes                                     |                                   |                | (2   | )   |                  |   | (35  | )    |  |   | (167  | )   |  |   | (36  | )  
|                                                 |                                   |                |      |     |                  |   |      |      |  |   |       |    
|                                                 | Income from continuing operations |                | $    | 153 |                  |   | $    | 67   |  |   | $     | 528 |  |   | $    | 180 | 
|                                                 |                                   |                |      |     |                  |   |      |      |  |   |       |    

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|                                         |  |               |     |             |            |   |           |         |  |   |       |   |  |              |    |  |       |   |     |   |  |   |       | 
|---------------------------------------- |  | ------------- | --- | ----------- | ---------- | - | --------- | ------- |  | - | ----- | - |  | ------------ | -- |  | ----- | - | --- | - |  | - | ----- | 
|                                         |  | Segments      |     |             |            |   |          
|                                         |  |               |     |             |            |   |          
|                                         |  |               |     | Exploration |            |   | Marketing |         |  |   |       |   |  |             
|                                         |  |               |     | and         |            |   | and       |         |  |   |       |   |  |             
|                                         |  | Pipelines     |     |             | Production |   |           | Trading |  |   | Power |   |  | Corporate(1) |    |  | Total |  
|Quarter Ended June 30,                   |  |               |     |             |            |   |           |         |  |   |       |   |  |              |    |  |       |  
|                                         |  | (In millions) |    
|2006                                     |  |               |     |             |            |   |           |         |  |   |       |   |  |              |    |  |       |   |     |   |  |   |       | 
|Revenues from external customers         |  | $             | 688 |             |            | $ | 234       | (2)     |  | $ | 255   |   |  | $            | 2  |  |       | $ | 35  |   |  | $ | 1,214 | 
|Intersegment revenues                    |  |               | 17  |             |            |   | 228       | (2)     |  |   | (237  | ) |  |              |   |  |       |   | (8  | ) |  |   |      | 
|Operation and maintenance                |  |               | 221 |             |            |   | 98        |         |  |   | 9     |   |  |              | 16 |  |       |   | 41  |   |  |   | 385   | 
|Depreciation, depletion and amortization |  |               | 115 |             |            |   | 156       |         |  |   | 1     |   |  |              | 1  |  |       |   | 5   |   |  |   | 278   | 
|Earnings from unconsolidated affiliates  |  |               | 43  |             |            |   | 1         |         |  |   |      |   |  |              | 8  |  |       |   |    |   |  |   | 52    | 
|EBIT                                     |  |               | 335 |             |            |   | 163       |         |  |   | 13    |   |  |              | 10 |  |       |   | (34 | ) |  |   | 487   | 

|                                                 |  |               |     |             |            |   |           |         |  |   |       |       |  |          |     |   |              |   |    |       |  |   |     |   |  |   |       |    
|------------------------------------------------ |  | ------------- | --- | ----------- | ---------- | - | --------- | ------- |  | - | ----- | ----- |  | -------- | --- | - | ------------ | - | -- | ----- |  | - | --- | - |  | - | ----- | ---
|                                                 |  | Segments      |     |             |            |   |          
|                                                 |  |               |     |             |            |   |          
|                                                 |  |               |     | Exploration |            |   | Marketing |         |  |   |       |       |  |         
|                                                 |  |               |     | and         |            |   | and       |         |  |   |       | Field |  |          |     |   |             
|                                                 |  | Pipelines     |     |             | Production |   |           | Trading |  |   | Power |       |  | Services |     |   | Corporate(1) |   |    | Total | 
|                                                 |  |               |     |             |            |   |           |         |  |   |       |       |  |          |     |   |              |   |    |       | 
|                                                 |  | (In millions) |    
|2005                                             |  |               |     |             |            |   |           |         |  |   |       |       |  |          |     |   |              |   |    |       |  |   |     |   |  |   |       |    
|Revenues from external customers                 |  | $             | 634 |             |            | $ | 171       | (2)     |  | $ | 240   |       |  | $        | 57  |   |              | $ | 23 |       |  | $ | 24  |   |  | $ | 1,149 |    
|Intersegment revenues                            |  |               | 19  |             |            |   | 281       | (2)     |  |   | (261  | )     |  |          | (3  | ) |              |   | 5  |       |  |   | (21 | ) |  |   | 20    | (3)
|Operation and maintenance                        |  |               | 214 |             |            |   | 99        |         |  |   | 9     |       |  |          | 25  |   |              |   | 4  |       |  |   | 34  |   |  |   | 385   |    
|Depreciation, depletion and amortization         |  |               | 108 |             |            |   | 157       |         |  |   | 1     |       |  |          |    |   |              |   | 1  |       |  |   | 17  |   |  |   | 284   |    
|(Gain) loss on long-lived assets                 |  |               | (3  | )           |            |   |          |         |  |   |      |       |  |          | 1   |   |              |   | 6  |       |  |   | (4  | ) |  |   |      |    
|Earnings (losses) from unconsolidated affiliates |  |               | 38  |             |            |   |          |         |  |   |      |       |  |          | (59 | ) |              |   | 2  |       |  |   |    |   |  |   | (19   | )  
|EBIT                                             |  |               | 309 |             |            |   | 176       |         |  |   | (30   | )     |  |          | (2  | ) |              |   | (3 | )     |  |   | (12 | ) |  |   | 438   |    






| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 June 30,
    2006 and 2005, we recorded an intersegment revenue elimination
    of $8 million and $21 million and operation and
    maintenance expense eliminations of less than $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
    commodity 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.                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                                     |  |               |       |             |            |   |           |         |  |   |       |   |  |              |    |  |       |   |     |   |  |   |       | 
|---------------------------------------------------- |  | ------------- | ----- | ----------- | ---------- | - | --------- | ------- |  | - | ----- | - |  | ------------ | -- |  | ----- | - | --- | - |  | - | ----- | 
|                                                     |  | Segments      |       |             |            |   |          
|                                                     |  |               |       |             |            |   |          
|                                                     |  |               |       | Exploration |            |   | Marketing |         |  |   |       |   |  |             
|                                                     |  |               |       | and         |            |   | and       |         |  |   |       |   |  |             
|                                                     |  | Pipelines     |       |             | Production |   |           | Trading |  |   | Power |   |  | Corporate(1) |    |  | Total |  
|Six Months Ended June 30,                            |  |               |       |             |            |   |           |         |  |   |       |   |  |              |    |  |       |  
|                                                     |  | (In millions) |      
|2006                                                 |  |               |       |             |            |   |           |         |  |   |       |   |  |              |    |  |       |   |     |   |  |   |       | 
|Revenues from external customers                     |  | $             | 1,511 |             |            | $ | 315       | (2)     |  | $ | 853   |   |  | $            | 3  |  |       | $ | 63  |   |  | $ | 2,745 | 
|Intersegment revenues                                |  |               | 31    |             |            |   | 613       | (2)     |  |   | (630  | ) |  |              |   |  |       |   | (14 | ) |  |   |      | 
|Operation and maintenance                            |  |               | 438   |             |            |   | 186       |         |  |   | 12    |   |  |              | 30 |  |       |   | 53  |   |  |   | 719   | 
|Depreciation, depletion and amortization             |  |               | 230   |             |            |   | 302       |         |  |   | 2     |   |  |              | 1  |  |       |   | 15  |   |  |   | 550   | 
|Earnings (losses) from unconsolidated
    affiliates |  |               | 75    |             |            |   | 8         |         |  |   |      |   |  |              | 15 |  |       |   | (1  | ) |  |   | 97    | 
|EBIT                                                 |  |               | 813   |             |            |   | 362       |         |  |   | 221   |   |  |              | 13 |  |       |   | (34 | ) |  |   | 1,375 | 

26



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|                                                 |  |               |       |             |            |   |           |         |  |   |       |       |  |          |     |   |              |   |     |       |  |   |      |   |  |   |       |    
|------------------------------------------------ |  | ------------- | ----- | ----------- | ---------- | - | --------- | ------- |  | - | ----- | ----- |  | -------- | --- | - | ------------ | - | --- | ----- |  | - | ---- | - |  | - | ----- | ---
|                                                 |  | Segments      |       |             |            |   |          
|                                                 |  |               |       |             |            |   |          
|                                                 |  |               |       | Exploration |            |   | Marketing |         |  |   |       |       |  |         
|                                                 |  |               |       | and         |            |   | and       |         |  |   |       | Field |  |          |     |   |             
|                                                 |  | Pipelines     |       |             | Production |   |           | Trading |  |   | Power |       |  | Services |     |   | Corporate(1) |   |     | Total | 
|                                                 |  |               |       |             |            |   |           |         |  |   |       |       |  |          |     |   |              |   |     |       | 
|                                                 |  | (In millions) |      
|2005                                             |  |               |       |             |            |   |           |         |  |   |       |       |  |          |     |   |              |   |     |       |  |   |      |   |  |   |       |    
|Revenues from external customers                 |  | $             | 1,382 |             |            | $ | 302       | (2)     |  | $ | 333   |       |  | $        | 82  |   |              | $ | 65  |       |  | $ | 51   |   |  | $ | 2,215 |    
|Intersegment revenues                            |  |               | 39    |             |            |   | 589       | (2)     |  |   | (529  | )     |  |          | (5  | ) |              |   | 11  |       |  |   | (63  | ) |  |   | 42    | (3)
|Operation and maintenance                        |  |               | 417   |             |            |   | 183       |         |  |   | 19    |       |  |          | 45  |   |              |   | 3   |       |  |   | 129  |   |  |   | 796   |    
|Depreciation, depletion and amortization         |  |               | 219   |             |            |   | 303       |         |  |   | 2     |       |  |          | 1   |   |              |   | 2   |       |  |   | 26   |   |  |   | 553   |    
|(Gain) loss on long-lived assets                 |  |               | (10   | )           |            |   |          |         |  |   |      |       |  |          | 14  |   |              |   | 7   |       |  |   | (4   | ) |  |   | 7     |    
|Earnings (losses) from unconsolidated affiliates |  |               | 76    |             |            |   |          |         |  |   |      |       |  |          | (87 | ) |              |   | 182 |       |  |   |     |   |  |   | 171   |    
|EBIT                                             |  |               | 721   |             |            |   | 359       |         |  |   | (215  | )     |  |          | (41 | ) |              |   | 179 |       |  |   | (102 | ) |  |   | 901   |    






| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 six months ended June 30,
    2006 and 2005, we recorded an intersegment revenue elimination
    of $14 million and $63 million and operation and
    maintenance expense eliminations of $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
    commodity 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.                                                                                                                                                                                                                                                                                                                                                                                                                                   



|                           |                           |               |        |        |              |   |        |        | 
|-------------------------- | ------------------------- | ------------- | ------ | ------ | ------------ | - | ------ | ------ | 
|                           |                           | June 30,      |        |        | December 31, |  
|                           |                           | 2006          |        |        | 2005         |  
|                           |                           |               |        |        |              |  
|                           |                           | (In millions) |       
|Pipelines                  |                           | $             | 16,765 |        |              | $ | 16,447 |       
|Exploration and Production |                           |               | 5,901  |        |              |   | 5,570  |       
|Marketing and Trading      |                           |               | 1,652  |        |              |   | 3,819  |       
|Power                      |                           |               | 805    |        |              |   | 1,176  |       
|Field Services             |                           |               |       |        |              |   | 99     |       
|                           |                           |               |        |        |              |  
|                           | Total segment assets      |               |        | 25,123 |              |   |        | 27,111 | 
|Corporate                  |                           |               | 3,616  |        |              |   | 4,144  |       
|Discontinued operations    |                           |               | 38     |        |              |   | 583    |       
|                           |                           |               |        |        |              |  
|                           | Total consolidated assets |               | $      | 28,777 |              |   | $      | 31,838 | 
|                           |                           |               |        |        |              |  

