##### 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 March 31, 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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12b-2 o þ














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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                                          |  |      | 28 | 
|Item 3.                                       |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                                     |  |      | 45 | 
|Item 4.                                       |  | Controls and Procedures                                                                                                            |  |      | 46 | 
|                                              |  | PART II  Other Information                                                                                                        |  |      |    | 
|Item 1.                                       |  | Legal Proceedings                                                                                                                  |  |      | 47 | 
|Item 1A.                                      |  | Risk Factors                                                                                                                       |  |      | 47 | 
|                                              |  | 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                                                                    |  |      | 48 | 
|Item 3.                                       |  | Defaults Upon Senior Securities                                                                                                    |  |      | 48 | 
|Item 4.                                       |  | Submission of Matters to a Vote of Security
    Holders                                                                            |  |      | 48 | 
|Item 5.                                       |  | Other Information                                                                                                                  |  |      | 48 | 
|Item 6.                                       |  | Exhibits                                                                                                                           |  |      | 49 | 
|                                              |  | Signatures                                                                                                                         |  |      | 50 | 
|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 1350
|Certification of CFO Pursuant to Section 1350








|      |  |                                                 |  |       |  |                                                 
|----- |  | ----------------------------------------------- |  | ----- |  | ------------------------------------------------
|/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                





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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 Ended                                |      
|                                                 |                                          | March 31,                                    |      
|                                                 |                                          |                                              |      
|                                                 |                                          | 2006                                         |       |     | 2005  |  
|                                                 |                                          |                                              |       |     |       |  
|Operating revenues                               |                                          | $                                            | 1,531 |     |       | $ | 1,088 |    
|                                                 |                                          |                                              |       |     |       |  
|Operating expenses                               |                                          |                                              |       |     |       |   |       |    
|                                                 | Cost of products and services            |                                              |       | 61  |       |   |       | 94  |      
|                                                 | Operation and maintenance                |                                              |       | 334 |       |   |       | 411 |      
|                                                 | Depreciation, depletion and amortization |                                              |       | 272 |       |   |       | 269 |      
|                                                 | Loss on long-lived assets                |                                              |       |    |       |   |       | 7   |      
|                                                 | Taxes, other than income taxes           |                                              |       | 64  |       |   |       | 65  |      
|                                                 |                                          |                                              |       |     |       |  
|                                                 |                                          |                                              |       | 731 |       |   |       | 846 |      
|                                                 |                                          |                                              |       |     |       |  
|Operating income                                 |                                          |                                              | 800   |     |       |   | 242   |    
|Earnings from unconsolidated affiliates          |                                          |                                              | 45    |     |       |   | 190   |    
|Other income, net                                |                                          |                                              | 43    |     |       |   | 31    |    
|Interest and debt expense                        |                                          |                                              | (348  | )   |       |   | (343  | )  
|Preferred interests of consolidated subsidiaries |                                          |                                              |      |     |       |   | (6    | )  
|                                                 |                                          |                                              |       |     |       |  
|Income before income taxes                       |                                          |                                              | 540   |     |       |   | 114   |    
|Income taxes                                     |                                          |                                              | 165   |     |       |   | 1     |    
|                                                 |                                          |                                              |       |     |       |  
|Income from continuing operations                |                                          |                                              | 375   |     |       |   | 113   |    
|Discontinued operations, net of income taxes     |                                          |                                              | (19   | )   |       |   | (7    | )  
|                                                 |                                          |                                              |       |     |       |  
|Net income                                       |                                          |                                              | 356   |     |       |   | 106   |    
|Preferred stock dividends                        |                                          |                                              | 10    |     |       |   |      |    
|                                                 |                                          |                                              |       |     |       |  
|Net income available to common stockholders      |                                          | $                                            | 346   |     |       | $ | 106   |    
|                                                 |                                          |                                              |       |     |       |  
|                                                
|Earnings per common share                        |                                          |                                              |       |     |       |   |       |    
|                                                 | Basic                                    |                                              |       |     |       |   |       |     |      
|                                                 |                                          | Income from continuing operations            |       | $   | 0.56  |   |       | $   | 0.18  |  
|                                                 |                                          | Discontinued operations, net of income taxes |       |     | (0.03 | ) |       |     | (0.01 | )
|                                                 |                                          |                                              |       |     |       |  
|                                                 |                                          | Net income                                   |       | $   | 0.53  |   |       | $   | 0.17  |  
|                                                 |                                          |                                              |       |     |       |  
|                                                 | Diluted                                  |                                              |       |     |       |   |       |     |      
|                                                 |                                          | Income from continuing operations            |       | $   | 0.52  |   |       | $   | 0.18  |  
|                                                 |                                          | Discontinued operations, net of income taxes |       |     | (0.03 | ) |       |     | (0.01 | )
|                                                 |                                          |                                              |       |     |       |  
|                                                 |                                          | Net income                                   |       | $   | 0.49  |   |       | $   | 0.17  |  
|                                                 |                                          |                                              |       |     |       |  
|                                                
|Weighted average common shares outstanding       |                                          |                                              |       |     |       |   |       |    
|                                                 | Basic                                    |                                              |       | 656 |       |   |       | 640 |      
|                                                 |                                          |                                              |       |     |       |  
|                                                 | Diluted                                  |                                              |       | 724 |       |   |       | 642 |      
|                                                 |                                          |                                              |       |     |       |  
|                                                
|Dividends declared per common share              |                                          | $                                            | 0.04  |     |       | $ | 0.04  |    
|                                                 |                                          |                                              |       |     |       |  



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##### Table of Contents



EL PASO CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS


(In millions, except share amounts)


(Unaudited)


|                                       |                                                           |                                                            |                                          |        |              |        |        |        |       |        | 
|-------------------------------------- | --------------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------- | ------ | ------------ | ------ | ------ | ------ | ----- | ------ | 
|                                       |                                                           | March 31,                                                  |                                          |        | December 31, |       
|                                       |                                                           | 2006                                                       |                                          |        | 2005         |       
|                                       |                                                           |                                                            |                                          |        |              |       
|ASSETS                                
|Current assets                         |                                                           |                                                            |                                          |        |              |        |        |       
|                                       | Cash and cash equivalents                                 |                                                            | $                                        | 1,779  |              |        | $      | 2,132  |      
|                                       | Accounts and notes receivable                             |                                                            |                                          |        |              |        |        |        |      
|                                       |                                                           | Customers, net of allowance of $51 in 2006 and $67 in 2005 |                                          |        | 829          |        |        |        | 1,115 |       
|                                       |                                                           | Affiliates                                                 |                                          |        | 62           |        |        |        | 58    |       
|                                       |                                                           | Other                                                      |                                          |        | 149          |        |        |        | 141   |       
|                                       | Assets from price risk management activities              |                                                            |                                          | 302    |              |        |        | 641    |      
|                                       | Margin and other deposits held by others                  |                                                            |                                          | 875    |              |        |        | 1,124  |      
|                                       | Assets related to discontinued operations                 |                                                            |                                          | 637    |              |        |        | 230    |      
|                                       | Deferred income taxes                                     |                                                            |                                          | 250    |              |        |        | 396    |      
|                                       | Other                                                     |                                                            |                                          | 351    |              |        |        | 348    |      
|                                       |                                                           |                                                            |                                          |        |              |       
|                                       |                                                           |                                                            | Total current assets                     |        |              | 5,234  |        |        |       | 6,185  | 
|                                       |                                                           |                                                            |                                          |        |              |       
|Property, plant and equipment, at cost |                                                           |                                                            |                                          |        |              |        |        |       
|                                       | Pipelines                                                 |                                                            |                                          | 20,267 |              |        |        | 19,965 |      
|                                       | Natural gas and oil properties, at full cost              |                                                            |                                          | 15,980 |              |        |        | 15,738 |      
|                                       | Other                                                     |                                                            |                                          | 629    |              |        |        | 651    |      
|                                       |                                                           |                                                            |                                          |        |              |       
|                                       |                                                           |                                                            | 36,876                                   |        |              |        | 36,354 |       
|                                       | Less accumulated depreciation, depletion and amortization |                                                            |                                          | 17,782 |              |        |        | 17,567 |      
|                                       |                                                           |                                                            |                                          |        |              |       
|                                       |                                                           |                                                            | Total property, plant and equipment, net |        |              | 19,094 |        |        |       | 18,787 | 
|                                       |                                                           |                                                            |                                          |        |              |       
|Other assets                           |                                                           |                                                            |                                          |        |              |        |        |       
|                                       | Investments in unconsolidated affiliates                  |                                                            |                                          | 2,414  |              |        |        | 2,473  |      
|                                       | Assets from price risk management activities              |                                                            |                                          | 1,120  |              |        |        | 1,368  |      
|                                       | Goodwill and other intangible assets, net                 |                                                            |                                          | 413    |              |        |        | 413    |      
|                                       | Other                                                     |                                                            |                                          | 2,326  |              |        |        | 2,612  |      
|                                       |                                                           |                                                            |                                          |        |              |       
|                                       |                                                           |                                                            | 6,273                                    |        |              |        | 6,866  |       
|                                       |                                                           |                                                            |                                          |        |              |       
|                                       |                                                           |                                                            | Total assets                             |        | $            | 30,601 |        |        | $     | 31,838 | 
|                                       |                                                           |                                                            |                                          |        |              |       



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EL PASO CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS 
(Continued)


(In millions, except share amounts)


(Unaudited)


|                                                         |                                                                                                                                                                           |            |                                            |        |              |        |        |        |     |        | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ------------------------------------------ | ------ | ------------ | ------ | ------ | ------ | --- | ------ | 
|                                                         |                                                                                                                                                                           | March 31,  |                                            |        | December 31, |       
|                                                         |                                                                                                                                                                           | 2006       |                                            |        | 2005         |       
|                                                         |                                                                                                                                                                           |            |                                            |        |              |       
|LIABILITIES AND STOCKHOLDERS EQUITY                    
|Current liabilities                                      |                                                                                                                                                                           |            |                                            |        |              |        |        |       
|                                                         | Accounts payable                                                                                                                                                          |            |                                            |        |              |        |        |        |    
|                                                         |                                                                                                                                                                           | Trade      |                                            | $      | 570          |        |        | $      | 864 |       
|                                                         |                                                                                                                                                                           | Affiliates |                                            |        | 1            |        |        |        | 10  |       
|                                                         |                                                                                                                                                                           | Other      |                                            |        | 582          |        |        |        | 540 |       
|                                                         | Short-term financing obligations, including current maturities                                                                                                            |            |                                            | 848    |              |        |        | 986    |    
|                                                         | Liabilities from price risk management activities                                                                                                                         |            |                                            | 655    |              |        |        | 1,418  |    
|                                                         | Liabilities related to discontinued operations                                                                                                                            |            |                                            | 499    |              |        |        | 420    |    
|                                                         | Margin deposits held by us                                                                                                                                                |            |                                            | 845    |              |        |        | 497    |    
|                                                         | Accrued interest                                                                                                                                                          |            |                                            | 308    |              |        |        | 290    |    
|                                                         | Other                                                                                                                                                                     |            |                                            | 673    |              |        |        | 687    |    
|                                                         |                                                                                                                                                                           |            |                                            |        |              |       
|                                                         |                                                                                                                                                                           |            | Total current liabilities                  |        |              | 4,981  |        |        |     | 5,712  | 
|                                                         |                                                                                                                                                                           |            |                                            |        |              |       
|Long-term financing obligations, less current maturities |                                                                                                                                                                           |            | 16,232                                     |        |              |        | 17,023 |       
|                                                         |                                                                                                                                                                           |            |                                            |        |              |       
|Other                                                    |                                                                                                                                                                           |            |                                            |        |              |        |        |       
|                                                         | Liabilities from price risk management activities                                                                                                                         |            |                                            | 1,659  |              |        |        | 2,005  |    
|                                                         | Deferred income taxes                                                                                                                                                     |            |                                            | 1,529  |              |        |        | 1,405  |    
|                                                         | Other                                                                                                                                                                     |            |                                            | 2,286  |              |        |        | 2,273  |    
|                                                         |                                                                                                                                                                           |            |                                            |        |              |       
|                                                         |                                                                                                                                                                           |            | 5,474                                      |        |              |        | 5,683  |       
|                                                         |                                                                                                                                                                           |            |                                            |        |              |       
|Commitments and contingencies                            |                                                                                                                                                                           |            |                                            |        |              |        |        |       
|Securities of subsidiaries                               |                                                                                                                                                                           |            | 32                                         |        |              |        | 31     |       
|                                                         |                                                                                                                                                                           |            |                                            |        |              |       
|Stockholders equity                                     |                                                                                                                                                                           |            |                                            |        |              |        |        |       
|                                                         | Preferred stock, par value $0.01 per share; authorized
    50,000,000 shares; issued 750,000, 4.99% convertible
    perpetual shares in 2005; stated at liquidation value |            |                                            | 750    |              |        |        | 750    |    
|                                                         | Common stock, par value $3 per share; authorized
    1,500,000,000 shares; issued 667,150,185 shares in
    2006 and 667,082,043 shares in 2005                           |            |                                            | 2,001  |              |        |        | 2,001  |    
|                                                         | Additional paid-in capital                                                                                                                                                |            |                                            | 4,547  |              |        |        | 4,592  |    
|                                                         | Accumulated deficit                                                                                                                                                       |            |                                            | (3,059 | )            |        |        | (3,415 | )  
|                                                         | Accumulated other comprehensive loss                                                                                                                                      |            |                                            | (163   | )            |        |        | (332   | )  
|                                                         | Treasury stock (at cost); 7,920,105 shares in 2006 and
    7,620,272 shares in 2005                                                                                       |            |                                            | (194   | )            |        |        | (190   | )  
|                                                         | Unamortized compensation                                                                                                                                                  |            |                                            |       |              |        |        | (17    | )  
|                                                         |                                                                                                                                                                           |            |                                            |        |              |       
|                                                         |                                                                                                                                                                           |            | Total stockholders equity                 |        |              | 3,882  |        |        |     | 3,389  | 
|                                                         |                                                                                                                                                                           |            |                                            |        |              |       
|                                                         |                                                                                                                                                                           |            | Total liabilities and stockholders equity |        | $            | 30,601 |        |        | $   | 31,838 | 
|                                                         |                                                                                                                                                                           |            |                                            |        |              |       



