##### Table of Contents


















Form 10-Q




[X]


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended June 30, 2005


OR


[  ]


TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period
from           to


Commission File Number 1-14365





El Paso Corporation




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

(713) 420-2600




þ o


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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                                          |  |      | 35 | 
|                                             |  | Cautionary Statements for Purposes of the
    Safe Harbor Provisions of the Private Securities
    Litigation Reform Act of 1995 |  |      | 60 | 
|Item 3.                                      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                                     |  |      | 61 | 
|Item 4.                                      |  | Controls and Procedures                                                                                                            |  |      | 62 | 
|                                             |  | PART II  Other Information                                                                                                        |  |      |    | 
|Item 1.                                      |  | Legal Proceedings                                                                                                                  |  |      | 64 | 
|Item 2.                                      |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                                                                    |  |      | 64 | 
|Item 3.                                      |  | Defaults Upon Senior Securities                                                                                                    |  |      | 64 | 
|Item 4.                                      |  | Submission of Matters to a Vote of Security
    Holders                                                                            |  |      | 64 | 
|Item 5.                                      |  | Other Information                                                                                                                  |  |      | 65 | 
|Item 6.                                      |  | Exhibits                                                                                                                           |  |      | 66 | 
|                                             |  | Signatures                                                                                                                         |  |      | 67 | 
|Employee Stock Purchase Plan                
|Form of Indemnification Agreement           
|Certification of CEO pursuant to Section 302
|Certification of CFO pursuant to Section 302
|Certification of CEO pursuant to Section 906
|Certification of CFO pursuant to Section 906








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





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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 |       |       | Six Months Ended |  
|                                                                  |                                              | June 30,      |       |       | June 30,         |  
|                                                                  |                                              |               |       |       |                  |  
|                                                                  |                                              | 2005          |       |       | 2004             |   |       | 2005  |   |   | 2004  |      
|                                                                  |                                              |               |       |       |                  |   |       |       |   |   |       |      
|Operating revenues                                                |                                              | $             | 1,224 |       |                  | $ | 1,524 |       |   | $ | 2,366 |       |   | $ | 3,081 |      
|                                                                  |                                              |               |       |       |                  |   |       |       |   |   |       |      
|Operating expenses                                                |                                              |               |       |       |                  |   |       |       |   |   |       |       |   |   |       |      
|                                                                  | Cost of products and services                |               |       | 60    |                  |   |       | 435   |   |   |       | 159   |   |   |       | 825   |  
|                                                                  | Operation and maintenance                    |               |       | 438   |                  |   |       | 373   |   |   |       | 880   |   |   |       | 774   |  
|                                                                  | Depreciation, depletion and amortization     |               |       | 294   |                  |   |       | 263   |   |   |       | 574   |   |   |       | 538   |  
|                                                                  | Loss on long-lived assets                    |               |       | 360   |                  |   |       | 17    |   |   |       | 381   |   |   |       | 255   |  
|                                                                  | Taxes, other than income taxes               |               |       | 65    |                  |   |       | 66    |   |   |       | 136   |   |   |       | 130   |  
|                                                                  |                                              |               |       |       |                  |   |       |       |   |   |       |      
|                                                                  |                                              |               |       | 1,217 |                  |   |       | 1,154 |   |   |       | 2,130 |   |   |       | 2,522 |  
|                                                                  |                                              |               |       |       |                  |   |       |       |   |   |       |      
|Operating income (loss)                                           |                                              |               | 7     |       |                  |   | 370   |       |   |   | 236   |       |   |   | 559   |      
|Earnings (loss) from unconsolidated affiliates                    |                                              |               | (19   | )     |                  |   | 98    |       |   |   | 171   |       |   |   | 185   |      
|Other income, net                                                 |                                              |               | 71    |       |                  |   | 30    |       |   |   | 104   |       |   |   | 74    |      
|Interest and debt expense                                         |                                              |               | (340  | )     |                  |   | (410  | )     |   |   | (690  | )     |   |   | (833  | )    
|Distributions on preferred interests of consolidated subsidiaries |                                              |               | (3    | )     |                  |   | (6    | )     |   |   | (9    | )     |   |   | (12   | )    
|                                                                  |                                              |               |       |       |                  |   |       |       |   |   |       |      
|Income (loss) before income taxes                                 |                                              |               | (284  | )     |                  |   | 82    |       |   |   | (188  | )     |   |   | (27   | )    
|Income taxes                                                      |                                              |               | (51   | )     |                  |   | 48    |       |   |   | (57   | )     |   |   | 58    |      
|                                                                  |                                              |               |       |       |                  |   |       |       |   |   |       |      
|Income (loss) from continuing operations                          |                                              |               | (233  | )     |                  |   | 34    |       |   |   | (131  | )     |   |   | (85   | )    
|Discontinued operations, net of income taxes                      |                                              |               | (5    | )     |                  |   | (29   | )     |   |   | (1    | )     |   |   | (106  | )    
|                                                                  |                                              |               |       |       |                  |   |       |       |   |   |       |      
|Net income (loss)                                                 |                                              |               | (238  | )     |                  |   | 5     |       |   |   | (132  | )     |   |   | (191  | )    
|Preferred stock dividends                                         |                                              |               | (8    | )     |                  |   |      |       |   |   | (8    | )     |   |   |      |      
|                                                                  |                                              |               |       |       |                  |   |       |       |   |   |       |      
|Net income (loss) available to common stockholders                |                                              | $             | (246  | )     |                  | $ | 5     |       |   | $ | (140  | )     |   | $ | (191  | )    
|                                                                  |                                              |               |       |       |                  |   |       |       |   |   |       |      
|                                                                 
|Basic and diluted income (loss) per common share                  |                                              |               |       |       |                  |   |       |       |   |   |       |       |   |   |       |      
|                                                                  | Income (loss) from continuing operations     |               | $     | (0.37 | )                |   | $     | 0.05  |   |   | $     | (0.22 | ) |   | $     | (0.13 | )
|                                                                  | Discontinued operations, net of income taxes |               |       | (0.01 | )                |   |       | (0.04 | ) |   |       |      |   |   |       | (0.17 | )
|                                                                  |                                              |               |       |       |                  |   |       |       |   |   |       |      
|                                                                  | Net income (loss) per common share           |               | $     | (0.38 | )                |   | $     | 0.01  |   |   | $     | (0.22 | ) |   | $     | (0.30 | )
|                                                                  |                                              |               |       |       |                  |   |       |       |   |   |       |      
|Basic and diluted average common shares outstanding               |                                              |               | 641   |       |                  |   | 639   |       |   |   | 640   |       |   |   | 639   |      
|                                                                  |                                              |               |       |       |                  |   |       |       |   |   |       |      
|Dividends declared per common share                               |                                              | $             | 0.04  |       |                  | $ | 0.04  |       |   | $ | 0.08  |       |   | $ | 0.08  |      
|                                                                  |                                              |               |       |       |                  |   |       |       |   |   |       |      



1



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##### Table of Contents



EL PASO CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS


(In millions, except share amounts)


(Unaudited)


|                                       |                                                           |                                                             |                                          |        |              |        |        |        |       |        | 
|-------------------------------------- | --------------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------- | ------ | ------------ | ------ | ------ | ------ | ----- | ------ | 
|                                       |                                                           | June 30,                                                    |                                          |        | December 31, |       
|                                       |                                                           | 2005                                                        |                                          |        | 2004         |       
|                                       |                                                           |                                                             |                                          |        |              |       
|ASSETS                                
|Current assets                         |                                                           |                                                             |                                          |        |              |        |        |       
|                                       | Cash and cash equivalents                                 |                                                             | $                                        | 1,540  |              |        | $      | 2,117  |      
|                                       | Accounts and notes receivable                             |                                                             |                                          |        |              |        |        |        |      
|                                       |                                                           | Customers, net of allowance of $77 in 2005 and $199 in 2004 |                                          |        | 975          |        |        |        | 1,388 |       
|                                       |                                                           | Affiliates                                                  |                                          |        | 90           |        |        |        | 133   |       
|                                       |                                                           | Other                                                       |                                          |        | 151          |        |        |        | 188   |       
|                                       | Assets from price risk management activities              |                                                             |                                          | 576    |              |        |        | 601    |      
|                                       | Margin and other deposits held by others                  |                                                             |                                          | 328    |              |        |        | 79     |      
|                                       | Deferred income taxes                                     |                                                             |                                          | 607    |              |        |        | 418    |      
|                                       | Other                                                     |                                                             |                                          | 539    |              |        |        | 708    |      
|                                       |                                                           |                                                             |                                          |        |              |       
|                                       |                                                           |                                                             | Total current assets                     |        |              | 4,806  |        |        |       | 5,632  | 
|                                       |                                                           |                                                             |                                          |        |              |       
|Property, plant and equipment, at cost |                                                           |                                                             |                                          |        |              |        |        |       
|                                       | Pipelines                                                 |                                                             |                                          | 19,609 |              |        |        | 19,418 |      
|                                       | Natural gas and oil properties, at full cost              |                                                             |                                          | 15,693 |              |        |        | 14,968 |      
|                                       | Power facilities                                          |                                                             |                                          | 957    |              |        |        | 1,550  |      
|                                       | Gathering and processing systems                          |                                                             |                                          | 64     |              |        |        | 171    |      
|                                       | Other                                                     |                                                             |                                          | 629    |              |        |        | 882    |      
|                                       |                                                           |                                                             |                                          |        |              |       
|                                       |                                                           |                                                             | 36,952                                   |        |              |        | 36,989 |       
|                                       | Less accumulated depreciation, depletion and amortization |                                                             |                                          | 18,265 |              |        |        | 18,177 |      
|                                       |                                                           |                                                             |                                          |        |              |       
|                                       |                                                           |                                                             | Total property, plant and equipment, net |        |              | 18,687 |        |        |       | 18,812 | 
|                                       |                                                           |                                                             |                                          |        |              |       
|Other assets                           |                                                           |                                                             |                                          |        |              |        |        |       
|                                       | Investments in unconsolidated affiliates                  |                                                             |                                          | 2,275  |              |        |        | 2,614  |      
|                                       | Assets from price risk management activities              |                                                             |                                          | 1,203  |              |        |        | 1,584  |      
|                                       | Goodwill and other intangible assets, net                 |                                                             |                                          | 422    |              |        |        | 428    |      
|                                       | Other                                                     |                                                             |                                          | 2,283  |              |        |        | 2,313  |      
|                                       |                                                           |                                                             |                                          |        |              |       
|                                       |                                                           |                                                             | 6,183                                    |        |              |        | 6,939  |       
|                                       |                                                           |                                                             |                                          |        |              |       
|                                       |                                                           |                                                             | Total assets                             |        | $            | 29,676 |        |        | $     | 31,383 | 
|                                       |                                                           |                                                             |                                          |        |              |       



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EL PASO CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS 
(Continued)


(In millions, except share amounts)