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



|                                                       |                                            |                |  |                           |               |   |    |            |    |   |      |     |     |      |    |    |    |   |     |     |     |  
|------------------------------------------------------ | ------------------------------------------ | -------------- |  | ------------------------- | ------------- | - | -- | ---------- | -- | - | ---- | --- | --- | ---- | -- | -- | -- | - | --- | --- | --- | -
|                                                       |                                            |                |  | Earnings (Losses) from    |              
|                                                       |                                            |                |  | Unconsolidated Affiliates |              
|                                                       |                                            |                |  |                           |              
|                                                       |                                            | Net            |  |                           |               |   |   
|                                                       |                                            | Ownership      |  |                           | Quarters      |   |    | Six Months |   
|                                                       |                                            | Interest       |  |                           | Ended         |   |    | Ended      |   
|                                                       |                                            |                |  |                           | June 30,      |   |    | June 30,   |   
|                                                       |                                            | June 30,       |  |                           |               |   |    |            |   
|                                                       |                                            | 2006           |  |                           | 2006          |   |    | 2005       |    |   | 2006 |     |     | 2005 |   
|                                                       |                                            |                |  |                           |               |   |    |            |    |   |      |     |     |      |   
|                                                       |                                            | (Percent)      |  |                           | (In millions) |  
|Domestic:                                              |                                            |                |  |                           |               |   |    |            |    |   |      |     |     |      |    |    |    |   |     |    
|                                                       | Citrus Corporation                         |                |  | 50                        |               |   | $  | 19         |    |   | $    | 18  |     |      | $  | 29 |    |   | $   | 33  |    
|                                                       | Great Lakes Gas Transmission Company       |                |  | 50                        |               |   |    | 14         |    |   |      | 14  |     |      |    | 30 |    |   |     | 31  |    
|                                                       | Four Star Oil & Gas
    Company(1)         |                |  | 43                        |               |   |    | 1          |    |   |      |    |     |      |    | 8  |    |   |     |    |    
|                                                       | Enterprise Products Partners,
    L.P. (2) |                |  |                          |               |   |    |           |    |   |      |    |     |      |    |   |    |   |     | 183 |    
|                                                       | Other Domestic Investments                 |                |  | various                   |               |   |    | 5          |    |   |      |    |     |      |    | 5  |    |   |     | 3   |    
|                                                       |                                            |                |  |                           |               |   |    |            |    |   |      |     |     |      |   
|                                                       |                                            | Total domestic |  |                           |               |   |    |            | 39 |   |      |     | 32  |      |    |    | 72 |   |     |     | 250 |  
|                                                       |                                            |                |  |                           |               |   |    |            |    |   |      |     |     |      |   
|Foreign:                                               |                                            |                |  |                           |               |   |    |            |    |   |      |     |     |      |    |    |    |   |     |    
|                                                       | Asia
    Investments(3)                    |                |  | various                   |               |   |    | (7         | )  |   |      |    |     |      |    | (4 | )  |   |     | (46 | )  
|                                                       | Central American
    Investments(4)        |                |  | various                   |               |   |    | 1          |    |   |      | (55 | )   |      |    | (1 | )  |   |     | (49 | )  
|                                                       | Other Foreign Investments                  |                |  | various                   |               |   |    | 19         |    |   |      | 4   |     |      |    | 30 |    |   |     | 16  |    
|                                                       |                                            |                |  |                           |               |   |    |            |    |   |      |     |     |      |   
|                                                       |                                            | Total foreign  |  |                           |               |   |    |            | 13 |   |      |     | (51 | )    |    |    | 25 |   |     |     | (79 | )
|                                                       |                                            |                |  |                           |               |   |    |            |    |   |      |     |     |      |   
|Total earnings (losses) from unconsolidated affiliates |                                            |                |  |                           |               | $ | 52 |            |    | $ | (19  | )   |     | $    | 97 |    |    | $ | 171 |    
|                                                       |                                            |                |  |                           |               |   |    |            |    |   |      |     |     |      |   






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We acquired our interest in Four Star in connection with our
    acquisition of Medicine Bow in the third quarter of 2005. During
    the quarter and six months ended June 30, 2006, our
    proportionate share of Four Stars earnings was
    $14 million and $35 million. These amounts were
    reduced by amortization of our purchase cost in excess of the
    underlying net assets of Four Star of $13 million and
    $27 million during the same periods.
|(2) | In January 2005, we sold all of our remaining interests to
    Enterprise.                                                                                                                                                                                                                                                                                                                                                                                            
|(3) | As of June 30, 2006, consists of our investments in five
    power plants, one of which was sold in July 2006 and three of
    which are under sales contracts.                                                                                                                                                                                                                                                                                                       
|(4) | As of June 30, 2006, consists of our investment in a power
    plant in Nicaragua, which is under a sales contract.                                                                                                                                                                                                                                                                                                                                                   



|                                   |  |               |    |   |            |   |     |      |  |   |      |   |  |   |     |  
|---------------------------------- |  | ------------- | -- | - | ---------- | - | --- | ---- |  | - | ---- | - |  | - | --- | -
|                                   |  | Quarters      |    |   | Six Months |  
|                                   |  | Ended         |    |   | Ended      |  
|                                   |  | June 30,      |    |   | June 30,   |  
|                                   |  |               |    |   |            |  
|Investment or Group                |  | 2006          |    |   | 2005       |   |     | 2006 |  |   | 2005 |  
|                                   |  |               |    |   |            |   |     |      |  |   |      |  
|                                   |  | (In millions) |   
|Asian power investments            |  | $             | (7 | ) |            | $ | (11 | )    |  | $ | (7   | ) |  | $ | (71 | )
|Central American power investments |  |               |   |   |            |   | (57 | )    |  |   | (2   | ) |  |   | (57 | )
|Enterprise                         |  |               |   |   |            |   |    |      |  |   |     |   |  |   | 183 |  
|Other foreign investments          |  |               | 2  |   |            |   | (16 | )    |  |   | 2    |   |  |   | (17 | )
|Other                              |  |               |   |   |            |   | (3  | )    |  |   |     |   |  |   | (6  | )
|                                   |  |               |    |   |            |   |     |      |  |   |      |  
|                                   |  | $             | (5 | ) |            | $ | (87 | )    |  | $ | (7   | ) |  | $ | 32  |  
|                                   |  |               |    |   |            |   |     |      |  |   |      |  

28



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|                       |                                   |                |   |            |          |  |   |      |  |  |      |     |  |  |   |     | 
|---------------------- | --------------------------------- | -------------- | - | ---------- | -------- |  | - | ---- |  |  | ---- | --- |  |  | - | --- | 
|                       |                                   |                |   | Six Months |         
|                       |                                   | Quarters Ended |   |            | Ended    | 
|                       |                                   | June 30,       |   |            | June 30, | 
|                       |                                   |                |   |            |          | 
|                       |                                   | 2006           |   |            | 2005     |  |   | 2006 |  |  | 2005 |    
|                       |                                   |                |   |            |          |  |   |      |  |  |      |    
|                       |                                   | (In millions)  |  
|Operating results data |                                   |                |   |            |          |  |   |      |  |  |      |     |  |  |   |    
|                       | Revenues                          |                | $ | 346        |          |  | $ | 404  |  |  | $    | 685 |  |  | $ | 752 | 
|                       | Operating expenses                |                |   | 231        |          |  |   | 277  |  |  |      | 509 |  |  |   | 418 | 
|                       | Income from continuing operations |                |   | 59         |          |  |   | 50   |  |  |      | 51  |  |  |   | 209 | 
|                       | Net
    income(1)                 |                |   | 59         |          |  |   | 50   |  |  |      | 51  |  |  |   | 209 | 






|    |                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes net income of $4 million and $10 million for
    the quarters ended June 30, 2006 and 2005, and
    $9 million and $14 million for the six months ended
    June 30, 2006 and 2005, related to our proportionate
    share of affiliates in which we hold a greater than
    50 percent interest.



Related Party
Transactions




|                                     |  |               |    |  |            |   |    |      |  |   |      |  |  |   |    | 
|------------------------------------ |  | ------------- | -- |  | ---------- | - | -- | ---- |  | - | ---- |  |  | - | -- | 
|                                     |  | Quarters      |    |  | Six Months |  
|                                     |  | Ended         |    |  | Ended      |  
|                                     |  | June 30,      |    |  | June 30,   |  
|                                     |  |               |    |  |            |  
|                                     |  | 2006          |    |  | 2005       |   |    | 2006 |  |   | 2005 | 
|                                     |  |               |    |  |            |   |    |      |  |   |      | 
|                                     |  | (In millions) |   
|Operating revenue                    |  | $             | 27 |  |            | $ | 43 |      |  | $ | 61   |  |  | $ | 92 | 
|Cost of sales                        |  |               | 3  |  |            |   | 2  |      |  |   | 4    |  |  |   | 6  | 
|Reimbursement for operating expenses |  |               | 1  |  |            |   |   |      |  |   | 2    |  |  |   | 1  | 
|Other income                         |  |               | 13 |  |            |   | 15 |      |  |   | 26   |  |  |   | 29 | 

Matters that Could Impact Our
Investments


Domestic Power.




29



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##### Table of Contents





Investments in Asia and Central America.


Investment in Bolivia


Investment in Argentina.


Citrus.


30



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##### Table of Contents








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

8-K 10-Q.


Overview




What to Expect Going Forward.






Segment Results






31



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|                                                 |                                   |                                              |      |     |                  |   |      |      |     |   |      |     |       |   |      |      |       | 
|------------------------------------------------ | --------------------------------- | -------------------------------------------- | ---- | --- | ---------------- | - | ---- | ---- | --- | - | ---- | --- | ----- | - | ---- | ---- | ----- | 
|                                                 |                                   | Quarters Ended                               |      |     | Six Months Ended |  
|                                                 |                                   | June 30,                                     |      |     | June 30,         |  
|                                                 |                                   |                                              |      |     |                  |  
|                                                 |                                   | 2006                                         |      |     | 2005             |   |      | 2006 |     |   | 2005 |    
|                                                 |                                   |                                              |      |     |                  |   |      |      |     |   |      |    
|                                                 |                                   | (In millions)                                |     
|Pipelines                                        |                                   | $                                            | 335  |     |                  | $ | 309  |      |     | $ | 813  |     |       | $ | 721  |     
|Exploration and Production                       |                                   |                                              | 163  |     |                  |   | 176  |      |     |   | 362  |     |       |   | 359  |     
|Marketing and Trading                            |                                   |                                              | 13   |     |                  |   | (30  | )    |     |   | 221  |     |       |   | (215 | )   
|Power                                            |                                   |                                              | 10   |     |                  |   | (2   | )    |     |   | 13   |     |       |   | (41  | )   
|Field Services                                   |                                   |                                              |     |     |                  |   | (3   | )    |     |   |     |     |       |   | 179  |     
|                                                 |                                   |                                              |      |     |                  |   |      |      |     |   |      |    
|                                                 |                                   | Segment EBIT                                 |      |     | 521              |   |      |      | 450 |   |      |     | 1,409 |   |      |      | 1,003 | 
|Corporate                                        |                                   |                                              | (34  | )   |                  |   | (12  | )    |     |   | (34  | )   |       |   | (102 | )   
|                                                 |                                   |                                              |      |     |                  |   |      |      |     |   |      |    
|                                                 |                                   | Consolidated EBIT from continuing operations |      |     | 487              |   |      |      | 438 |   |      |     | 1,375 |   |      |      | 901   | 
|Interest and debt expense                        |                                   |                                              | (332 | )   |                  |   | (333 | )    |     |   | (680 | )   |       |   | (676 | )   
|Preferred interests of consolidated subsidiaries |                                   |                                              |     |     |                  |   | (3   | )    |     |   |     |     |       |   | (9   | )   
|Income taxes                                     |                                   |                                              | (2   | )   |                  |   | (35  | )    |     |   | (167 | )   |       |   | (36  | )   
|                                                 |                                   |                                              |      |     |                  |   |      |      |     |   |      |    
|                                                 | Income from continuing operations |                                              |      | 153 |                  |   |      | 67   |     |   |      | 528 |       |   |      | 180  |      
|Discontinued operations, net of income taxes     |                                   |                                              | (3   | )   |                  |   | (305 | )    |     |   | (22  | )   |       |   | (312 | )   
|                                                 |                                   |                                              |      |     |                  |   |      |      |     |   |      |    
|                                                 | Net income (loss)                 |                                              | $    | 150 |                  |   | $    | (238 | )   |   | $    | 506 |       |   | $    | (132 | )    
|                                                 |                                   |                                              |      |     |                  |   |      |      |     |   |      |    