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EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)


|                                     |                                                                                      |                                                                                       |                                                     |       |      |      |      |       |      |      |  
|------------------------------------ | ------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------- | --------------------------------------------------- | ----- | ---- | ---- | ---- | ----- | ---- | ---- | -
|                                     |                                                                                      | Quarter Ended                                                                         |                                                    
|                                     |                                                                                      | March 31,                                                                             |                                                    
|                                     |                                                                                      |                                                                                       |                                                    
|                                     |                                                                                      | 2006                                                                                  |                                                     |       | 2005 |     
|                                     |                                                                                      |                                                                                       |                                                     |       |      |     
|Cash flows from operating activities |                                                                                      |                                                                                       |                                                     |       |      |      |      |      
|                                     | Net income                                                                           |                                                                                       | $                                                   | 356   |      |      | $    | 106   |     
|                                     |                                                                                      | Loss from discontinued operations, net of income taxes                                |                                                     |       | (19  | )    |      |       | (7   | )   
|                                     |                                                                                      |                                                                                       |                                                     |       |      |     
|                                     | Net income from continuing operations                                                |                                                                                       |                                                     | 375   |      |      |      | 113   |     
|                                     | Adjustments to reconcile net income to net cash from operating
    activities        |                                                                                       |                                                     |       |      |      |      |       |     
|                                     |                                                                                      | Depreciation, depletion and amortization                                              |                                                     |       | 272  |      |      |       | 269  |     
|                                     |                                                                                      | Loss on long-lived assets                                                             |                                                     |       |     |      |      |       | 7    |     
|                                     |                                                                                      | Earnings (losses) from unconsolidated affiliates, adjusted for
    cash distributions |                                                     |       | 10   |      |      |       | (107 | )   
|                                     |                                                                                      | Deferred income taxes                                                                 |                                                     |       | 160  |      |      |       | 48   |     
|                                     |                                                                                      | Other non-cash items                                                                  |                                                     |       | 22   |      |      |       | 28   |     
|                                     |                                                                                      | Change in margin and other deposits                                                   |                                                     |       | 597  |      |      |       | 108  |     
|                                     |                                                                                      | Other asset and liability changes                                                     |                                                     |       | (487 | )    |      |       | (410 | )   
|                                     |                                                                                      |                                                                                       |                                                     |       |      |     
|                                     |                                                                                      | Cash provided by continuing operations                                                |                                                     |       | 949  |      |      |       | 56   |     
|                                     |                                                                                      | Cash provided by (used in) discontinued operations                                    |                                                     |       | 2    |      |      |       | (5   | )   
|                                     |                                                                                      |                                                                                       |                                                     |       |      |     
|                                     |                                                                                      |                                                                                       | Net cash provided by operating activities           |       |      | 951  |      |       |      | 51   |  
|                                     |                                                                                      |                                                                                       |                                                     |       |      |     
|Cash flows from investing activities |                                                                                      |                                                                                       |                                                     |       |      |      |      |      
|                                     | Capital expenditures                                                                 |                                                                                       |                                                     | (401  | )    |      |      | (388  | )   
|                                     | Net proceeds from the sale of assets and investments                                 |                                                                                       |                                                     | 59    |      |      |      | 633   |     
|                                     | Proceeds from settlement of a foreign currency derivative                            |                                                                                       |                                                     |      |      |      |      | 131   |     
|                                     | Cash paid for acquisitions, net of cash acquired                                     |                                                                                       |                                                     |      |      |      |      | (173  | )   
|                                     | Other                                                                                |                                                                                       |                                                     | 22    |      |      |      | 30    |     
|                                     |                                                                                      |                                                                                       |                                                     |       |      |     
|                                     |                                                                                      | Cash provided by (used in) continuing operations                                      |                                                     |       | (320 | )    |      |       | 233  |     
|                                     |                                                                                      | Cash provided by discontinued operations                                              |                                                     |       |     |      |      |       | 122  |     
|                                     |                                                                                      |                                                                                       |                                                     |       |      |     
|                                     |                                                                                      |                                                                                       | Net cash provided by (used in) investing activities |       |      | (320 | )    |       |      | 355  |  
|                                     |                                                                                      |                                                                                       |                                                     |       |      |     
|Cash flows from financing activities |                                                                                      |                                                                                       |                                                     |       |      |      |      |      
|                                     | Payments to retire long-term debt and other financing obligations                    |                                                                                       |                                                     | (948  | )    |      |      | (996  | )   
|                                     | Net proceeds from the issuance of long-term debt and other
    financing obligations |                                                                                       |                                                     |      |      |      |      | 197   |     
|                                     | Dividends paid                                                                       |                                                                                       |                                                     | (36   | )    |      |      | (26   | )   
|                                     | Contributions from discontinued operations                                           |                                                                                       |                                                     | 2     |      |      |      | 73    |     
|                                     | Other                                                                                |                                                                                       |                                                     |      |      |      |      | (3    | )   
|                                     |                                                                                      |                                                                                       |                                                     |       |      |     
|                                     |                                                                                      | Cash used in continuing operations                                                    |                                                     |       | (982 | )    |      |       | (755 | )   
|                                     |                                                                                      | Cash used in discontinued operations                                                  |                                                     |       | (2   | )    |      |       | (117 | )   
|                                     |                                                                                      |                                                                                       |                                                     |       |      |     
|                                     |                                                                                      |                                                                                       | Net cash used in financing activities               |       |      | (984 | )    |       |      | (872 | )
|                                     |                                                                                      |                                                                                       |                                                     |       |      |     
|Change in cash and cash equivalents  |                                                                                      |                                                                                       | (353                                                | )     |      |      | (466 | )    
|Cash and cash equivalents            |                                                                                      |                                                                                       |                                                     |       |      |      |      |      
|                                     | Beginning of period                                                                  |                                                                                       |                                                     | 2,132 |      |      |      | 2,117 |     
|                                     |                                                                                      |                                                                                       |                                                     |       |      |     
|                                     | End of period                                                                        |                                                                                       | $                                                   | 1,779 |      |      | $    | 1,651 |     
|                                     |                                                                                      |                                                                                       |                                                     |       |      |     



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EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(In millions)


(Unaudited)


|                                                                                                          |                                                                                                                                               |                                   |     |     |      |   |     |      |      |  
|--------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | --- | --- | ---- | - | --- | ---- | ---- | -
|                                                                                                          |                                                                                                                                               | Quarter Ended                     |    
|                                                                                                          |                                                                                                                                               | March 31,                         |    
|                                                                                                          |                                                                                                                                               |                                   |    
|                                                                                                          |                                                                                                                                               | 2006                              |     |     | 2005 |  
|                                                                                                          |                                                                                                                                               |                                   |     |     |      |  
|Net income                                                                                                |                                                                                                                                               | $                                 | 356 |     |      | $ | 106 |     
|                                                                                                          |                                                                                                                                               |                                   |     |     |      |  
|Foreign currency translation adjustments (net of income taxes of
    less than $1 in 2006 and $1 in 2005) |                                                                                                                                               |                                   | 3   |     |      |   | 11  |     
|Unrealized net gains (losses) from cash flow hedging activity                                             |                                                                                                                                               |                                   |     |     |      |   |     |     
|                                                                                                          | Unrealized mark-to-market gains (losses) arising during period
    (net of income taxes of $76 in 2006 and $102 in 2005)                      |                                   |     | 131 |      |   |     | (189 | )   
|                                                                                                          | Reclassification adjustments for changes in initial value to the
    settlement date (net of income taxes of $11 in 2006 and $13 in
    2005) |                                   |     | 20  |      |   |     | (21  | )   
|                                                                                                          | Change in unrealized gains on available for sale securities (net
    of income tax of $8 in 2006)                                             |                                   |     | 15  |      |   |     |     |     
|                                                                                                          |                                                                                                                                               |                                   |     |     |      |  
|                                                                                                          |                                                                                                                                               | Other comprehensive income (loss) |     |     | 169  |   |     |      | (199 | )
|                                                                                                          |                                                                                                                                               |                                   |     |     |      |  
|Comprehensive income (loss)                                                                               |                                                                                                                                               | $                                 | 525 |     |      | $ | (93 | )   
|                                                                                                          |                                                                                                                                               |                                   |     |     |      |  



5



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##### Table of Contents



EL PASO CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


1. Basis of Presentation and Significant Accounting
Policies


Basis of Presentation


10-Q 10-K, 10-K.


Significant Accounting Policies


10-K.


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


Accounting for Pipeline Integrity Costs.


2. Acquisitions




6



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##### Table of Contents







|                                            |  |               |       | 
|------------------------------------------- |  | ------------- | ----- | 
|                                            |  | Quarter Ended |      
|                                            |  | March 31,     |      
|                                            |  | 2005          |      
|                                            |  |               |      
|                                            |  | (In millions, |      
|                                            |  | except        |      
|                                            |  | per share     |      
|                                            |  | amounts)      |      
|Revenues                                    |  | $             | 1,101 | 
|Net income available to common stockholders |  |               | 112   | 
|Basic and diluted net income per share      |  |               | 0.17  | 

3. Divestitures




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



|                           |       |               |    |    |      |   |     |     | 
|-------------------------- | ----- | ------------- | -- | -- | ---- | - | --- | --- | 
|                           |       | 2006          |    |    | 2005 |  
|                           |       |               |    |    |      |  
|                           |       | (In millions) |   
|Pipelines                  |       | $             |   |    |      | $ | 32  |    
|Exploration and Production |       |               | 6  |    |      |   |    |    
|Power                      |       |               | 59 |    |      |   | 110 |    
|Field Services             |       |               |   |    |      |   | 501 |    
|                           |       |               |    |    |      |  
|Total
    continuing(1)    |       |               | 65 |    |      |   | 643 |    
|Discontinued               |       |               |   |    |      |   | 79  |    
|                           |       |               |    |    |      |  
|                           | Total |               | $  | 65 |      |   | $   | 722 | 
|                           |       |               |    |    |      |  






|    |                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 $6 million and $10 million for the
    quarters ended March 31, 2006 and 2005.

7



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|                           |  |                                                                 |  |                                                                                                                                                                                                                     
|-------------------------- |  | --------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                           |  | 2006                                                            |  | 2005                                                                                                                                                                                                                
|                           |  |                                                                 |  |                                                                                                                                                                                                                     
|Pipelines                  |  |  None                                                          |  |  Facilities located in the southeastern U.S.                                                                                                                                                                       
|                          
|Exploration and Production |  |  Miscellaneous offshore natural gas and oil properties         |  |  None                                                                                                                                                                                                              
|                          
|Power                      |  |  Interests in power plants in Hungary, Peru and
    Bangladesh |  |  Cedar Brakes I and II
     Interest in a power plant in India
     2 domestic power plants                                                                                                                      
|                          
|Field Services             |  |  N/A                                                           |  |  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
|                          
|Discontinued               |  |  None                                                          |  |  Interest in Paraxylene facility
     Methyl tertiary-butyl ether (MTBE) processing
    facility                                                                                                                  





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

Accounting for the Impairment or
Disposal of Long-Lived Assets


Macae and Other International Power Operations.