(Unaudited)


|                                                         |                                                                                                                                                                          |            |                                            |        |              |        |        |        |       |        | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------- | ------------------------------------------ | ------ | ------------ | ------ | ------ | ------ | ----- | ------ | 
|                                                         |                                                                                                                                                                          | June 30,   |                                            |        | December 31, |       
|                                                         |                                                                                                                                                                          | 2005       |                                            |        | 2004         |       
|                                                         |                                                                                                                                                                          |            |                                            |        |              |       
|LIABILITIES AND STOCKHOLDERS EQUITY                    
|Current liabilities                                      |                                                                                                                                                                          |            |                                            |        |              |        |        |       
|                                                         | Accounts payable                                                                                                                                                         |            |                                            |        |              |        |        |        |      
|                                                         |                                                                                                                                                                          | Trade      |                                            | $      | 792          |        |        | $      | 1,052 |       
|                                                         |                                                                                                                                                                          | Affiliates |                                            |        | 8            |        |        |        | 21    |       
|                                                         |                                                                                                                                                                          | Other      |                                            |        | 399          |        |        |        | 483   |       
|                                                         | Short-term financing obligations, including current maturities                                                                                                           |            |                                            | 1,099  |              |        |        | 955    |      
|                                                         | Liabilities from price risk management activities                                                                                                                        |            |                                            | 920    |              |        |        | 852    |      
|                                                         | Margin and other deposits                                                                                                                                                |            |                                            | 342    |              |        |        | 131    |      
|                                                         | Western Energy Settlement                                                                                                                                                |            |                                            |       |              |        |        | 44     |      
|                                                         | Accrued interest                                                                                                                                                         |            |                                            | 281    |              |        |        | 333    |      
|                                                         | Other                                                                                                                                                                    |            |                                            | 818    |              |        |        | 701    |      
|                                                         |                                                                                                                                                                          |            |                                            |        |              |       
|                                                         |                                                                                                                                                                          |            | Total current liabilities                  |        |              | 4,659  |        |        |       | 4,572  | 
|                                                         |                                                                                                                                                                          |            |                                            |        |              |       
|Long-term financing obligations, less current maturities |                                                                                                                                                                          |            | 16,379                                     |        |              |        | 18,241 |       
|                                                         |                                                                                                                                                                          |            |                                            |        |              |       
|Other                                                    |                                                                                                                                                                          |            |                                            |        |              |        |        |       
|                                                         | Liabilities from price risk management activities                                                                                                                        |            |                                            | 1,390  |              |        |        | 1,026  |      
|                                                         | Deferred income taxes                                                                                                                                                    |            |                                            | 1,528  |              |        |        | 1,312  |      
|                                                         | Western Energy Settlement                                                                                                                                                |            |                                            |       |              |        |        | 351    |      
|                                                         | Other                                                                                                                                                                    |            |                                            | 1,861  |              |        |        | 2,076  |      
|                                                         |                                                                                                                                                                          |            |                                            |        |              |       
|                                                         |                                                                                                                                                                          |            | 4,779                                      |        |              |        | 4,765  |       
|                                                         |                                                                                                                                                                          |            |                                            |        |              |       
|Commitments and contingencies                            |                                                                                                                                                                          |            |                                            |        |              |        |        |       
|Securities of subsidiaries                               |                                                                                                                                                                          |            | 59                                         |        |              |        | 367    |       
|Stockholders equity                                     |                                                                                                                                                                          |            |                                            |        |              |        |        |       
|                                                         | 4.99% Convertible perpetual preferred stock, par value $0.01 per
    share; authorized 50,000,000 shares; issued
    750,000 shares in 2005; stated at liquidation value |            |                                            | 750    |              |        |        |       |      
|                                                         | Common stock, par value $3 per share; authorized
    1,500,000,000 shares; issued 653,065,090 shares in
    2005 and 651,064,508 shares in 2004                          |            |                                            | 1,959  |              |        |        | 1,953  |      
|                                                         | Additional paid-in capital                                                                                                                                               |            |                                            | 4,431  |              |        |        | 4,538  |      
|                                                         | Accumulated deficit                                                                                                                                                      |            |                                            | (2,941 | )            |        |        | (2,809 | )    
|                                                         | Accumulated other comprehensive income (loss)                                                                                                                            |            |                                            | (183   | )            |        |        | 1      |      
|                                                         | Treasury stock (at cost); 7,361,325 shares in 2005 and
    7,767,088 shares in 2004                                                                                      |            |                                            | (189   | )            |        |        | (225   | )    
|                                                         | Unamortized compensation                                                                                                                                                 |            |                                            | (27    | )            |        |        | (20    | )    
|                                                         |                                                                                                                                                                          |            |                                            |        |              |       
|                                                         |                                                                                                                                                                          |            | Total stockholders equity                 |        |              | 3,800  |        |        |       | 3,438  | 
|                                                         |                                                                                                                                                                          |            |                                            |        |              |       
|                                                         |                                                                                                                                                                          |            | Total liabilities and stockholders equity |        | $            | 29,676 |        |        | $     | 31,383 | 
|                                                         |                                                                                                                                                                          |            |                                            |        |              |       



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##### Table of Contents



EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)


|                                     |                                                                                      |                                                                              |                                           |        |      |      |     |        |        |        |  
|------------------------------------ | ------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------- | ----------------------------------------- | ------ | ---- | ---- | --- | ------ | ------ | ------ | -
|                                     |                                                                                      | Six Months Ended                                                             |                                          
|                                     |                                                                                      | June 30,                                                                     |                                          
|                                     |                                                                                      |                                                                              |                                          
|                                     |                                                                                      | 2005                                                                         |                                           |        | 2004 |     
|                                     |                                                                                      |                                                                              |                                           |        |      |     
|Cash flows from operating activities |                                                                                      |                                                                              |                                           |        |      |      |     |       
|                                     | Net loss                                                                             |                                                                              | $                                         | (132   | )    |      | $   | (191   | )     
|                                     |                                                                                      | Less loss from discontinued operations, net of income taxes                  |                                           |        | (1   | )    |     |        | (106   | )     
|                                     |                                                                                      |                                                                              |                                           |        |      |     
|                                     | Net loss from continuing operations                                                  |                                                                              |                                           | (131   | )    |      |     | (85    | )     
|                                     | Adjustments to reconcile net loss to net cash from operating
    activities          |                                                                              |                                           |        |      |      |     |        |       
|                                     |                                                                                      | Depreciation, depletion and amortization                                     |                                           |        | 574  |      |     |        | 538    |       
|                                     |                                                                                      | Loss on long-lived assets                                                    |                                           |        | 381  |      |     |        | 255    |       
|                                     |                                                                                      | Earnings from unconsolidated affiliates, adjusted for cash
    distributions |                                           |        | (24  | )    |     |        | (27    | )     
|                                     |                                                                                      | Deferred income taxes                                                        |                                           |        | 4    |      |     |        | 37     |       
|                                     |                                                                                      | Other non-cash items                                                         |                                           |        | 35   |      |     |        | 53     |       
|                                     |                                                                                      | Other asset and liability changes                                            |                                           |        | (812 | )    |     |        | (636   | )     
|                                     |                                                                                      |                                                                              |                                           |        |      |     
|                                     |                                                                                      | Cash provided by continuing operations                                       |                                           |        | 27   |      |     |        | 135    |       
|                                     |                                                                                      | Cash provided by (used in) discontinued operations                           |                                           |        | (17  | )    |     |        | 161    |       
|                                     |                                                                                      |                                                                              |                                           |        |      |     
|                                     |                                                                                      |                                                                              | Net cash provided by operating activities |        |      | 10   |     |        |        | 296    |  
|                                     |                                                                                      |                                                                              |                                           |        |      |     
|Cash flows from investing activities |                                                                                      |                                                                              |                                           |        |      |      |     |       
|                                     | Additions to property, plant and equipment                                           |                                                                              |                                           | (806   | )    |      |     | (782   | )     
|                                     | Purchases of interests in equity investments                                         |                                                                              |                                           | (15    | )    |      |     | (21    | )     
|                                     | Net proceeds from the sale of assets and investments                                 |                                                                              |                                           | 834    |      |      |     | 165    |       
|                                     | Proceeds from settlement of a foreign currency derivative                            |                                                                              |                                           | 131    |      |      |     |       |       
|                                     | Cash paid for acquisitions, net of cash acquired                                     |                                                                              |                                           | (178   | )    |      |     | 2      |       
|                                     | Net change in restricted cash                                                        |                                                                              |                                           | 62     |      |      |     | 447    |       
|                                     | Net change in notes receivable from unconsolidated affiliates                        |                                                                              |                                           | 5      |      |      |     | 98     |       
|                                     | Other                                                                                |                                                                              |                                           | 47     |      |      |     |       |       
|                                     |                                                                                      |                                                                              |                                           |        |      |     
|                                     |                                                                                      | Cash provided by (used in) continuing operations                             |                                           |        | 80   |      |     |        | (91    | )     
|                                     |                                                                                      | Cash provided by discontinued operations                                     |                                           |        | 70   |      |     |        | 1,113  |       
|                                     |                                                                                      |                                                                              |                                           |        |      |     
|                                     |                                                                                      |                                                                              | Net cash provided by investing activities |        |      | 150  |     |        |        | 1,022  |  
|                                     |                                                                                      |                                                                              |                                           |        |      |     
|Cash flows from financing activities |                                                                                      |                                                                              |                                           |        |      |      |     |       
|                                     | Payments to retire long-term debt and other financing obligations                    |                                                                              |                                           | (1,563 | )    |      |     | (1,024 | )     
|                                     | Net proceeds from the issuance of long-term debt and other
    financing obligations |                                                                              |                                           | 458    |      |      |     | 50     |       
|                                     | Net proceeds from the issuance of preferred stock                                    |                                                                              |                                           | 723    |      |      |     |       |       
|                                     | Redemption of preferred stock of subsidiary                                          |                                                                              |                                           | (300   | )    |      |     |       |       
|                                     | Dividends paid                                                                       |                                                                              |                                           | (51    | )    |      |     | (49    | )     
|                                     | Contributions from discontinued operations                                           |                                                                              |                                           | 53     |      |      |     | 909    |       
|                                     | Issuances of common stock, net                                                       |                                                                              |                                           |       |      |      |     | 73     |       
|                                     | Other                                                                                |                                                                              |                                           | (4     | )    |      |     | (21    | )     
|                                     |                                                                                      |                                                                              |                                           |        |      |     
|                                     |                                                                                      | Cash used in continuing operations                                           |                                           |        | (684 | )    |     |        | (62    | )     
|                                     |                                                                                      | Cash used in discontinued operations                                         |                                           |        | (53  | )    |     |        | (1,274 | )     
|                                     |                                                                                      |                                                                              |                                           |        |      |     
|                                     |                                                                                      |                                                                              | Net cash used in financing activities     |        |      | (737 | )   |        |        | (1,336 | )
|                                     |                                                                                      |                                                                              |                                           |        |      |     
|Change in cash and cash equivalents  |                                                                                      |                                                                              | (577                                      | )      |      |      | (18 | )     
|Cash and cash equivalents            |                                                                                      |                                                                              |                                           |        |      |      |     |       
|                                     | Beginning of period                                                                  |                                                                              |                                           | 2,117  |      |      |     | 1,429  |       
|                                     |                                                                                      |                                                                              |                                           |        |      |     
|                                     | End of period                                                                        |                                                                              | $                                         | 1,540  |      |      | $   | 1,411  |       
|                                     |                                                                                      |                                                                              |                                           |        |      |     



4



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##### Table of Contents



EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(In millions)