Pipelines Segment




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



|                            |                  |                |        |     |                  |   |        |      |  |   |        |     |  |   |        |     | 
|--------------------------- | ---------------- | -------------- | ------ | --- | ---------------- | - | ------ | ---- |  | - | ------ | --- |  | - | ------ | --- | 
|                            |                  | Quarters Ended |        |     | Six Months Ended |  
|                            |                  | June 30,       |        |     | June 30,         |  
|                            |                  |                |        |     |                  |  
|                            |                  | 2006           |        |     | 2005             |   |        | 2006 |  |   | 2005   |    
|                            |                  |                |        |     |                  |   |        |      |  |   |        |    
|                            |                  | (In millions)  |       
|Operating revenues          |                  | $              | 705    |     |                  | $ | 653    |      |  | $ | 1,542  |     |  | $ | 1,421  |    
|Operating expenses          |                  |                | (421   | )   |                  |   | (391   | )    |  |   | (820   | )   |  |   | (797   | )  
|                            |                  |                |        |     |                  |   |        |      |  |   |        |    
|                            | Operating income |                |        | 284 |                  |   |        | 262  |  |   |        | 722 |  |   |        | 624 | 
|Other income                |                  |                | 51     |     |                  |   | 47     |      |  |   | 91     |     |  |   | 97     |    
|                            |                  |                |        |     |                  |   |        |      |  |   |        |    
|                            | EBIT             |                | $      | 335 |                  |   | $      | 309  |  |   | $      | 813 |  |   | $      | 721 | 
|                            |                  |                |        |     |                  |   |        |      |  |   |        |    
|Throughput volumes (BBtu/d) |                  |                | 21,042 |     |                  |   | 20,316 |      |  |   | 21,670 |     |  |   | 21,444 |    
|                            |                  |                |        |     |                  |   |        |      |  |   |        |    

32



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|                                                                                              |                      |                         |     |    |                           |   |     |        |   |   |        |   |  |         |     |    |         |   |     |        |  |   |        |     |   |   |    |    |   |   |     |    | 
|--------------------------------------------------------------------------------------------- | -------------------- | ----------------------- | --- | -- | ------------------------- | - | --- | ------ | - | - | ------ | - |  | ------- | --- | -- | ------- | - | --- | ------ |  | - | ------ | --- | - | - | -- | -- | - | - | --- | -- | 
|                                                                                              |                      | Quarter Ended June 30,  |     |    | Six Months Ended June 30, |  
|                                                                                              |                      |                         |     |    |                           |  
|                                                                                              |                      | Variance                |     |    | Variance                  |  
|                                                                                              |                      |                         |     |    |                           |  
|                                                                                              |                      | Revenue                 |     |    | Expense                   |   |     | Other  |   |   | EBIT   |   |  | Revenue |     |    | Expense |   |     | Other  |  |   | EBIT   |    
|                                                                                              |                      | Impact                  |     |    | Impact                    |   |     | Impact |   |   | Impact |   |  | Impact  |     |    | Impact  |   |     | Impact |  |   | Impact |    
|                                                                                              |                      |                         |     |    |                           |   |     |        |   |   |        |   |  |         |     |    |         |   |     |        |  |   |        |    
|                                                                                              |                      | Favorable/(Unfavorable) |    
|                                                                                              |                      | (In millions)           |    
|Higher reservation and services revenues                                                      |                      | $                       | 42  |    |                           | $ |    |        |   | $ |       |   |  | $       | 42  |    |         | $ | 101 |        |  | $ |       |     |   | $ |   |    |   | $ | 101 |   
|Gas not used in operations, revaluations, processing revenues
    and other natural gas sales |                      |                         | 9   |    |                           |   | (13 | )      |   |   |       |   |  |         | (4  | )  |         |   | 28  |        |  |   | 8      |     |   |   |   |    |   |   | 36  |   
|Pipeline expansions                                                                           |                      |                         | 18  |    |                           |   | (2  | )      |   |   | (4     | ) |  |         | 12  |    |         |   | 37  |        |  |   | (4     | )   |   |   | (5 | )  |   |   | 28  |   
|Contract restructurings/settlements                                                           |                      |                         | (14 | )  |                           |   |    |        |   |   | (1     | ) |  |         | (15 | )  |         |   | (43 | )      |  |   |       |     |   |   | (1 | )  |   |   | (44 | ) 
|Hurricanes Katrina and Rita                                                                   |                      |                         |    |    |                           |   | (8  | )      |   |   |       |   |  |         | (8  | )  |         |   |    |        |  |   | (18    | )   |   |   |   |    |   |   | (18 | ) 
|Higher depreciation expense                                                                   |                      |                         |    |    |                           |   | (6  | )      |   |   |       |   |  |         | (6  | )  |         |   |    |        |  |   | (8     | )   |   |   |   |    |   |   | (8  | ) 
|Higher pipeline integrity expense                                                             |                      |                         |    |    |                           |   | (6  | )      |   |   |       |   |  |         | (6  | )  |         |   |    |        |  |   | (7     | )   |   |   |   |    |   |   | (7  | ) 
|Other(1)                                                                                      |                      |                         | (3  | )  |                           |   | 5   |        |   |   | 9      |   |  |         | 11  |    |         |   | (2  | )      |  |   | 6      |     |   |   |   |    |   |   | 4   |   
|                                                                                              |                      |                         |     |    |                           |   |     |        |   |   |        |   |  |         |     |    |         |   |     |        |  |   |        |    
|                                                                                              | Total impact on EBIT |                         | $   | 52 |                           |   | $   | (30    | ) |   | $      | 4 |  |         | $   | 26 |         |   | $   | 121    |  |   | $      | (23 | ) |   | $  | (6 | ) |   | $   | 92 | 
|                                                                                              |                      |                         |     |    |                           |   |     |        |   |   |        |   |  |         |     |    |         |   |     |        |  |   |        |    






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

Higher Reservation and Other Services Revenues.


Gas Not Used in Operations, Revaluations, Processing Revenues
and Other Natural Gas Sales. 8-K


Pipeline Expansions.




33



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Contract Restructurings/Settlements.


Hurricanes Katrina and Rita.


Higher Depreciation Expense.


Pipeline Integrity Costs.


Other Regulatory Matter.


Exploration and Production Segment




| |         
| | --------
| | Overview



34



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| |                                                            
| | -----------------------------------------------------------
| | Significant Operational Factors Since December 31,
    2005



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Higher realized prices. We continued to benefit from a
    strong commodity pricing environment in the first six months of
    2006. Realized natural gas prices, which include the impact of
    our hedges, increased six percent while oil, condensate and NGL
    prices increased 37 percent compared to the first six
    months of 2005.                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Average daily production of 707 MMcfe/d (excluding
    68 MMcfe/d from our equity investment in Four Star).
    Our consolidated average daily equivalent production volumes
    have been lower than expected due to continued shut-in
    production volumes in our Gulf of Mexico and south Louisiana
    region caused by hurricanes in the Gulf of Mexico during 2005 as
    well as delays in the installation of new facilities. However,
    when including our proportionate share of production volumes
    from our equity investment in Four Star, average daily
    equivalent production volumes were level when compared with the
    first six months of 2005. Our production results by region were
    as follows during the first six months of 2006:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Onshore. We have continued to increase production volumes
    as a result of our successful drilling and acquisition programs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Gulf of Mexico and south Louisiana. Since the end of
    2005, production in our Gulf of Mexico and south Louisiana
    region has increased as we brought on-line several new
    discoveries and continued to bring shut-in volumes from the
    hurricanes back on-line. During the first six months of 2006,
    the negative impact of shut-in volumes from the hurricanes was
    approximately 21 MMcfe/d. Approximately 13 MMcfe/d
    remains shut-in, which we expect to bring back on-line during
    the remainder of 2006. In addition, our new discoveries at West
    Cameron Blocks 75 and 62 came on-line later than expected
    which also negatively impacted our first quarter anticipated
    volumes by an estimated 20 MMcfe/d and our second quarter
    anticipated volumes by an estimated 13 MMcfe/d.
|
| | Texas Gulf Coast. Our capital program in this region has
    stabilized production volumes over the last three quarters. In
    the second quarter of 2006, we completed the sale of certain
    non-strategic south Texas natural gas and oil properties for
    approximately $74 million. These properties had an average
    daily production of approximately 5 MMcfe/d and remaining
    reserves of approximately 16 Bcfe at the time of the sale.                                                                                                                                                                                                                                                                                                                                                                        
|
| | Brazil. Average daily production volumes decreased to
    27 MMcfe/d in 2006 from 54 MMcfe/d during the same
    period in 2005 due to a contractual reduction in 2006 of our
    ownership interest in Uno Paso from 79 percent to
    35 percent. In July 2006, we entered into an agreement to
    sell some of our non-producing natural gas and oil properties,
    which we expect to close by the end of 2006 for approximately
    $38 million.                                                                                                                                                                                                                                                                                                                                                                          



| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | Capital expenditures. Our capital expenditures totaled
    $531 million, which includes $46 million of accrued
    capital expenditures.
|
| |  | Drilling results. Our drilling results by region in 2006
    were as follows:                                                           



| |                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Onshore. We experienced a 100 percent success rate
    on 214 gross wells drilled resulting in production growth
    in the Rockies, Black Warrior Basin, Arklatex and Arkoma
    operating areas.                                                                                                    
|
| | Gulf of Mexico and south Louisiana. Overall, we
    experienced a 100 percent success rate on eight gross
    wells drilled. In May 2006, we brought our West Cameron Blocks
    75 and 62 discoveries in the Gulf of Mexico and our two Long
    Point wells in Vermillion Parish, Louisiana on-line.

35



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Texas Gulf Coast. We experienced a 90 percent
    success rate on 20 gross wells drilled. Continued success
    with the Wilcox (Renger Field) exploitation program in Lavaca
    County, Texas, saw the development of additional pay zones
    within the field area. The shallow Vicksburg development program
    in Starr and Hidalgo Counties, Texas provided consistent results
    on existing base properties.                             
|
| | International. In Brazil, we recompleted two wells in our
    Pescada-Arabaiana Field. We signed a rig contract and are
    preparing to drill two exploratory wells in the vicinity of the
    Pinauna Field scheduled for the second half of 2006. The
    submitted plan of development on our
    17-well development
    program in the Pinauna Field will be reviewed to incorporate the
    technical results of these two exploratory wells.
|
| | In Egypt, we were awarded the South Mariut Block for
    $3 million in April 2006, and agreed to a $22 million
    firm working commitment over three years. The block is about
    1.1 million acres and is located onshore in the western
    part of the Nile Delta.                                                                                                                                                                             



| |                 
| | ----------------
| | Outlook for 2006





| |   |                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Capital expenditures between $475 million and
    $525 million for the remainder of 2006;                                                                                                                                       
|
| |  | Average daily production volumes for the year to average at the
    low end of the range of approximately 755 MMcfe/d to
    780 MMcfe/d, which excludes approximately 70 MMcfe/d
    from our equity interest in Four Star;    
|
| |  | Average cash operating costs of approximately $1.64/ Mcfe to
    $1.71/ Mcfe for the year;                                                                                                                                      
|
| |  | A unit of production depletion rate of between $2.25/Mcfe and
    $2.30/ Mcfe in the third quarter of 2006 compared with $2.24/
    Mcfe in the second quarter of 2006 and;                                                     
|
| |  | Continued industry-wide increases in drilling and oilfield
    service costs that will require constant monitoring of capital
    spending programs and a mitigation effort designed to manage and
    improve field efficiency.



| |                                 
| | --------------------------------
| | Price Risk Management Activities



|                   |           |             |  |     |           |  |   |             |  |  |                   |     |  |         |   |      |       |  |  |         |  |  |   |       |  |  |  |     | 
|------------------ | --------- | ----------- |  | --- | --------- |  | - | ----------- |  |  | ----------------- | --- |  | ------- | - | ---- | ----- |  |  | ------- |  |  | - | ----- |  |  |  | --- | 
|                   |           | Fixed Price |  |     |           |  |   |             | 
|                   |           | Swaps(1)    |  |     | Floors(1) |  |   | Ceilings(1) |  |  | Basis Swaps(1)(3) |    
|                   |           |             |  |     |           |  |   |             |  |  |                   |    
|                   |           | Volumes     |  |     | Price     |  |   | Volumes     |  |  | Price             |     |  | Volumes |   |      | Price |  |  | Volumes | 
|                   |           |             |  |     |           |  |   |             |  |  |                   |     |  |         |   |      |       |  |  |         | 
|Natural
    Gas(2) |           |             |  |     |           |  |   |             |  |  |                   |     |  |         |   |      |       |  |  |         |  |  |   |       |  |  |  |    
|                   | 2006      |             |  | 43  |           |  | $ | 6.15        |  |  |                   |    |  |         |   |     |       |  |  |        |  |  |   |      |  |  |  | 49  | 
|                   | 2007      |             |  | 5   |           |  | $ | 3.56        |  |  |                   | 130 |  |         | $ | 8.00 |       |  |  | 130     |  |  | $ | 16.02 |  |  |  | 110 | 
|                   | 2008      |             |  | 5   |           |  | $ | 3.42        |  |  |                   |    |  |         |   |     |       |  |  |        |  |  |   |      |  |  |  |    | 
|                   | 2009-2012 |             |  | 16  |           |  | $ | 3.74        |  |  |                   |    |  |         |   |     |       |  |  |        |  |  |   |      |  |  |  |    | 
|Oil                |           |             |  |     |           |  |   |             |  |  |                   |     |  |         |   |      |       |  |  |         |  |  |   |       |  |  |  |    
|                   | 2006      |             |  | 192 |           |  | $ | 35.15       |  |  |                   |    |  |         |   |     |       |  |  |        |  |  |   |      |  |  |  |    | 
|                   | 2007      |             |  | 192 |           |  | $ | 35.15       |  |  |                   |    |  |         |   |     |       |  |  |        |  |  |   |      |  |  |  |    | 