South Louisiana Gathering and Processing Operations.


International Natural Gas and Oil Operations.


Petroleum Markets.


8



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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) |    
|Quarter Ended March 31, 2006                           |  |               |     |   |               |   |     |               |  |   |           |   |  |       |     |   |  |   |      |  
|Revenues                                               |  | $             | 50  |   |               | $ |    |               |  | $ |          |   |  | $     |    |   |  | $ | 50   |  
|Costs and expenses                                     |  |               | (53 | ) |               |   |    |               |  |   |          |   |  |       |    |   |  |   | (53  | )
|Loss on long-lived assets                              |  |               | (12 | ) |               |   |    |               |  |   |          |   |  |       |    |   |  |   | (12  | )
|Interest and debt expense                              |  |               | (7  | ) |               |   |    |               |  |   |          |   |  |       |    |   |  |   | (7   | )
|                                                       |  |               |     |   |               |   |     |               |  |   |           |   |  |       |    
|Loss before income taxes                               |  | $             | (22 | ) |               | $ |    |               |  | $ |          |   |  | $     |    |   |  |   | (22  | )
|                                                       |  |               |     |   |               |   |     |               |  |   |           |   |  |       |    
|Income taxes                                           |  |               |     |   |               |   |     |               |  |   |           |   |  |       |     |   |  |   | 3    |  
|                                                       |  |               |     |   |               |   |     |               |  |   |           |   |  |       |    
|Loss from discontinued operations, net of income taxes |  |               |     |   |               |   |     |               |  |   |           |   |  |       |     |   |  | $ | (19  | )
|                                                       |  |               |     |   |               |   |     |               |  |   |           |   |  |       |    
|Quarter Ended March 31, 2005                           |  |               |     |   |               |   |     |               |  |   |           |   |  |       |     |   |  |   |      |  
|Revenues                                               |  | $             | 54  |   |               | $ | 87  |               |  | $ | 2         |   |  | $     | 44  |   |  | $ | 187  |  
|Costs and expenses                                     |  |               | (53 | ) |               |   | (78 | )             |  |   | (1        | ) |  |       | (53 | ) |  |   | (185 | )
|Gain (loss) on long-lived assets                       |  |               | (14 | ) |               |   |    |               |  |   | (1        | ) |  |       | 3   |   |  |   | (12  | )
|Other income                                           |  |               | 2   |   |               |   |    |               |  |   |          |   |  |       | 15  |   |  |   | 17   |  
|Interest and debt expense                              |  |               | (7  | ) |               |   |    |               |  |   |          |   |  |       |    |   |  |   | (7   | )
|                                                       |  |               |     |   |               |   |     |               |  |   |           |   |  |       |    
|Income (loss) before income taxes                      |  | $             | (18 | ) |               | $ | 9   |               |  | $ |          |   |  | $     | 9   |   |  |   |     |  
|                                                       |  |               |     |   |               |   |     |               |  |   |           |   |  |       |    
|Income taxes                                           |  |               |     |   |               |   |     |               |  |   |           |   |  |       |     |   |  |   | (7   | )
|                                                       |  |               |     |   |               |   |     |               |  |   |           |   |  |       |    
|Loss from discontinued operations, net of income taxes |  |               |     |   |               |   |     |               |  |   |           |   |  |       |     |   |  | $ | (7   | )
|                                                       |  |               |     |   |               |   |     |               |  |   |           |   |  |       |    



4. Loss on Long-Lived Assets


long-lived


5. Income Taxes




|                   |  |               |     |   |      |   |   |  
|------------------ |  | ------------- | --- | - | ---- | - | - | -
|                   |  | 2006          |     |   | 2005 |  
|                   |  |               |     |   |      |  
|                   |  | (In millions, |    
|                   |  | except rates) |    
|Income taxes       |  | $             | 165 |   |      | $ | 1 |  
|Effective tax rate |  |               | 31  | % |      |   | 1 | %



9



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6. Earnings Per Share




|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |       |      |   |     |       |      | 
|----------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------------------------------------- | --- | ----- | ------- | - | --- | ----- | ---- | - | ------- | ----- | ---- | - | --- | ----- | ---- | 
|                                                                                    |                                              | 2006                                                                   |     |       | 2005    |  
|                                                                                    |                                              |                                                                        |     |       |         |  
|                                                                                    |                                              | Basic                                                                  |     |       | Diluted |   |     | Basic |      |   | Diluted |      
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|Income from continuing operations                                                   |                                              | $                                                                      | 375 |       |         | $ | 375 |       |      | $ | 113     |       |      | $ | 113 |      
|Convertible preferred stock dividends                                               |                                              |                                                                        | (10 | )     |         |   |    |       |      |   |        |       |      |   |    |      
|Interest on trust preferred securities                                              |                                              |                                                                        |    |       |         |   | 2   |       |      |   |        |       |      |   |    |      
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|                                                                                    |                                              | Income from continuing operations available to
    common stockholders |     |       | 365     |   |     |       | 377  |   |         |       | 113  |   |     |       | 113  | 
|                                                                                    | Discontinued operations                      |                                                                        |     | (19   | )       |   |     | (19   | )    |   |         | (7    | )    |   |     | (7    | )   
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|                                                                                    |                                              | Net income available to common stockholders                            |     | $     | 346     |   |     | $     | 358  |   |         | $     | 106  |   |     | $     | 106  | 
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|Weighted average common shares outstanding                                          |                                              |                                                                        | 656 |       |         |   | 656 |       |      |   | 640     |       |      |   | 640 |      
|Effect of dilutive securities:                                                      |                                              |                                                                        |     |       |         |   |     |       |      |   |         |       |      |   |     |      
|                                                                                    | Options and restricted stock                 |                                                                        |     |      |         |   |     | 3     |      |   |         |      |      |   |     | 2     |     
|                                                                                    | Convertible preferred stock                  |                                                                        |     |      |         |   |     | 57    |      |   |         |      |      |   |     |      |     
|                                                                                    | Trust preferred securities                   |                                                                        |     |      |         |   |     | 8     |      |   |         |      |      |   |     |      |     
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|Weighted average common shares outstanding and dilutive
    potential common shares |                                              |                                                                        | 656 |       |         |   | 724 |       |      |   | 640     |       |      |   | 642 |      
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|Earnings per common share:                                                          |                                              |                                                                        |     |       |         |   |     |       |      |   |         |       |      |   |     |      
|                                                                                    | Income from continuing operations            |                                                                        | $   | 0.56  |         |   | $   | 0.52  |      |   | $       | 0.18  |      |   | $   | 0.18  |     
|                                                                                    | Discontinued operations, net of income taxes |                                                                        |     | (0.03 | )       |   |     | (0.03 | )    |   |         | (0.01 | )    |   |     | (0.01 | )   
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      
|                                                                                    |                                              | Net income                                                             |     | $     | 0.53    |   |     | $     | 0.49 |   |         | $     | 0.17 |   |     | $     | 0.17 | 
|                                                                                    |                                              |                                                                        |     |       |         |   |     |       |      |   |         |      



7. Price Risk Management Activities




10



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|                         |                                                |                                                               |   |      |              |   |   |      |        |  
|------------------------ | ---------------------------------------------- | ------------------------------------------------------------- | - | ---- | ------------ | - | - | ---- | ------ | -
|                         |                                                | March 31,                                                     |   |      | December 31, |  
|                         |                                                | 2006                                                          |   |      | 2005         |  
|                         |                                                |                                                               |   |      |              |  
|                         |                                                | (In millions)                                                 |  
|Net assets (liabilities) |                                                |                                                               |   |      |              |   |   |     
|                         | Derivatives designated as hedges               |                                                               | $ | (352 | )            |   | $ | (653 | )     
|                         | Other commodity-based derivative contracts     |                                                               |   | (549 | )            |   |   | (763 | )     
|                         |                                                |                                                               |   |      |              |  
|                         |                                                | Total commodity-based
    derivatives(1)                      |   |      | (901         | ) |   |      | (1,416 | )
|                         | Interest rate and foreign currency derivatives |                                                               |   | 9    |              |   |   | 2    |       
|                         |                                                |                                                               |   |      |              |  
|                         |                                                | Net liabilities from price risk management activities
    (2) |   | $    | (892         | ) |   | $    | (1,414 | )
|                         |                                                |                                                               |   |      |              |  






|    |                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------
|(1) | The decrease in the liability during the quarter ended
    March 31, 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




|                                                               |  |               |        |  |              |   |        | 
|-------------------------------------------------------------- |  | ------------- | ------ |  | ------------ | - | ------ | 
|                                                               |  | March 31,     |        |  | December 31, |  
|                                                               |  | 2006          |        |  | 2005         |  
|                                                               |  |               |        |  |              |  
|                                                               |  | (In millions) |       
|Short-term financing obligations, including current maturities |  | $             | 848    |  |              | $ | 986    | 
|Long-term financing obligations                                |  |               | 16,232 |  |              |   | 17,023 | 
|                                                               |  |               |        |  |              |  
|Total                                                          |  | $             | 17,080 |  |              | $ | 18,009 | 
|                                                               |  |               |        |  |              |  



11



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



|                  |  |                                       |  |               |               |               |                     |   |        |      |  |   |        |  
|----------------- |  | ------------------------------------- |  | ------------- | ------------- | ------------- | ------------------- | - | ------ | ---- |  | - | ------ | -
|                  |  |                                       |  |               |               | Book Value    |                     |   | Cash   |     
|Company           |  | Type                                  |  | Interest Rate |               |               | Increase (Decrease) |   |        | Paid | 
|                  |  |                                       |  |               |               |               |                     |   |        |      | 
|                  |  |                                       |  |               |               | (In millions) |                    
|Coastal Finance I |  | Trust originated preferred securities |  |               | 8.375%        |               |                     | $ | (300   | )    |  | $ | (300   | )
|El Paso           |  | Zero coupon debentures                |  |               |              |               |                     |   | (612   | )    |  |   | (612   | )
|El Paso           |  | Euro notes                            |  |               | 5.75%         |               |                     |   | (26    | )    |  |   | (26    | )
|Other             |  | Long-term debt                        |  |               | Various       |               |                     |   | 9      |      |  |   | (10    | )
|                  |  |                                       |  |               |               |               |                     |   |        |      | 
|                  |  | Decrease through March 31, 2006       |  |               |               |               |                     | $ | (929   | )    |  | $ | (948   | )
|El Paso           |  | Term Loan                             |  |               | LIBOR + 2.75% |               |                     |   | (125   | )    |  |   | (125   | )
|Other             |  | Long-term debt                        |  |               | Various       |               |                     |   | (4     | )    |  |   | (4     | )
|                  |  |                                       |  |               |               |               |                     |   |        |      | 
|                  |  | Decreases through May 5,
    2006(1)  |  |               |               |               |                     | $ | (1,058 | )    |  | $ | (1,077 | )
|                  |  |                                       |  |               |               |               |                     |   |        |      | 






|    |                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes $229 million repaid prior to closing the sale of
    our Macae facilities which are classified as discontinued
    operations.



Credit Facilities


non-financial 10-K.


Letters of Credit




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. This
    consolidated lawsuit alleges violations of federal securities
    laws against us and several of our current and former officers
    and directors. It includes allegations regarding the accuracy or
    completeness of press releases and other public statements made
    during the period from 2000 through early 2004 related to
    alleged wash trades,
    mark-to-market
    accounting, off-balance sheet debt, the estimation of natural
    gas and oil reserves and deliveries to the California energy
    market. Formal discovery in the consolidated lawsuit is
    currently stayed. The Court has ordered the parties to mediate
    this case.
|
| | Derivative Litigation. Three shareholder derivative
    actions are outstanding, 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 class action, with the exception that there are no
    allegations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

12



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | related to natural gas and oil reserves in one of the cases. The
    state court action generally alleges the same claims pled in the
    consolidated shareholder class action, as well as seeks the
    recovery of 2001 compensation paid to certain former executives.
    The parties are engaged in settlement discussions in this
    derivative action.                                                                                                                                                                                                                                                                                                                                                                     
|
| | 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 oil
    reserves. Formal discovery in this lawsuit is currently stayed.
|
| | We and our representatives have insurance coverages that are
    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. Cornerstone Propane Partners, L.P. v. Reliant Energy
Services Inc., et al. Roberto E. Calle
Gracey v.


