##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission File Number 1-14365
 El Paso Corporation
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    76-0568816(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)El Paso Building
    
    770021001 Louisiana Street
    
    (Zip Code)Houston, Texas(Address of Principal Executive Offices)
 Telephone Number: (713) 420-2600
Internet Website: www.elpaso.com
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
 Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.




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##### 



EL PASO CORPORATION
TABLE OF CONTENTS
 Caption
    
    
    
    
    PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    3Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    41Item 4.
    
    Controls and Procedures
    
    
    42PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    43Item 1A.
    
    Risk Factors
    
    
    43Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3.
    
    Defaults Upon Senior Securities
    
    
    43Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    43Item 5.
    
    Other Information
    
    
    44Item 6.
    
    Exhibits
    
    
    44Signatures
    
    
    45Ratio of Earnings to Combined Fixed Charges and Preferred Stock DividendsCertification of Chief Executive Officer Pursuant to Section 302Certification of Chief Financial Officer Pursuant to Section 302Certification of Chief Executive Officer Pursuant to Section 906Certification of Chief Financial Officer Pursuant to Section 906
   /d
    
    = per day
    
    Mcfe
    
    = thousand cubic feet of natural gas equivalentsBbl
    
    = barrels
    
    MMBtu
    
    = million British thermal unitsBBtu
    
    = billion British thermal units
    
    MMcf
    
    = million cubic feetBcf
    
    = billion cubic feet
    
    MMcfe
    
    = million cubic feet of natural gas equivalentsLNG
    
    = liquefied natural gas
    
    NGL
    
    = natural gas liquidsMBbls
    
    = thousand barrels
    
    TBtu
    
    = trillion British thermal unitsMcf
    
    = thousand cubic feet
   2




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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)
 Quarter EndedMarch 31,2008
    
    
    2007Operating revenues
    
    $
    1,269
    
    
    $
    1,022Operating expensesCost of products and services
    
    
    56
    
    
    
    55Operation and maintenance
    
    
    271
    
    
    
    301Depreciation, depletion and amortization
    
    
    313
    
    
    
    271Taxes, other than income taxes
    
    
    79
    
    
    
    60719
    
    
    
    687Operating income
    
    
    550
    
    
    
    335Earnings from unconsolidated affiliates
    
    
    37
    
    
    
    37Loss on debt extinguishment
    
    
    
    
    
    
    (201
    )Other income, net
    
    
    22
    
    
    
    46Minority interest
    
    
    (9
    )
    
    
    (1
    )Interest and debt expense
    
    
    (233
    )
    
    
    (283
    )Income (loss) before income taxes from continuing operations
    
    
    367
    
    
    
    (67
    )Income taxes
    
    
    148
    
    
    
    (19
    )Income (loss) from continuing operations
    
    
    219
    
    
    
    (48
    )Discontinued operations, net of income taxes
    
    
    
    
    
    
    677Net income
    
    
    219
    
    
    
    629Preferred stock dividends
    
    
    19
    
    
    
    9Net income available to common stockholders
    
    $
    200
    
    
    $
    620Basic and diluted earnings per common shareIncome (loss) from continuing operations
    
    $
    0.29
    
    
    $
    (0.08
    )Discontinued operations, net of income taxes
    
    
    
    
    
    
    0.97Net income per common share
    
    $
    0.29
    
    
    $
    0.89Dividends declared per common share
    
    $
    0.08
    
    
    $
    0.04
  3




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##### Table of Contents



EL PASO CORPORATION
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
(Unaudited)
 March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    498
    
    
    $
    285Accounts and notes receivableCustomers, net of allowance of $17 in 2008 and 2007
    
    
    691
    
    
    
    468Affiliates
    
    
    150
    
    
    
    196Other
    
    
    172
    
    
    
    201Inventory
    
    
    132
    
    
    
    131Assets from price risk management activities
    
    
    45
    
    
    
    113Deferred income taxes
    
    
    285
    
    
    
    191Other
    
    
    155
    
    
    
    127Total current assets
    
    
    2,128
    
    
    
    1,712Property, plant and equipment, at costPipelines
    
    
    16,925
    
    
    
    16,750Natural gas and oil properties, at full cost
    
    
    18,616
    
    
    
    19,048Other
    
    
    307
    
    
    
    53035,848
    
    
    
    36,328Less accumulated depreciation, depletion and amortization
    
    
    17,071
    
    
    
    16,974Total property, plant and equipment, net
    
    
    18,777
    
    
    
    19,354Other assetsInvestments in unconsolidated affiliates
    
    
    1,846
    
    
    
    1,614Assets from price risk management activities
    
    
    326
    
    
    
    302Other
    
    
    1,589
    
    
    
    1,5973,761
    
    
    
    3,513Total assets
    
    $
    24,666
    
    
    $
    24,579
  4




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EL PASO CORPORATION
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except for share amounts)
(Unaudited)
 March 31,
    
    
    December 31,2008
    
    
    2007LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payableTrade
    
    $
    445
    
    
    $
    460Affiliates
    
    
    9
    
    
    
    5Other
    
    
    432
    
    
    
    502Current maturities of long-term financing obligations
    
    
    366
    
    
    
    331Liabilities from price risk management activities
    
    
    440
    
    
    
    267Accrued interest
    
    
    230
    
    
    
    195Other
    
    
    748
    
    
    
    653Total current liabilities
    
    
    2,670
    
    
    
    2,413Long-term financing obligations, less current maturities
    
    
    12,322
    
    
    
    12,483OtherLiabilities from price risk management activities
    
    
    896
    
    
    
    931Deferred income taxes
    
    
    1,337
    
    
    
    1,157Other
    
    
    1,565
    
    
    
    1,7503,798
    
    
    
    3,838Commitments and contingencies (Note 8)Minority interest
    
    
    547
    
    
    
    565Stockholders equityPreferred stock, par value $0.01 per share; authorized 50,000,000 shares;
issued 750,000 shares of 4.99% convertible perpetual stock; stated at
liquidation value
    
    
    750
    
    
    
    750Common stock, par value $3 per share; authorized 1,500,000,000 shares; issued
709,548,833 shares in 2008 and 709,192,605 shares in 2007
    
    
    2,129
    
    
    
    2,128Additional paid-in capital
    
    
    4,639
    
    
    
    4,699Accumulated deficit
    
    
    (1,610
    )
    
    
    (1,834
    )Accumulated other comprehensive loss
    
    
    (387
    )
    
    
    (272
    )Treasury stock (at cost); 8,699,603 shares in 2008 and 8,656,095 shares in 2007
    