(Unaudited)


|                                                                                                                |                                                                                                                                                             |                                   |      |    |                |   |     |      |    |   |      |      |      |   |      |     |    |  
|--------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ---- | -- | -------------- | - | --- | ---- | -- | - | ---- | ---- | ---- | - | ---- | --- | -- | -
|                                                                                                                |                                                                                                                                                             | Quarter Ended                     |      |    | Six Months     |  
|                                                                                                                |                                                                                                                                                             | June 30,                          |      |    | Ended June 30, |  
|                                                                                                                |                                                                                                                                                             |                                   |      |    |                |  
|                                                                                                                |                                                                                                                                                             | 2005                              |      |    | 2004           |   |     | 2005 |    |   | 2004 |     
|                                                                                                                |                                                                                                                                                             |                                   |      |    |                |   |     |      |    |   |      |     
|Net income (loss)                                                                                               |                                                                                                                                                             | $                                 | (238 | )  |                | $ | 5   |      |    | $ | (132 | )    |      | $ | (191 | )  
|                                                                                                                |                                                                                                                                                             |                                   |      |    |                |   |     |      |    |   |      |     
|Foreign currency translation adjustments (net of income taxes of
    $6 and $7 in 2005 and $14 and $51 in 2004) |                                                                                                                                                             |                                   | (4   | )  |                |   | (24 | )    |    |   | 7    |      |      |   | (20  | )  
|Unrealized net gains (losses) from cash flow hedging activity                                                   |                                                                                                                                                             |                                   |      |    |                |   |     |      |    |   |      |      |      |   |      |    
|                                                                                                                | Unrealized mark-to-market gains (losses) arising during period
    (net of income taxes of $13 and $89 in 2005 and $2 and $12 in
    2004)                  |                                   |      | 17 |                |   |     | (4   | )  |   |      | (172 | )    |   |      | (23 | ) 
|                                                                                                                | Reclassification adjustments for changes in initial value to the
    settlement date (net of income taxes of $1 and $12 in 2005 and
    $7 and $15 in 2004) |                                   |      | 2  |                |   |     | 24   |    |   |      | (19  | )    |   |      | 39  |   
|                                                                                                                |                                                                                                                                                             |                                   |      |    |                |   |     |      |    |   |      |     
|                                                                                                                |                                                                                                                                                             | Other comprehensive income (loss) |      |    | 15             |   |     |      | (4 | ) |      |      | (184 | ) |      |     | (4 | )
|                                                                                                                |                                                                                                                                                             |                                   |      |    |                |   |     |      |    |   |      |     
|Comprehensive income (loss)                                                                                     |                                                                                                                                                             | $                                 | (223 | )  |                | $ | 1   |      |    | $ | (316 | )    |      | $ | (195 | )  
|                                                                                                                |                                                                                                                                                             |                                   |      |    |                |   |     |      |    |   |      |     



5



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EL PASO CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


1. Basis of Presentation and Significant Accounting
Policies


Basis of Presentation




Significant Accounting Policies




Variable Interest Entities


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




6



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|                                                              |  |               |      |   |      |   |    |  
|------------------------------------------------------------- |  | ------------- | ---- | - | ---- | - | -- | -
|                                                              |  | 2005          |      |   | 2004 |  
|                                                              |  |               |      |   |      |  
|                                                              |  | (In millions) |     
|Operating revenues                                            |  | $             | (111 | ) |      | $ | (3 | )
|Current liabilities from price risk management activities     |  |               | 21   |   |      |   | 20 |  
|Non-current liabilities from price risk management activities |  |               | 127  |   |      |   | 29 |  





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

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


|                                                                                                                   |                                |               |      |       |                |   |    |      |  |   |      |       |   |   |      |       |  
|------------------------------------------------------------------------------------------------------------------ | ------------------------------ | ------------- | ---- | ----- | -------------- | - | -- | ---- |  | - | ---- | ----- | - | - | ---- | ----- | -
|                                                                                                                   |                                | Quarter Ended |      |       | Six Months     |  
|                                                                                                                   |                                | June 30,      |      |       | Ended June 30, |  
|                                                                                                                   |                                |               |      |       |                |  
|                                                                                                                   |                                | 2005          |      |       | 2004           |   |    | 2005 |  |   | 2004 |      
|                                                                                                                   |                                |               |      |       |                |   |    |      |  |   |      |      
|                                                                                                                   |                                | (In millions) |     
|Net income (loss) available to common stockholders as reported                                                     |                                | $             | (246 | )     |                | $ | 5  |      |  | $ | (140 | )     |   | $ | (191 | )    
|Add: Stock-based compensation expense in net income (loss), net
    of taxes                                       |                                |               | 3    |       |                |   | 7  |      |  |   | 5    |       |   |   | 11   |      
|Deduct: Stock-based compensation expense determined under fair
    value-based method for all awards, net of taxes |                                |               | 5    |       |                |   | 11 |      |  |   | 10   |       |   |   | 21   |      
|                                                                                                                   |                                |               |      |       |                |   |    |      |  |   |      |      
|Net loss available to common stockholders, pro forma                                                               |                                | $             | (248 | )     |                | $ | 1  |      |  | $ | (145 | )     |   | $ | (201 | )    
|                                                                                                                   |                                |               |      |       |                |   |    |      |  |   |      |      
|Income (loss) per share:                                                                                           |                                |               |      |       |                |   |    |      |  |   |      |       |   |   |      |      
|                                                                                                                   | Basic and diluted, as reported |               | $    | (0.38 | )              |   | $  | 0.01 |  |   | $    | (0.22 | ) |   | $    | (0.30 | )
|                                                                                                                   |                                |               |      |       |                |   |    |      |  |   |      |      
|                                                                                                                   | Basic and diluted, pro forma   |               | $    | (0.39 | )              |   | $  |     |  |   | $    | (0.23 | ) |   | $    | (0.31 | )
|                                                                                                                   |                                |               |      |       |                |   |    |      |  |   |      |      



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



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


7



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


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


Accounting for Pipeline Integrity Costs.


2. Acquisitions




8



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##### Table of Contents



3. Divestitures




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



|                 |                |               |     |     |      |   |       |    | 
|---------------- | -------------- | ------------- | --- | --- | ---- | - | ----- | -- | 
|                 |                | 2005          |     |     | 2004 |  
|                 |                |               |     |     |      |  
|                 |                | (In millions) |    
|Regulated        |                |               |     |     |      |   |       |   
|                 | Pipelines      |               | $   | 35  |      |   | $     | 50 | 
|Non-regulated    |                |               |     |     |      |   |       |   
|                 | Power          |               |     | 176 |      |   |       | 99 | 
|                 | Field Services |               |     | 501 |      |   |       |   | 
|Other            |                |               |     |     |      |   |       |   
|                 | Corporate      |               |     | 121 |      |   |       | 16 | 
|                 |                |               |     |     |      |  
|Total continuing |                |               | 833 | (1) |      |   | 165   |   
|Discontinued     |                |               | 85  |     |      |   | 1,261 |   
|                 |                |               |     |     |      |  
|Total            |                | $             | 918 |     |      | $ | 1,426 |   
|                 |                |               |     |     |      |  






|    |                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Proceeds exclude returns of capital from unconsolidated
    affiliates and cash transferred with the assets sold and include
    costs incurred for disposal. These increased our sales proceeds
    by $1 million for the six months ended June 30, 2005.



|               |  |                                                                                                                                                                                                                      |  |                                                                                                                                
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------
|               |  | 2005                                                                                                                                                                                                                 |  | 2004                                                                                                                           
|               |  |                                                                                                                                                                                                                      |  |                                                                                                                                
|Pipelines      |  |  Facilities located in the southeastern U.S.                                                                                                                                                                        |  |  Australia pipeline
     Aircraft                                                                                            
|              
|Power          |  |  Cedar Brakes I and II
     Interest in a power plant in India
     Interest in a power plant in England
     4 domestic power facilities
     Power turbine                                                    |  |  Mohawk River Funding IV
     Utility Contract Funding (UCF)
     Bastrop Company equity investment                         
|              
|Field Services |  |  9.9% interest in general partner of
    Enterprise Products Partners, L.P.
     13.5 million common units in Enterprise
     Interest in Indian Springs natural gas gathering
    system and processing facility |  |  None                                                                                                                         
|              
|Corporate      |  |  Lakeside Technology Center                                                                                                                                                                                         |  |  Aircraft                                                                                                                     
|              
|Discontinued   |  |  Interest in Paraxylene facility
     MTBE processing facility
     International natural gas and oil production
    properties                                                                                   |  |  Natural gas and oil production properties in
    Canada
     Aruba and Eagle Point refineries and other petroleum
    assets



9



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Accounting for the Impairment or
Disposal of Long-Lived Assets




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

South Louisiana Gathering and Processing Operations.


International Natural Gas and Oil Production Operations.


Petroleum Markets.


10



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|                                                                |  |               |     |               |            |       |           |            |  |   |       |   |  |   |      |  
|--------------------------------------------------------------- |  | ------------- | --- | ------------- | ---------- | ----- | --------- | ---------- |  | - | ----- | - |  | - | ---- | -
|                                                                |  |               |     |               |            | South |           |            | 
|                                                                |  |               |     | International |            |       | Louisiana |            |  |  
|                                                                |  |               |     | Natural Gas   |            |       | Gathering |            |  |  
|                                                                |  |               |     | and Oil       |            |       | and       |            |  |  
|                                                                |  | Petroleum     |     |               | Production |       |           | Processing |  |   |      
|                                                                |  | Markets       |     |               | Operations |       |           | Operations |  |   | Total |  
|                                                                |  |               |     |               |            |       |           |            |  |   |       |  
|                                                                |  | (In millions) |    
|Operating Results Data                                          |  |               |     |               |            |       |           |            |  |   |       |   |  |   |      |  
|Quarter Ended June 30, 2005                                     |  |               |     |               |            |       |           |            |  |   |       |   |  |   |      |  
|Revenues                                                        |  | $             | 30  |               |            | $     |          |            |  | $ | 90    |   |  | $ | 120  |  
|Costs and expenses                                              |  |               | (33 | )             |            |       | (1        | )          |  |   | (79   | ) |  |   | (113 | )
|Loss on long-lived assets                                       |  |               |    |               |            |       | (4        | )          |  |   |      |   |  |   | (4   | )
|Other expense                                                   |  |               | (4  | )             |            |       |          |            |  |   |      |   |  |   | (4   | )
|                                                                |  |               |     |               |            |       |           |            |  |   |       |  
|Income (loss) before income taxes                               |  |               | (7  | )             |            |       | (5        | )          |  |   | 11    |   |  |   | (1   | )
|Income taxes                                                    |  |               | 1   |               |            |       | (2        | )          |  |   | 5     |   |  |   | 4    |  
|                                                                |  |               |     |               |            |       |           |            |  |   |       |  
|Income (loss) from discontinued operations, net of income taxes |  | $             | (8  | )             |            | $     | (3        | )          |  | $ | 6     |   |  | $ | (5   | )
|                                                                |  |               |     |               |            |       |           |            |  |   |       |  
|Quarter Ended June 30, 2004                                     |  |               |     |               |            |       |           |            |  |   |       |   |  |   |      |  
|Revenues                                                        |  | $             | 54  |               |            | $     | 1         |            |  | $ |      |   |  | $ | 55   |  
|Costs and expenses                                              |  |               | (77 | )             |            |       | (3        | )          |  |   |      |   |  |   | (80  | )
|Gain on long-lived assets                                       |  |               | 4   |               |            |       |          |            |  |   |      |   |  |   | 4    |  
|Other income                                                    |  |               | 2   |               |            |       |          |            |  |   |      |   |  |   | 2    |  
|                                                                |  |               |     |               |            |       |           |            |  |   |       |  
|Loss before income taxes                                        |  |               | (17 | )             |            |       | (2        | )          |  |   |      |   |  |   | (19  | )
|Income taxes                                                    |  |               | (3  | )             |            |       | 13        |            |  |   |      |   |  |   | 10   |  
|                                                                |  |               |     |               |            |       |           |            |  |   |       |  
|Loss from discontinued operations, net of income taxes          |  | $             | (14 | )             |            | $     | (15       | )          |  | $ |      |   |  | $ | (29  | )
|                                                                |  |               |     |               |            |       |           |            |  |   |       |  
|Six Months Ended June 30, 2005                                  |  |               |     |               |            |       |           |            |  |   |       |   |  |   |      |  
|Revenues                                                        |  | $             | 74  |               |            | $     | 2         |            |  | $ | 177   |   |  | $ | 253  |  
|Costs and expenses                                              |  |               | (86 | )             |            |       | (2        | )          |  |   | (157  | ) |  |   | (245 | )
|Gain (loss) on long-lived assets                                |  |               | 3   |               |            |       | (5        | )          |  |   |      |   |  |   | (2   | )
|Other income                                                    |  |               | 11  |               |            |       |          |            |  |   |      |   |  |   | 11   |  
|                                                                |  |               |     |               |            |       |           |            |  |   |       |  
|Income (loss) before income taxes                               |  |               | 2   |               |            |       | (5        | )          |  |   | 20    |   |  |   | 17   |  
|Income taxes                                                    |  |               | 13  |               |            |       | (3        | )          |  |   | 8     |   |  |   | 18   |  
|                                                                |  |               |     |               |            |       |           |            |  |   |       |  
|Income (loss) from discontinued operations, net of income taxes |  | $             | (11 | )             |            | $     | (2        | )          |  | $ | 12    |   |  | $ | (1   | )
|                                                                |  |               |     |               |            |       |           |            |  |   |       |  