13



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##### Table of Contents



American Electric Power Company, Inc., et al. Dominick Viola v. Reliant Energy Services Inc.,
et al. in re: Gas Commodity
Litigation. Texas Ohio Energy, Inc. v. CenterPoint
Energy, Inc. et al. Fairhaven Power v. El Paso Corporation
et al. Utility Savings and
Refund Services, et al. v. Reliant Energy,
et al. Abelman Art
Glass, et al. v. Encana Corporation, et al. 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. Learjet, Inc. v. Oneok Inc.


Gas Measurement Cases. 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.


14



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##### Table of Contents



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, El Paso Natural Gas Company v. Burlington
Resources, Inc. and Burlington Resources Oil and Gas Company,
L.P.


Araucaria.


Macae.


MTBE.


15



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##### Table of Contents





Government Investigations and Inquiries


Reserve Revisions.


Iraq Oil Sales.


Other Government Investigations.


Other Contingencies


El Paso Natural Gas Company Rate Case.


Colorado Interstate Gas Company (CIG) Rate Case.


Iraq Imports.


16



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##### Table of Contents



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




Environmental Matters






17



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##### Table of Contents





|              |  |                |     |  |      |   |     | 
|------------- |  | -------------- | --- |  | ---- | - | --- | 
|              |  | March 31, 2006 |    
|              |  |                |    
|Sites         |  | Expected       |     |  | High |  
|              |  |                |     |  |      |  
|              |  | (In millions)  |    
|Operating     |  | $              | 72  |  |      | $ | 73  | 
|Non-operating |  |                | 269 |  |      |   | 399 | 
|Superfund     |  |                | 38  |  |      |   | 68  | 
|              |  |                |     |  |      |  
|Total         |  | $              | 379 |  |      | $ | 540 | 
|              |  |                |     |  |      |  



|                                                 |  |   |     |  
|------------------------------------------------ |  | - | --- | -
|Balance as of January 1, 2006                    |  | $ | 379 |  
|Additions/adjustments for remediation activities |  |   | 14  |  
|Payments for remediation activities              |  |   | (14 | )
|                                                 |  |   |    
|Balance as of March 31, 2006                     |  | $ | 379 |  
|                                                 |  |   |    

clean-up


Polychlorinated Biphenyls (PCB) Cost Recoveries.


CERCLA Matters. clean-up




18



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##### Table of Contents





Guarantees


10-K


Retiree Medical
Benefits Matters


10. Retirement Benefits




|                                          |                  |               |     |       |                |   |     |      |  |   |      |   |  |   |    |   | 
|----------------------------------------- | ---------------- | ------------- | --- | ----- | -------------- | - | --- | ---- |  | - | ---- | - |  | - | -- | - | 
|                                          |                  |               |     | Other |               
|                                          |                  | Pension       |     |       | Postretirement |  
|                                          |                  | Benefits      |     |       | Benefits       |  
|                                          |                  |               |     |       |                |  
|                                          |                  | 2006          |     |       | 2005           |   |     | 2006 |  |   | 2005 |  
|                                          |                  |               |     |       |                |   |     |      |  |   |      |  
|                                          |                  | (In millions) |    
|Service cost                              |                  | $             | 4   |       |                | $ | 6   |      |  | $ |     |   |  | $ |   |  
|Interest cost                             |                  |               | 29  |       |                |   | 29  |      |  |   | 7    |   |  |   | 7  |  
|Expected return on plan assets            |                  |               | (44 | )     |                |   | (42 | )    |  |   | (4   | ) |  |   | (3 | )
|Amortization of net actuarial loss        |                  |               | 14  |       |                |   | 16  |      |  |   |     |   |  |   |   |  
|Amortization of prior service
    cost(1) |                  |               |    |       |                |   | (1  | )    |  |   |     |   |  |   | 2  |  
|                                          |                  |               |     |       |                |   |     |      |  |   |      |  
|                                          | Net benefit cost |               | $   | 3     |                |   | $   | 8    |  |   | $    | 3 |  |   | $  | 6 | 
|                                          |                  |               |     |       |                |   |     |      |  |   |      |  






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



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##### Table of Contents



11. Capital Stock




|                                       |                                   |               |     |                |                 |  |     |                | 
|-------------------------------------- | --------------------------------- | ------------- | --- | -------------- | --------------- |  | --- | -------------- | 
|                                       |                                   |               |     | Convertible    |                
|                                       |                                   | Common Stock  |     |                | Preferred Stock | 
|                                       |                                   | ($0.04/share) |     |                | (4.99%/year)    | 
|                                       |                                   |               |     |                |                 | 
|Amount paid through March 31, 2006     |                                   |               | $26 |                |                 |  | $10 |               
|Amount paid in April 2006              |                                   |               | $26 |                |                 |  | $ 9 |               
|Declared subsequent to March 31, 2006: |                                   |               |     |                |                 |  |     |               
|                                       | Date of declaration               |               |     | April 13, 2006 |                 |  |     | April 13, 2006 | 
|                                       | Date payable                      |               |     | July 3, 2006   |                 |  |     | July 3, 2006   | 
|                                       | Payable to shareholders on record |               |     | June 2, 2006   |                 |  |     | June 15, 2006  | 

10-K.


12. Stock-Based Compensation








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|                                                                                                                          |                                |               |     |      | 
|------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------------- | --- | ---- | 
|                                                                                                                          |                                | Quarter Ended |    
|                                                                                                                          |                                | March 31,     |    
|                                                                                                                          |                                | 2005          |    
|                                                                                                                          |                                |               |    
|Net income available to common stockholders, as reported                                                                  |                                | $             | 106 |     
|Add: Stock-based employee compensation expense included in
    reported net income, net of taxes                          |                                |               | 2   |     
|Deduct: Total stock-based compensation expense, determined under
    fair-value based method for all awards, net of taxes |                                |               | 5   |     
|                                                                                                                          |                                |               |    
|Net income available to common stockholders, pro forma                                                                    |                                | $             | 103 |     
|                                                                                                                          |                                |               |    
|Income per share:                                                                                                         |                                |               |     |     
|                                                                                                                          | Basic and diluted, as reported |               | $   | 0.17 | 
|                                                                                                                          |                                |               |    
|                                                                                                                          | Based and diluted, pro forma   |               | $   | 0.16 | 
|                                                                                                                          |                                |               |    

Transition Election to Accounting for the
Tax Effects of Share-Based Payment Awards




Non-Qualified Stock Options




|                                             |  |            |            |          |                |          |           |             |  |  |                 |  |  |   |    | 
|-------------------------------------------- |  | ---------- | ---------- | -------- | -------------- | -------- | --------- | ----------- |  |  | --------------- |  |  | - | -- | 
|                                             |  |            |            |          |                | Weighted |           |             | 
|                                             |  |            |            |          |                | Average  |           |             | 
|                                             |  |            |            | Weighted |                |          | Remaining |             |  | 
|                                             |  | # Shares   |            |          | Average        |          |           | Contractual |  |  | Aggregate       | 
|                                             |  | Underlying |            |          | Exercise Price |          |           | Term (In    |  |  | Intrinsic Value | 
|                                             |  | Options    |            |          | Per Share      |          |           | years)      |  |  | (In millions)   | 
|                                             |  |            |            |          |                |          |           |             |  |  |                 | 
|Outstanding at December 31, 2005             |  |            | 28,083,485 |          |                | $        | 37.12     |             |  |  |                 |  |  |   |    | 
|Granted                                      |  |            | 22,825     |          |                | $        | 12.42     |             |  |  |                 |  |  |   |    | 
|Exercised                                    |  |            | (18,363    | )        |                | $        | 7.09      |             |  |  |                 |  |  |   |    | 
|Forfeited or canceled                        |  |            | (68,952    | )        |                | $        | 10.92     |             |  |  |                 |  |  |   |    | 
|Expired                                      |  |            | (2,339,574 | )        |                | $        | 37.56     |             |  |  |                 |  |  |   |    | 
|                                             |  |            |            |          |                |          |           |             |  |  |                 | 
|Outstanding at March 31, 2006                |  |            | 25,679,421 |          |                | $        | 37.15     |             |  |  | 5.1             |  |  | $ | 30 | 
|                                             |  |            |            |          |                |          |           |             |  |  |                 | 
|Vested or expected to vest at March 31, 2006 |  |            | 25,319,828 |          |                | $        | 37.55     |             |  |  | 5.1             |  |  | $ | 29 | 
|                                             |  |            |            |          |                |          |           |             |  |  |                 | 
|Exercisable at March 31, 2006                |  |            | 18,487,570 |          |                | $        | 48.07     |             |  |  | 3.8             |  |  | $ | 8  | 
|                                             |  |            |            |          |                |          |           |             |  |  |                 | 

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Fair Value Assumptions.


|                        |  |      |      |   |      |  |      |  
|----------------------- |  | ---- | ---- | - | ---- |  | ---- | -
|                        |  | 2006 |      |   | 2005 | 
|                        |  |      |      |   |      | 
|Expected Term in Years  |  |      | 6.25 |   |      |  | 4.68 |  
|Expected Volatility     |  |      | 38   | % |      |  | 41   | %
|Expected Dividends      |  |      | 1.3  | % |      |  | 1.4  | %
|Risk-Free Interest Rate |  |      | 4.7  | % |      |  | 4.2  | %



Restricted Stock




|                               |  |          |           |            |           |   |       | 
|------------------------------ |  | -------- | --------- | ---------- | --------- | - | ----- | 
|                               |  |          |           | Weighted-  |          
|                               |  |          |           | Average    |          
|                               |  |          |           | Grant Date |          
|                               |  |          |           | Fair Value |          
|Nonvested Shares               |  | # Shares |           |            | Per Share |  
|                               |  |          |           |            |           |  
|Nonvested at December 31, 2005 |  |          | 3,916,030 |            |           | $ | 10.83 | 
|Granted                        |  |          | 17,592    |            |           | $ | 12.60 | 
|Vested                         |  |          | (681,600  | )          |           | $ | 18.05 | 
|Forfeited                      |  |          | (30,025   | )          |           | $ | 9.78  | 
|                               |  |          |           |            |           |  
|Nonvested at March 31, 2006    |  |          | 3,221,997 |            |           | $ | 9.32  | 
|                               |  |          |           |            |           |  





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Employee Stock Purchase Plan




13. Business Segment Information






|                                                 |                                   |               |      |     |      |   |      |     | 
|------------------------------------------------ | --------------------------------- | ------------- | ---- | --- | ---- | - | ---- | --- | 
|                                                 |                                   | 2006          |      |     | 2005 |  
|                                                 |                                   |               |      |     |      |  
|                                                 |                                   | (In millions) |     
|Total EBIT                                       |                                   | $             | 888  |     |      | $ | 463  |    
|Interest and debt expense                        |                                   |               | (348 | )   |      |   | (343 | )  
|Preferred interests of consolidated subsidiaries |                                   |               |     |     |      |   | (6   | )  
|Income taxes                                     |                                   |               | (165 | )   |      |   | (1   | )  
|                                                 |                                   |               |      |     |      |  
|                                                 | Income from continuing operations |               | $    | 375 |      |   | $    | 113 | 
|                                                 |                                   |               |      |     |      |  