    
    (192
    )
    
    
    (191
    )Total stockholders equity
    
    
    5,329
    
    
    
    5,280Total liabilities and stockholders equity
    
    $
    24,666
    
    
    $
    24,579
  5




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EL PASO CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Quarter EndedMarch 31,2008
    
    
    2007Cash flows from operating activitiesNet income
    
    $
    219
    
    
    $
    629Less income from discontinued operations, net of income taxes
    
    
    
    
    
    
    677Income (loss) from continuing operations
    
    
    219
    
    
    
    (48
    )Adjustments to reconcile net income to net cash from operating activitiesDepreciation, depletion and amortization
    
    
    313
    
    
    
    271Deferred income tax expense (benefit)
    
    
    146
    
    
    
    (18
    )Earnings from unconsolidated affiliates, adjusted for cash distributions
    
    
    23
    
    
    
    37Loss on debt extinguishment
    
    
    
    
    
    
    201Other non-cash income items
    
    
    15
    
    
    
    (2
    )Asset and liability changes
    
    
    (82
    )
    
    
    (93
    )Cash provided by continuing activities
    
    
    634
    
    
    
    348Cash used in discontinued activities
    
    
    
    
    
    
    (35
    )Net cash provided by operating activities
    
    
    634
    
    
    
    313Cash flows from investing activitiesCapital expenditures
    
    
    (531
    )
    
    
    (528
    )Cash paid for acquisitions
    
    
    (295
    )
    
    
    (255
    )Net proceeds from the sale of assets and investments
    
    
    598
    
    
    
    38Other
    
    
    37
    
    
    
    2Cash used in continuing activities
    
    
    (191
    )
    
    
    (743
    )Cash provided by discontinued activities
    
    
    
    
    
    
    3,678Net cash provided by (used in) investing activities
    
    
    (191
    )
    
    
    2,935Cash flows from financing activitiesNet proceeds from issuance of long-term debt
    
    
    1,240
    
    
    
    1,424Payments to retire long-term debt and other financing obligations
    
    
    (1,430
    )
    
    
    (4,654
    )Dividends paid
    
    
    (38
    )
    
    
    (37
    )Contributions from discontinued operations
    
    
    
    
    
    
    3,360Other
    
    
    (2
    )
    
    
    (3
    )Cash provided by (used in) continuing activities
    
    
    (230
    )
    
    
    90Cash used in discontinued activities
    
    
    
    
    
    
    (3,643
    )Net cash used in financing activities
    
    
    (230
    )
    
    
    (3,553
    )Change in cash and cash equivalents
    
    
    213
    
    
    
    (305
    )Cash and cash equivalentsBeginning of period
    
    
    285
    
    
    
    537End of period
    
    $
    498
    
    
    $
    232
  6




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EL PASO CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 QuarterEndedMarch 31,2008
    
    
    2007Net income
    
    $
    219
    
    
    $
    629Pension and postretirement obligations:Unrealized actuarial losses arising during period (net of income taxes of $1 in 2008)
    
    
    (2
    )
    
    
    Reclassification adjustments (net of income taxes of $2 in 2008 and $3 in 2007)
    
    
    5
    
    
    
    6Cash flow hedging activities:Unrealized mark-to-market losses arising during period (net of income taxes of $70
in 2008 and $47 in 2007)
    
    
    (123
    )
    
    
    (83
    )Reclassification adjustments for changes in initial value to the settlement date (net
of income 
taxes of $1 in 2008 and $15 in 2007)
    
    
    2
    
    
    
    (25
    )Investments available for sale:Unrealized gains on investments available for sale arising during period (net of
income 
taxes of $2 in 2007)
    
    
    
    
    
    
    3Other comprehensive loss
    
    
    (118
    )
    
    
    (99
    )Comprehensive income
    
    $
    101
    
    
    $
    530
  7




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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
  Significant Accounting Policies
  Fair Value Measurements. Fair Value Measurements
 Measurement Date of Postretirement Benefits Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans  an Amendment of FASB Statements No. 87, 88, 106, and 132(R)
 Derivative Instruments. Disclosures about Derivative Instruments and Hedging Activities  an amendment of
FASB Statement No. 133
 8




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2.  Acquisitions and Divestitures
 Acquisitions
 Gulf
LNG.
 South Texas properties.
 Divestitures
 Accounting for the Impairment or Disposal of
Long-Lived Assets
 Continuing operations asset sales.
 Discontinued Operations.
  ANR andRelatedOperations(In millions)Quarter Ended March 31, 2007Revenues
    
    $
    101Costs and expenses
    
    
    (43
    )Other expense
    
    
    (7
    )Interest and debt expense
    
    
    (10
    )Income taxes
    
    
    (15
    )Income from operations
    
    
    26Gain on sale, net of income taxes of $356 million
    
    
    651Net income from discontinued operations
    
    $
    677
 9




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3.  Income Taxes
  2008
    
    2007(In millions, except rates)Income taxes
    
    $
    148
    
    
    $
    (19
    )Effective tax rate
    
    
    40
    %
    
    
    28
    %
   4.  Earnings Per Share
  2008
(1)
    
    
    2007Basic
    
    
    Diluted
    
    
    Basic
    
    
    Diluted(In millions, except per share amounts)Income (loss) from continuing operations
    
    $
    219
    
    
    $
    219
    
    
    $
    (48
    )
    
    $
    (48
    )Convertible preferred stock dividends
    
    
    (19
    )(1)
    
    
    (19
    )(1)
    
    
    (9
    )
    
    
    (9
    )Income (loss) from continuing operations available to common stockholders
    
    
    200
    
    
    
    200
    
    
    
    (57
    )
    
    
    (57
    )Discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    677
    
    
    
    677Net income available to common stockholders
    
    $
    200
    
    
    $
    200
    
    
    $
    620
    
    
    $
    620Weighted average common shares outstanding
    
    
    697
    
    
    
    697
    
    
    
    694
    
    
    
    694Effect of dilutive securities:Options and restricted stock
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    Weighted average common shares outstanding and dilutive securities
    
    
    697
    
    
    
    701
    
    
    
    694
    
    
    
    694Earnings per common share:Income (loss) from continuing operations
    
    $
    0.29
    
    
    $
    0.29
    
    
    $
    (0.08
    )
    
    $
    (0.08
    )Discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    0.97
    
    
    
    0.97Net income
    
    $
    0.29
    
    
    $
    0.29
    
    
    $
    0.89
    
    
    $
    0.89
 
 (1)
  10




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5. Fair Value Measurements
 Fair Value Measurements The Fair Value Option for Financial Assets and Financial Liabilities
  
    
    Level 1 instruments fair values are based on quoted prices in actively traded markets.
Included in this level are our marketable securities invested in non-qualified compensation
plans whose fair value is determined using quoted prices of these instruments.
    