11



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|                                                       |  |               |      |               |            |       |           |            |  |       |   |  |  |   |      |  
|------------------------------------------------------ |  | ------------- | ---- | ------------- | ---------- | ----- | --------- | ---------- |  | ----- | - |  |  | - | ---- | -
|                                                       |  |               |      |               |            | South |           |           
|                                                       |  |               |      | International |            |       | Louisiana |            | 
|                                                       |  |               |      | Natural Gas   |            |       | Gathering |            | 
|                                                       |  |               |      | and Oil       |            |       | and       |            | 
|                                                       |  | Petroleum     |      |               | Production |       |           | Processing |  |      
|                                                       |  | Markets       |      |               | Operations |       |           | Operations |  | Total |  
|                                                       |  |               |      |               |            |       |           |            |  |       |  
|                                                       |  | (In millions) |     
|Six Months Ended June 30, 2004                         |  |               |      |               |            |       |           |            |  |       |   |  |  |   |      |  
|Revenues                                               |  | $             | 693  |               |            | $     | 28        |            |  | $     |  |  |  | $ | 721  |  
|Costs and expenses                                     |  |               | (730 | )             |            |       | (47       | )          |  |       |  |  |  |   | (777 | )
|Loss on long-lived assets                              |  |               | (38  | )             |            |       | (16       | )          |  |       |  |  |  |   | (54  | )
|Interest and debt expense                              |  |               | (3   | )             |            |       | 1         |            |  |       |  |  |  |   | (2   | )
|Other expense                                          |  |               | (8   | )             |            |       |          |            |  |       |  |  |  |   | (8   | )
|                                                       |  |               |      |               |            |       |           |            |  |       |   | 
|Loss before income taxes                               |  |               | (86  | )             |            |       | (34       | )          |  |       |  |  |  |   | (120 | )
|Income taxes                                           |  |               | (9   | )             |            |       | (5        | )          |  |       |  |  |  |   | (14  | )
|                                                       |  |               |      |               |            |       |           |            |  |       |   | 
|Loss from discontinued operations, net of income taxes |  | $             | (77  | )             |            | $     | (29       | )          |  | $     |  |  |  | $ | (106 | )
|                                                       |  |               |      |               |            |       |           |            |  |       |   | 

4. Restructuring Costs




Office relocation and consolidation.


Employee severance, retention, and transition costs.


5. Loss on Long-Lived Assets




|                                                                |  |               |     |            |          |   |    |      |  |   |      |   |  |   |     |  
|--------------------------------------------------------------- |  | ------------- | --- | ---------- | -------- | - | -- | ---- |  | - | ---- | - |  | - | --- | -
|                                                                |  |               |     | Six Months |         
|                                                                |  | Quarter Ended |     |            | Ended    |  
|                                                                |  | June 30,      |     |            | June 30, |  
|                                                                |  |               |     |            |          |  
|                                                                |  | 2005          |     |            | 2004     |   |    | 2005 |  |   | 2004 |  
|                                                                |  |               |     |            |          |   |    |      |  |   |      |  
|                                                                |  | (In millions) |    
|Net realized gain                                               |  | $             | (6  | )          |          | $ | (6 | )    |  | $ | (13  | ) |  | $ | (14 | )
|Asset impairments                                               |  |               | 366 |            |          |   | 23 |      |  |   | 394  |   |  |   | 269 |  
|                                                                |  |               |     |            |          |   |    |      |  |   |      |  
|Loss on long-lived assets                                       |  |               | 360 |            |          |   | 17 |      |  |   | 381  |   |  |   | 255 |  
|(Gain) loss on investments in unconsolidated affiliates
    (1) |  |               | 87  |            |          |   | 18 |      |  |   | (32  | ) |  |   | 42  |  
|                                                                |  |               |     |            |          |   |    |      |  |   |      |  
|Loss on long-lived assets and investments                       |  | $             | 447 |            |          | $ | 35 |      |  | $ | 349  |   |  | $ | 297 |  
|                                                                |  |               |     |            |          |   |    |      |  |   |      |  






|    |                                                                     
|--- | --------------------------------------------------------------------
|(1) | See Note 14 for a further description of these gains and
    losses.

12



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Net Realized Gain




Asset Impairments






6. Income Taxes




|                   |  |                             |     |            |          |   |    |      |  |   |      |   |  |   |      |   
|------------------ |  | --------------------------- | --- | ---------- | -------- | - | -- | ---- |  | - | ---- | - |  | - | ---- | --
|                   |  |                             |     | Six Months |         
|                   |  | Quarter Ended               |     |            | Ended    |  
|                   |  | June 30,                    |     |            | June 30, |  
|                   |  |                             |     |            |          |  
|                   |  | 2005                        |     |            | 2004     |   |    | 2005 |  |   | 2004 |  
|                   |  |                             |     |            |          |   |    |      |  |   |      |  
|                   |  | (In millions, except rates) |    
|Income taxes       |  | $                           | (51 | )          |          | $ | 48 |      |  | $ | (57  | ) |  | $ | 58   |   
|Effective tax rate |  |                             | 18  | %          |          |   | 59 | %    |  |   | 30   | % |  |   | (215 | )%





| |   |                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Impairments of certain foreign investments for which there was
    only a partial corresponding income tax benefit, as well as
    foreign income taxed at different rates;                                                                               
|
| |  | Benefits recorded on book versus tax differences related to
    certain of our Asian and Indian power assets as further
    described below;                                                                                                              
|
| |  | A reduction of our liabilities for tax contingencies as a result
    of an IRS settlement on the 1995 to 1997 Coastal Corporation
    income tax returns of $33 million, expiration of a tax
    indemnity claim, and approval of a 1986 refund claim; and

13



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| |   |                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Other items including (i) state income taxes (including
    valuation allowances) and state tax adjustments to reflect
    income tax returns as filed, net of federal income tax effects;
    (ii) earnings/losses from unconsolidated affiliates where
    we anticipate receiving dividends; and (iii) non-deductible
    dividends on the preferred stock of subsidiaries.





7. Earnings Per Share




8. Price Risk Management Activities




|                         |                                                                  |                                                                       |   |      |              |   |   |      |     | 
|------------------------ | ---------------------------------------------------------------- | --------------------------------------------------------------------- | - | ---- | ------------ | - | - | ---- | --- | 
|                         |                                                                  | June 30,                                                              |   |      | December 31, |  
|                         |                                                                  | 2005                                                                  |   |      | 2004         |  
|                         |                                                                  |                                                                       |   |      |              |  
|                         |                                                                  | (In millions)                                                         |  
|Net assets (liabilities) |                                                                  |                                                                       |   |      |              |   |   |     
|                         | Derivatives designated as hedges                                 |                                                                       | $ | (640 | )            |   | $ | (536 | )  
|                         | Derivatives from power contract restructuring activities
    (1) |                                                                       |   | 60   |              |   |   | 665  |    
|                         | Other commodity-based derivative
    contracts(1)                |                                                                       |   | 36   |              |   |   | (61  | )  
|                         |                                                                  |                                                                       |   |      |              |  
|                         |                                                                  | Total commodity-based derivatives                                     |   |      | (544         | ) |   |      | 68  | 
|                         | Interest rate and foreign currency hedging derivatives
    (2)   |                                                                       |   | 13   |              |   |   | 239  |    
|                         |                                                                  |                                                                       |   |      |              |  
|                         |                                                                  | Net assets (liabilities) from price risk management
    activities(3) |   | $    | (531         | ) |   | $    | 307 | 
|                         |                                                                  |                                                                       |   |      |              |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Derivatives from power contract restructuring activities as of
    December 31, 2004 includes $596 million of derivative
    contracts sold in connection with the sale of Cedar
    Brakes I and II in March 2005. In connection with this
    sale, we also assigned or terminated other commodity-based
    derivatives that had a fair value liability of $240 million
    as of December 31, 2004.
|(2) | In March 2005, we repurchased approximately
    528 million
    of debt, of which
    375 million
    was hedged with interest rate and foreign currency derivatives.
    As a result of the repurchase, we removed the hedging
    designation on these derivatives and cancelled                                                                                                                   

14



---



##### Table of Contents



| |                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | substantially all of the contracts.
    We recorded a gain of approximately $2 million during the
    first quarter of 2005 upon the reversal of the related
    accumulated other comprehensive income associated with these
    derivatives.

|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|(3) | Included in both current and non-current assets and liabilities
    on the balance sheet.





9. Debt, Other Financing Obligations and Other Credit
Facilities




|                                                               |  |               |        |     |              |   |        | 
|-------------------------------------------------------------- |  | ------------- | ------ | --- | ------------ | - | ------ | 
|                                                               |  | June 30,      |        |     | December 31, |  
|                                                               |  | 2005          |        |     | 2004         |  
|                                                               |  |               |        |     |              |  
|                                                               |  | (In millions) |       
|Short-term financing obligations, including current maturities |  | $             | 1,099  | (1) |              | $ | 955    | 
|Long-term financing obligations                                |  |               | 16,379 |     |              |   | 18,241 | 
|                                                               |  |               |        |     |              |  
|Total                                                          |  | $             | 17,478 |     |              | $ | 19,196 | 
|                                                               |  |               |        |     |              |  






|    |                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $599 million of zero coupon debentures that the
    holders may require us to redeem in February 2006, prior to
    their stated maturities.

15



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##### Table of Contents





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



|                                               |  |  |                                  |                          |                                 |               |          |                |            |   |     |      |       |   |     |     |       | 
|---------------------------------------------- |  |  | -------------------------------- | ------------------------ | ------------------------------- | ------------- | -------- | -------------- | ---------- | - | --- | ---- | ----- | - | --- | --- | ----- | 
|                                               |  |  |                                  |                          |                                 |               |          | Cash Received/ |           
|Company                                        |  |  | Type                             |                          |                                 | Interest Rate |          |                | Book Value |   |     | Paid |      
|                                               |  |  |                                  |                          |                                 |               |          |                |            |   |     |      |      
|                                               |  |  |                                  |                          |                                 | (In millions) |         
|Issuances                                      |  |  |                                  |                          |                                 |               |          |                |            |   |     |      |       |   |     |     |      
|Colorado Interstate Gas Company (CIG)          |  |  | Senior Notes due 2015            |                          |                                 |               | 5.95%    |                |            | $ | 200 |      |       | $ | 197 |    
|Cheyenne Plains Gas Pipeline Company(1)        |  |  | Non-recourse term loan due  2015 |                          |                                 |               | Variable |                |            |   | 266 |      |       |   | 261 |    
|                                               |  |  |                                  |                          |                                 |               |          |                |            |   |     |      |      
|                                               |  |  |                                  |                          | Increases through June 30, 2005 |               |          |                |            |   |     | $    | 466   |   |     | $   | 458   | 
|                                               |  |  |                                  |                          |                                 |               |          |                |            |   |     |      |      
|Repayments, repurchases, retirements and other |  |  |                                  |                          |                                 |               |          |                |            |   |     |      |       |   |     |    
|El Paso                                        |  |  |                                  | Zero coupon debenture(2) |                                 |               |          |               |            |   | $   | 236  |       |   | $   | 237 |      
|El Paso                                        |  |  |                                  | Notes                    |                                 |               |          | 6.88%          |            |   |     | 167  |       |   |     | 167 |      
|Cedar Brakes I(3)                              |  |  |                                  | Non-recourse notes       |                                 |               |          | 8.5%           |            |   |     | 241  |       |   |     | 15  |      
|Cedar Brakes II(3)                             |  |  |                                  | Non-recourse notes       |                                 |               |          | 9.88%          |            |   |     | 334  |       |   |     | 14  |      
|El Paso(4)                                     |  |  |                                  | Euro notes               |                                 |               |          | 5.75%          |            |   |     | 695  |       |   |     | 722 |      
|CIG                                            |  |  |                                  | Debentures               |                                 |               |          | 10.00%         |            |   |     | 180  |       |   |     | 180 |      
|Other                                          |  |  |                                  | Long-term debt           |                                 |               |          | Various        |            |   |     | 331  |       |   |     | 228 |      
|                                               |  |  |                                  |                          |                                 |               |          |                |            |   |     |      |      
|                                               |  |  |                                  |                          | Decreases through June 30, 2005 |               |          |                |            |   |     | $    | 2,184 |   |     | $   | 1,563 | 
|Other                                          |  |  |                                  | Long-term debt           |                                 |               |          |                |            |   |     | 5    |       |   |     | 5   |      
|                                               |  |  |                                  |                          |                                 |               |          |                |            |   |     |      |      
|                                               |  |  |                                  |                          | Decreases through filing date   |               |          |                |            |   |     | $    | 2,189 |   |     | $   | 1,568 | 
|                                               |  |  |                                  |                          |                                 |               |          |                |            |   |     |      |      