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|                                                 |  |               |     |             |            |   |           |         |  |   |       |   |  |              |    |  |       |   |    |   |  |   |       | 
|------------------------------------------------ |  | ------------- | --- | ----------- | ---------- | - | --------- | ------- |  | - | ----- | - |  | ------------ | -- |  | ----- | - | -- | - |  | - | ----- | 
|                                                 |  | Segments      |     |             |            |   |          
|                                                 |  |               |     |             |            |   |          
|                                                 |  |               |     | Exploration |            |   | Marketing |         |  |   |       |   |  |             
|                                                 |  |               |     | and         |            |   | and       |         |  |   |       |   |  |             
|                                                 |  | Pipelines     |     |             | Production |   |           | Trading |  |   | Power |   |  | Corporate(1) |    |  | Total |  
|                                                 |  |               |     |             |            |   |           |         |  |   |       |   |  |              |    |  |       |  
|                                                 |  | (In millions) |    
|2006                                             |  |               |     |             |            |   |           |         |  |   |       |   |  |              |    |  |       |   |    |   |  |   |       | 
|Revenues from external customers                 |  | $             | 823 |             |            | $ | 81        | (2)     |  | $ | 598   |   |  | $            | 1  |  |       | $ | 28 |   |  | $ | 1,531 | 
|Intersegment revenues                            |  |               | 14  |             |            |   | 385       | (2)     |  |   | (393  | ) |  |              |   |  |       |   | (6 | ) |  |   |      | 
|Operation and maintenance                        |  |               | 217 |             |            |   | 88        |         |  |   | 3     |   |  |              | 14 |  |       |   | 12 |   |  |   | 334   | 
|Depreciation, depletion and amortization         |  |               | 115 |             |            |   | 146       |         |  |   | 1     |   |  |              |   |  |       |   | 10 |   |  |   | 272   | 
|Earnings (losses) from unconsolidated affiliates |  |               | 32  |             |            |   | 7         |         |  |   |      |   |  |              | 7  |  |       |   | (1 | ) |  |   | 45    | 
|EBIT                                             |  |               | 478 |             |            |   | 199       |         |  |   | 208   |   |  |              | 3  |  |       |   |   |   |  |   | 888   | 

|                                                 |  |               |     |             |            |   |           |         |  |   |       |       |  |          |     |   |              |   |     |       |  |   |     |   |  |   |       |    
|------------------------------------------------ |  | ------------- | --- | ----------- | ---------- | - | --------- | ------- |  | - | ----- | ----- |  | -------- | --- | - | ------------ | - | --- | ----- |  | - | --- | - |  | - | ----- | ---
|                                                 |  | Segments      |     |             |            |   |          
|                                                 |  |               |     |             |            |   |          
|                                                 |  |               |     | Exploration |            |   | Marketing |         |  |   |       |       |  |         
|                                                 |  |               |     | and         |            |   | and       |         |  |   |       | Field |  |          |     |   |             
|                                                 |  | Pipelines     |     |             | Production |   |           | Trading |  |   | Power |       |  | Services |     |   | Corporate(1) |   |     | Total | 
|                                                 |  |               |     |             |            |   |           |         |  |   |       |       |  |          |     |   |              |   |     |       | 
|                                                 |  | (In millions) |    
|2005                                             |  |               |     |             |            |   |           |         |  |   |       |       |  |          |     |   |              |   |     |       |  |   |     |   |  |   |       |    
|Revenues from external customers                 |  | $             | 748 |             |            | $ | 131       | (2)     |  | $ | 93    |       |  | $        | 25  |   |              | $ | 42  |       |  | $ | 27  |   |  | $ | 1,066 |    
|Intersegment revenues                            |  |               | 20  |             |            |   | 308       | (2)     |  |   | (268  | )     |  |          | (2  | ) |              |   | 6   |       |  |   | (42 | ) |  |   | 22    | (3)
|Operation and maintenance                        |  |               | 203 |             |            |   | 84        |         |  |   | 10    |       |  |          | 20  |   |              |   | (1  | )     |  |   | 95  |   |  |   | 411   |    
|Depreciation, depletion and amortization         |  |               | 111 |             |            |   | 146       |         |  |   | 1     |       |  |          | 1   |   |              |   | 1   |       |  |   | 9   |   |  |   | 269   |    
|(Gain) loss on long-lived assets                 |  |               | (7  | )           |            |   |          |         |  |   |      |       |  |          | 13  |   |              |   | 1   |       |  |   |    |   |  |   | 7     |    
|Earnings (losses) from unconsolidated affiliates |  |               | 38  |             |            |   |          |         |  |   |      |       |  |          | (28 | ) |              |   | 180 |       |  |   |    |   |  |   | 190   |    
|EBIT                                             |  |               | 412 |             |            |   | 183       |         |  |   | (185  | )     |  |          | (39 | ) |              |   | 182 |       |  |   | (90 | ) |  |   | 463   |    






| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 March 31,
    2006 and 2005, we recorded an intersegment revenue elimination
    of $6 million and $42 million and an operation and
    maintenance expense elimination 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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                             



|                           |                           |               |        |        |              |   |        |        | 
|-------------------------- | ------------------------- | ------------- | ------ | ------ | ------------ | - | ------ | ------ | 
|                           |                           | March 31,     |        |        | December 31, |  
|                           |                           | 2006          |        |        | 2005         |  
|                           |                           |               |        |        |              |  
|                           |                           | (In millions) |       
|Pipelines                  |                           | $             | 16,683 |        |              | $ | 16,447 |       
|Exploration and Production |                           |               | 5,713  |        |              |   | 5,570  |       
|Marketing and Trading      |                           |               | 2,769  |        |              |   | 3,819  |       
|Power                      |                           |               | 1,188  |        |              |   | 1,176  |       
|Field Services             |                           |               |       |        |              |   | 99     |       
|                           |                           |               |        |        |              |  
|                           | Total segment assets      |               |        | 26,353 |              |   |        | 27,111 | 
|Corporate                  |                           |               | 3,611  |        |              |   | 4,144  |       
|Discontinued operations    |                           |               | 637    |        |              |   | 583    |       
|                           |                           |               |        |        |              |  
|                           | Total consolidated assets |               | $      | 30,601 |              |   | $      | 31,838 | 
|                           |                           |               |        |        |              |  

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



|                                              |                                                        |                |  |                |               |   |    |      |    |   |     |     |     |  
|--------------------------------------------- | ------------------------------------------------------ | -------------- |  | -------------- | ------------- | - | -- | ---- | -- | - | --- | --- | --- | -
|                                              |                                                        |                |  | Earnings       |              
|                                              |                                                        |                |  | (Losses) from  |              
|                                              |                                                        |                |  | Unconsolidated |              
|                                              |                                                        |                |  | Affiliates     |              
|                                              |                                                        | Net            |  |                |               |  
|                                              |                                                        | Ownership      |  |                |              
|                                              |                                                        | Interest       |  |                | Quarter Ended |  
|                                              |                                                        |                |  |                | March 31,     |  
|                                              |                                                        | March 31,      |  |                |               |  
|                                              |                                                        | 2006           |  |                | 2006          |   |    | 2005 |   
|                                              |                                                        |                |  |                |               |   |    |      |   
|                                              |                                                        | (Percent)      |  |                | (In millions) |  
|Domestic:                                     |                                                        |                |  |                |               |   |    |      |    |   |     |    
|                                              | Enterprise Products Partners, L.P.
    (Enterprise)(1) |                |  |               |               |   | $  |     |    |   | $   | 183 |    
|                                              | Four
    Star(2)                                       |                |  | 43             |               |   |    | 7    |    |   |     |    |    
|                                              | Citrus                                                 |                |  | 50             |               |   |    | 10   |    |   |     | 15  |    
|                                              | Great Lakes                                            |                |  | 50             |               |   |    | 16   |    |   |     | 17  |    
|                                              | Other Domestic Investments                             |                |  | various        |               |   |    |     |    |   |     | 4   |    
|                                              |                                                        |                |  |                |               |   |    |      |   
|                                              |                                                        | Total domestic |  |                |               |   |    |      | 33 |   |     |     | 219 |  
|                                              |                                                        |                |  |                |               |   |    |      |   
|Foreign:                                      |                                                        |                |  |                |               |   |    |      |    |   |     |    
|                                              | Asia
    Investments(3)                                |                |  | various        |               |   |    | 3    |    |   |     | (46 | )  
|                                              | Central American
    Investments(4)                    |                |  | various        |               |   |    | (2   | )  |   |     | 6   |    
|                                              | Other Foreign Investments                              |                |  | various        |               |   |    | 11   |    |   |     | 11  |    
|                                              |                                                        |                |  |                |               |   |    |      |   
|                                              |                                                        | Total foreign  |  |                |               |   |    |      | 12 |   |     |     | (29 | )
|                                              |                                                        |                |  |                |               |   |    |      |   
|Total earnings from unconsolidated affiliates |                                                        |                |  |                |               | $ | 45 |      |    | $ | 190 |    
|                                              |                                                        |                |  |                |               |   |    |      |   






|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In January 2005, we sold all of our remaining interests to
    Enterprise and recognized a $183 million gain.                                                      
|(2) | We acquired our interest in Four Star in connection with our
    acquisition of Medicine Bow in the third quarter of 2005.                                         
|(3) | As of March 31, 2006, consists of our investments in
    6 power plants, all of which are under sales contracts.                                                   
|(4) | As of March 31, 2006, consists of our investments in
    6 power plants, three of which were sold in April 2006
    and two others which are under sales contracts.



|                                   |  |               |    |   |      |   |     |  
|---------------------------------- |  | ------------- | -- | - | ---- | - | --- | -
|Investment or Group                |  | 2006          |    |   | 2005 |  
|                                   |  |               |    |   |      |  
|                                   |  | (In millions) |   
|Asian power investment             |  | $             |   |   |      | $ | (60 | )
|Central American power investments |  |               | (2 | ) |      |   |    |  
|Enterprise                         |  |               |   |   |      |   | 183 |  
|Other                              |  |               |   |   |      |   | (4  | )
|                                   |  |               |    |   |      |  
|                                   |  | $             | (2 | ) |      | $ | 119 |  
|                                   |  |               |    |   |      |  

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|                       |                                          |               |   |     |      |  |   |     | 
|---------------------- | ---------------------------------------- | ------------- | - | --- | ---- |  | - | --- | 
|                       |                                          | 2006          |   |     | 2005 | 
|                       |                                          |               |   |     |      | 
|                       |                                          | (In millions) |  
|                       |                                          |               |  
|Operating results data |                                          |               |   |     |      |  |   |    
|                       | Revenues                                 |               | $ | 339 |      |  | $ | 348 | 
|                       | Operating expenses                       |               |   | 278 |      |  |   | 141 | 
|                       | Income (loss) from continuing operations |               |   | (8  | )    |  |   | 159 | 
|                       | Net income
    (loss)(1)                 |               |   | (8  | )    |  |   | 159 | 






|    |                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes net income of $5 million and $3 million for
    the quarters ended March 31, 2006 and 2005, related to
    our proportionate share of affiliates in which we hold a greater
    than 50 percent interest.



Related Party
Transactions




|                                     |  |               |    |  |      |   |    | 
|------------------------------------ |  | ------------- | -- |  | ---- | - | -- | 
|                                     |  | 2006          |    |  | 2005 |  
|                                     |  |               |    |  |      |  
|                                     |  | (In millions) |   
|Operating revenue                    |  | $             | 34 |  |      | $ | 49 | 
|Cost of sales                        |  |               | 1  |  |      |   | 4  | 
|Reimbursement for operating expenses |  |               | 1  |  |      |   | 1  | 
|Other income                         |  |               | 13 |  |      |   | 14 | 

Matters that Could Impact Our
Investments






Investment in Bolivia


26



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Citrus Corporation.


27



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

10-K, 10-Q.




Overview




What to Expect Going Forward.




Segment Results






28



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|                                                 |                                   |                                              |     |     |      |   |      |     |     | 
|------------------------------------------------ | --------------------------------- | -------------------------------------------- | --- | --- | ---- | - | ---- | --- | --- | 
|                                                 |                                   | 2006                                         |     |     | 2005 |  
|                                                 |                                   |                                              |     |     |      |  
|                                                 |                                   | (In millions)                                |    
|Pipelines                                        |                                   | $                                            | 478 |     |      | $ | 412  |    
|Exploration and Production                       |                                   |                                              | 199 |     |      |   | 183  |    
|Marketing and Trading                            |                                   |                                              | 208 |     |      |   | (185 | )  
|Power                                            |                                   |                                              | 3   |     |      |   | (39  | )  
|Field Services                                   |                                   |                                              |    |     |      |   | 182  |    
|                                                 |                                   |                                              |     |     |      |  
|                                                 |                                   | Segment EBIT                                 |     |     | 888  |   |      |     | 553 | 
|Corporate                                        |                                   |                                              |    |     |      |   | (90  | )  
|                                                 |                                   |                                              |     |     |      |  
|                                                 |                                   | Consolidated EBIT from continuing operations |     |     | 888  |   |      |     | 463 | 
|Interest and debt expense                        |                                   |                                              | 348 |     |      |   | 343  |    
|Preferred interests of consolidated subsidiaries |                                   |                                              |    |     |      |   | 6    |    
|Income taxes                                     |                                   |                                              | 165 |     |      |   | 1    |    
|                                                 |                                   |                                              |     |     |      |  
|                                                 | Income from continuing operations |                                              |     | 375 |      |   |      | 113 |    
|Discontinued operations, net of income taxes     |                                   |                                              | (19 | )   |      |   | (7   | )  
|                                                 |                                   |                                              |     |     |      |  
|                                                 | Net income                        |                                              | $   | 356 |      |   | $    | 106 |    
|                                                 |                                   |                                              |     |     |      |  