36



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|    |                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Volumes presented are TBtu for natural gas and MBbl for oil.
    Prices presented are per MMBtu of natural gas and per Bbl of oil.                                                                                                                                                           
|   
|(2) | The hedged natural gas prices in the table represent the price
    on the hedge contract when it was entered or the price on the
    day it was designated as a hedge. In 2006, the average cash
    price under these hedge contracts when they settle is
    approximately $3.95 per MMBtu.
|   
|(3) | Our basis swaps effectively lock-in locational price
    differences on a portion of our natural gas production in Texas
    and Oklahoma.                                                                                                                                                 





| |                                        
| | ---------------------------------------
| | Operating Results and Variance Analysis



|                    |                                          |                                |   |      |                  |   |   |      |      |   |      |      |      |   |   |      |      |  
|------------------- | ---------------------------------------- | ------------------------------ | - | ---- | ---------------- | - | - | ---- | ---- | - | ---- | ---- | ---- | - | - | ---- | ---- | -
|                    |                                          | Quarters Ended                 |   |      | Six Months Ended |  
|                    |                                          | June 30,                       |   |      | June 30,         |  
|                    |                                          |                                |   |      |                  |  
|                    |                                          | 2006                           |   |      | 2005             |   |   | 2006 |      |   | 2005 |     
|                    |                                          |                                |   |      |                  |   |   |      |      |   |      |     
|                    |                                          | (In millions)                  |  
|Operating Revenues: |                                          |                                |   |      |                  |   |   |      |      |   |      |      |      |   |   |     
|                    | Natural gas                              |                                | $ | 326  |                  |   | $ | 354  |      |   | $    | 692  |      |   | $ | 707  |     
|                    | Oil, condensate and NGL                  |                                |   | 118  |                  |   |   | 96   |      |   |      | 208  |      |   |   | 181  |     
|                    | Other                                    |                                |   | 18   |                  |   |   | 2    |      |   |      | 28   |      |   |   | 3    |     
|                    |                                          |                                |   |      |                  |   |   |      |      |   |      |     
|                    |                                          | Total other operating revenues |   |      | 462              |   |   |      | 452  |   |      |      | 928  |   |   |      | 891  |  
|Operating Expenses: |                                          |                                |   |      |                  |   |   |      |      |   |      |      |      |   |   |     
|                    | Depreciation, depletion and amortization |                                |   | (156 | )                |   |   | (157 | )    |   |      | (302 | )    |   |   | (303 | )   
|                    | Production
    costs(1)                  |                                |   | (79  | )                |   |   | (59  | )    |   |      | (143 | )    |   |   | (114 | )   
|                    | Cost of products and
    services(2)     |                                |   | (22  | )                |   |   | (12  | )    |   |      | (44  | )    |   |   | (25  | )   
|                    | General and administrative expenses      |                                |   | (41  | )                |   |   | (43  | )    |   |      | (83  | )    |   |   | (84  | )   
|                    | Other                                    |                                |   | (3   | )                |   |   | (6   | )    |   |      | (4   | )    |   |   | (10  | )   
|                    |                                          |                                |   |      |                  |   |   |      |      |   |      |     
|                    |                                          | Total operating expenses       |   |      | (301             | ) |   |      | (277 | ) |      |      | (576 | ) |   |      | (536 | )
|                    |                                          |                                |   |      |                  |   |   |      |      |   |      |     
|                    | Operating income                         |                                |   | 161  |                  |   |   | 175  |      |   |      | 352  |      |   |   | 355  |     
|Other
    income(3) |                                          |                                | 2 |      |                  |   | 1 |      |      |   | 10   |      |      |   | 4 |     
|                    |                                          |                                |   |      |                  |   |   |      |      |   |      |     
|                    | EBIT                                     |                                | $ | 163  |                  |   | $ | 176  |      |   | $    | 362  |      |   | $ | 359  |     
|                    |                                          |                                |   |      |                  |   |   |      |      |   |      |     

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|                                                        |                                                         |                                                         |   |         |                           |  |   |          |         |  |      |     |    |      |   |         |          |  |   |         |         |  |  |     |    |   
|------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------------- | - | ------- | ------------------------- |  | - | -------- | ------- |  | ---- | --- | -- | ---- | - | ------- | -------- |  | - | ------- | ------- |  |  | --- | -- | --
|                                                        |                                                         | Quarters Ended June 30,                                 |   |         | Six Months Ended June 30, | 
|                                                        |                                                         |                                                         |   |         |                           | 
|                                                        |                                                         |                                                         |   | Percent |                           |  |   |          | Percent | 
|                                                        |                                                         | 2006                                                    |   |         | 2005                      |  |   | Variance |         |  | 2006 |     |    | 2005 |   |         | Variance | 
|                                                        |                                                         |                                                         |   |         |                           |  |   |          |         |  |      |     |    |      |   |         |          | 
|Consolidated volumes, prices and costs per unit:        |                                                         |                                                         |   |         |                           |  |   |          |         |  |      |     |    |      |   |         |          |  |   |         |         |  |  |    
|                                                        | Natural gas                                             |                                                         |   |         |                           |  |   |          |         |  |      |     |    |      |   |         |          |  |   |         |         |  |  |     |   
|                                                        |                                                         | Volumes (MMcf)                                          |   |         | 53,638                    |  |   |          | 57,790  |  |      |     | (7 | )%   |   |         | 105,667  |  |   |         | 113,948 |  |  |     | (7 | )%
|                                                        |                                                         | Average realized prices including hedges
    ($/Mcf)(4) |   | $       | 6.08                      |  |   | $        | 6.13    |  |      |     | (1 | )%   |   | $       | 6.55     |  |   | $       | 6.20    |  |  |     | 6  | % 
|                                                        |                                                         | Average realized prices excluding hedges
    ($/Mcf)(4) |   | $       | 6.34                      |  |   | $        | 6.35    |  |      |     |   | %    |   | $       | 7.05     |  |   | $       | 6.03    |  |  |     | 17 | % 
|                                                        |                                                         | Average transportation costs ($/Mcf)                    |   | $       | 0.22                      |  |   | $        | 0.17    |  |      |     | 29 | %    |   | $       | 0.23     |  |   | $       | 0.17    |  |  |     | 35 | % 
|Oil, condensate and NGL                                 |                                                         |                                                         |   |         |                           |  |   |          |         |  |      |     |    |      |   |         |          |  |   |         |         |  |  |    
|                                                        | Volumes (MBbls)                                         |                                                         |   | 1,958   |                           |  |   | 2,260    |         |  |      | (13 | )% |      |   | 3,703   |          |  |   | 4,396   |         |  |  | (16 | )%
|                                                        | Average realized prices including hedges
    ($/Bbl)(4) |                                                         | $ | 60.64   |                           |  | $ | 42.39    |         |  |      | 43  | %  |      | $ | 56.22   |          |  | $ | 41.16   |         |  |  | 37  | % 
|                                                        | Average realized prices excluding hedges
    ($/Bbl)(4) |                                                         | $ | 60.64   |                           |  | $ | 43.07    |         |  |      | 41  | %  |      | $ | 56.85   |          |  | $ | 41.68   |         |  |  | 36  | % 
|                                                        | Average transportation costs ($/Bbl)                    |                                                         | $ | 0.80    |                           |  | $ | 0.59     |         |  |      | 36  | %  |      | $ | 1.01    |          |  | $ | 0.67    |         |  |  | 51  | % 
|Total equivalent volumes                                |                                                         |                                                         |   |         |                           |  |   |          |         |  |      |     |    |      |   |         |          |  |   |         |         |  |  |    
|                                                        | MMcfe                                                   |                                                         |   | 65,386  |                           |  |   | 71,351   |         |  |      | (8  | )% |      |   | 127,886 |          |  |   | 140,327 |         |  |  | (9  | )%
|                                                        | MMcfe/d                                                 |                                                         |   | 719     |                           |  |   | 784      |         |  |      | (8  | )% |      |   | 707     |          |  |   | 775     |         |  |  | (9  | )%
|Production Costs ($/Mcfe)                               |                                                         |                                                         |   |         |                           |  |   |          |         |  |      |     |    |      |   |         |          |  |   |         |         |  |  |    
|                                                        | Average lease operating cost                            |                                                         | $ | 0.87    |                           |  | $ | 0.76     |         |  |      | 14  | %  |      | $ | 0.81    |          |  | $ | 0.69    |         |  |  | 17  | % 
|                                                        | Average production taxes                                |                                                         |   | 0.33    |                           |  |   | 0.07     |         |  |      | 371 | %  |      |   | 0.31    |          |  |   | 0.13    |         |  |  | 138 | % 
|                                                        |                                                         |                                                         |   |         |                           |  |   |          |         |  |      |     |    |      |   |         |          | 
|                                                        |                                                         | Total production
    cost(1)                            |   | $       | 1.20                      |  |   | $        | 0.83    |  |      |     | 45 | %    |   | $       | 1.12     |  |   | $       | 0.82    |  |  |     | 37 | % 
|                                                        |                                                         |                                                         |   |         |                           |  |   |          |         |  |      |     |    |      |   |         |          | 
|                                                        | Average general and administrative cost ($/Mcfe)        |                                                         | $ | 0.62    |                           |  | $ | 0.61     |         |  |      | 2   | %  |      | $ | 0.64    |          |  | $ | 0.60    |         |  |  | 7   | % 
|                                                        | Unit of production depletion cost ($/Mcfe)              |                                                         | $ | 2.24    |                           |  | $ | 2.05     |         |  |      | 9   | %  |      | $ | 2.22    |          |  | $ | 2.02    |         |  |  | 10  | % 
|Unconsolidated affiliate volumes
    (Four
    Star)(3) |                                                         |                                                         |   |         |                           |  |   |          |         |  |      |     |    |      |   |         |          |  |   |         |         |  |  |    
|                                                        | Natural gas (MMcf)                                      |                                                         |   | 4,456   |                           |  |   |          |         |  |      |     |    |      |   | 8,963   |          |  |   |         |         |  |  |     |   
|                                                        | Oil, condensate and NGL (MBbls)                         |                                                         |   | 260     |                           |  |   |          |         |  |      |     |    |      |   | 569     |          |  |   |         |         |  |  |     |   
|                                                        | Total equivalent volumes                                |                                                         |   |         |                           |  |   |          |         |  |      |     |    |      |   |         |          |  |   |         |         |  |  |     |   
|                                                        |                                                         | MMcfe                                                   |   |         | 6,015                     |  |   |          |         |  |      |     |    |      |   |         | 12,375   |  |   |         |         |  |  |     |    |   
|                                                        |                                                         | MMcfe/d                                                 |   |         | 66                        |  |   |          |         |  |      |     |    |      |   |         | 68       |  |   |         |         |  |  |     |    |   






|    |                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Production costs include lease operating costs and production
    related taxes (including ad valorem and severance taxes).                                                                                  
|   
|(2) | Includes transportation costs.                                                                                                                                                                               
|   
|(3) | Includes equity earnings and volumes for our investment in Four
    Star. Our equity interest in Four Star was acquired in
    connection with our acquisition of Medicine Bow in the third
    quarter 2005.
|   
|(4) | Prices are stated before transportation costs.                                                                                                                                                               