|    |                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In addition to the borrowing, we have an associated letter of
    credit facility for $12 million, under which we issued
    $6 million of letters of credit in May 2005. We also
    concurrently entered into swaps to convert the variable interest
    rate on approximately $213 million of this debt to a
    current fixed rate of 5.94 percent.
|   
|(2) | This security has a yield-to-maturity of approximately four
    percent.                                                                                                                                                                                                                                                                               
|   
|(3) | Prior to the sale of Cedar Brakes I and II, we made
    $29 million of scheduled principal repayments. Upon the
    sale of these entities in March 2005, the remaining balance
    of the debt was eliminated.                                                                                                                                        
|   
|(4) | We recorded a $26 million loss on the early extinguishment
    of this debt.                                                                                                                                                                                                                                                                           





Credit Facilities




16



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##### Table of Contents





Letters of Credit






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



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

Western Energy Settlement.




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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Shareholder Litigation. Twenty-eight purported
    shareholder class action lawsuits have been pending since 2002
    and are consolidated in federal court in Houston, Texas. This
    consolidated lawsuit, which alleges violations of federal
    securities laws against us and several of our current and former
    officers and directors, includes allegations regarding the
    accuracy or completeness of press releases and other public
    statements made during the class period from 2001 through early
    2004 related to wash trades, mark-to-market accounting,
    off-balance sheet debt, the overstatement of oil and gas
    reserves and manipulation of the California energy market.
    Discovery in the consolidated lawsuit is currently stayed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Derivative Litigation. Since 2002, six shareholder
    derivative actions have also been filed. Three of the actions
    allege the same claims as in the consolidated shareholder class
    action suit described above, with one of the actions including a
    claim for compensation disgorgement against certain individuals.
    Discovery in two of those three lawsuits are stayed in federal
    court in Houston, Texas. The third, originally pending in
    Delaware, was voluntarily dismissed by the plaintiffs in
    July 2005. The Delaware plaintiffs claims will be
    pursued with two other actions consolidated in state court in
    Houston, Texas. The state court lawsuits generally allege that
    the manipulation of California gas prices exposed us to claims
    of antitrust conspiracy, FERC penalties and erosion of share
    value and are set for trial in January 2006. The sixth
    derivative action, Laties v. El Paso,
    et al. was filed in Delaware in April 2005 against
    our former Chief Executive Officer, William Wise and current and
    former members of our Board of Directors. This derivative action
    seeks restitution of the 2001 incentive compensation paid to
    William Wise due to the Companys restatement of its
    financial statements for that year.
|
| | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

17



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Texas alleging generally that our direct and indirect
    communications with participants in the El Paso Corporation
    Retirement Savings Plan included misrepresentations and
    omissions that caused members of the class to hold and maintain
    investments in El Paso stock in violation of the Employee
    Retirement Income Security Act (ERISA). That lawsuit was
    subsequently amended to include allegations relating to our
    reporting of natural gas and oil reserves. Discovery in this
    lawsuit is currently stayed.
|
| | We and our representatives have insurance coverages that are
    applicable to each of these shareholder, derivative and ERISA
    lawsuits. There are certain deductibles and co-pay obligations
    under some of those insurance coverages for which we have
    established certain accruals we believe are adequate.                                                                                                                                                                                                                         

Cash Balance Plan Lawsuit. Tomlinson, et al. v. El Paso
Corporation and El Paso Corporation Pension Plan


Retiree Medical Benefits Matters. Yolton et al. v. El Paso
Tennessee Pipeline Company and Case Corporation.


Natural Gas Commodities Litigation. Cornerstone Propane
Partners, L.P. v. Reliant Energy Services Inc.,
et al. Roberto E. Calle Gracey v. American
Electric Power Company, Inc., et al. Dominick
Viola v. Reliant Energy Services Inc., et al. Leggett
et al. v Duke Energy Corporation et al.


18



---



##### Table of Contents



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


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


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


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,


19



---



##### Table of Contents



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


Araucaria.


Macae.




20



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##### Table of Contents





MTBE.


Wise Arbitration.




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

Power Restructuring.


Wash Trades.


Price Reporting.


Reserve Revisions.


21



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##### Table of Contents





Iraq Oil Sales.


Carlsbad.




Rates and Regulatory Matters


Selective Discounting Notice of Inquiry (NOI).


EPNG Rate Case.


22



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##### Table of Contents





SNG Rate Case.


Other Contingencies


Navajo Nation.


Brazilian Matters.


23



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##### Table of Contents







Environmental Matters






|              |  |               |     |  |      |   |     | 
|------------- |  | ------------- | --- |  | ---- | - | --- | 
|              |  | June 30, 2005 |    
|              |  |               |    
|Sites         |  | Expected      |     |  | High |  
|              |  |               |     |  |      |  
|              |  | (In millions) |    
|Operating     |  | $             | 100 |  |      | $ | 111 | 
|Non-operating |  |               | 244 |  |      |   | 374 | 
|Superfund     |  |               | 27  |  |      |   | 46  | 
|              |  |               |     |  |      |  
|Total         |  | $             | 371 |  |      | $ | 531 | 
|              |  |               |     |  |      |  



|                                                 |  |   |     |  
|------------------------------------------------ |  | - | --- | -
|Balance as of January 1, 2005                    |  | $ | 380 |  
|Additions/adjustments for remediation activities |  |   | 15  |  
|Payments for remediation activities              |  |   | (26 | )
|Other changes, net                               |  |   | 2   |  
|                                                 |  |   |    
|Balance as of June 30, 2005                      |  | $ | 371 |  
|                                                 |  |   |    



24



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##### Table of Contents



Polychlorinated Biphenyls (PCB) Cost Recoveries.


CERCLA Matters.




Guarantees




25



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##### Table of Contents



11. Retirement Benefits




|                                           |                  |                         |     |       |                           |   |     |          |       |   |                |   |  |      |    |   |      |   |     |      |  |   |      |   |  |   |    |    |  |   |    |    | 
|------------------------------------------ | ---------------- | ----------------------- | --- | ----- | ------------------------- | - | --- | -------- | ----- | - | -------------- | - |  | ---- | -- | - | ---- | - | --- | ---- |  | - | ---- | - |  | - | -- | -- |  | - | -- | -- | 
|                                           |                  | Quarters Ended June 30, |     |       | Six Months Ended June 30, |  
|                                           |                  |                         |     |       |                           |  
|                                           |                  |                         |     | Other |                           |   |     |          | Other |  
|                                           |                  | Pension                 |     |       | Postretirement            |   |     | Pension  |       |   | Postretirement |  
|                                           |                  | Benefits                |     |       | Benefits                  |   |     | Benefits |       |   | Benefits       |  
|                                           |                  |                         |     |       |                           |   |     |          |       |   |                |  
|                                           |                  | 2005                    |     |       | 2004                      |   |     | 2005     |       |   | 2004           |   |  | 2005 |    |   | 2004 |   |     | 2005 |  |   | 2004 |  
|                                           |                  |                         |     |       |                           |   |     |          |       |   |                |   |  |      |    |   |      |   |     |      |  |   |      |  
|                                           |                  | (In millions)           |     |       | (In millions)             |  
|Service cost                               |                  | $                       | 6   |       |                           | $ | 8   |          |       | $ |               |   |  | $    |   |   |      | $ | 12  |      |  | $ | 16   |   |  | $ |   |    |  | $ |   |   
|Interest cost                              |                  |                         | 29  |       |                           |   | 30  |          |       |   | 8              |   |  |      | 8  |   |      |   | 58  |      |  |   | 61   |   |  |   | 15 |    |  |   | 16 |   
|Expected return on plan assets             |                  |                         | (42 | )     |                           |   | (47 | )        |       |   | (3             | ) |  |      | (3 | ) |      |   | (84 | )    |  |   | (95  | ) |  |   | (6 | )  |  |   | (6 | ) 
|Amortization of net actuarial loss         |                  |                         | 16  |       |                           |   | 12  |          |       |   |               |   |  |      | 1  |   |      |   | 32  |      |  |   | 24   |   |  |   |   |    |  |   | 2  |   
|Amortization of transition obligation      |                  |                         |    |       |                           |   |    |          |       |   | 2              |   |  |      | 2  |   |      |   |    |      |  |   |     |   |  |   | 4  |    |  |   | 4  |   
|Amortization of prior service cost
    (1) |                  |                         | (1  | )     |                           |   | (1  | )        |       |   |               |   |  |      |   |   |      |   | (2  | )    |  |   | (2   | ) |  |   |   |    |  |   |   |   
|                                           |                  |                         |     |       |                           |   |     |          |       |   |                |   |  |      |    |   |      |   |     |      |  |   |      |  
|                                           | Net benefit cost |                         | $   | 8     |                           |   | $   | 2        |       |   | $              | 7 |  |      | $  | 8 |      |   | $   | 16   |  |   | $    | 4 |  |   | $  | 13 |  |   | $  | 16 | 
|                                           |                  |                         |     |       |                           |   |     |          |       |   |                |   |  |      |    |   |      |   |     |      |  |   |      |  






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

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




12. Capital Stock


Convertible Perpetual Preferred
Stock






26



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##### Table of Contents



Dividends








13. Business Segment Information






|                                                                  |                                          |               |      |            |          |   |      |      |  |   |      |      |   |   |      |     |  
|----------------------------------------------------------------- | ---------------------------------------- | ------------- | ---- | ---------- | -------- | - | ---- | ---- |  | - | ---- | ---- | - | - | ---- | --- | -
|                                                                  |                                          |               |      | Six Months |         
|                                                                  |                                          | Quarter Ended |      |            | Ended    |  
|                                                                  |                                          | June 30,      |      |            | June 30, |  
|                                                                  |                                          |               |      |            |          |  
|                                                                  |                                          | 2005          |      |            | 2004     |   |      | 2005 |  |   | 2004 |     
|                                                                  |                                          |               |      |            |          |   |      |      |  |   |      |     
|                                                                  |                                          | (In millions) |     
|Total EBIT                                                        |                                          | $             | 59   |            |          | $ | 498  |      |  | $ | 511  |      |   | $ | 818  |    
|Interest and debt expense                                         |                                          |               | (340 | )          |          |   | (410 | )    |  |   | (690 | )    |   |   | (833 | )  
|Distributions on preferred interests of consolidated subsidiaries |                                          |               | (3   | )          |          |   | (6   | )    |  |   | (9   | )    |   |   | (12  | )  
|Income taxes                                                      |                                          |               | 51   |            |          |   | (48  | )    |  |   | 57   |      |   |   | (58  | )  
|                                                                  |                                          |               |      |            |          |   |      |      |  |   |      |     
|                                                                  | Income (loss) from continuing operations |               | $    | (233       | )        |   | $    | 34   |  |   | $    | (131 | ) |   | $    | (85 | )
|                                                                  |                                          |               |      |            |          |   |      |      |  |   |      |     