Pipelines Segment




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



|                            |                  |               |        |     |      |   |        |     | 
|--------------------------- | ---------------- | ------------- | ------ | --- | ---- | - | ------ | --- | 
|                            |                  | 2006          |        |     | 2005 |  
|                            |                  |               |        |     |      |  
|                            |                  | (In millions) |       
|Operating revenues          |                  | $             | 837    |     |      | $ | 768    |    
|Operating expenses          |                  |               | (399   | )   |      |   | (406   | )  
|                            |                  |               |        |     |      |  
|                            | Operating income |               |        | 438 |      |   |        | 362 | 
|Other income                |                  |               | 40     |     |      |   | 50     |    
|                            |                  |               |        |     |      |  
|                            | EBIT             |               | $      | 478 |      |   | $      | 412 | 
|                            |                  |               |        |     |      |  
|Throughput volumes (BBtu/d) |                  |               | 22,306 |     |      |   | 22,586 |    
|                            |                  |               |        |     |      |  

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|                                                                                              |                      |                         |     |    |         |   |     |        |  |   |        |     |   |   |     |    | 
|--------------------------------------------------------------------------------------------- | -------------------- | ----------------------- | --- | -- | ------- | - | --- | ------ |  | - | ------ | --- | - | - | --- | -- | 
|                                                                                              |                      | Variance                |    
|                                                                                              |                      |                         |    
|                                                                                              |                      | Revenue                 |     |    | Expense |   |     | Other  |  |   | EBIT   |    
|                                                                                              |                      | Impact                  |     |    | Impact  |   |     | Impact |  |   | Impact |    
|                                                                                              |                      |                         |     |    |         |   |     |        |  |   |        |    
|                                                                                              |                      | Favorable/(Unfavorable) |    
|                                                                                              |                      | (In millions)           |    
|Higher services revenues                                                                      |                      | $                       | 59  |    |         | $ |    |        |  | $ |       |     |   | $ | 59  |   
|Gas not used in operations, revaluations, processing revenues
    and other natural gas sales |                      |                         | 17  |    |         |   | 16  |        |  |   |       |     |   |   | 33  |   
|Pipeline expansions                                                                           |                      |                         | 19  |    |         |   | (1  | )      |  |   | (1     | )   |   |   | 17  |   
|Contract restructuring in 2005                                                                |                      |                         | (29 | )  |         |   |    |        |  |   |       |     |   |   | (29 | ) 
|Hurricanes Katrina and Rita                                                                   |                      |                         |    |    |         |   | (10 | )      |  |   |       |     |   |   | (10 | ) 
|Equity earnings from Citrus                                                                   |                      |                         |    |    |         |   |    |        |  |   | (5     | )   |   |   | (5  | ) 
|Other(1)                                                                                      |                      |                         | 3   |    |         |   | 2   |        |  |   | (4     | )   |   |   | 1   |   
|                                                                                              |                      |                         |     |    |         |   |     |        |  |   |        |    
|                                                                                              | Total impact on EBIT |                         | $   | 69 |         |   | $   | 7      |  |   | $      | (10 | ) |   | $   | 66 | 
|                                                                                              |                      |                         |     |    |         |   |     |        |  |   |        |    






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

Higher Services Revenues.


Gas Not Used in Operations, Revaluations, Processing Revenues
and Other Natural Gas Sales. 10-K.


Pipeline Expansions.






Contract Restructuring/Settlements.


Hurricanes Katrina and Rita.


30



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Other Regulatory Matter.


Exploration and Production Segment




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







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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Higher realized prices. We continued to benefit from a
    strong commodity pricing environment in the first quarter of
    2006. Realized natural gas prices, which include the impact of
    our hedges, increased 12 percent while oil, condensate and
    NGL prices increased 29 percent compared to the first
    quarter of 2005.                                                                                                                                                                                                                                                                                                                
|
| |  | Average daily production of 694 MMcfe/d (excluding
    71 MMcfe/d from our equity investment in Four Star).
    Our consolidated average daily equivalent production volumes
    were 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. 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
    quarter 2005. Our production results by region are as follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Onshore. We have continued to increase production volumes
    as a result of our successful drilling and acquisition programs.                                                                                                                                                                                                                                                                                                                                                  
|
| | Gulf of Mexico and south Louisiana. In our Gulf of Mexico
    and south Louisiana region, production increased during the
    quarter as we continued to bring shut-in volumes from the
    hurricanes back on line. During the first quarter of 2006, the
    negative impact of shut-in volumes was approximately
    40 MMcfe/d and at April 30, 2006, approximately
    24 MMcfe/d remained shut-in, which we expect to bring back
    on line during the remainder of 2006.
|
| | Texas Gulf Coast First quarter of 2006 production volumes
    were 14 percent lower than the comparable period in 2005.
    However, our capital program in this region has stabilized
    production volumes over the last three quarters. In April 2006,
    we completed the sale of certain non-strategic south Texas
    natural gas and oil properties for $67 million. These
    properties had an average daily                                                         

31



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| |                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | production of approximately 5 MMcfe/d and remaining
    reserves of approximately 13 Bcfe at the time of the sale.                                                                                                                                           
|
| | Brazil. Average daily production volumes decreased to
    32 MMcfe/d in 2006 from 59 MMcfe/d in 2005 due to a
    contractual reduction in our ownership interest from
    79 percent to 35 percent in UnoPasos production
    in the first quarter of 2006.



| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | Capital expenditures. During the first quarter of 2006,
    our capital expenditures totaled $225 million.
|
| |  | Drilling results. Our drilling results by region in 2006
    were as follows:                             



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Onshore. We experienced a 100 percent success rate
    on 71 gross wells drilled resulting in production growth in
    the Rockies, Raton, north Louisiana and Arkoma operating areas.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Gulf of Mexico and south Louisiana. Overall, we
    experienced a 100 percent success rate on four gross wells
    drilled. We expect to bring our two deep shelf discovery wells
    at West Cameron Blocks 75 and 62 in the Gulf of Mexico on
    line in May 2006. We drilled our second Long Point well in
    Vermillion Parish, Louisiana in the first quarter of 2006. This
    well, along with the initial discovery well drilled in 2005, is
    expected to come on line during May 2006. The Long Point wells,
    in which we own a 25 percent working interest, tested at a
    combined rate of approximately 75 MMcfe/d.
|
| | Texas Gulf Coast. We experienced a 90 percent
    success rate on 10 gross wells drilled. Additional Wilcox
    production was established from exploration at the Renger Field
    in Lavaca County, Texas. The shallow Vicksburg development
    program in Starr and Hidalgo Counties, Texas continues to
    provide consistent results adding production on existing base
    properties.                                                                                                                                                                                                                                          
|
| | International. In Brazil, we began two recompletions on
    wells in our Pescada-Arabaiana Field. We also filed our plan of
    development with Brazilian regulatory authorities on a 17-well
    development program in the Pinauna Field. In addition, we signed
    a rig contract and are preparing to drill two exploratory wells
    in the vicinity of the Pinuana Field scheduled for the second
    half of 2006.                                                                                                                                                                                                             
|
| | In Egypt, El Paso was 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 of approximately $775 million for the
    remainder of 2006;                                                                                                                                               
|
| |  | Average daily production volumes for the year to average
    approximately 755 MMcfe/d to 780 MMcfe/d, which
    excludes approximately 70 MMcfe/d from our equity interest
    in Four Star;                                   
|
| |  | Cash operating costs to average approximately $1.64/Mcfe to
    $1.71/Mcfe for the year;                                                                                                                                        
|
| |  | Domestic unit of production depletion rate of $2.24/Mcfe in the
    second quarter of 2006 compared with $2.22/Mcfe in the first
    quarter of 2006;                                                                           
|
| |  | Brazilian unit of production depletion rate of $1.98/Mcfe in the
    second quarter of 2006 compared with $1.96/Mcfe in the first
    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.



| |                          
| | -------------------------
| | Production Hedge Position



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10-K.


marked-to


33



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##### Table of Contents



Operating Results and Variance Analysis




|                    |                                          |                          |   |      |      |   |   |      |      |  
|------------------- | ---------------------------------------- | ------------------------ | - | ---- | ---- | - | - | ---- | ---- | -
|                    |                                          | 2006                     |   |      | 2005 |  
|                    |                                          |                          |   |      |      |  
|                    |                                          | (In millions)            |  
|Operating Revenues: |                                          |                          |   |      |      |   |   |     
|                    | Natural gas                              |                          | $ | 366  |      |   | $ | 353  |     
|                    | Oil, condensate and NGL                  |                          |   | 90   |      |   |   | 85   |     
|                    | Other                                    |                          |   | 10   |      |   |   | 1    |     
|                    |                                          |                          |   |      |      |  
|                    |                                          | Total operating revenues |   |      | 466  |   |   |      | 439  |  
|                   
|Operating Expenses: |                                          |                          |   |      |      |   |   |     
|                    | Depreciation, depletion and amortization |                          |   | (146 | )    |   |   | (146 | )   
|                    | Production
    costs(1)                  |                          |   | (64  | )    |   |   | (55  | )   
|                    | Costs of products and
    services(2)    |                          |   | (22  | )    |   |   | (13  | )   
|                    | General and administrative expenses      |                          |   | (42  | )    |   |   | (41  | )   
|                    | Other                                    |                          |   | (1   | )    |   |   | (4   | )   
|                    |                                          |                          |   |      |      |  
|                    |                                          | Total operating expenses |   |      | (275 | ) |   |      | (259 | )
|                    |                                          |                          |   |      |      |  
|                    | Operating income                         |                          |   | 191  |      |   |   | 180  |     
|Other
    income(3) |                                          |                          | 8 |      |      |   | 3 |     
|                    |                                          |                          |   |      |      |  
|                    | EBIT                                     |                          | $ | 199  |      |   | $ | 183  |     
|                    |                                          |                          |   |      |      |  

|                                                    |                                                  |                                                         |                              |         |          |      |  |      |     |    |   |      |        |      | 
|--------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------------- | ---------------------------- | ------- | -------- | ---- |  | ---- | --- | -- | - | ---- | ------ | ---- | 
|                                                    |                                                  |                                                         |                              | Percent |          |      | 
|                                                    |                                                  | 2006                                                    |                              |         | Variance |      |  | 2005 |    
|                                                    |                                                  |                                                         |                              |         |          |      |  |      |    
|Consolidated volumes, prices and costs per unit:    |                                                  |                                                         |                              |         |          |      |  |      |     |    |   |     
|                                                    | Natural gas                                      |                                                         |                              |         |          |      |  |      |     |    |   |      |       
|                                                    |                                                  | Volumes (MMcf)                                          |                              |         | 52,029   |      |  |      | (7  | )% |   |      | 56,158 |     
|                                                    |                                                  | Average realized prices including hedges
    ($/Mcf)(4) |                              | $       | 7.03     |      |  |      | 12  | %  |   | $    | 6.28   |     
|                                                    |                                                  | Average realized prices excluding hedges
    ($/Mcf)(4) |                              | $       | 7.77     |      |  |      | 36  | %  |   | $    | 5.71   |     
|                                                    |                                                  | Average transportation costs ($/Mcf)                    |                              | $       | 0.24     |      |  |      | 33  | %  |   | $    | 0.18   |     
|                                                    | Oil, condensate and NGL                          |                                                         |                              |         |          |      |  |      |     |    |   |      |       
|                                                    |                                                  | Volumes (MBbls)                                         |                              |         | 1,745    |      |  |      | (18 | )% |   |      | 2,136  |     
|                                                    |                                                  | Average realized prices including hedges
    ($/Bbl)(4) |                              | $       | 51.25    |      |  |      | 29  | %  |   | $    | 39.86  |     
|                                                    |                                                  | Average realized prices excluding hedges
    ($/Bbl)(4) |                              | $       | 52.60    |      |  |      | 31  | %  |   | $    | 40.20  |     
|                                                    |                                                  | Average transportation costs ($/Bbl)                    |                              | $       | 1.25     |      |  |      | 67  | %  |   | $    | 0.75   |     
|                                                    | Total equivalent volumes                         |                                                         |                              |         |          |      |  |      |     |    |   |      |       
|                                                    |                                                  | MMcfe                                                   |                              |         | 62,500   |      |  |      | (9  | )% |   |      | 68,976 |     
|                                                    |                                                  | MMcfe/d                                                 |                              |         | 694      |      |  |      | (9  | )% |   |      | 766    |     
|                                                    | Production Costs ($/Mcfe)                        |                                                         |                              |         |          |      |  |      |     |    |   |      |       
|                                                    |                                                  | Average lease operating costs                           |                              | $       | 0.73     |      |  |      | 20  | %  |   | $    | 0.61   |     
|                                                    |                                                  | Average production taxes                                |                              |         | 0.29     |      |  |      | 53  | %  |   |      | 0.19   |     
|                                                    |                                                  |                                                         |                              |         |          |      |  |      |    
|                                                    |                                                  |                                                         | Total production
    cost(1) |         | $        | 1.02 |  |      |     | 28 | % |      | $      | 0.80 | 
|                                                    |                                                  |                                                         |                              |         |          |      |  |      |    
|                                                    | Average general and administrative cost ($/Mcfe) |                                                         | $                            | 0.67    |          |      |  | 14   | %   |    | $ | 0.59 |       
|                                                    | Unit of production depletion cost ($/Mcfe)       |                                                         | $                            | 2.20    |          |      |  | 10   | %   |    | $ | 2.00 |       
|Unconsolidated affiliate volumes (Four
    Star)(3) |                                                  |                                                         |                              |         |          |      |  |      |     |    |   |     
|                                                    | Natural gas (MMcf)                               |                                                         |                              | 4,507   |          |      |  |      |     |    |   |      |       
|                                                    | Oil, condensate and NGL (MBbls)                  |                                                         |                              | 309     |          |      |  |      |     |    |   |      |       
|                                                    | Total equivalent volumes                         |                                                         |                              |         |          |      |  |      |     |    |   |      |       
|                                                    |                                                  | MMcfe                                                   |                              |         | 6,360    |      |  |      |     |    |   |      |        |     
|                                                    |                                                  | MMcfe/d                                                 |                              |         | 71       |      |  |      |     |    |   |      |        |     