    Level 2 instruments fair values are based on pricing data representative of quoted
prices for similar assets and liabilities in active markets (or identical assets and
liabilities in less active markets). Included in this level are our production-related
natural gas and oil derivatives and certain of our other natural gas derivatives (such as
natural gas supply arrangements) whose fair values are based on commodity pricing data
obtained from an independent pricing source.
    
    Level 3 instruments fair values are partially calculated using pricing data that is
similar to Level 2 above, but their fair value also reflects adjustments for being in less
liquid markets or having longer contractual terms. For these instruments, we use available
pricing data adjusted for liquidity and/or contractual terms to develop an estimate of
forward price curves. The curves are then used to estimate the value of settlements in
future periods based on contractual settlement quantities and dates. Our valuation
of these instruments considers specific contractual terms, statistical and simulation analysis, present value
concepts and other internal assumptions related to (i) contract maturities that extend
beyond the periods in which quoted market prices are available; (ii) the uniqueness of the
contract terms and (iii) the lack of viable market participants. Since a significant
portion of the fair value of our power-related
derivatives, interest rate and foreign currency swaps and certain of our remaining natural
gas derivatives with longer terms or in less liquid
markets than similar Level 2 derivatives, rely on the techniques discussed above,
we classify these instruments as Level 3 instruments.
  Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssetsMarketable securities invested in non-qualified compensation plans
    
    $
    20
    
    
    $
    
    
    
    $
    
    
    
    $
    20Production-related natural gas and oil derivatives
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Other natural gas derivatives
    
    
    
    
    
    
    36
    
    
    
    34
    
    
    
    70Power-related derivatives
    
    
    
    
    
    
    
    
    
    
    127
    
    
    
    127Interest rate and foreign currency swaps
    
    
    
    
    
    
    
    
    
    
    171
    
    
    
    171Total assets
    
    
    20
    
    
    
    39
    
    
    
    332
    
    
    
    391
 11




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Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalLiabilitiesProduction-related natural gas and oil derivatives
    
    
    
    
    
    
    (302
    )
    
    
    
    
    
    
    (302
    )Other natural gas derivatives
    
    
    
    
    
    
    (192
    )
    
    
    (217
    )
    
    
    (409
    )Power-related derivatives
    
    
    
    
    
    
    
    
    
    
    (612
    )
    
    
    (612
    )Interest rate swaps
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )Other
    
    
    
    
    
    
    
    
    
    
    (84
    )
    
    
    (84
    )Total liabilities
    
    
    
    
    
    
    (507
    )
    
    
    (913
    )
    
    
    (1,420
    )Total
    
    $
    20
    
    
    $
    (468
    )
    
    $
    (581
    )
    
    $
    (1,029
    )
  Change in fairChange in fair
    
    
    Change in fair
    
    
    value reflected inBalance as of
    
    
    value reflected in
    
    
    value reflected in
    
    
    long-termJanuary 1,
    
    
    operating
    
    
    operating
    
    
    financing
    
    
    Settlements,
    
    
    Balance as of2008
    
    
    revenues(1)
    
    

expenses(2)
    
    

obligations(3)
    
    
    Net
    
    
    March 31, 2008Assets
    
    $
    250
    
    
    $
    32
    
    
    $
    
    
    
    $
    59
    
    
    $
    (9
    )
    
    $
    332Liabilities
    
    
    (839
    )
    
    
    (70
    )
    
    
    (44
    )
    
    
    
    
    
    
    40
    
    
    
    (913
    )Total
    
    $
    (589
    )
    
    $
    (38
    )
    
    $
    (44
    )
    
    $
    59
    
    
    $
    31
    
    
    $
    (581
    )
 
 (1)
 (2)
 (3)
 6.  Price Risk Management Activities
  March 31,
    
    
    December 31,2008
    
    
    2007(In millions)Net assets (liabilities):Derivatives designated as accounting hedges
    
    $
    (214
    )
    
    $
    (23
    )Other commodity-based derivative contracts
    
    
    (909
    )
    
    
    (869
    )Total commodity-based derivatives
    
    
    (1,123
    )
    
    
    (892
    )Interest rate and foreign currency derivatives
    
    
    158
    
    
    
    109Net liabilities from price risk management activities(1)
    
    $
    (965
    )
    
    $
    (783
    )
 
 (1)
    
    Included in both current and non-current assets and liabilities on the balance sheet. 12




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7.  Long-Term Financing Obligations and Other Credit Facilities
 March 31,
    
    
    December 31,2008
    
    
    2007(In millions)Current maturities of long-term financing obligations
    
    $
    366
    
    
    $
    331Long-term financing obligations
    
    
    12,322
    
    
    
    12,483Total
    
    $
    12,688
    
    
    $
    12,814
 Credit Facilities.
  Letters of Credit.
 8.  Commitments and Contingencies
 Legal Proceedings
 ERISA Class Action Suits. William
H. Lewis, III v. El Paso Corporation, et al.
 Cash Balance Plan Lawsuit. Tomlinson, et al. v. El Paso Corporation and El Paso Corporation Pension Plan
 Retiree Medical Benefits Matter. Yolton et
al. v. El Paso Tennessee Pipeline Co. and Case Corporation.
  13




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Price Reporting Litigation.
 Gas Measurement Cases. In re: Natural Gas Royalties
Qui Tam Litigation,
 Will Price, et
al. v. Gas Pipelines and Their Predecessors, et al.,
 MTBE
 14




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Government Investigations and Inquiries
 Reserve Revisions.
  Rates and Regulatory Matters
 Notice of Inquiry on Pipeline Fuel Retention Policies
 Notice of Proposed Rulemaking.
 Rate of Return Proxy Groups.
 EPNG Rate Case.
 15




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Other Matter
 Navajo Nation
 Environmental Matters
   March 31, 2008Sites
    
    Expected
    
    
    High(In millions)Operating
    
    $
    20
    
    
    $
    26Non-operating
    
    
    211
    
    
    
    390Superfund
    
    
    26
    
    
    
    49Total
    
    $
    257
    
    
    $
    465
  Balance as of January 1, 2008
    
    $
    260Additions/adjustments for remediation activities
    
    
    7Payments for remediation activities
    
    
    (10
    )Balance as of March 31, 2008
    
    $
    257
  16




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CERCLA Matters.
  Guarantees and Indemnifications
   9.  Retirement Benefits
  OtherPension
    