27



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|                                                 |  |               |     |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       |  |   |     |   |  |   |       |      
|------------------------------------------------ |  | ------------- | --- | - | ------------- | --------- | --- | ------- |  | - | ----- | - |  | -------- | ---- | - | ------------ | - | --- | ----- |  | - | --- | - |  | - | ----- | -----
|                                                 |  | Regulated     |     |   | Non-regulated |           |     |         |  |  
|                                                 |  |               |     |   |               |           |     |         |  |  
|                                                 |  |               |     |   |               | Marketing |     |         |  |   |       |   | 
|                                                 |  |               |     |   |               | and       |     |         |  |   | Field |   |  |          |      |  
|Quarter Ended June 30,                           |  | Pipelines     |     |   | Production    |           |     | Trading |  |   | Power |   |  | Services |      |   | Corporate(1) |   |     | Total | 
|                                                 |  |               |     |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       | 
|                                                 |  | (In millions) |    
|2005                                             |  |               |     |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       |  |   |     |   |  |   |       |      
|Revenues from external customers                 |  | $             | 634 |   |               | $         | 171 | (2)     |  | $ | 240   |   |  | $        | 112  |   |              | $ | 23  |       |  | $ | 24  |   |  | $ | 1,204 |      
|Intersegment revenues                            |  |               | 19  |   |               |           | 281 | (2)     |  |   | (261  | ) |  |          | (3   | ) |              |   | 5   |       |  |   | (21 | ) |  |   | 20    | (3)  
|Operation and maintenance                        |  |               | 214 |   |               |           | 99  |         |  |   | 9     |   |  |          | 78   |   |              |   | 4   |       |  |   | 34  |   |  |   | 438   |      
|Depreciation, depletion and amortization         |  |               | 108 |   |               |           | 157 |         |  |   | 1     |   |  |          | 10   |   |              |   | 1   |       |  |   | 17  |   |  |   | 294   |      
|(Gain) loss on long-lived assets                 |  |               | (3  | ) |               |           |    |         |  |   |      |   |  |          | 361  |   |              |   | 6   |       |  |   | (4  | ) |  |   | 360   |      
|                                                
|Operating income (loss)                          |  | $             | 262 |   |               | $         | 175 |         |  | $ | (32   | ) |  | $        | (357 | ) |              | $ | (5  | )     |  | $ | (36 | ) |  | $ | 7     |      
|Earnings (losses) from unconsolidated affiliates |  |               | 38  |   |               |           |    |         |  |   |      |   |  |          | (59  | ) |              |   | 2   |       |  |   |    |   |  |   | (19   | )    
|Other income, net                                |  |               | 9   |   |               |           | 1   |         |  |   | 2     |   |  |          | 35   |   |              |   |    |       |  |   | 24  |   |  |   | 71    |      
|                                                 |  |               |     |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       | 
|EBIT                                             |  | $             | 309 |   |               | $         | 176 |         |  | $ | (30   | ) |  | $        | (381 | ) |              | $ | (3  | )     |  | $ | (12 | ) |  | $ | 59    |      
|                                                 |  |               |     |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       | 
|2004                                             |  |               |     |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       |  |   |     |   |  |   |       |      
|Revenues from external customers                 |  | $             | 595 |   |               | $         | 144 | (2)     |  | $ | 187   |   |  | $        | 202  |   |              | $ | 375 |       |  | $ | 29  |   |  | $ | 1,532 |      
|Intersegment revenues                            |  |               | 22  |   |               |           | 286 | (2)     |  |   | (328  | ) |  |          | 34   |   |              |   | 53  |       |  |   | (75 | ) |  |   | (8    | ) (3)
|Operation and maintenance                        |  |               | 172 |   |               |           | 77  |         |  |   | 10    |   |  |          | 97   |   |              |   | 25  |       |  |   | (8  | ) |  |   | 373   |      
|Depreciation, depletion and amortization         |  |               | 101 |   |               |           | 131 |         |  |   | 3     |   |  |          | 12   |   |              |   | 4   |       |  |   | 12  |   |  |   | 263   |      
|(Gain) loss on long-lived assets                 |  |               |    |   |               |           |    |         |  |   |      |   |  |          | 16   |   |              |   | 6   |       |  |   | (5  | ) |  |   | 17    |      
|                                                
|Operating income (loss)                          |  | $             | 260 |   |               | $         | 202 |         |  | $ | (154  | ) |  | $        | 56   |   |              | $ | 7   |       |  | $ | (1  | ) |  | $ | 370   |      
|Earnings from unconsolidated affiliates          |  |               | 41  |   |               |           | 2   |         |  |   |      |   |  |          | 24   |   |              |   | 31  |       |  |   |    |   |  |   | 98    |      
|Other income (expense), net                      |  |               | 7   |   |               |           |    |         |  |   | 2     |   |  |          | 22   |   |              |   | (11 | )     |  |   | 10  |   |  |   | 30    |      
|                                                 |  |               |     |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       | 
|EBIT                                             |  | $             | 308 |   |               | $         | 204 |         |  | $ | (152  | ) |  | $        | 102  |   |              | $ | 27  |       |  | $ | 9   |   |  | $ | 498   |      
|                                                 |  |               |     |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes eliminations of intercompany transactions. Our
    intersegment revenues, along with our intersegment operating
    expenses, were incurred in the normal course of business between
    our operating segments. For the quarters ended June 30,
    2005 and 2004, we recorded an intersegment revenue elimination
    of $39 million and $75 million and an operations and
    maintenance expense elimination of less than $1 million and
    $1 million, which is included in the Corporate
    column, to remove intersegment transactions.
|   
|(2) | Revenues from external customers include gains and losses
    related to our hedging of price risk associated with our natural
    gas and oil production. Intersegment revenues represent sales to
    our Marketing and Trading segment, which is responsible for
    marketing our production.                                                                                                                                                                                                                                                          
|   
|(3) | Relates to intercompany activities between our continuing
    operations and our discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|                                                 |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       |  |   |      |   |  |   |       |    
|------------------------------------------------ |  | ------------- | ----- | - | ------------- | --------- | --- | ------- |  | - | ----- | - |  | -------- | ---- | - | ------------ | - | --- | ----- |  | - | ---- | - |  | - | ----- | ---
|                                                 |  | Regulated     |       |   | Non-regulated |           |     |         |  |  
|                                                 |  |               |       |   |               |           |     |         |  |  
|                                                 |  |               |       |   |               | Marketing |     |         |  |   |       |   | 
|                                                 |  |               |       |   |               | and       |     |         |  |   | Field |   |  |          |      |  
|Six Months Ended June 30,                        |  | Pipelines     |       |   | Production    |           |     | Trading |  |   | Power |   |  | Services |      |   | Corporate(1) |   |     | Total | 
|                                                 |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       | 
|                                                 |  | (In millions) |      
|2005                                             |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       |  |   |      |   |  |   |       |    
|Revenues from external customers                 |  | $             | 1,382 |   |               | $         | 302 | (2)     |  | $ | 333   |   |  | $        | 191  |   |              | $ | 65  |       |  | $ | 51   |   |  | $ | 2,324 |    
|Intersegment revenues                            |  |               | 39    |   |               |           | 589 | (2)     |  |   | (529  | ) |  |          | (5   | ) |              |   | 11  |       |  |   | (63  | ) |  |   | 42    | (3)
|Operation and maintenance                        |  |               | 417   |   |               |           | 183 |         |  |   | 19    |   |  |          | 129  |   |              |   | 3   |       |  |   | 129  |   |  |   | 880   |    
|Depreciation, depletion and amortization         |  |               | 219   |   |               |           | 303 |         |  |   | 2     |   |  |          | 22   |   |              |   | 2   |       |  |   | 26   |   |  |   | 574   |    
|(Gain) loss on long-lived assets                 |  |               | (10   | ) |               |           |    |         |  |   |      |   |  |          | 388  |   |              |   | 7   |       |  |   | (4   | ) |  |   | 381   |    
|                                                
|Operating income (loss)                          |  | $             | 624   |   |               | $         | 355 |         |  | $ | (218  | ) |  | $        | (395 | ) |              | $ | (3  | )     |  | $ | (127 | ) |  | $ | 236   |    
|Earnings (losses) from unconsolidated affiliates |  |               | 76    |   |               |           |    |         |  |   |      |   |  |          | (87  | ) |              |   | 182 |       |  |   |     |   |  |   | 171   |    
|Other income, net                                |  |               | 21    |   |               |           | 4   |         |  |   | 3     |   |  |          | 51   |   |              |   |    |       |  |   | 25   |   |  |   | 104   |    
|                                                 |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       | 
|EBIT                                             |  | $             | 721   |   |               | $         | 359 |         |  | $ | (215  | ) |  | $        | (431 | ) |              | $ | 179 |       |  | $ | (102 | ) |  | $ | 511   |    
|                                                 |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       | 
|2004                                             |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       |  |   |      |   |  |   |       |    
|Revenues from external customers                 |  | $             | 1,293 |   |               | $         | 277 | (2)     |  | $ | 368   |   |  | $        | 351  |   |              | $ | 720 |       |  | $ | 72   |   |  | $ | 3,081 |    
|Intersegment revenues                            |  |               | 45    |   |               |           | 599 | (2)     |  |   | (668  | ) |  |          | 92   |   |              |   | 95  |       |  |   | (163 | ) |  |   |      |    
|Operation and maintenance                        |  |               | 352   |   |               |           | 162 |         |  |   | 23    |   |  |          | 194  |   |              |   | 51  |       |  |   | (8   | ) |  |   | 774   |    
|Depreciation, depletion and amortization         |  |               | 201   |   |               |           | 271 |         |  |   | 6     |   |  |          | 28   |   |              |   | 7   |       |  |   | 25   |   |  |   | 538   |    
|(Gain) loss on long-lived assets                 |  |               | (1    | ) |               |           |    |         |  |   |      |   |  |          | 256  |   |              |   | 8   |       |  |   | (8   | ) |  |   | 255   |    
|                                                
|Operating income (loss)                          |  | $             | 608   |   |               | $         | 405 |         |  | $ | (329  | ) |  | $        | (148 | ) |              | $ | 17  |       |  | $ | 6    |   |  | $ | 559   |    
|Earnings from unconsolidated affiliates          |  |               | 74    |   |               |           | 3   |         |  |   |      |   |  |          | 40   |   |              |   | 68  |       |  |   |     |   |  |   | 185   |    
|Other income (expense), net                      |  |               | 12    |   |               |           |    |         |  |   | 13    |   |  |          | 41   |   |              |   | (22 | )     |  |   | 30   |   |  |   | 74    |    
|                                                 |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       | 
|EBIT                                             |  | $             | 694   |   |               | $         | 408 |         |  | $ | (316  | ) |  | $        | (67  | ) |              | $ | 63  |       |  | $ | 36   |   |  | $ | 818   |    
|                                                 |  |               |       |   |               |           |     |         |  |   |       |   |  |          |      |   |              |   |     |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes eliminations of intercompany transactions. Our
    intersegment revenues, along with our intersegment operating
    expenses, were incurred in the normal course of business between
    our operating segments. For the six months ended June 30,
    2005 and 2004, we recorded an intersegment revenue elimination
    of $103 million and $163 million and an operations and
    maintenance expense elimination of less than $1 million and
    $1 million, which is included in the Corporate
    column, to remove intersegment transactions.
|   
|(2) | Revenues from external customers include gains and losses
    related to our hedging of price risk associated with our natural
    gas and oil production. Intersegment revenues represent sales to
    our Marketing and Trading segment, which is responsible for
    marketing our production.                                                                                                                                                                                                                                                              
|   
|(3) | Relates to intercompany activities between our continuing
    operations and our discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                      



|                        |                       |                           |       |        |              |  |       |        |        | 
|----------------------- | --------------------- | ------------------------- | ----- | ------ | ------------ |  | ----- | ------ | ------ | 
|                        |                       | June 30,                  |       |        | December 31, | 
|                        |                       | 2005                      |       |        | 2004         | 
|                        |                       |                           |       |        |              | 
|                        |                       | (In millions)             |      
|Regulated               |                       |                           |       |        |              |  |       |       
|                        | Pipelines             |                           | $     | 16,056 |              |  | $     | 15,988 |       
|Non-regulated           |                       |                           |       |        |              |  |       |       
|                        | Production            |                           |       | 4,518  |              |  |       | 4,080  |       
|                        | Marketing and Trading |                           |       | 2,718  |              |  |       | 2,404  |       
|                        | Power                 |                           |       | 2,348  |              |  |       | 3,599  |       
|                        | Field Services        |                           |       | 121    |              |  |       | 686    |       
|                        |                       |                           |       |        |              | 
|                        |                       | Total segment assets      |       |        | 25,761       |  |       |        | 26,757 | 
|Corporate               |                       |                           | 3,722 |        |              |  | 4,520 |       
|Discontinued operations |                       |                           | 193   |        |              |  | 106   |       
|                        |                       |                           |       |        |              | 
|                        |                       | Total consolidated assets |       | $      | 29,676       |  |       | $      | 31,383 | 
|                        |                       |                           |       |        |              | 