|    |                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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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|                                                 |                                       |                         |   |     |           |  |    |       |     |   |      |    |   |  |    |     |    | 
|------------------------------------------------ | ------------------------------------- | ----------------------- | - | --- | --------- |  | -- | ----- | --- | - | ---- | -- | - |  | -- | --- | -- | 
|                                                 |                                       | Variance                |  
|                                                 |                                       |                         |  
|                                                 |                                       | Operating               |   |     | Operating |  |    |      
|                                                 |                                       | Revenue                 |   |     | Expense   |  |    | Other |     |   | EBIT |   
|                                                 |                                       |                         |   |     |           |  |    |       |     |   |      |   
|                                                 |                                       | Favorable/(Unfavorable) |  
|                                                 |                                       | (In millions)           |  
|Natural Gas Revenue                              |                                       |                         |   |     |           |  |    |       |     |   |      |    |   |  |    |    
|                                                 | Higher realized prices in 2006        |                         | $ | 107 |           |  | $  |      |     |   | $    |   |   |  | $  | 107 |   
|                                                 | Impact of hedges                      |                         |   | (71 | )         |  |    |      |     |   |      |   |   |  |    | (71 | ) 
|                                                 | Lower volumes in 2006                 |                         |   | (23 | )         |  |    |      |     |   |      |   |   |  |    | (23 | ) 
|Oil, Condensate and NGL Revenue                  |                                       |                         |   |     |           |  |    |       |     |   |      |    |   |  |    |    
|                                                 | Higher realized prices in 2006        |                         |   | 22  |           |  |    |      |     |   |      |   |   |  |    | 22  |   
|                                                 | Impact of hedges                      |                         |   | (1  | )         |  |    |      |     |   |      |   |   |  |    | (1  | ) 
|                                                 | Lower volumes in 2006                 |                         |   | (16 | )         |  |    |      |     |   |      |   |   |  |    | (16 | ) 
|Depreciation, Depletion and Amortization Expense |                                       |                         |   |     |           |  |    |       |     |   |      |    |   |  |    |    
|                                                 | Higher depletion rate in 2006         |                         |   |    |           |  |    | (13   | )   |   |      |   |   |  |    | (13 | ) 
|                                                 | Lower production volumes in 2006      |                         |   |    |           |  |    | 13    |     |   |      |   |   |  |    | 13  |   
|Production Costs                                 |                                       |                         |   |     |           |  |    |       |     |   |      |    |   |  |    |    
|                                                 | Higher lease operating costs in 2006  |                         |   |    |           |  |    | (4    | )   |   |      |   |   |  |    | (4  | ) 
|                                                 | Higher production taxes in 2006       |                         |   |    |           |  |    | (5    | )   |   |      |   |   |  |    | (5  | ) 
|General and Administrative Expenses              |                                       |                         |  |     |           |  | (1 | )     |     |   |     |    |   |  | (1 | )  
|Other                                            |                                       |                         |   |     |           |  |    |       |     |   |      |    |   |  |    |    
|                                                 | Earnings from investment in Four Star |                         |   |    |           |  |    |      |     |   |      | 7  |   |  |    | 7   |   
|                                                 | Processing plants                     |                         |   | 9   |           |  |    | (6    | )   |   |      |   |   |  |    | 3   |   
|                                                 | Other                                 |                         |   |    |           |  |    |      |     |   |      | (2 | ) |  |    | (2  | ) 
|                                                 |                                       |                         |   |     |           |  |    |       |     |   |      |   
|                                                 |                                       | Total Variances         |   | $   | 27        |  |    | $     | (16 | ) |      | $  | 5 |  |    | $   | 16 | 
|                                                 |                                       |                         |   |     |           |  |    |       |     |   |      |   

Operating revenues.


Depreciation, depletion and amortization expense.


Production costs.


General and administrative expenses.


35



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Marketing and Trading Segment


10-K.


Operating Results




|                                                                |                                            |                                                                 |                    |     |      |     |   |      |      |      |  
|--------------------------------------------------------------- | ------------------------------------------ | --------------------------------------------------------------- | ------------------ | --- | ---- | --- | - | ---- | ---- | ---- | -
|                                                                |                                            | 2006                                                            |                    |     | 2005 |    
|                                                                |                                            |                                                                 |                    |     |      |    
|Overall EBIT:                                                   |                                            |                                                                 |                    |     |      |     |   |     
|                                                                | Gross
    margin(1)                        |                                                                 | $                  | 205 |      |     | $ | (175 | )   
|                                                                | Operating expenses                         |                                                                 |                    | (5  | )    |     |   | (11  | )   
|                                                                |                                            |                                                                 |                    |     |      |    
|                                                                |                                            | Operating income (loss)                                         |                    |     | 200  |     |   |      | (186 | )   
|                                                                | Other income,
    net(2)                   |                                                                 |                    | 8   |      |     |   | 1    |     
|                                                                |                                            |                                                                 |                    |     |      |    
|                                                                |                                            | EBIT                                                            |                    | $   | 208  |     |   | $    | (185 | )   
|                                                                |                                            |                                                                 |                    |     |      |    
|                                                               
|Gross Margin by Significant Contract Type:                      |                                            |                                                                 |                    |     |      |     |   |     
|Production-Related Natural Gas and Oil Derivative
    Contracts |                                            |                                                                 |                    |     |      |     |   |     
|                                                                | Changes in fair value of swaps and options |                                                                 | $                  | 162 |      |     | $ | (106 | )   
|Contracts Related to Legacy Trading Operations                  |                                            |                                                                 |                    |     |      |     |   |     
|                                                                | Natural gas contracts:                     |                                                                 |                    |     |      |     |   |      |     
|                                                                |                                            | Transportation-related contracts:                               |                    |     |      |     |   |      |      |     
|                                                                |                                            |                                                                 | Demand charges     |     |      | (35 | ) |      |      | (39  | )
|                                                                |                                            |                                                                 | Settlements        |     |      | 20  |   |      |      | 27   |  
|                                                                |                                            | Changes in fair value of other natural gas derivative contracts |                    |     | 47   |     |   |      | 26   |     
|                                                                | Power contracts:                           |                                                                 |                    |     |      |     |   |      |     
|                                                                |                                            | Change in fair value of power derivatives, excluding Cordova    |                    |     | 11   |     |   |      | (50  | )   
|                                                                |                                            | Changes in fair value of Cordova tolling agreement              |                    |     |     |     |   |      | (33  | )   
|                                                                |                                            |                                                                 |                    |     |      |    
|                                                                |                                            |                                                                 | Total gross margin |     | $    | 205 |   |      | $    | (175 | )
|                                                                |                                            |                                                                 |                    |     |      |    






|    |                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 our derivative
    contracts.
|   
|(2) | Primarily represents interest on broker margin deposits.                                                                                                                                                       



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





36



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##### Table of Contents







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



| |                      
| | ---------------------
| | Natural Gas Contracts

Transportation-related contracts.


|                  |                |      |   |     |      |  |   |    |  
|----------------- | -------------- | ---- | - | --- | ---- |  | - | -- | -
|                  |                | 2006 |   |     | 2005 | 
|                  |                |      |   |     |      | 
|Alliance:         |                |      |   |     |      |  |   |   
|                  | Demand charges |      | $ | 16  |      |  | $ | 16 |  
|                  | Recovery       |      |   | 19  | %    |  |   | 65 | %
|Enterprise Texas: |                |      |   |     |      |  |   |   
|                  | Demand charges |      | $ | 5   |      |  | $ | 7  |  
|                  | Recovery       |      |   | 46  | %    |  |   | 67 | %
|Other:            |                |      |   |     |      |  |   |   
|                  | Demand charges |      | $ | 14  |      |  | $ | 16 |  
|                  | Recovery       |      |   | 100 | %    |  |   | 73 | %

Other natural gas derivative contracts.


mark-to mark-to




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



Power derivatives (excluding Cordova).


37



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##### Table of Contents





Cordova tolling agreement.


Power Segment




Brazil


Porto Velho.


Araucaria.


Other International Power






38



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|                          |                                                      |                                          |    |    |      |   |     |     |     |  
|------------------------- | ---------------------------------------------------- | ---------------------------------------- | -- | -- | ---- | - | --- | --- | --- | -
|                          |                                                      | 2006                                     |    |    | 2005 |  
|                          |                                                      |                                          |    |    |      |  
|                          |                                                      | (In millions)                            |   
|EBIT by Area:             |                                                      |                                          |    |    |      |   |     |    
|Brazil                    |                                                      |                                          |    |    |      |   |     |    
|                          | EBIT from operations                                 |                                          | $  | 12 |      |   | $   | 12  |    
|Other International Power |                                                      |                                          |    |    |      |   |     |    
|                          | Asia                                                 |                                          |    |    |      |   |     |     |    
|                          |                                                      | Impairments related to anticipated sales |    |    |     |   |     |     | (82 | )
|                          |                                                      | Gain on sale of PPN power plant          |    |    |     |   |     |     | 22  |  
|                          |                                                      | EBIT from operations                     |    |    | 1    |   |     |     | 10  |  
|                          | Central and other South America                      |                                          |    |    |      |   |     |     |    
|                          |                                                      | Impairments related to anticipated sales |    |    | (2   | ) |     |     |    |  
|                          |                                                      | EBIT from operations                     |    |    | (1   | ) |     |     | 7   |  
|                          | EBIT from other international plants and investments |                                          |    |   |      |   |     | 1   |    
|Domestic Power            |                                                      |                                          |    |    |      |   |     |    
|                          | Power contract
    restructuring(1)                  |                                          |    |   |      |   |     | 11  |    
|                          | Other                                                |                                          |    | (6 | )    |   |     | 1   |    
|Other(2)                  |                                                      |                                          | (1 | )  |      |   | (21 | )  
|                          |                                                      |                                          |    |    |      |  
|                          | EBIT                                                 |                                          | $  | 3  |      |   | $   | (39 | )  
|                          |                                                      |                                          |    |    |      |  






|    |                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As of December 31, 2005, we have sold our entire domestic
    contract restructuring business. In 2005, our results in this
    business were driven primarily by the change in the fair value
    of these contracts.                                    
|   
|(2) | Other consists of the indirect expenses and general and
    administrative costs associated with our domestic and
    international operations. It also includes a $15 million
    impairment of power turbines recorded in the first quarter of
    2005.