    
    PostretirementBenefits
    
    
    Benefits2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Service cost
    
    $
    4
    
    
    $
    5
    
    
    $
    
    
    
    $
    Interest cost
    
    
    30
    
    
    
    30
    
    
    
    7
    
    
    
    6Expected return on plan assets
    
    
    (47
    )
    
    
    (45
    )
    
    
    (4
    )
    
    
    (4
    )Amortization of net actuarial loss (gain)
    
    
    6
    
    
    
    10
    
    
    
    (1
    )
    
    
    Amortization of prior service cost(1)
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    Net benefit cost (income)
    
    $
    (8
    )
    
    $
    (1
    )
    
    $
    2
    
    
    $
    2
 
 (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. 17




---



##### Table of Contents



Other Matter.
   Year Ending
    
    Other PostretirementDecember 31,
    
    Benefits(1)(In millions)2008
    
    $
    632009
    
    
    632010
    
    
    622011
    
    
    622012
    
    
    612013-2017
    
    
    287
 
 (1)
    
    Includes a reduction of approximately $5 million per year for an expected subsidy related to the Medicare Prescription Drug Improvement and Modernization Act of 2003.  10.  Stockholders Equity
  Common Stock
    
    Convertible Preferred Stock($0.04/Share)
    
    (4.99%/Year)Amount paid through March 31, 2008
    
    $
    29
    
    
    $
    9Declared in February 2008:Date of declaration
    
    February 7, 2008
    
    February 7, 2008Payable to shareholders on record
    
    March 7, 2008
    
    March 15, 2008Date Paid
    
    April 1, 2008
    
    April 1, 2008Amount Paid
    
    $
    28
    
    
    $
    9Declared in March 2008:Date of declaration
    
    March 31, 2008
    
    March 31, 2008Payable to shareholders on record
    
    June 6, 2008
    
    June 15, 2008Date payable
    
    July 1, 2008
    
    July 1, 2008
   18




---



##### Table of Contents



11. Business Segment Information
  Pipelines.
 Exploration and Production.
 Marketing.
 Power.
  2008
    
    
    2007(In millions)Segment EBIT
    
    $
    561
    
    
    $
    426Corporate and other
    
    
    39
    
    
    
    (210
    )Interest and debt expense
    
    
    (233
    )
    
    
    (283
    )Income taxes
    
    
    (148
    )
    
    
    19Income (loss) from continuing operations
    
    $
    219
    
    
    $
    (48
    )
 19




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##### Table of Contents



SegmentsExplorationand
    
    
    
    
    
    
    
    
    
    CorporatePipelines
    
    Production
    
    Marketing
    
    Power
    
    and Other(1)
    
    Total(In millions)Quarters Ended March 31,
2008Revenue from external customers
    
    $
    707
    
    
    $
    83
    (2)
    
    $
    469
    
    
    $
    
    
    
    $
    10
    
    
    $
    1,269Intersegment revenue
    
    
    13
    
    
    
    520
    (2)
    
    
    (526
    )
    
    
    
    
    
    
    (7
    )
    
    
    Operation and maintenance
    
    
    195
    
    
    
    108
    
    
    
    2
    
    
    
    5
    
    
    
    (39
    )
    
    
    271Depreciation, depletion and amortization
    
    
    99
    
    
    
    212
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    313Earnings from unconsolidated affiliates
    
    
    21
    
    
    
    10
    
    
    
    
    
    
    
    5
    
    
    
    1
    
    
    
    37EBIT
    
    
    381
    
    
    
    242
    
    
    
    (60
    )
    
    
    (2
    )
    
    
    39
    
    
    
    6002007Revenue from external customers
    
    $
    631
    
    
    $
    220
    (2)
    
    $
    159
    
    
    $
    
    
    
    $
    12
    
    
    $
    1,022Intersegment revenue
    
    
    13
    
    
    
    285
    (2)
    
    
    (294
    )
    
    
    
    
    
    
    (4
    )
    
    
    Operation and maintenance
    
    
    161
    
    
    
    110
    
    
    
    
    
    
    
    4
    
    
    
    26
    
    
    
    301Depreciation, depletion and amortization
    
    
    94
    
    
    
    170
    
    
    
    1
    
    
    
    
    
    
    
    6
    
    
    
    271Earnings (losses) from unconsolidated affiliates
    
    
    26
    
    
    
    (1
    )
    
    
    
    
    
    
    11
    
    
    
    1
    
    
    
    37EBIT
    
    
    364
    
    
    
    179
    
    
    
    (135
    )
    
    
    18
    
    
    
    (210
    )
    
    
    216
 
 (1)
    
    Includes eliminations of intercompany transactions. Our intersegment revenues,
along with our intersegment operating expenses, were incurred in the normal course of business
between our operating segments. During the quarters ended March 31, 2008 and 2007, we recorded
an intersegment revenue elimination of $6 million and $5 million in the Corporate and Other column to remove intersegment
transactions.(2)
    
    Revenues from external customers include gains and losses related to our
hedging of price risk associated with our natural gas and oil production. Intersegment
revenues represent sales to our Marketing segment, which is responsible for marketing our
production to third parties.  March 31,
    
    
    December 31,2008
    
    
    2007(In millions)Pipelines
    
    $
    14,230
    
    
    $
    13,939Exploration and Production
    
    
    7,417
    
    
    
    8,029Marketing
    
    
    572
    
    
    
    537Power
    
    
    519
    
    
    
    531Total segment assets
    
    
    22,738
    
    
    
    23,036Corporate and Other
    
    
    1,928
    
    
    
    1,543Total consolidated assets
    
    $
    24,666
    
    
    $
    24,579
 20




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##### Table of Contents



12.  Investments in, Earnings from and Transactions with Unconsolidated Affiliates
  Earnings (Losses) fromInvestment
    
    
    Unconsolidated AffiliatesMarch 31,
    
    
    December 31,
    
    
    Quarter Ended March 31,Net Investment and Earnings (Losses)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)
    
    
    (In millions)Four Star (1)
    
    $
    692
    
    
    $
    698
    
    
    $
    10
    
    
    $
    (1
    )Citrus
    
    
    548
    
    
    
    576
    
    
    
    13
    
    
    
    22Gulf LNG(2)
    
    
    295
    
    
    
    
    
    
    
    
    
    
    
    Bolivia to Brazil Pipeline
    
    
    107
    
    
    
    105
    
    
    
    3
    
    
    