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|                                                 |                                             |                             |   |     |                                |  |   |       |     |           |      |   |           |         |   |     |         |   |   |       |    |  |      |     |     |   |   |    |   |  |   |     |   | 
|------------------------------------------------ | ------------------------------------------- | --------------------------- | - | --- | ------------------------------ |  | - | ----- | --- | --------- | ---- | - | --------- | ------- | - | --- | ------- | - | - | ----- | -- |  | ---- | --- | --- | - | - | -- | - |  | - | --- | - | 
|                                                 |                                             | Quarter Ended June 30, 2006 |   |     | Six Months Ended June 30, 2006 | 
|                                                 |                                             |                             |   |     |                                | 
|                                                 |                                             | Variance                    |   |     | Variance                       | 
|                                                 |                                             |                             |   |     |                                | 
|                                                 |                                             | Operating                   |   |     | Operating                      |  |   |       |     | Operating |      |   | Operating |         |   |    
|                                                 |                                             | Revenue                     |   |     | Expense                        |  |   | Other |     |           | EBIT |   |           | Revenue |   |     | Expense |   |   | Other |    |  | EBIT |    
|                                                 |                                             |                             |   |     |                                |  |   |       |     |           |      |   |           |         |   |     |         |   |   |       |    |  |      |    
|                                                 |                                             | Favorable/(Unfavorable)     |  
|                                                 |                                             | (In millions)               |  
|Natural Gas Revenue                              |                                             |                             |   |     |                                |  |   |       |     |           |      |   |           |         |   |     |         |   |   |       |    |  |      |     |     |   |   |    |   |  |   |    
|                                                 | Higher realized prices in 2006              |                             | $ |    |                                |  | $ |      |     |           | $    |  |           |         | $ |    |         |   | $ | 107   |    |  | $    |    |     |   | $ |   |   |  | $ | 107 |  
|                                                 | Impact of hedges                            |                             |   | (1  | )                              |  |   |      |     |           |      |  |           |         |   | (1  | )       |   |   | (72   | )  |  |      |    |     |   |   |   |   |  |   | (72 | )
|                                                 | Lower volumes in 2006                       |                             |   | (27 | )                              |  |   |      |     |           |      |  |           |         |   | (27 | )       |   |   | (50   | )  |  |      |    |     |   |   |   |   |  |   | (50 | )
|Oil, Condensate and NGL Revenue                  |                                             |                             |   |     |                                |  |   |       |     |           |      |   |           |         |   |     |         |   |   |       |    |  |      |     |     |   |   |    |   |  |   |    
|                                                 | Higher realized prices in 2006              |                             |   | 34  |                                |  |   |      |     |           |      |  |           |         |   | 34  |         |   |   | 56    |    |  |      |    |     |   |   |   |   |  |   | 56  |  
|                                                 | Impact of hedges                            |                             |   | 1   |                                |  |   |      |     |           |      |  |           |         |   | 1   |         |   |   |      |    |  |      |    |     |   |   |   |   |  |   |    |  
|                                                 | Lower volumes in 2006                       |                             |   | (13 | )                              |  |   |      |     |           |      |  |           |         |   | (13 | )       |   |   | (29   | )  |  |      |    |     |   |   |   |   |  |   | (29 | )
|Depreciation, Depletion and Amortization Expense |                                             |                             |   |     |                                |  |   |       |     |           |      |   |           |         |   |     |         |   |   |       |    |  |      |     |     |   |   |    |   |  |   |    
|                                                 | Higher depletion rate in 2006               |                             |   |    |                                |  |   | (11   | )   |           |      |  |           |         |   | (11 | )       |   |   |      |    |  |      | (24 | )   |   |   |   |   |  |   | (24 | )
|                                                 | Lower production volumes in 2006            |                             |   |    |                                |  |   | 12    |     |           |      |  |           |         |   | 12  |         |   |   |      |    |  |      | 25  |     |   |   |   |   |  |   | 25  |  
|Production Costs                                 |                                             |                             |   |     |                                |  |   |       |     |           |      |   |           |         |   |     |         |   |   |       |    |  |      |     |     |   |   |    |   |  |   |    
|                                                 | Higher lease operating costs in 2006        |                             |   |    |                                |  |   | (3    | )   |           |      |  |           |         |   | (3  | )       |   |   |      |    |  |      | (7  | )   |   |   |   |   |  |   | (7  | )
|                                                 | Higher production taxes in 2006             |                             |   |    |                                |  |   | (17   | )   |           |      |  |           |         |   | (17 | )       |   |   |      |    |  |      | (22 | )   |   |   |   |   |  |   | (22 | )
|General and Administrative Expenses              |                                             |                             |  |     |                                |  | 2 |       |     |           |     |   |           |         | 2 |     |         |   |  |       |    |  | 1    |     |     |   |  |    |   |  | 1 |    
|Other                                            |                                             |                             |   |     |                                |  |   |       |     |           |      |   |           |         |   |     |         |   |   |       |    |  |      |     |     |   |   |    |   |  |   |    
|                                                 | Earnings from investment in Four Star       |                             |   |    |                                |  |   |      |     |           |      | 1 |           |         |   | 1   |         |   |   |      |    |  |      |    |     |   |   | 8  |   |  |   | 8   |  
|                                                 | Processing plants                           |                             |   | 14  |                                |  |   | (10   | )   |           |      |  |           |         |   | 4   |         |   |   | 23    |    |  |      | (16 | )   |   |   |   |   |  |   | 7   |  
|                                                 | Change in fair value of oil and basis swaps |                             |   | 2   |                                |  |   |      |     |           |      |  |           |         |   | 2   |         |   |   | 2     |    |  |      |    |     |   |   |   |   |  |   | 2   |  
|                                                 | Other                                       |                             |   |    |                                |  |   | 3     |     |           |      |  |           |         |   | 3   |         |   |   |      |    |  |      | 3   |     |   |   | (2 | ) |  |   | 1   |  
|                                                 |                                             |                             |   |     |                                |  |   |       |     |           |      |   |           |         |   |     |         |   |   |       |    |  |      |    
|                                                 |                                             | Total Variances             |   | $   | 10                             |  |   | $     | (24 | )         |      | $ | 1         |         |   | $   | (13     | ) |   | $     | 37 |  |      | $   | (40 | ) |   | $  | 6 |  |   | $   | 3 | 
|                                                 |                                             |                             |   |     |                                |  |   |       |     |           |      |   |           |         |   |     |         |   |   |       |    |  |      |    

Operating revenues.


Depreciation, depletion and amortization expense.


Production costs.


General and administrative expenses.


39



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Marketing and Trading Segment


8-K


Operating Results




|                                           |                                                                 |                                            |                                                                 |                    |                  |     |     |      |     |     |      |     |     |    |     |      |      |      |      |  
|------------------------------------------ | --------------------------------------------------------------- | ------------------------------------------ | --------------------------------------------------------------- | ------------------ | ---------------- | --- | --- | ---- | --- | --- | ---- | --- | --- | -- | --- | ---- | ---- | ---- | ---- | -
|                                           |                                                                 | Quarters Ended                             |                                                                 |                    | Six Months Ended |    
|                                           |                                                                 | June 30,                                   |                                                                 |                    | June 30,         |    
|                                           |                                                                 |                                            |                                                                 |                    |                  |    
|                                           |                                                                 | 2006                                       |                                                                 |                    | 2005             |     |     | 2006 |     |     | 2005 |    
|                                           |                                                                 |                                            |                                                                 |                    |                  |     |     |      |     |     |      |    
|                                           |                                                                 | (In millions)                              |                                                                
|Overall EBIT:                              |                                                                 |                                            |                                                                 |                    |                  |     |     |      |     |     |      |     |     |    |     |     
|                                           | Gross
    margin(1)                                             |                                            | $                                                               | 18                 |                  |     | $   | (21  | )   |     | $    | 223 |     |    | $   | (196 | )   
|                                           | Operating expenses                                              |                                            |                                                                 | (10                | )                |     |     | (11  | )   |     |      | (15 | )   |    |     | (22  | )   
|                                           |                                                                 |                                            |                                                                 |                    |                  |     |     |      |     |     |      |    
|                                           |                                                                 | Operating income (loss)                    |                                                                 |                    | 8                |     |     |      | (32 | )   |      |     | 208 |    |     |      | (218 | )   
|                                           | Other income,
    net(2)                                        |                                            |                                                                 | 5                  |                  |     |     | 2    |     |     |      | 13  |     |    |     | 3    |     
|                                           |                                                                 |                                            |                                                                 |                    |                  |     |     |      |     |     |      |    
|                                           |                                                                 | EBIT                                       |                                                                 | $                  | 13               |     |     | $    | (30 | )   |      | $   | 221 |    |     | $    | (215 | )   
|                                           |                                                                 |                                            |                                                                 |                    |                  |     |     |      |     |     |      |    
|Gross Margin by Significant Contract Type: |                                                                 |                                            |                                                                 |                    |                  |     |     |      |     |     |      |     |     |    |     |     
|                                           | Production-Related Natural Gas and Oil Derivative
    Contracts |                                            |                                                                 |                    |                  |     |     |      |     |     |      |     |     |    |     |      |     
|                                           |                                                                 | Changes in fair value of swaps and options |                                                                 | $                  | 27               |     |     | $    | (12 | )   |      | $   | 189 |    |     | $    | (118 | )   
|                                           | Contracts Related to Legacy Trading Operations                  |                                            |                                                                 |                    |                  |     |     |      |     |     |      |     |     |    |     |      |     
|                                           |                                                                 | Natural gas contracts:                     |                                                                 |                    |                  |     |     |      |     |     |      |     |     |    |     |      |      |     
|                                           |                                                                 |                                            | Transportation-related contracts:                               |                    |                  |     |     |      |     |     |      |     |     |    |     |      |      |      |     
|                                           |                                                                 |                                            |                                                                 | Demand charges     |                  |     | (34 | )    |     |     | (40  | )   |     |    | (69 | )    |      |      | (79  | )
|                                           |                                                                 |                                            |                                                                 | Settlements        |                  |     | 17  |      |     |     | 21   |     |     |    | 37  |      |      |      | 48   |  
|                                           |                                                                 |                                            | Changes in fair value of other natural gas derivative contracts |                    |                  | (18 | )   |      |     | 93  |      |     |     | 29 |     |      |      | 119  |     
|                                           |                                                                 | Power contracts:                           |                                                                 |                    |                  |     |     |      |     |     |      |     |     |    |     |      |      |     
|                                           |                                                                 |                                            | Change in fair value of power derivatives, excluding Cordova    |                    |                  | 26  |     |      |     | (22 | )    |     |     | 37 |     |      |      | (72  | )   
|                                           |                                                                 |                                            | Changes in fair value of Cordova tolling
    agreement(3)       |                    |                  |    |     |      |     | (78 | )    |     |     |   |     |      |      | (111 | )   
|                                           |                                                                 |                                            | Favorable resolution of bankruptcy
    claim(4)                 |                    |                  |    |     |      |     | 17  |      |     |     |   |     |      |      | 17   |     
|                                           |                                                                 |                                            |                                                                 |                    |                  |     |     |      |     |     |      |    
|                                           |                                                                 |                                            |                                                                 | Total gross margin |                  | $   | 18  |      |     | $   | (21  | )   |     | $  | 223 |      |      | $    | (196 | )
|                                           |                                                                 |                                            |                                                                 |                    |                  |     |     |      |     |     |      |    






|    |                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross margin for our Marketing and Trading segment consists of
    revenues from commodity trading less the costs of commodities
    sold, including changes in the fair value of derivative
    contracts.                                                                                                               
|(2) | Primarily represents interest on cash margin deposits.                                                                                                                                                                                                                                                                    
|(3) | In the fourth quarter of 2005, we completed the assignment of
    this agreement to Constellation Energy Commodities Group Inc.
    (Constellation). During the first six months of 2005,
    forecasted natural gas prices increased relative to power
    prices, resulting in a decrease in fair value of the contract.
|(4) | During 2005, we received payment on Mohawk River Funding
    IIIs bankruptcy claim with USGen New England and
    recognized a gain of $17 million.                                                                                                                                                                      

40



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| |                                                                
| | ---------------------------------------------------------------
| | Production-Related Natural Gas and Oil Derivative
    Contracts







| |                                               
| | ----------------------------------------------
| | Contracts Related to Legacy Trading Operations

Natural gas transportation-related contracts.


|                  |                |                |   |    |                  |  |   |      |   |  |      |    |   |  |   |    |  
|----------------- | -------------- | -------------- | - | -- | ---------------- |  | - | ---- | - |  | ---- | -- | - |  | - | -- | -
|                  |                | Quarters Ended |   |    | Six Months Ended | 
|                  |                | June 30,       |   |    | June 30,         | 
|                  |                |                |   |    |                  | 
|                  |                | 2006           |   |    | 2005             |  |   | 2006 |   |  | 2005 |   
|                  |                |                |   |    |                  |  |   |      |   |  |      |   
|Alliance:         |                |                |   |    |                  |  |   |      |   |  |      |    |   |  |   |   
|                  | Demand charges |                | $ | 16 |                  |  | $ | 16   |   |  | $    | 32 |   |  | $ | 32 |  
|                  | Recovery       |                |   | 66 | %                |  |   | 67   | % |  |      | 43 | % |  |   | 66 | %
|Enterprise Texas: |                |                |   |    |                  |  |   |      |   |  |      |    |   |  |   |   
|                  | Demand charges |                | $ | 4  |                  |  | $ | 7    |   |  | $    | 9  |   |  | $ | 14 |  
|                  | Recovery       |                |   | 40 | %                |  |   | 41   | % |  |      | 43 | % |  |   | 47 | %
|Other:            |                |                |   |    |                  |  |   |      |   |  |      |    |   |  |   |   
|                  | Demand charges |                | $ | 14 |                  |  | $ | 17   |   |  | $    | 28 |   |  | $ | 33 |  
|                  | Recovery       |                |   | 36 | %                |  |   | 58   | % |  |      | 70 | % |  |   | 68 | %

Other natural gas derivative contracts.