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



|                                              |                                           |                |  |                |               |   |                |                  |     |   |      |    |    |      |     |     |     |   |     |    |     | 
|--------------------------------------------- | ----------------------------------------- | -------------- |  | -------------- | ------------- | - | -------------- | ---------------- | --- | - | ---- | -- | -- | ---- | --- | --- | --- | - | --- | -- | --- | 
|                                              |                                           |                |  | Earnings       |               |   | Earnings       |                 
|                                              |                                           |                |  | (Losses) from  |               |   | (Losses) from  |                 
|                                              |                                           |                |  | Unconsolidated |               |   | Unconsolidated |                 
|                                              |                                           |                |  | Affiliates     |               |   | Affiliates     |                 
|                                              |                                           | Net            |  |                |               |   |                |                  |    
|                                              |                                           | Ownership      |  |                |               |   |               
|                                              |                                           | Interest       |  |                | Quarter Ended |   |                | Six Months Ended |    
|                                              |                                           |                |  |                | June 30,      |   |                | June 30,         |    
|                                              |                                           | June 30,       |  |                |               |   |                |                  |    
|                                              |                                           | 2005           |  |                | 2005          |   |                | 2004             |     |   | 2005 |    |    | 2004 |    
|                                              |                                           |                |  |                |               |   |                |                  |     |   |      |    |    |      |    
|                                              |                                           | (Percent)      |  |                | (In millions) |  
|Domestic:                                     |                                           |                |  |                |               |   |                |                  |     |   |      |    |    |      |     |     |     |   |     |   
|                                              | Enterprise Products Partners,
    L.P.(1) |                |  |               |               |   | $              |                 |     |   | $    |   |    |      | $   | 183 |     |   | $   |   |    
|                                              | GulfTerra Energy Partners,
    L.P.(1)    |                |  |               |               |   |                |                 |     |   |      | 29 |    |      |     |    |     |   |     | 63 |    
|                                              | Citrus                                    |                |  | 50             |               |   |                | 18               |     |   |      | 21 |    |      |     | 33  |     |   |     | 28 |    
|                                              | Midland Cogeneration Venture
    (MCV)(2) |                |  | 44             |               |   |                | (4               | )   |   |      | (2 | )  |      |     | (3  | )   |   |     | 3  |    
|                                              | Great Lakes Gas Transmission              |                |  | 50             |               |   |                | 14               |     |   |      | 16 |    |      |     | 31  |     |   |     | 36 |    
|                                              | Other Domestic Investments                |                |  | various        |               |   |                | 4                |     |   |      | 8  |    |      |     | 6   |     |   |     | 9  |    
|                                              |                                           |                |  |                |               |   |                |                  |     |   |      |    |    |      |    
|                                              |                                           | Total domestic |  |                |               |   |                |                  | 32  |   |      |    | 72 |      |     |     | 250 |   |     |    | 139 | 
|                                              |                                           |                |  |                |               |   |                |                  |     |   |      |    |    |      |    
|Foreign:                                      |                                           |                |  |                |               |   |                |                  |     |   |      |    |    |      |     |     |     |   |     |   
|                                              | Asia
    Investments(3)                   |                |  | various        |               |   |                |                 |     |   |      | 20 |    |      |     | (68 | )   |   |     | 41 |    
|                                              | Central American
    Investments(4)       |                |  | various        |               |   |                | (55              | )   |   |      |   |    |      |     | (49 | )   |   |     | 3  |    
|                                              | PPN(5)                                    |                |  |               |               |   |                |                 |     |   |      |   |    |      |     | 22  |     |   |     |   |    
|                                              | Other Foreign Investments                 |                |  | various        |               |   |                | 4                |     |   |      | 6  |    |      |     | 16  |     |   |     | 2  |    
|                                              |                                           |                |  |                |               |   |                |                  |     |   |      |    |    |      |    
|                                              |                                           | Total foreign  |  |                |               |   |                |                  | (51 | ) |      |    | 26 |      |     |     | (79 | ) |     |    | 46  | 
|                                              |                                           |                |  |                |               |   |                |                  |     |   |      |    |    |      |    
|Total earnings from unconsolidated affiliates |                                           |                |  |                |               | $ | (19            | )                |     | $ | 98   |    |    | $    | 171 |     |     | $ | 185 |   
|                                              |                                           |                |  |                |               |   |                |                  |     |   |      |    |    |      |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In January 2005, we sold all of these remaining interests to
    Enterprise and recognized a $183 million gain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(2) | Our proportionate share of MCVs losses, after intercompany
    eliminations, was $14 million during the second quarter of
    2005. We did not record our remaining proportionate share of
    MCVs losses as these losses resulted primarily from
    changes in the fair value of their derivative contracts, which
    we believe did not affect the value of our investment and would
    not be realized. We did not recognize substantially all of our
    proportionate share of MCVs earnings, after intercompany
    eliminations, of approximately $58 million during the six
    months ended June 30, 2005 for the same reasons.
|(3) | Consists of our investments in 12 power plants, including Korea
    Independent Energy Corporation, Meizhou Wan Generating,
    Habibullah Power and Saba Power Company. Our proportionate share
    of earnings reported by our Asia investments was
    $19 million and $44 million, for the quarter and six
    months ended June 30, 2005. We decreased our proportionate
    share of equity earnings for our Asia investments by
    $8 million and $19 million, for the quarter and six
    months ended June 30, 2005, to reflect the amount of
    earnings we believe will be realized.                                              
|(4) | Consists of our investments in 6 power plants. Our
    proportionate share of earnings reported by our Central American
    investments was $2 million and $8 million for the
    quarter and six months ended June 30, 2005. We recorded an
    impairment of $57 million during the quarter ended
    June 30, 2005 related to these investments.                                                                                                                                                                                                                                                                                            
|(5) | We sold our interest in March 2005 and recorded a
    $22 million gain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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|                           |                                           |                     |     |     |            |   |     |     |  
|-------------------------- | ----------------------------------------- | ------------------- | --- | --- | ---------- | - | --- | --- | -
|                           |                                           | Quarter             |     |     | Six Months |  
|                           |                                           | Ended               |     |     | Ended      |  
|Investment                 |                                           | June 30,            |     |     | June 30,   |  
|                           |                                           |                     |     |     |            |  
|                           |                                           | Pre-tax Gain (Loss) |    
|                           |                                           |                     |    
|                           |                                           | (In millions)       |    
|2005                       |                                           |                     |     |     |            |   |     |    
|Impairments                |                                           |                     |     |     |            |   |     |    
|                           | Asia power
    investments(1)             |                     | $   | (11 | )          |   | $   | (93 | )
|                           | Central American power
    investments(1) |                     |     | (57 | )          |   |     | (57 | )
|                           | Other foreign
    investments(1)          |                     |     | (16 | )          |   |     | (17 | )
|                           | Midland Cogeneration
    Venture(2)       |                     |     | (4  | )          |   |     | (4  | )
|Gain on sale of PPN        |                                           |                     |    |     |            |   | 22  |    
|Gain on sale of Enterprise |                                           |                     |    |     |            |   | 183 |    
|Other                      |                                           |                     | 1   |     |            |   | (2  | )  
|                           |                                           |                     |     |     |            |  
|                           |                                           | $                   | (87 | )   |            | $ | 32  |    
|                           |                                           |                     |     |     |            |  
|2004                       |                                           |                     |     |     |            |   |     |    
|Impairments                |                                           |                     |     |     |            |   |     |    
|                           | Milford power
    facility(1)             |                     | $   |    |            |   | $   | (2  | )
|                           | Power plants held for
    sale(1)         |                     |     | (19 | )          |   |     | (35 | )
|Other                      |                                           |                     | 1   |     |            |   | (5  | )  
|                           |                                           |                     |     |     |            |  
|                           |                                           | $                   | (18 | )   |            | $ | (42 | )  
|                           |                                           |                     |     |     |            |  






|    |                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We impaired our interests in these investments based on
    information received regarding the potential value we may
    receive when we sell the investments.
|   
|(2) | We impaired our investment in this power facility due to delays
    in the timing of expected cash flow receipts from this
    investment.                     

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|                       |                                          |                        |   |               |                           |  |   |       |  |  |               |     |  |                   |   |     |       |  |   |       |  |  |   |       | 
|---------------------- | ---------------------------------------- | ---------------------- | - | ------------- | ------------------------- |  | - | ----- |  |  | ------------- | --- |  | ----------------- | - | --- | ----- |  | - | ----- |  |  | - | ----- | 
|                       |                                          | Quarter Ended June 30, |   |               | Six Months Ended June 30, | 
|                       |                                          |                        |   |               |                           | 
|                       |                                          | MCV                    |   |               | Other Investments         |  |   | Total |  |  | MCV           |     |  | Other Investments |   |     | Total | 
|                       |                                          |                        |   |               |                           |  |   |       |  |  |               |     |  |                   |   |     |       | 
|                       |                                          |                        |   | (In millions) |                           |  |   |       |  |  | (In millions) |     |  |                  
|2005                   |                                          |                        |   |               |                           |  |   |       |  |  |               |     |  |                   |   |     |       |  |   |       |  |  |   |      
|Operating results data |                                          |                        |   |               |                           |  |   |       |  |  |               |     |  |                   |   |     |       |  |   |       |  |  |   |      
|                       | Revenues                                 |                        | $ | 62            |                           |  | $ | 342   |  |  | $             | 404 |  |                   | $ | 127 |       |  | $ | 625   |  |  | $ | 752   | 
|                       | Operating expenses                       |                        |   | 69            |                           |  |   | 208   |  |  |               | 277 |  |                   |   | 34  |       |  |   | 384   |  |  |   | 418   | 
|                       | Income (loss) from continuing operations |                        |   | (17           | )                         |  |   | 67    |  |  |               | 50  |  |                   |   | 75  |       |  |   | 134   |  |  |   | 209   | 
|                       | Net income
    (loss)(1)                 |                        |   | (17           | ) (2)                     |  |   | 67    |  |  |               | 50  |  |                   |   | 75  | (2)   |  |   | 134   |  |  |   | 209   | 
|2004                   |                                          |                        |   |               |                           |  |   |       |  |  |               |     |  |                   |   |     |       |  |   |       |  |  |   |      
|Operating results data |                                          |                        |   |               |                           |  |   |       |  |  |               |     |  |                   |   |     |       |  |   |       |  |  |   |      
|                       | Revenues                                 |                        | $ | 69            |                           |  | $ | 558   |  |  | $             | 627 |  |                   | $ | 139 |       |  | $ | 1,072 |  |  | $ | 1,211 | 
|                       | Operating expenses                       |                        |   | 60            |                           |  |   | 359   |  |  |               | 419 |  |                   |   | 113 |       |  |   | 691   |  |  |   | 804   | 
|                       | Income (loss) from continuing operations |                        |   | (2            | )                         |  |   | 107   |  |  |               | 105 |  |                   |   | 3   |       |  |   | 214   |  |  |   | 217   | 
|                       | Net income
    (loss)(1)                 |                        |   | (2            | )                         |  |   | 112   |  |  |               | 110 |  |                   |   | 3   |       |  |   | 216   |  |  |   | 219   | 






|    |                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes net income of $10 million and $7 million for
    the quarters ended June 30, 2005 and 2004, and
    $14 million and $21 million for the six months ended
    June 30, 2005 and 2004, related to our proportionate share
    of affiliates in which we hold a greater than 50 percent
    interest.
|   
|(2) | Includes $3 million of losses during the second quarter of
    2005 and $17 million of earnings during the six months
    ended June 30, 2005 attributable to transactions with
    El Paso which were eliminated.                                                                                         