Field Services Segment




Corporate




|                                                      |                      |               |    |    | 
|----------------------------------------------------- | -------------------- | ------------- | -- | -- | 
|                                                      |                      | Favorable     |   
|                                                      |                      | (Unfavorable) |   
|                                                      |                      |               |   
|                                                      |                      | (In millions) |   
|Western Energy Settlement charge in 2005              |                      | $             | 70 |   
|Higher losses on early extinguishment of debt in 2005 |                      |               | 22 |   
|Change in litigation, insurance and other liabilities |                      |               | (4 | ) 
|Other                                                 |                      |               | 2  |   
|                                                      |                      |               |   
|                                                      | Total impact on EBIT |               | $  | 90 | 
|                                                      |                      |               |   



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Income Taxes




|                   |  |                   |     |   |      |   |   |  
|------------------ |  | ----------------- | --- | - | ---- | - | - | -
|                   |  | 2006              |     |   | 2005 |  
|                   |  |                   |     |   |      |  
|                   |  | (In millions,     |    
|                   |  | except for rates) |    
|Income taxes       |  | $                 | 165 |   |      | $ | 1 |  
|Effective tax rate |  |                   | 31  | % |      |   | 1 | %



Commitments and Contingencies




40



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Capital Resources and Liquidity


Existing Financing Facilities.


|                                                               |                                    |   |        |        | 
|-------------------------------------------------------------- | ---------------------------------- | - | ------ | ------ | 
|Short-term financing obligations, including current maturities |                                    | $ | 986    |       
|Long-term financing obligations                                |                                    |   | 17,023 |       
|                                                               |                                    |   |       
|                                                               | Total debt as of December 31, 2005 |   |        | 18,009 | 
|Repayments/retirements of principal                            |                                    |   | (948   | )     
|Other                                                          |                                    |   | 19     |       
|                                                               |                                    |   |       
|                                                               | Total debt as of March 31, 2006    |   | $      | 17,080 | 
|                                                               |                                    |   |       

Available Liquidity.


|                                                      |  |   |     | 
|----------------------------------------------------- |  | - | --- | 
|Available cash                                        |  | $ | 1.6 | 
|Available capacity under our credit
    agreements(1) |  |   | 0.4 | 
|                                                      |  |   |    
|Net available liquidity at March 31, 2006             |  | $ | 2.0 | 
|                                                      |  |   |    



| | 
| | 
| | 



| |     |                                                                        | 
| | --- | ---------------------------------------------------------------------- | 
| | (1) | In May 2006, $0.3 billion of available borrowing capacity
    matured. | 

Expected 2006 Cash Flows.




Significant Factors That Could Impact Our
Liquidity.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash Margining Requirements on Derivative Contracts. A
    substantial portion of our natural gas and oil derivative
    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 quarter of 2006, approximately
    $0.6 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 $0.3 billion related to the assignment of our
    power portfolio. For the remainder of 2006, based on current
    prices, we expect approximately $0.5 billion in collateral
    to be returned to us in the form of both cash margin deposits
    and letters of credit.



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 March 31, 2006, a $0.10/MMBtu
    increase in the price of natural gas would result in an increase
    in our margin requirements by $15 million for transactions
    that settle for the remainder of 2006, $6 million for
    transactions that settle in 2007, $5 million for
    transactions that settle in 2008 and $4 million for
    transactions that settle in 2009 and thereafter.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Hurricanes. We continue to assess 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

41



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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 $550 million, of which we estimate
    approximately $290 million will be unrecoverable from
    insurance. Of the unrecoverable amount, we estimate that
    approximately $230 million will be capital related
    expenditures, approximately $160 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
    will be reduced to $500 million from $1 billion, which
    could further limit our recoveries on future hurricanes or other
    insurable events.



| |   |                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Price Risk Management Activities. As of March 31,
    2006, our derivative contracts entered into to provide
    protection on a portion of our anticipated natural gas and oil
    production are substantially the same as those contracts
    described in our 2005 Annual Report on
    Form 10-K.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In April 2006, our Exploration and Production segment and
    Marketing and Trading segment entered into additional option
    contracts related to our 2007 natural gas production. Through a
    series of transactions, we (i) established a floor price of
    $8.00/MMBtu and an average ceiling price of $16.02/MMBtu on
    approximately 130 TBtu and (ii) offset the price risk
    associated with 21 TBtu of existing 2007 natural gas
    positions that had a floor price of $7.00/MMBtu and a ceiling
    price of $9.00/MMBtu and 30 TBtu that had a floor price of
    $6.00/MMBtu. These contracts will not require us to post any
    incremental net cash margin in the future. The options on the
    130 TBtu are collateralized by certain natural gas and oil
    properties. We also entered into basis swaps on 11 TBtu of
    our anticipated south Texas natural gas production in 2006 and
    37 TBtu in 2007. For additional information on these
    contracts, see our individual segment discussions.

10-K.


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                 |                                 | $ | 0.4  |     |     | $ | 0.1  |    
|                          |                                 | Non-cash income adjustments                               |                                 |   | 0.4  |     |     |   | 0.3  |    
|                          |                                 | Change in broker margin and other
    deposits(1)         |                                 |   | 0.6  |     |     |   | 0.1  |    
|                          |                                 | Change in other assets and liabilities                    |                                 |   | (0.5 | )   |     |   | (0.4 | )  
|                          |                                 |                                                           |                                 |   |      |    
|                          |                                 |                                                           | Total cash flow from operations |   | $    | 0.9 |     |   | $    | 0.1 | 
|                          |                                 |                                                           |                                 |   |      |    
|Other Cash Inflows        |                                 |                                                           |                                 |   |      |     |     |  
|                          | Continuing investing activities |                                                           |                                 |   |      |     |     |   |     
|                          |                                 | Net proceeds from the sale of assets and investments      |                                 | $ | 0.1  |     |     | $ | 0.6  |    
|                          |                                 | Proceeds from settlement of a foreign currency derivative |                                 |   |     |     |     |   | 0.1  |    
|                          |                                 | Other                                                     |                                 |   |     |     |     |   | 0.1  |    
|                          |                                 |                                                           |                                 |   |      |    
|                          |                                 |                                                           | 0.1                             |   |      |     | 0.8 |  
|                          |                                 |                                                           |                                 |   |      |    
|                         
|                          | Continuing financing activities |                                                           |                                 |   |      |     |     |   |     
|                          |                                 | Net proceeds from the issuance of long-term debt          |                                 |   |     |     |     |   | 0.2  |    
|                          |                                 | Contribution from discontinued operations                 |                                 |   |     |     |     |   | 0.1  |    
|                          |                                 |                                                           |                                 |   |      |    
|                          |                                 |                                                           |                                |   |      |     | 0.3 |  
|                          |                                 |                                                           |                                 |   |      |    
|                          |                                 |                                                           | Total cash inflows              |   | $    | 1.0 |     |   | $    | 1.2 | 
|                          |                                 |                                                           |                                 |   |      |    

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|              |                                 |                                                                  |                           |                    |      |     |      |   |     |     |      |  
|------------- | ------------------------------- | ---------------------------------------------------------------- | ------------------------- | ------------------ | ---- | --- | ---- | - | --- | --- | ---- | -
|              |                                 | 2006                                                             |                           |                    | 2005 |    
|              |                                 |                                                                  |                           |                    |      |    
|              |                                 | (In billions)                                                    |                          
|Cash Outflows |                                 |                                                                  |                           |                    |      |     |      |  
|              | Continuing investing activities |                                                                  |                           |                    |      |     |      |   |    
|              |                                 | Capital
    expenditures(2)                                      |                           | $                  | 0.4  |     |      | $ | 0.4 |    
|              |                                 | Net cash paid for acquisition                                    |                           |                    |     |     |      |   | 0.2 |    
|              |                                 |                                                                  |                           |                    |      |    
|              |                                 |                                                                  | 0.4                       |                    |      |     | 0.6  |  
|              |                                 |                                                                  |                           |                    |      |    
|              | Continuing financing activities |                                                                  |                           |                    |      |     |      |   |    
|              |                                 | Payments to retire long-term debt and redeem preferred interests |                           |                    | 0.9  |     |      |   | 1.0 |    
|              |                                 | Dividends and other                                              |                           |                    | 0.1  |     |      |   | 0.1 |    
|              |                                 |                                                                  |                           |                    |      |    
|              |                                 |                                                                  | 1.0                       |                    |      |     | 1.1  |  
|              |                                 |                                                                  |                           |                    |      |    
|              |                                 |                                                                  | Total other cash outflows |                    | $    | 1.4 |      |   | $   | 1.7 |     
|              |                                 |                                                                  |                           |                    |      |    
|              |                                 |                                                                  |                           | Net change in cash |      | $   | (0.4 | ) |     | $   | (0.5 | )
|              |                                 |                                                                  |                           |                    |      |    






|    |                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Primarily due to collection of $0.6 billion in margin calls
    in 2006 as commodity prices decreased and settlement of
    contracts.                                                
|(2) | Includes $0.2 billion related to production, exploration
    and development projects and $0.2 billion related to
    pipeline expansion, maintenance and integrity projects for 2006.

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                            |                                        | $                                       | 14   |          |     | $ |         |      |      | $        |     |      |          | $ |     |       |      | $ |  |     |   | $ | 14   |       
|                                  | Liabilities                       |                                        |                                         | (269 | )        |     |   | (54      | )    |      |          | (31  | )    |          |   | (12  | )     |      |   |  |     |   |   | (366 | )     
|                                  |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |     
|                                  |                                   | Total derivatives designated as hedges |                                         |      | (255     | )   |   |          | (54  | )    |          |      | (31  | )        |   |      | (12   | )    |   |   |    |   |   |      | (352   | )   
|                                  |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |     
|Other commodity-based derivatives |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |      |   |   |     |   |   |     
|                                  | Exchange-traded
    positions(1)  |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |      |   |   |     |   |   |      |       
|                                  |                                   | Assets                                 |                                         |      | 114      |     |   |          | 313  |      |          |      | 120  |          |   |      |      |      |   |   |    |   |   |      | 547    |     
|                                  | Non-exchange-traded positions     |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |      |   |   |     |   |   |      |       
|                                  |                                   | Assets                                 |                                         |      | 174      |     |   |          | 383  |      |          |      | 180  |          |   |      | 102   |      |   |   | 14  |   |   |      | 853    |     
|                                  |                                   | Liabilities                            |                                         |      | (387     | )   |   |          | (811 | )    |          |      | (419 | )        |   |      | (322  | )    |   |   | (10 | ) |   |      | (1,949 | )   
|                                  |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |     
|                                  |                                   |                                        | Total other commodity-based derivatives |      |          | (99 | ) |          |      | (115 | )        |      |      | (119     | ) |      |       | (220 | ) |   |     | 4 |   |      |        | (549 | )
|                                  |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |     
|                                  | Total commodity-based derivatives |                                        | $                                       | (354 | )        |     | $ | (169     | )    |      | $        | (150 | )    |          | $ | (232 | )     |      | $ | 4 |     |   | $ | (901 | )     
|                                  |                                   |                                        |                                         |      |          |     |   |          |      |      |          |      |      |          |   |      |       |     






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

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|                                                       |                                                      |                                                       |      |       |             |   |       |             |     |   |        |     |     | 
|------------------------------------------------------ | ---------------------------------------------------- | ----------------------------------------------------- | ---- | ----- | ----------- | - | ----- | ----------- | --- | - | ------ | --- | --- | 
|                                                       |                                                      |                                                       |      | 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 |                                                       |      | 101   |             |   |       | (5          | )   |   |        | 96  |    
|                                                       | Change in fair value of contracts                    |                                                       |      | 200   |             |   |       | 219         | (1) |   |        | 419 |    
|                                                       |                                                      |                                                       |      |       |             |   |       |             |    
|                                                       |                                                      | Net change in contracts outstanding during the period |      |       | 301         |   |       |             | 214 |   |        |     | 515 | 
|                                                       |                                                      |                                                       |      |       |             |   |       |             |    
|Fair value of contracts outstanding at March 31, 2006  |                                                      | $                                                     | (352 | )     |             | $ | (549  | )           |     | $ | (901   | )  
|                                                       |                                                      |                                                       |      |       |             |   |       |             |    



| | 
| | 
| | 



| |     |                                                                                                                                                                                                                | 
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (1) | Includes a $49 million gain associated with the assignment to BG
    LNG Services, L.L.C. of contracts to supply natural gas to the
    Jacksonville Electric Authority and The City of Lakeland,
    Florida. | 

Fair Value of Contract Settlements.


Changes in Fair Value of Contracts.


44



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##### Table of Contents








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

10-K 10-Q.


10-K


Market Risk


mark-to mark-to


45



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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




46



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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.


Tucson Waste Management.





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

47



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##### Table of Contents



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







Item 5. Other Information




48



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##### Table of Contents






Item 6. Exhibits




|        |     |             |  |                                                                                                        
|------- | --- | ----------- |  | -------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|        | *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.

49



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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)      

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EL PASO CORPORATION


EXHIBIT INDEX




|        |     |             |  |                                                                                                        
|------- | --- | ----------- |  | -------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|        | *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.