Power Contracts.


41



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##### Table of Contents











Power Segment






| |       
| | ------
| | Brazil





| |                          
| | -------------------------
| | Other International Power





42



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##### Table of Contents





Domestic Power and Other






|                          |                                                             |                                                      |    |            |          |   |    |      |     |   |      |    |    |   |     |    |     |  
|------------------------- | ----------------------------------------------------------- | ---------------------------------------------------- | -- | ---------- | -------- | - | -- | ---- | --- | - | ---- | -- | -- | - | --- | -- | --- | -
|                          |                                                             |                                                      |    | Six Months |         
|                          |                                                             | Quarters Ended                                       |    |            | Ended    |  
|                          |                                                             | June 30,                                             |    |            | June 30, |  
|                          |                                                             |                                                      |    |            |          |  
|                          |                                                             | 2006                                                 |    |            | 2005     |   |    | 2006 |     |   | 2005 |   
|                          |                                                             |                                                      |    |            |          |   |    |      |     |   |      |   
|                          |                                                             | (In millions)                                        |   
|EBIT by Area              |                                                             |                                                      |    |            |          |   |    |      |     |   |      |    |    |   |     |   
|Brazil                    |                                                             |                                                      |    |            |          |   |    |      |     |   |      |    |    |   |     |   
|                          | EBIT from operations                                        |                                                      | $  | 20         |          |   | $  | 23   |     |   | $    | 32 |    |   | $   | 35 |    
|Other International Power |                                                             |                                                      |    |            |          |   |    |      |     |   |      |    |    |   |     |   
|                          | Asia                                                        |                                                      |    |            |          |   |    |      |     |   |      |    |    |   |     |    |    
|                          |                                                             | Impairment related to anticipated sales              |    |            | (7       | ) |    |      | (11 | ) |      |    | (7 | ) |     |    | (93 | )
|                          |                                                             | Gain on sale of PPN power plant                      |    |            |         |   |    |      |    |   |      |    |   |   |     |    | 22  |  
|                          |                                                             | EBIT from operations                                 |    |            |         |   |    |      | 5   |   |      |    | 1  |   |     |    | 15  |  
|                          | Central and Other South America                             |                                                      |    |            |          |   |    |      |     |   |      |    |    |   |     |    |    
|                          |                                                             | Impairments related to anticipated sales,
    net(1) |    |            |         |   |    |      | (70 | ) |      |    | (2 | ) |     |    | (70 | )
|                          |                                                             | EBIT from operations                                 |    |            | 1        |   |    |      | 3   |   |      |    |   |   |     |    | 10  |  
|                          | EBIT from other international plants and
    investments(2) |                                                      |    | 2          |          |   |    | 13   |     |   |      | 2  |    |   |     | 14 |    
|Domestic Power            |                                                             |                                                      |    |            |          |   |    |      |     |   |      |    |    |   |     |   
|                          | Favorable resolution of bankruptcy claim                    |                                                      |    |           |          |   |    | 53   |     |   |      |   |    |   |     | 53 |    
|                          | Other                                                       |                                                      |    | (3         | )        |   |    | (9   | )   |   |      | (9 | )  |   |     | 3  |    
|Other(3)                  |                                                             |                                                      | (3 | )          |          |   | (9 | )    |     |   | (4   | )  |    |   | (30 | ) 
|                          |                                                             |                                                      |    |            |          |   |    |      |     |   |      |   
|EBIT                      |                                                             | $                                                    | 10 |            |          | $ | (2 | )    |     | $ | 13   |    |    | $ | (41 | ) 
|                          |                                                             |                                                      |    |            |          |   |    |      |     |   |      |   






|    |                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes impairment charges and gains (losses) on the sales of
    investments.                                                                                                                                                                           
|(2) | EBIT from other international plants and investments includes a
    $16 million dividend on investment fund recorded in the
    second quarter of 2005.                                                                                                   
|(3) | 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.

Field Services Segment




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##### Table of Contents



Corporate




|                                                          |                      |                         |     |     |                         |   |     |    | 
|--------------------------------------------------------- | -------------------- | ----------------------- | --- | --- | ----------------------- | - | --- | -- | 
|                                                          |                      | Favorable (Unfavorable) |     |     | Favorable (Unfavorable) |  
|                                                          |                      | Quarter Impact          |     |     | Six Months Impact       |  
|                                                          |                      |                         |     |     |                         |  
|                                                          |                      | (In millions)           |    
|Western Energy Settlement charge in 2005                  |                      | $                       | 2   |     |                         | $ | 72  |   
|Lease termination in 2005                                 |                      |                         | 27  |     |                         |   | 27  |   
|Foreign currency fluctuations on Euro-denominated debt    |                      |                         | (23 | )   |                         |   | (46 | ) 
|Change in litigation, environmental and other liabilities |                      |                         | (32 | )   |                         |   | (36 | ) 
|(Higher) lower losses on early extinguishment of debt     |                      |                         | (3  | )   |                         |   | 20  |   
|Other                                                     |                      |                         | 7   |     |                         |   | 31  |   
|                                                          |                      |                         |     |     |                         |  
|                                                          | Total impact on EBIT |                         | $   | (22 | )                       |   | $   | 68 | 
|                                                          |                      |                         |     |     |                         |  





Interest and Debt Expense




|                                             |  |                |     |            |       |   |     |      |  |   |      |  |  |   |     | 
|-------------------------------------------- |  | -------------- | --- | ---------- | ----- | - | --- | ---- |  | - | ---- |  |  | - | --- | 
|                                             |  |                |     | Six Months |      
|                                             |  | Quarters Ended |     |            | Ended |  
|                                             |  | June           |     |            | June  |  
|                                             |  |                |     |            |       |  
|                                             |  | 2006           |     |            | 2005  |   |     | 2006 |  |   | 2005 | 
|                                             |  |                |     |            |       |   |     |      |  |   |      | 
|                                             |  | (In millions)  |    
|Long-term debt, including current maturities |  | $              | 326 |            |       | $ | 324 |      |  | $ | 662  |  |  | $ | 660 | 
|Other                                        |  |                | 6   |            |       |   | 9   |      |  |   | 18   |  |  |   | 16  | 
|                                             |  |                |     |            |       |   |     |      |  |   |      | 
|                                             |  | $              | 332 |            |       | $ | 333 |      |  | $ | 680  |  |  | $ | 676 | 
|                                             |  |                |     |            |       |   |     |      |  |   |      | 



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##### Table of Contents



Income Taxes




|                   |  |                                 |   |            |          |   |    |      |  |   |      |   |  |   |    |  
|------------------ |  | ------------------------------- | - | ---------- | -------- | - | -- | ---- |  | - | ---- | - |  | - | -- | -
|                   |  |                                 |   | Six Months |         
|                   |  | Quarters Ended                  |   |            | Ended    |  
|                   |  | June 30,                        |   |            | June 30, |  
|                   |  |                                 |   |            |          |  
|                   |  | 2006                            |   |            | 2005     |   |    | 2006 |  |   | 2005 |  
|                   |  |                                 |   |            |          |   |    |      |  |   |      |  
|                   |  | (In millions, except for rates) |  
|Income taxes       |  | $                               | 2 |            |          | $ | 35 |      |  | $ | 167  |   |  | $ | 36 |  
|Effective tax rate |  |                                 | 1 | %          |          |   | 34 | %    |  |   | 24   | % |  |   | 17 | %



Discontinued Operations




Commitments and Contingencies




45



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##### Table of Contents



Capital Resources and Liquidity


Debt Obligations.


Available Liquidity.


|                                                      |                                          |   |       |       | 
|----------------------------------------------------- | ---------------------------------------- | - | ----- | ----- | 
|Available cash                                        |                                          | $ | 1,585 |      
|Available capacity under our credit
    agreements(1) |                                          |   | 772   |      
|                                                      |                                          |   |      
|                                                      | Net available liquidity at June 30, 2006 |   | $     | 2,357 | 
|                                                      |                                          |   |      



|    |                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As of June 30, 2006, we had remaining capacity of
    $272 million under our $3 billion credit agreement.
    Additionally, we have $500 million of remaining capacity
    under a revolving credit agreement of our subsidiary, EPEP. In
    May 2006, our $400 million credit facility matured
    unutilized.



|                                                      |                                   |   |      |      |  
|----------------------------------------------------- | --------------------------------- | - | ---- | ---- | -
|Term loan prepayment under existing credit agreement  |                                   | $ | (965 | )   
|Reduction of capacity under letter of credit facility |                                   | $ | (250 | )   
|Increased revolver capacity                           |                                   | $ | 250  |     
|New unsecured revolving credit facility               |                                   | $ | 500  |     
|                                                      |                                   |   |     
|                                                      | Net impact on available liquidity |   | $    | (465 | )
|                                                      |                                   |   |     

Expected 2006 Cash Flows.




Significant Factors That Could Impact Our Liquidity.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash Margining Requirements on Derivative Contracts. A
    substantial portion of our natural gas fixed price swap
    contracts are at prices significantly below current market
    prices, which has resulted in us posting substantial cash margin
    deposits with the counterparties for the value of these
    instruments. During the first six months of 2006, approximately
    $0.7 billion of posted cash margins were returned to us,
    with $0.3 billion resulting from decreases in commodity
    prices and settlement of certain of these contracts and an
    additional $0.4 billion related to the assignment of our
    power portfolio. For the remainder of 2006, based on current
    prices, we expect approximately $0.3 billion in collateral
    to be returned to us in the form of both cash margin deposits
    and letters of credit.