    3Gasoductos de Chihuahua
    
    
    152
    
    
    
    146
    
    
    
    7
    
    
    
    4Manaus/Rio Negro(3)
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    4Porto Velho(4)
    
    
    (61
    )
    
    
    (60
    )
    
    
    
    
    
    
    2Asian and Central American Investments(4)
    
    
    26
    
    
    
    26
    
    
    
    
    
    
    
    Argentina to Chile Pipeline
    
    
    22
    
    
    
    21
    
    
    
    1
    
    
    
    3Other
    
    
    65
    
    
    
    46
    
    
    
    3
    
    
    
    Total
    
    $
    1,846
    
    
    $
    1,614
    
    
    $
    37
    
    
    $
    37
 
 (1)
    
    Amortization of our purchase cost in excess of the underlying net assets of
Four Star was $14 million for the quarters ended March 31, 2008 and 2007.(2)
    
    In February 2008, we acquired a 50 percent interest in Gulf LNG.(3)
    
    We transferred ownership of these plants to the power purchaser in January
2008. Accordingly, we eliminated our equity investments in these entities and retained
current assets of $80 million and current liabilities of $24 million after the transfer. For
a further discussion, see Matters that Could Impact our Investmentsbelow.(4)
    
    As of March 31, 2008 and December 31, 2007, we had outstanding advances and
receivables of $314 million and $350 million related to our foreign investments of which
$307 million and $335 million related to our investment in Porto Velho. Quarter EndedMarch 31,Summarized Financial Information
    
    2008
    
    
    2007(In millions)Operating results data:Operating revenues
    
    $
    186
    
    
    $
    189Operating expenses
    
    
    93
    
    
    
    111Income from continuing operations
    
    
    56
    
    
    
    51Net income(1)
    
    
    56
    
    
    
    51
 
 (1)
    
    Includes net income of less than $1 million and $5 million for each of the
quarters ended March 31, 2008 and 2007, related to our proportionate share of affiliates in
which we hold a greater than 50 percent interest.  21




---



##### Table of Contents



Matters that Could Impact Our Investments
 Porto Velho.
   Manaus /Rio Negro.
 Asian and Central American power investments.
 22




---



##### Table of Contents



Investment in Bolivia.
 Investment
in Argentina.
 23




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
 Financial and Operational Update.
 Outlook.
    24




---



##### Table of Contents



Segment Results
    2008
    
    
    2007(In millions)SegmentPipelines
    
    $
    381
    
    
    $
    364Exploration and Production
    
    
    242
    
    
    
    179Marketing
    
    
    (60
    )
    
    
    (135
    )Power
    
    
    (2
    )
    
    
    18Segment EBIT
    
    
    561
    
    
    
    426Corporate and other
    
    
    39
    
    
    
    (210
    )Consolidated EBIT
    
    
    600
    
    
    
    216Interest and debt expense
    
    
    (233
    )
    
    
    (283
    )Income taxes
    
    
    (148
    )
    
    
    19Income (loss) from continuing operations
    
    
    219
    
    
    
    (48
    )Discontinued operations, net of income taxes
    
    
    
    
    
    
    677Net income
    
    $
    219
    
    
    $
    629
 25




---



##### Table of Contents



Pipelines Segment
 Operating Results.
 2008
    
    
    2007(In millions, except volumeamounts)Operating revenues
    
    $
    720
    
    
    $
    644Operating expenses
    
    
    (363
    )
    
    
    (320
    )Operating income
    
    
    357
    
    
    
    324Other income
    
    
    33
    
    
    
    40EBIT before minority interest
    
    
    390
    
    
    
    364Minority interest
    
    
    (9
    )
    
    
    EBIT
    
    $
    381
    
    
    $
    364Throughput volumes (BBtu/d)(1)
    
    
    19,321
    
    
    
    18,040
 
 (1)
    
    Throughput volumes include volumes associated with our proportionate share of
unconsolidated affiliates.
 Quarter
Ended March 31, 2008VarianceRevenue
    
    
    Expense
    
    
    Other
    
    
    EBITImpact
    
    
    Impact
    
    
    Impact
    
    
    ImpactFavorable/(Unfavorable)(In millions)Expansions
    
    $
    24
    
    
    $
    (5
    )
    
    $
    (1
    )
    
    $
    18Reservation and usage revenues
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    11Gas not used in operations and revaluations
    
    
    7
    
    
    
    7
    
    
    
    
    
    
    
    14Calpine bankruptcy settlement
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    29Operating and general and administrative expenses
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Gain/loss on long-lived assets
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    (23
    )Equity earnings from Citrus
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (9
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (9
    )Other(1)
    
    
    5
    
    
    
    (11
    )
    
    
    3
    
    
    
    (3
    )Total impact on EBIT
    
    $
    76
    
    
    $
    (43
    )
    
    $
    (16
    )
    
    $
    17
 
 (1)
    
    Consists of individually insignificant items on several of our pipeline
systems. Expansions.
  Other
Large Development Projects.
 26




---



##### Table of Contents



Reservation and Usage Revenues.
 Gas Not Used in Operations and Revaluations.
  Calpine Bankruptcy Settlement.
 Operating, General and Administrative Expenses.
 Gain/Loss
on Long-Lived Assets.
 Equity Earnings from Citrus
 Minority Interest.
 Other Regulatory Matters.
 27




---



##### Table of Contents



Exploration and Production Segment
 Overview and Strategy
    Significant Operational Factors Affecting the Quarter Ended March 31, 2008
 Production.
 2008
    
    2007(MMcfe/d)United StatesOnshore Central
    
    
    241
    
    
    
    213Onshore Western
    
    
    149
    
    
    
    150Texas Gulf Coast
    
    
    236
    
    
    
    189Gulf of Mexico and south Louisiana
    
    
    173
    
    
    
    182InternationalBrazil
    
    
    12
    
    
    
    16Total Consolidated
    
    
    811
    
    
    
    750Four Star
    
    
    75
    
    
    
    70
 28




---



##### Table of Contents



Drilling Results
 Onshore Central.
 Onshore Western.
 Texas
Gulf Coast.
 Gulf of Mexico and south Louisiana.
 Brazil.
 Egypt.
 Cash Operating Costs.
 Capital Expenditures.
 29




---



##### Table of Contents



Outlook
  
    
    Average daily production volumes for the year of approximately 795 MMcfe/d to 850
MMcfe/d, which excludes approximately 65 MMcfe/d to 70 MMcfe/d from our equity investment in
Four Star.
    