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##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If commodity prices increase, we could be required to post
    additional margin. If prices decrease, we will be entitled to
    recover some of this amount earlier than anticipated. Based on
    our derivative positions at June 30, 2006, a $0.10/ MMBtu
    increase in the price of natural gas would result in an increase
    in our margin requirements by $7 million for transactions
    that settle for the remainder of 2006, $6 million for
    transactions that settle in 2007, $4 million for
    transactions that settle in 2008 and $5 million for
    transactions that settle in 2009 and thereafter.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Hurricanes. We continue to assess and repair the damage
    caused by Hurricanes Katrina and Rita. We are part of a mutual
    insurance company, and are subject to certain individual and
    aggregate loss limits by event. The mutual insurance company has
    indicated that the aggregate losses for both Hurricanes Katrina
    and Rita will exceed the per event limits allowed under the
    program, and that we will not receive insurance recoveries on
    some of the costs we incur, which will impact our liquidity and
    financial results. In addition, the timing of our replacements
    of the damaged property and equipment may differ from the
    related insurance reimbursement, which could impact our
    liquidity from period to period. Currently, we estimate that the
    total repair costs related to these hurricanes will be
    approximately $575 million, of which we estimate
    approximately $325 million will be unrecoverable from
    insurance. Of the unrecoverable amount, we estimate that
    approximately $245 million will be capital related
    expenditures, approximately $145 million of which we expect
    to incur in 2006.



| |                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our mutual insurance company has also indicated that effective
    June 1, 2006, the aggregate loss limits on future events
    has been reduced to $500 million from $1 billion,
    which could further limit our recoveries on future hurricanes or
    other insurable events.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Price Risk Management Activities. Our Exploration and
    Production and Marketing and Trading segments enter into
    derivative contracts to provide price protection on a portion of
    our anticipated natural gas and oil production. During the
    second quarter of 2006, we entered into additional derivative
    contracts related to our 2006 and 2007 natural gas production.
    The following table shows as of June 30, 2006, the
    contracted volumes and the minimum, maximum and average cash
    prices that we will receive under these contracts when combined
    with the sale of the underlying production. These cash prices
    may differ from the income impacts of our derivative contracts,
    depending on whether the contracts are designated as hedges for
    accounting purposes or not. For additional information on the
    income impacts of our derivative contracts, see the individual
    segment discussions.

|            |           |                      |  |         |           |  |   |             |         |  |                   |       |  |         |   |       |       |  |  |         |  |  |   |       |  |  |  |     | 
|----------- | --------- | -------------------- |  | ------- | --------- |  | - | ----------- | ------- |  | ----------------- | ----- |  | ------- | - | ----- | ----- |  |  | ------- |  |  | - | ----- |  |  |  | --- | 
|            |           | Fixed Price Swaps(1) |  |         | Floors(1) |  |   | Ceilings(1) |         |  | Basis Swaps(1)(2) |      
|            |           |                      |  |         |           |  |   |             |         |  |                   |      
|            |           |                      |  | Average |           |  |   |             | Average |  |                   |       |  | Average |   |       |      
|            |           | Volumes              |  |         | Price     |  |   | Volumes     |         |  | Price             |       |  | Volumes |   |       | Price |  |  | Volumes | 
|            |           |                      |  |         |           |  |   |             |         |  |                   |       |  |         |   |       |       |  |  |         | 
|Natural Gas |           |                      |  |         |           |  |   |             |         |  |                   |       |  |         |   |       |       |  |  |         |  |  |   |       |  |  |  |    
|            | 2006      |                      |  | 55      |           |  | $ | 4.89        |         |  |                   | 60    |  |         | $ | 7.00  |       |  |  | 30      |  |  | $ | 9.50  |  |  |  | 53  | 
|            | 2007      |                      |  | 5       |           |  | $ | 3.56        |         |  |                   | 130   |  |         | $ | 8.00  |       |  |  | 130     |  |  | $ | 16.02 |  |  |  | 110 | 
|            | 2008      |                      |  | 5       |           |  | $ | 3.42        |         |  |                   | 18    |  |         | $ | 6.00  |       |  |  | 18      |  |  | $ | 10.00 |  |  |  |    | 
|            | 2009-2012 |                      |  | 16      |           |  | $ | 3.74        |         |  |                   | 17    |  |         | $ | 6.00  |       |  |  | 17      |  |  | $ | 8.75  |  |  |  |    | 
|           
|Oil         |           |                      |  |         |           |  |   |             |         |  |                   |       |  |         |   |       |       |  |  |         |  |  |   |       |  |  |  |    
|            | 2006      |                      |  | 714     |           |  | $ | 52.45       |         |  |                   |      |  |         |   |      |       |  |  |        |  |  |   |      |  |  |  |    | 
|            | 2007      |                      |  | 192     |           |  | $ | 35.15       |         |  |                   | 1,009 |  |         | $ | 55.00 |       |  |  | 1,009   |  |  | $ | 60.38 |  |  |  |    | 
|            | 2008      |                      |  |        |           |  |   |            |         |  |                   | 930   |  |         | $ | 55.00 |       |  |  | 930     |  |  | $ | 57.03 |  |  |  |    | 






|    |                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Volumes presented are TBtu for natural gas and MBbl for oil.
    Prices presented are per MMBtu of natural gas and per Bbl of oil.          
|   
|(2) | These contracts effectively lock-in locational price
    differences on a portion of our natural gas production in Texas
    and Oklahoma.

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Overview of Cash Flow Activities for 2006
Compared to 2005




|                          |                                 |                                                                  |                                 |                    |      |     |      |   |      |     |      |  
|------------------------- | ------------------------------- | ---------------------------------------------------------------- | ------------------------------- | ------------------ | ---- | --- | ---- | - | ---- | --- | ---- | -
|                          |                                 | 2006                                                             |                                 |                    | 2005 |    
|                          |                                 |                                                                  |                                 |                    |      |    
|                          |                                 | (In billions)                                                    |                                
|Cash Flow from Operations |                                 |                                                                  |                                 |                    |      |     |      |  
|                          | Continuing operating activities |                                                                  |                                 |                    |      |     |      |   |     
|                          |                                 | Net income before discontinued operations                        |                                 | $                  | 0.5  |     |      | $ | 0.2  |    
|                          |                                 | Non-cash income adjustments                                      |                                 |                    | 0.7  |     |      |   | 0.6  |    
|                          |                                 | Change in broker margin and other
    deposits(1)                |                                 |                    | 0.7  |     |      |   |     |    
|                          |                                 | Change in other assets and liabilities                           |                                 |                    | (0.5 | )   |      |   | (0.8 | )  
|                          |                                 |                                                                  |                                 |                    |      |    
|                          |                                 |                                                                  | Total cash flow from operations |                    | $    | 1.4 |      |   | $    |    |     
|                          |                                 |                                                                  |                                 |                    |      |    
|Other Cash Inflows        |                                 |                                                                  |                                 |                    |      |     |      |  
|                          | Continuing investing activities |                                                                  |                                 |                    |      |     |      |   |     
|                          |                                 | Net proceeds from the sale of assets and investments             |                                 | $                  | 0.5  |     |      | $ | 0.8  |    
|                          |                                 | Other                                                            |                                 |                    |     |     |      |   | 0.2  |    
|                          |                                 |                                                                  |                                 |                    |      |    
|                          |                                 |                                                                  | 0.5                             |                    |      |     | 1.0  |  
|                          |                                 |                                                                  |                                 |                    |      |    
|                         
|                          | Continuing financing activities |                                                                  |                                 |                    |      |     |      |   |     
|                          |                                 | Net proceeds from the issuance of long-term debt                 |                                 |                    |     |     |      |   | 0.5  |    
|                          |                                 | Proceeds from issuance of common and preferred stock             |                                 |                    | 0.5  |     |      |   | 0.7  |    
|                          |                                 | Contribution from discontinued operations                        |                                 |                    | 0.1  |     |      |   | 0.1  |    
|                          |                                 |                                                                  |                                 |                    |      |    
|                          |                                 |                                                                  | 0.6                             |                    |      |     | 1.3  |  
|                          |                                 |                                                                  |                                 |                    |      |    
|                          |                                 |                                                                  | Total cash inflows              |                    | $    | 2.5 |      |   | $    | 2.3 |     
|                          |                                 |                                                                  |                                 |                    |      |    
|Cash Outflows             |                                 |                                                                  |                                 |                    |      |     |      |  
|                          | Continuing investing activities |                                                                  |                                 |                    |      |     |      |   |     
|                          |                                 | Capital
    expenditures(2)                                      |                                 | $                  | 1.0  |     |      | $ | 0.8  |    
|                          |                                 | Net cash paid for acquisition                                    |                                 |                    |     |     |      |   | 0.2  |    
|                          |                                 |                                                                  |                                 |                    |      |    
|                          |                                 |                                                                  | 1.0                             |                    |      |     | 1.0  |  
|                          |                                 |                                                                  |                                 |                    |      |    
|                          | Continuing financing activities |                                                                  |                                 |                    |      |     |      |   |     
|                          |                                 | Payments to retire long-term debt and redeem preferred interests |                                 |                    | 1.8  |     |      |   | 1.5  |    
|                          |                                 | Redemption of preferred stock of a subsidiary                    |                                 |                    |     |     |      |   | 0.3  |    
|                          |                                 | Dividends and other                                              |                                 |                    | 0.1  |     |      |   | 0.1  |    
|                          |                                 |                                                                  |                                 |                    |      |    
|                          |                                 |                                                                  | 1.9                             |                    |      |     | 1.9  |  
|                          |                                 |                                                                  |                                 |                    |      |    
|                          |                                 |                                                                  | Total cash outflows             |                    | $    | 2.9 |      |   | $    | 2.9 |     
|                          |                                 |                                                                  |                                 |                    |      |    
|                          |                                 |                                                                  |                                 | Net change in cash |      | $   | (0.4 | ) |      | $   | (0.6 | )
|                          |                                 |                                                                  |                                 |                    |      |    






|    |                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Primarily due to the return of margin in 2006. This amount
    includes $0.4 billion collected in conjunction with the
    sale of certain of our power derivatives and $0.3 billion
    collected as commodity prices decreased and contracts were
    settled.
|(2) | Includes $0.5 billion related to production activities and
    $0.5 billion related to pipeline expansion and maintenance
    projects for 2006.                                                                                                                

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##### Table of Contents



Commodity-based Derivative Contracts




|                                  |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |      |   |   |    |   |   |      |        |      |  
|--------------------------------- | --------------------------------- | -------------------------------------- | --------------------------------------- | ---- | -------- | --- | - | -------- | ---- | ---- | -------- | ---- | ---- | -------- | - | ---- | ----- | ---- | - | - | -- | - | - | ---- | ------ | ---- | -
|                                  |                                   | Maturity                               |                                         |      | Maturity |     |   | Maturity |      |      | Maturity |      |      | Maturity |   |      | Total |     
|                                  |                                   | Less Than                              |                                         |      | 1 to 3   |     |   | 4 to 5   |      |      | 6 to 10  |      |      | Beyond   |   |      | Fair  |     
|                                  |                                   | 1 year                                 |                                         |      | Years    |     |   | Years    |      |      | Years    |      |      | 10 Years |   |      | Value |     
|                                  |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |     
|                                  |                                   | (In millions)                          |                                        
|Derivatives designated as hedges  |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |      |   |   |    |   |   |     
|                                  | Assets                            |                                        | $                                       | 35   |          |     | $ | 45       |      |      | $        |     |      |          | $ |     |       |      | $ |  |    |   | $ | 80   |       
|                                  | Liabilities                       |                                        |                                         | (151 | )        |     |   | (44      | )    |      |          | (31  | )    |          |   | (11  | )     |      |   |  |    |   |   | (237 | )     
|                                  |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |     
|                                  |                                   | Total derivatives designated as hedges |                                         |      | (116     | )   |   |          | 1    |      |          |      | (31  | )        |   |      | (11   | )    |   |   |   |   |   |      | (157   | )   
|                                  |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |     
|Other commodity-based derivatives |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |      |   |   |    |   |   |     
|                                  | Exchange-traded
    positions(1)  |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |      |   |   |    |   |   |      |       
|                                  |                                   | Assets                                 |                                         |      | 109      |     |   |          | 274  |      |          |      | 105  |          |   |      |      |      |   |   |   |   |   |      | 488    |     
|                                  |                                   | Liabilities                            |                                         |      |         |     |   |          | (11  | )    |          |      |     |          |   |      |      |      |   |   |   |   |   |      | (11    | )   
|                                  | Non-exchange-traded positions     |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |      |   |   |    |   |   |      |       
|                                  |                                   | Assets                                 |                                         |      | 128      |     |   |          | 133  |      |          |      | 57   |          |   |      | 53    |      |   |   | 13 |   |   |      | 384    |     
|                                  |                                   | Liabilities                            |                                         |      | (324     | )   |   |          | (533 | )    |          |      | (274 | )        |   |      | (256  | )    |   |   | (7 | ) |   |      | (1,394 | )   
|                                  |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |     
|                                  |                                   |                                        | Total other commodity-based derivatives |      |          | (87 | ) |          |      | (137 | )        |      |      | (112     | ) |      |       | (203 | ) |   |    | 6 |   |      |        | (533 | )
|                                  |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |     
|                                  | Total commodity-based derivatives |                                        | $                                       | (203 | )        |     | $ | (136     | )    |      | $        | (143 | )    |          | $ | (214 | )     |      | $ | 6 |    |   | $ | (690 | )     
|                                  |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |     






|    |                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Exchange-traded positions are those traded on active exchanges
    such as the New York Mercantile Exchange, the International
    Petroleum Exchange and the London Clearinghouse.

|                                                       |                                                                         |                                                       |      |       |             |   |       |             |     |   |        |     |     | 
|------------------------------------------------------ | ----------------------------------------------------------------------- | ----------------------------------------------------- | ---- | ----- | ----------- | - | ----- | ----------- | --- | - | ------ | --- | --- | 
|                                                       |                                                                         |                                                       |      | Other |             |   | Total |            
|                                                       |                                                                         | Derivatives                                           |      |       | Commodity-  |   |       | Commodity-  |    
|                                                       |                                                                         | Designated                                            |      |       | Based       |   |       | Based       |    
|                                                       |                                                                         | as Hedges                                             |      |       | Derivatives |   |       | Derivatives |    
|                                                       |                                                                         |                                                       |      |       |             |   |       |             |    
|                                                       |                                                                         | (In millions)                                         |     
|Fair value of contracts outstanding at January 1, 2006 |                                                                         | $                                                     | (653 | )     |             | $ | (763  | )           |     | $ | (1,416 | )  
|                                                       |                                                                         |                                                       |      |       |             |   |       |             |    
|                                                       | Fair value of contract settlements during the period                    |                                                       |      | 159   |             |   |       | (30         | )   |   |        | 129 |    
|                                                       | Change in fair value of contracts                                       |                                                       |      | 325   |             |   |       | 256         | (1) |   |        | 581 |    
|                                                       | Reclassification of derivatives that no longer qualify as
    hedges(2) |                                                       |      | 6     |             |   |       | (6          | )   |   |        |    |    
|                                                       | Option premiums paid                                                    |                                                       |      | 6     |             |   |       | 10          |     |   |        | 16  |    
|                                                       |                                                                         |                                                       |      |       |             |   |       |             |    
|                                                       |                                                                         | Net change in contracts outstanding during the period |      |       | 496         |   |       |             | 230 |   |        |     | 726 | 
|                                                       |                                                                         |                                                       |      |       |             |   |       |             |    
|Fair value of contracts outstanding at June 30, 2006   |                                                                         | $                                                     | (157 | )     |             | $ | (533  | )           |     | $ | (690   | )  
|                                                       |                                                                         |                                                       |      |       |             |   |       |             |    






|    |                                                                                                                                                 | 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------- | 
|(1) | Includes a $49 million gain associated with the assignment of
    our contracts to supply natural gas to certain municipalities in
    Florida. | 



|    |                                                                                                           | 
|--- | --------------------------------------------------------------------------------------------------------- | 
|(2) | The loss of hedge accounting was a result of a reduction of
    anticipated production volumes in Brazil. | 

Fair Value of Contract Settlements.


Changes in Fair Value of Contracts.


49



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##### Table of Contents








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

8-K 10-Q.


8-K


Commodity Price Risk




| |                               
| | ------------------------------
| | Production-Related Derivatives



|                                                                              |                   |            |   |                     |            |  |                     |            |   |  |            |      |   |          |   |      |   |  |   |     | 
|----------------------------------------------------------------------------- | ----------------- | ---------- | - | ------------------- | ---------- |  | ------------------- | ---------- | - |  | ---------- | ---- | - | -------- | - | ---- | - |  | - | --- | 
|                                                                              |                   |            |   | 10 Percent Increase |            |  | 10 Percent Decrease |           
|                                                                              |                   |            |   |                     |            |  |                     |           
|                                                                              |                   | Fair Value |   |                     | Fair Value |  |                     | (Decrease) |   |  | Fair Value |      |   | Increase |  
|                                                                              |                   |            |   |                     |            |  |                     |            |   |  |            |      |   |          |  
|Impact of changes in commodity prices on derivative commodity
    instruments |                   |            |   |                     |            |  |                     |            |   |  |            |      |   |          |   |      |   |  |   |    
|                                                                              | June 30, 2006     |            | $ | (195                | )          |  | $                   | (347       | ) |  | $          | (152 | ) |          | $ | (38  | ) |  | $ | 157 | 
|                                                                              | December 31, 2005 |            | $ | (942                | )          |  | $                   | (1,175     | ) |  | $          | (233 | ) |          | $ | (713 | ) |  | $ | 229 | 



| |                                  
| | ---------------------------------
| | Other Commodity-Based Derivatives





50



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##### Table of Contents








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

Evaluation of Disclosure Controls and Procedures






Changes in Internal Control over Financial Reporting




51



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##### Table of Contents






PART II  OTHER INFORMATION







|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

10-K




| |                          
| | -------------------------
| | Environmental Proceedings

Air Permit Violation.


Arizona Pipe-Coating.


Natural Buttes.


Tucson Waste Management.


Shoup Natural Gas Processing Plant.





Item 1A. Risk Factors





CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE
HARBOR PROVISIONS


OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995




52



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##### Table of Contents







| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | 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.                                                         

10-K.







|        |                                                                
|------- | ---------------------------------------------------------------
|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

By-law By-laws


53



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##### Table of Contents





|                     |  |     |             |  |          |  |            | 
|-------------------- |  | --- | ----------- |  | -------- |  | ---------- | 
|Nominee              |  | FOR |             |  | WITHHELD | 
|                     |  |     |             |  |          | 
|Juan Carlos Braniff  |  |     | 503,918,399 |  |          |  | 81,064,555 | 
|James L. Dunlap      |  |     | 571,446,582 |  |          |  | 13,536,371 | 
|Douglas L. Foshee    |  |     | 572,646,503 |  |          |  | 12,336,450 | 
|Robert W. Goldman    |  |     | 502,117,372 |  |          |  | 82,865,581 | 
|Anthony W. Hall Jr.  |  |     | 572,501,110 |  |          |  | 12,481,843 | 
|Thomas R. Hix        |  |     | 571,152,981 |  |          |  | 13,829,972 | 
|William H. Joyce     |  |     | 570,500,197 |  |          |  | 14,482,756 | 
|Ronald L. Kuehn, Jr. |  |     | 569,560,902 |  |          |  | 15,422,052 | 
|Ferrell P. McClean   |  |     | 573,021,941 |  |          |  | 11,961,013 | 
|J. Michael Talbert   |  |     | 571,560,617 |  |          |  | 13,422,336 | 
|Robert F. Vagt       |  |     | 573,062,522 |  |          |  | 11,920,431 | 
|John L. Whitmire     |  |     | 504,895,889 |  |          |  | 80,087,065 | 
|Joe B. Wyatt         |  |     | 570,891,095 |  |          |  | 14,091,858 | 



|                                                                                                                |  |     |             |  |         |  |             |         |  |  |            | 
|--------------------------------------------------------------------------------------------------------------- |  | --- | ----------- |  | ------- |  | ----------- | ------- |  |  | ---------- | 
|                                                                                                                |  | FOR |             |  | AGAINST |  |             | ABSTAIN | 
|                                                                                                                |  |     |             |  |         |  |             |         | 
|Stockholder Proposal: Approval of the Adoption of Cumulative
    Voting as a By-law or Long-Term Policy         |  |     | 185,709,593 |  |         |  | 257,979,247 |         |  |  | 20,150,548 | 
|Stockholder Proposal: Approval of the Amendment to the By-laws
    for the Disclosure of Executive Compensation |  |     | 221,176,737 |  |         |  | 231,504,680 |         |  |  | 11,157,972 | 






|        |                  
|------- | -----------------
|Item 5. | Other Information






Item 6. Exhibits




|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .A          |  | Amended and Restated Credit Agreement dated as of July 31,
    2006, among El Paso Corporation Colorado Interstate Gas Company,
    El Paso Natural Gas Company, Tennessee Gas Pipeline Company,
    several banks and other financial institutions from time to time
    parties thereto and JPMorgan Chase Bank, N.A., as administrative
    agent and as collateral agent. (Exhibit 10.A to our Current
    Report on Form 8-K, filed with the SEC on August 2, 2006).                                                              
|        | 10 | .B          |  | Amended and Restated Security Agreement dated as of July 31,
    2006, made by El Paso Corporation Colorado Interstate Gas
    Company, El Paso Natural Gas Company, Tennessee Gas Pipeline
    Company, the Subsidiary Grantors and certain other credit
    parties thereto and JPMorgan Chase Bank, N.A., not in its
    individual capacity, but solely as collateral agent for the
    Secured Parties and as the depository bank. (Exhibit 10.B to our
    Current Report on Form 8-K, filed with the SEC on August 2,
    2006).

54



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|        |     |             |  |                                                                                                                                                                                                                                                                                                       
|------- | --- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|        | 10  | .C          |  | Amended and Restated Parent Guarantee Agreement dated as of July
    31, 2006, made by El Paso Corporation, in favor of JPMorgan
    Chase Bank, N.A., as Collateral Agent. (Exhibit 10.C to our
    Current Report on Form 8-K, filed with the SEC on August 2,
    2006).                           
|        | 10  | .D          |  | Amended and Restated Subsidiary Guarantee Agreement dated as of
    July 31, 2006, made by each of the Subsidiary Guarantors in
    favor of JPMorgan Chase Bank, N.A., as Collateral Agent.
    (Exhibit 10.D to our Current Report on Form 8-K, filed with the
    SEC on August 2, 2006).          
|        | 10  | .E          |  | Credit Agreement dated as of July 19, 2006 among El Paso
    Corporation, as Borrower, Deutsche Bank AG New York Branch, as
    Initial Lender, Issuing Bank, Administrative Agent and
    Collateral Agent (Exhibit 10.A to our Current Report on
    Form 8-K, filed with the SEC on July 20, 2006).
|        | *12 |             |  | Ratio of Earnings to Combined Fixed Charges and Preferred Stock
    Dividends                                                                                                                                                                                                                         
|        | *31 | .A          |  | Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                
|        | *31 | .B          |  | Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                
|        | *32 | .A          |  | Certification of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                
|        | *32 | .B          |  | Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                





| |                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We hereby undertake, pursuant to Regulation S-K,
    Item 601(b), paragraph (4)(iii), to furnish to the
    SEC, 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.

55



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##### 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/ John R. Sult                    
| |                                     
| | John R. Sult                        
| | Senior Vice President and Controller
| | (Principal Accounting Officer)      

56



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EL PASO CORPORATION


EXHIBIT INDEX




|        |     |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | --- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|        | 10  | .A          |  | Amended and Restated Credit Agreement dated as of July 31,
    2006, among El Paso Corporation (the Company),
    Colorado Interstate Gas Company, El Paso Natural Gas Company,
    Tennessee Gas Pipeline Company, several banks and other
    financial institutions from time to time parties thereto and
    JPMorgan Chase Bank, N.A., as administrative agent and as
    collateral agent. (Exhibit 10.A to our Current Report on
    Form 8-K, filed with the SEC on August 2, 2006).                                                          
|        | 10  | .B          |  | Amended and Restated Security Agreement dated as of July 31,
    2006, made by El Paso Corporation (the Company),
    Colorado Interstate Gas Company, El Paso Natural Gas Company,
    Tennessee Gas Pipeline Company, the Subsidiary Grantors and
    certain other credit parties thereto and JPMorgan Chase Bank,
    N.A., not in its individual capacity, but solely as collateral
    agent for the Secured Parties and as the depository bank.
    (Exhibit 10.B to our Current Report on Form 8-K, filed with the
    SEC on August 2, 2006).
|        | 10  | .C          |  | Amended and Restated Parent Guarantee Agreement dated as of July
    31, 2006, made by El Paso Corporation, in favor of JPMorgan
    Chase Bank, N.A., as Collateral Agent. (Exhibit 10.C to our
    Current Report on Form 8-K, filed with the SEC on August 2,
    2006).                                                                                                                                                                                                                                                                             
|        | 10  | .D          |  | Amended and Restated Subsidiary Guarantee Agreement dated as of
    July 31, 2006, made by each of the Subsidiary Guarantors in
    favor of JPMorgan Chase Bank, N.A., as Collateral Agent.
    (Exhibit 10.D to our Current Report on Form 8-K, filed with the
    SEC on August 2, 2006).                                                                                                                                                                                                                                                            
|        | 10  | .E          |  | Credit Agreement dated as of July 19, 2006 among El Paso
    Corporation, as Borrower, Deutsche Bank AG New York Branch, as
    Initial Lender, Issuing Bank, Administrative Agent and
    Collateral Agent (Exhibit 10.A to our Current Report on
    Form 8-K, filed with the SEC on July 20, 2006).                                                                                                                                                                                                                                                  
|        | *12 |             |  | Ratio of Earnings to Combined Fixed Charges and Preferred Stock
    Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | *31 | .A          |  | Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | *31 | .B          |  | Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | *32 | .A          |  | Certification of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | *32 | .B          |  | Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002