    Capital expenditures, excluding acquisitions, of approximately $1.7 billion. While
approximately 80% of the Companys planned 2008 capital program is allocated to its domestic
program, we plan to spend approximately $350 million in international capital in 2008,
primarily in our Brazil exploration and development program. As part of our domestic capital
program, we will allocate a greater percentage of our capital to our Onshore Central,
Onshore Western and Texas Gulf Coast regions, as compared to our 2007 capital program, in
light of our first quarter 2008 asset divestitures.
    
    Average cash operating costs which include production costs, general and administrative
expenses and other expenses of approximately $1.75/Mcfe to $1.90/Mcfe for the year. Average
cash operating costs could change primarily as a result of severance taxes which are
sensitive to commodity prices; and
    
    Depreciation, depletion and amortization rate of between $2.80/Mcfe and $3.20/Mcfe.
 Price Risk Management Activities
    Derivatives designated as accounting hedges
 Fixed PriceSwaps(1)
    
    Floors(1)
    
    Ceilings(1)Average
    
    
    
    
    
    Average
    
    
    
    
    
    AverageVolumes
    
    Price
    
    Volumes
    
    Price
    
    Volumes
    
    PriceNatural Gas2008
    
    
    19
    
    
    $
    7.48
    
    
    
    98
    
    
    $
    8.00
    
    
    
    98
    
    
    $
    10.822009
    
    
    5
    
    
    $
    3.56
    
    
    
    48
    
    
    $
    8.35
    
    
    
    48
    
    
    $
    11.012010
    
    
    5
    
    
    $
    3.70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2011-2012
    
    
    6
    
    
    $
    3.88
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Oil2008
    
    
    1,880
    
    
    $
    88.48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (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. 30




---



##### Table of Contents



Derivatives not designated as accounting hedges
 Fixed PriceSwaps(1
    
    Floors(1)
    
    Ceilings(1)
    
    Basis Swaps(1)(2)Average
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    Texas Gulf Coast
    
    Onshore-Raton
    
    RockiesVolumes
    
    Price
    
    Volumes
    
    Price
    
    Volumes
    
    Price
    
    Volumes
    
    Avg. Price
    
    Volumes
    
    Avg. Price
    
    Volumes
    
    Avg. PriceNatural Gas2008
    
    
    6
    
    
    $
    8.24
    
    
    
    30
    
    
    $
    8.00
    
    
    
    30
    
    
    $
    10.48
    
    
    
    44
    
    
    $
    (0.33
    )
    
    
    19
    
    
    $
    (1.13
    )
    
    
    10
    
    
    $
    (1.37
    )2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    $
    (1.00
    )
    
    
    
    
    
    
    
 
 (1)
    
    Volumes presented are TBtu for natural gas and MBbl for oil. Prices presented
are per MMBtu of natural gas and per Bbl of oil.(2)
    
    Our basis swaps effectively limit our exposure to differences between the NYMEX
gas price and the price at the location where we sell our gas. The average prices listed above
are the amounts we will pay per MMBtu relative to the NYMEX price to lock-in these
locational price differences.   31




---



##### Table of Contents



Operating Results and Variance Analysis
  2008
    
    
    2007(In millions)Operating Revenues:Natural gas
    
    $
    468
    
    
    $
    408Oil, condensate and NGL
    
    
    159
    
    
    
    88Changes in fair value of derivative contracts not designated as accounting hedges
    
    
    (35
    )
    
    
    3Other
    
    
    11
    
    
    
    6Total operating revenues
    
    
    603
    
    
    
    505Operating Expenses:Depreciation, depletion and amortization
    
    
    (212
    )
    
    
    (170
    )Production costs
    
    
    (91
    )
    
    
    (86
    )Cost of products and services
    
    
    (24
    )
    
    
    (24
    )General and administrative expenses
    
    
    (47
    )
    
    
    (46
    )Other
    
    
    (3
    )
    
    
    (2
    )Total operating expenses
    
    
    (377
    )
    
    
    (328
    )Operating income
    
    
    226
    
    
    
    177Other income(1)
    
    
    16
    
    
    
    2EBIT
    
    $
    242
    
    
    $
    179
 
 (1)
    
    Includes equity earnings from our investment in Four Star. Percent2008
    
    
    2007
    
    
    VarianceConsolidated volumes, prices and costs per unit:Natural gasVolumes (MMcf)
    
    
    61,810
    
    
    
    56,713
    
    
    
    9
    %Average realized prices including hedges ($/Mcf)
    
    $
    7.57
    
    
    $
    7.19
    
    
    
    5
    %Average realized prices excluding hedges ($/Mcf)
    
    $
    7.72
    
    
    $
    6.46
    
    
    
    20
    %Average transportation costs ($/Mcf)
    
    $
    0.28
    
    
    $
    0.31
    
    
    
    (10
    )%Oil, condensate and NGLVolumes (MBbls)
    
    
    1,992
    
    
    
    1,788
    
    
    
    11
    %Average realized prices including hedges ($/Bbl)
    
    $
    79.74
    
    
    $
    49.32
    
    
    
    62
    %Average realized prices excluding hedges ($/Bbl)
    
    $
    83.06
    
    
    $
    50.07
    
    
    
    66
    %Average transportation costs ($/Bbl)
    
    $
    0.71
    
    
    $
    0.76
    
    
    
    (7
    )%Total equivalent volumesMMcfe
    
    
    73,762
    
    
    
    67,442
    
    
    
    9
    %MMcfe/d
    
    
    811
    
    
    
    750
    
    
    
    8
    %Production costs and other cash operating costs ($/Mcfe)Average lease operating costs
    
    $
    0.82
    
    
    $
    0.95
    
    
    
    (14
    )%Average production taxes(1)
    
    
    0.42
    
    
    
    0.32
    
    
    
    31
    %Total production costs
    
    
    1.24
    
    
    
    1.27
    
    
    
    (2
    )%Average general and administrative expenses
    
    
    0.64
    
    
    
    0.69
    
    
    
    (7
    )%Average taxes, other than production and income taxes
    
    
    0.04
    
    
    
    0.03
    
    
    
    33
    %Total cash operating costs
    
    $
    1.92
    
    
    $
    1.99
    
    
    
    (4
    )%Depreciation, depletion and amortization ($/Mcfe)
    
    $
    2.87
    
    
    $
    2.52
    
    
    
    14
    %Unconsolidated affiliate volumes (Four Star)Natural gas (MMcf)
    
    
    5,121
    
    
    
    4,941
    
    
    
    4
    %Oil, condensate and NGL (MBbls)
    
    
    285
    
    
    
    233
    
    
    
    22
    %Total equivalent volumesMMcfe
    
    
    6,832
    
    
    
    6,338
    
    
    
    8
    %MMcfe/d
    
    
    75
    
    
    
    70
    
    
    
    7
    %
 
 (1)
    
    Production taxes include ad valorem and severance taxes. 32




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##### Table of Contents



Quarter Ended March 31, 2008 Compared to Quarter Ended March 31, 2007
  VariancesOperating
    
    
    OperatingRevenue
    
    
    Expense
    
    
    Other
    
    
    EBITFavorable/(Unfavorable)(In millions)Natural Gas RevenueHigher realized prices in 2008
    
    $
    77
    
    
    $
    
    
    
    $
    
    
    
    $
    77Impact of hedges
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    (50
    )Higher volumes in 2008
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    33Oil, Condensate and NGL RevenuesHigher realized prices in 2008
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    66Impact of hedges
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )Higher volumes in 2008
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Other RevenueChanges in
fair value of derivatives not designatedas accounting hedges
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    (38
    )Other
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Depreciation, Depletion and Amortization ExpenseHigher depletion rate in 2008
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    (25
    )Higher production volumes in 2008
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )Production CostsLower lease operating costs in 2008
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Higher production taxes in 2008
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )OtherEarnings from investment in Four Star
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    11Other
    
    
    
    
    
    
    (4
    )
    
    
    3
    
    
    
    (1
    )Total Variances
    
    $
    98
    
    
    $
    (49
    )
    
    $
    14
    
    
    $
    63
 Natural gas, oil, condensate and NGL revenues.
 Other revenue.
 Depreciation, depletion and amortization expense.
 Production costs.
 Other.
 33




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##### Table of Contents



Marketing Segment
 Overview.
  Operating Results.
 2008
    
    
    2007(In millions)Revenue by Significant Contract Type:Production-Related Natural Gas and Oil Derivative Contracts:Changes in fair value of options and swaps
    
    $
    (21
    )
    
    $
    (87
    )Contracts Related to Legacy Trading Operations:Natural gas transportation-related contracts:Demand charges
    
    
    (9
    )
    
    
    (27
    )Settlements, net of termination payments
    
    
    14
    
    
    
    20Changes in fair value of other natural gas derivative contracts
    
    
    
    
    
    
    (24
    )Changes in fair value of power contracts
    
    
    (41
    )
    
    
    (17
    )Total revenues
    
    
    (57
    )
    
    
    (135
    )Operating expenses
    
    
    (3
    )
    
    
    (1
    )Operating loss
    
    
    (60
    )
    
    
    (136
    )Other income, net
    
    
    
    
    
    
    1EBIT
    
    $
    (60
    )
    
    $
    (135
    )
 Production-related Natural Gas and Oil Derivative Contracts
  34




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##### Table of Contents



Floors(1)
    
    
    Ceilings(1)Average
    
    
    
    
    
    
    AverageVolumes
    
    
    Price
    
    
    Volumes
    
    
    PriceNatural Gas  2009(2)
    
    
    17
    
    
    $
    6.00
    
    
    
    17
    
    
    $
    8.75Oil  2008
    
    
    688
    
    
    $
    55.00
    
    
    
    688
    
    
    $
    56.73
 
 (1)
    
    Volumes presented are TBtu for natural gas and MBbl for oil. Prices
presented are per MMBtu of natural gas and per Bbl of oil.(2)
    
    In April 2008, we sold the $6.00 per MMBtu floor contracts for approximately
$2 million.  Contracts Related to Legacy Trading Operations
 Natural gas transportation-related contracts.
 Other natural gas derivative contracts.
 Power contracts.
 35




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##### Table of Contents



Power Segment
  AreaBrazilPorto Velho
    
    $
    246Manaus & Rio Negro
    
    
    57Pipeline projects
    
    
    141Asia and Central America
    
    
    59Total investment, guarantees and letters of credit
    
    $
    503
 Operating Results.
  Corporate and Other Expenses, Net
  2008
    
    
    2007(In millions)Loss on extinguishment of debt
    
    $
    
    
    
    $
    (201
    )Change in litigation, insurance and other reserves
    
    
    11
    
    
    
    (25
    )Foreign currency fluctuations on Euro-denominated debt
    
    
    (6
    )
    
    
    (2
    )Gain on disposition of a portion of our telecommunications business
    
    
    18
    
    
    
    Other
    
    
    16
    
    
    
    18Total EBIT
    
    $
    39
    
    
    $
    (210
    )
 Extinguishment of Debt.
 Litigation, Insurance, and Other Reserves.
  36




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##### Table of Contents



Interest and Debt Expense
  Income Taxes
 Quarter EndedMarch 31,2008
    
    
    2007(In millions, except forrates)Income taxes
    
    $
    148
    
    
    $
    (19
    )Effective tax rate
    
    
    40
    %
    
    
    28
    %
  Discontinued Operations
  Commitments and Contingencies
  37




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##### Table of Contents



Liquidity and Capital Resources
 Overview. ,
 Sources and Uses of Cash.
 2008 Cash Flow Activities.
 2008(In billions)Cash Flow from OperationsContinuing operating activitiesIncome from continuing operations
    
    $
    0.2Other income adjustments
    
    
    0.5Change in other assets and liabilities
    
    
    (0.1
    )Total cash flow from operations
    
    $
    0.6Other Cash InflowsContinuing investing activitiesNet proceeds from the sale of assets and investments
    
    $
    0.6Continuing financing activitiesNet proceeds from the issuance of long-term debt(1)
    
    
    1.2Total other cash inflows
    
    $
    1.8Cash OutflowsContinuing investing activitiesCapital expenditures
    
    $
    0.5Cash paid for acquisitions, net of cash required
    
    
    0.30.8Continuing financing activitiesPayments to retire long-term debt and other financing obligations(1)
    
    
    1.4Total cash outflows
    
    $
    2.2Net change in cash
    
    $
    0.2
 
 (1)
    
    Relates primarily to the net activity under our revolving credit facilities. 38




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##### Table of Contents



Liquidity/Cash Flow Outlook.
  Quarter Ended
    
    
    2008March 31, 2008
    
    
    Remaining
    
    
    Total(In billions)PipelinesMaintenance
    
    $
    0.1
    
    
    $
    0.4
    
    
    $
    0.5Growth
    
    
    0.4
    (1)
    
    
    0.5
    
    
    
    0.9Exploration and Production
    
    
    0.3
    
    
    
    1.4
    
    
    
    1.7Corporate and other(2)
    
    
    
    
    
    
    0.1
    
    
    
    0.1$
    0.8
    
    
    $
    2.4
    
    
    $
    3.2
 
 (1)
    
    Includes approximately $0.3 billion related to the acquisition of Gulf
LNG.(2)
    
    Relates primarily to building renovations at our corporate
facilities. Factors That Could Impact Our Future Liquidity.
 Price Risk Management Activities and Cash Margining Requirements.
 BasisFixed Price
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Swaps(1)(2)Swaps(1)
    
    Floors(1)
    
    Ceilings(1)
    
    Texas Gulf Coast
    
    Onshore-Raton
    
    RockiesAverage
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    
    
    
    
    Avg.
    
    
    
    
    
    Avg.
    
    
    
    
    
    Avg.Volumes
    
    Price
    
    Volumes
    
    Price
    
    Volumes
    
    Price
    
    Volumes
    
    Price
    
    Volumes
    
    Price
    
    Volumes
    
    PriceNatural Gas2008
    
    
    25
    
    
    $
    7.65
    
    
    
    128
    
    
    $
    8.00
    
    
    
    128
    
    
    $
    10.74
    
    
    
    44
    
    
    $
    (0.33
    )
    
    
    19
    
    
    $
    (1.13
    )
    
    
    10
    
    
    $
    (1.37
    )2009
    
    
    5
    
    
    $
    3.56
    
    
    
    65
    
    
    $
    7.74
    
    
    
    65
    
    
    $
    10.42
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    $
    (1.00
    )
    
    
    
    
    
    
    2010
    
    
    5
    
    
    $
    3.70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2011-2012
    
    
    6
    
    
    $
    3.88
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Oil2008
    
    
    1,880
    
    
    $
    88.48
    
    
    
    688
    
    
    $
    55.00
    
    
    
    688
    
    
    $
    56.73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Volumes presented are TBtu for natural gas and MBbl for oil. Prices presented
are per MMBtu of natural gas and per Bbl of oil.(2)
    
    Our basis swaps effectively limit our exposure to differences between the NYMEX
gas price and the price at the location where we sell our gas. The average prices listed above
are the amounts we will pay per MMBtu relative to the NYMEX price to lock-in these
locational price differences. 39




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##### Table of Contents



Commodity-Based Derivative Contracts
  Maturity
    
    
    Maturity
    
    
    Maturity
    
    
    Maturity
    
    
    Maturity
    
    
    TotalLess Than
    
    
    1 to 3
    
    
    4 to 5
    
    
    6 to 10
    
    
    Beyond
    
    
    Fair1 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    10 Years
    
    
    Value(In millions)Derivatives designated as accounting hedgesAssets
    
    $
    
    
    
    $
    3
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3Liabilities
    
    
    (148
    )
    
    
    (45
    )
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    (217
    )Total derivatives designated as accounting hedges(1)
    
    
    (148
    )
    
    
    (42
    )
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    (214
    )Other commodity-based derivativesAssets
    
    
    45
    
    
    
    79
    
    
    
    56
    
    
    
    14
    
    
    
    3
    
    
    
    197Liabilities
    
    
    (288
    )
    
    
    (393
    )
    
    
    (265
    )
    
    
    (160
    )
    
    
    
    
    
    
    (1,106
    )Total other commodity-based derivatives(1)(2)
    
    
    (243
    )
    
    
    (314
    )
    
    
    (209
    )
    
    
    (146
    )
    
    
    3
    
    
    
    (909
    )Total commodity-based derivatives
    
    $
    (391
    )
    
    $
    (356
    )
    
    $
    (233
    )
    
    $
    (146
    )
    
    $
    3
    
    
    $
    (1,123
    )
 
 (1)
    
    Includes positions whose fair value is primarily based on commodity prices
quoted on exchanges such as the NYMEX.(2)
    
    Includes positions whose fair values are derived from third party pricing
data and valuation techniques that consider specific contractual terms, statistical and
simulation analysis, present value concepts, and other internal assumptions.  Derivatives
    
    
    Other
    
    
    TotalDesignated as
    
    
    Commodity-
    
    
    Commodity-Accounting
    
    
    Based
    
    
    BasedHedges
    
    
    Derivatives
    
    
    Derivatives(In millions)Fair value of contracts outstanding at January 1, 2008
    
    $
    (23
    )
    
    $
    (869
    )
    
    $
    (892
    )Fair value of contract settlements during the period
    
    
    2
    
    
    
    57
    
    
    
    59Changes in fair value of contracts
    
    
    (193
    )
    
    
    (97
    )
    
    
    (290
    )Net changes in contracts outstanding during the period
    
    
    (191
    )
    
    
    (40
    )
    
    
    (231
    )Fair value of contracts outstanding at March 31, 2008
    
    $
    (214
    )
    
    $
    (909
    )
    
    $
    (1,123
    )
 40




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Commodity Price Risk
 Production-Related Derivatives.
 10 Percent Increase
    
    
    10 Percent DecreaseFair Value
    
    
    Fair Value
    
    
    (Decrease)
    
    
    Fair Value
    
    
    IncreaseImpact of changes
in commodity prices
on
production-related
derivative assets
(liabilities)March 31, 2008
    
    $
    (299
    )
    
    $
    (471
    )
    
    $
    (172
    )
    
    $
    (142
    )
    
    $
    157December 31, 2007
    
    $
    (64
    )
    
    $
    (181
    )
    
    $
    (117
    )
    
    $
    58
    
    
    $
    122
 Other Commodity-Based Derivatives.
  41




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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
  42




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
  
    
    earnings per share;
    
    capital and other expenditures;
    
    dividends;
    
    financing plans;
    
    capital structure;
    
    liquidity and cash flow;
    
    pending legal proceedings, claims and governmental proceedings, including
environmental matters;
    
    future economic and operating performance;
    
    operating income;
    
    managements plans; and
    
    goals and objectives for future operations.
  
 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
  43




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##### Table of Contents



Item 5. Other Information
  
 Item 6. Exhibits
  44




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##### Table of Contents



SIGNATURES
  EL PASO CORPORATIONDate: May 9, 2008
    
    /s/ D. Mark LelandD. Mark Leland
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)Date: May 9, 2008
    
    /s/ John R. SultJohn R. Sult
Senior Vice President and Controller
(Principal Accounting Officer)
 45




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##### Table of Contents



EL PASO CORPORATION
EXHIBIT INDEX
  ExhibitNumber
    
    Description12
    
    Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.31.A
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.B
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.A
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.B
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 46