Related Party
Transactions




|                                     |  |               |    |  |                |   |    |      |  |   |      |  |  |   |     | 
|------------------------------------ |  | ------------- | -- |  | -------------- | - | -- | ---- |  | - | ---- |  |  | - | --- | 
|                                     |  | Quarter Ended |    |  | Six Months     |  
|                                     |  | June 30,      |    |  | Ended June 30, |  
|                                     |  |               |    |  |                |  
|                                     |  | 2005          |    |  | 2004           |   |    | 2005 |  |   | 2004 | 
|                                     |  |               |    |  |                |   |    |      |  |   |      | 
|                                     |  | (In millions) |   
|Operating revenue                    |  | $             | 43 |  |                | $ | 63 |      |  | $ | 92   |  |  | $ | 118 | 
|Cost of sales                        |  |               | 2  |  |                |   | 38 |      |  |   | 6    |  |  |   | 60  | 
|Reimbursement for operating expenses |  |               |   |  |                |   | 34 |      |  |   | 1    |  |  |   | 65  | 
|Other income                         |  |               | 5  |  |                |   | 4  |      |  |   | 9    |  |  |   | 9   | 



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



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Contingent Matters that Could Impact Our
Investments


Economic Conditions in the Dominican Republic.


Bolivia.


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Berkshire Power Project.


Brazil.


Duke Litigation.


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






Overview






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our Pipeline segment made further progress on its plans by
    settling a rate case at Southern Natural Gas Company (SNG),
    recontracting with large customers on the SNG and EPNG systems,
    and making progress on several pipeline expansion projects in
    our pipeline systems and at our Elba Island LNG facility;                                                                                                
|
| |  | Our Production segment continued to make progress on its
    turnaround and the stabilization of its production rates through
    its capital program and four strategic acquisitions of natural
    gas and oil properties totalling approximately
    $1.1 billion, including our recently announced Medicine Bow
    acquisition, which we expect to close in the third quarter of
    2005 for approximately $814 million;
|
| |  | We continued the exit of our legacy trading business through the
    assignment or termination of derivative contracts associated
    with Cedar Brakes I and II;                                                                                                                                                                                                                                                             
|
| |  | We completed the sale of a number of assets and investments
    including, among others, our remaining general and limited
    partnership interests in Enterprise, interests in Cedar
    Brakes I and II, the Lakeside Technology Center, and our
    interest in a Korean power facility. Total proceeds from these
    sales were approximately $1.2 billion ($918 million
    through June 30, 2005);                    
|
| |  | We reduced our net debt to $15.9 billion (debt of
    $17.48 billion, net of cash of $1.54 billion) as of
    June 30, 2005, lowering our net debt by
    $1.1 billion; and                                                                                                                                                                                                                                                   
|
| |  | We completed a private placement of $750 million of 4.99%
    convertible perpetual preferred stock. The proceeds from this
    offering were used to prepay our remaining deferred payment
    obligation on the Western Energy Settlement for
    $442 million and to redeem the $300 million of EPTP,
    8.25%, Series A cumulative preferred stock.                                                                      

Capital Resources and Liquidity




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|                                                               |                                    |   |        |        | 
|-------------------------------------------------------------- | ---------------------------------- | - | ------ | ------ | 
|Short-term financing obligations, including current maturities |                                    | $ | 955    |       
|Long-term financing obligations                                |                                    |   | 18,241 |       
|                                                               |                                    |   |       
|                                                               | Total debt as of December 31, 2004 |   |        | 19,196 | 
|Principal amounts borrowed                                     |                                    |   | 466    |       
|Repayments/retirements of principal                            |                                    |   | (1,563 | )     
|Sales of
    entities(1)                                       |                                    |   | (546   | )     
|Other reductions                                               |                                    |   | (75    | )     
|                                                               |                                    |   |       
|                                                               | Total debt as of June 30, 2005     |   | $      | 17,478 | 
|                                                               |                                    |   |       






|    |                                              
|--- | ---------------------------------------------
|(1) | Related to the sale of Cedar Brakes I and II.







36



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##### Table of Contents



Overview of Cash Flow Activities for 2005
Compared to 2004




|              |                                 |                                                          |                     |                    |      |     |      |   |      |     |   | 
|------------- | ------------------------------- | -------------------------------------------------------- | ------------------- | ------------------ | ---- | --- | ---- | - | ---- | --- | - | 
|              |                                 | 2005                                                     |                     |                    | 2004 |    
|              |                                 |                                                          |                     |                    |      |    
|              |                                 | (In billions)                                            |                    
|Cash Inflows  |                                 |                                                          |                     |                    |      |     |      |  
|              | Continuing operating activities |                                                          |                     |                    |      |     |      |   |     
|              |                                 | Net loss before discontinued operations                  |                     | $                  | (0.1 | )   |      | $ | (0.1 | )  
|              |                                 | Non-cash income adjustments                              |                     |                    | 0.9  |     |      |   | 0.8  |    
|              |                                 | Change in assets and liabilities                         |                     |                    | (0.8 | )   |      |   | (0.6 | )  
|              |                                 |                                                          |                     |                    |      |    
|              |                                 |                                                          |                    |                    |      |     | 0.1  |  
|              |                                 |                                                          |                     |                    |      |    
|             
|              | Continuing investing activities |                                                          |                     |                    |      |     |      |   |     
|              |                                 | Net proceeds from the sale of assets and investments     |                     |                    | 0.8  |     |      |   | 0.2  |    
|              |                                 | Proceeds from settlement of foreign currency derivatives |                     |                    | 0.1  |     |      |   |     |    
|              |                                 | Reduction of restricted cash                             |                     |                    | 0.1  |     |      |   | 0.4  |    
|              |                                 | Other                                                    |                     |                    | 0.1  |     |      |   | 0.1  |    
|              |                                 |                                                          |                     |                    |      |    
|              |                                 |                                                          | 1.1                 |                    |      |     | 0.7  |  
|              |                                 |                                                          |                     |                    |      |    
|             
|              | Continuing financing activities |                                                          |                     |                    |      |     |      |   |     
|              |                                 | Net proceeds from the issuance of long-term debt         |                     |                    | 0.5  |     |      |   | 0.1  |    
|              |                                 | Proceeds from the issuance of preferred and common stock |                     |                    | 0.7  |     |      |   | 0.1  |    
|              |                                 | Contributions from discontinued operations               |                     |                    | 0.1  |     |      |   | 0.9  |    
|              |                                 |                                                          |                     |                    |      |    
|              |                                 |                                                          | 1.3                 |                    |      |     | 1.1  |  
|              |                                 |                                                          |                     |                    |      |    
|              |                                 |                                                          | Total cash inflows  |                    | $    | 2.4 |      |   | $    | 1.9 |  
|              |                                 |                                                          |                     |                    |      |    
|Cash Outflows |                                 |                                                          |                     |                    |      |     |      |  
|              | Continuing investing activities |                                                          |                     |                    |      |     |      |   |     
|              |                                 | Additions to property, plant and equipment               |                     | $                  | 0.8  |     |      | $ | 0.8  |    
|              |                                 | Net cash paid for acquisitions                           |                     |                    | 0.2  |     |      |   |     |    
|              |                                 |                                                          |                     |                    |      |    
|              |                                 |                                                          | 1.0                 |                    |      |     | 0.8  |  
|              |                                 |                                                          |                     |                    |      |    
|             
|              | Continuing financing activities |                                                          |                     |                    |      |     |      |   |     
|              |                                 | Payments to retire debt and redeem preferred interests   |                     |                    | 1.6  |     |      |   | 1.0  |    
|              |                                 | Redemption of preferred stock                            |                     |                    | 0.3  |     |      |   |     |    
|              |                                 | Other                                                    |                     |                    | 0.1  |     |      |   | 0.1  |    
|              |                                 |                                                          |                     |                    |      |    
|              |                                 |                                                          | 2.0                 |                    |      |     | 1.1  |  
|              |                                 |                                                          |                     |                    |      |    
|              |                                 |                                                          | Total cash outflows |                    | $    | 3.0 |      |   | $    | 1.9 |  
|              |                                 |                                                          |                     |                    |      |    
|              |                                 |                                                          |                     | Net change in cash |      | $   | (0.6 | ) |      | $   |  | 
|              |                                 |                                                          |                     |                    |      |    

Cash From Continuing
Operating Activities




37



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##### Table of Contents



Cash From Continuing
Investing Activities




|                                                                 |                                       |   |      |     | 
|---------------------------------------------------------------- | ------------------------------------- | - | ---- | --- | 
|Production exploration, development and acquisition expenditures |                                       | $ | (0.6 | )  
|Pipeline expansion, maintenance and integrity projects           |                                       |   | (0.3 | )  
|Decrease in restricted cash                                      |                                       |   | 0.1  |    
|Settlement of a foreign currency derivative                      |                                       |   | 0.1  |    
|Proceeds from sales of assets and investments                    |                                       |   | 0.8  |    
|                                                                 |                                       |   |     
|                                                                 | Total continuing investing activities |   | $    | 0.1 | 
|                                                                 |                                       |   |     



Cash From Continuing
Financing Activities




38



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Commodity-based Derivative Contracts




|                                                            |                                   |                                        |                                         |      |          |    |    |          |      |    |          |     |      |          |   |     |       |     |   |     |     |     |    |      |        |    | 
|----------------------------------------------------------- | --------------------------------- | -------------------------------------- | --------------------------------------- | ---- | -------- | -- | -- | -------- | ---- | -- | -------- | --- | ---- | -------- | - | --- | ----- | --- | - | --- | --- | --- | -- | ---- | ------ | -- | 
|                                                            |                                   | Maturity                               |                                         |      | Maturity |    |    | Maturity |      |    | Maturity |     |      | Maturity |   |     | Total |    
|                                                            |                                   | Less Than                              |                                         |      | 1 to 3   |    |    | 4 to 5   |      |    | 6 to 10  |     |      | Beyond   |   |     | Fair  |    
|Source of Fair Value                                        |                                   | 1 year                                 |                                         |      | Years    |    |    | Years    |      |    | Years    |     |      | 10 Years |   |     | Value |    
|                                                            |                                   |                                        |                                         |      |          |    |    |          |      |    |          |     |      |          |   |     |       |    
|                                                            |                                   | (In millions)                          |                                        
|Derivatives designated as hedges                            |                                   |                                        |                                         |      |          |    |    |          |      |    |          |     |      |          |   |     |       |     |   |     |     |     |    |     
|                                                            | Assets                            |                                        | $                                       | 16   |          |    | $  | 9        |      |    | $        |    |      |          | $ |    |       |     | $ |    |     |     | $  | 25   |       
|                                                            | Liabilities                       |                                        |                                         | (423 | )        |    |    | (196     | )    |    |          | (27 | )    |          |   | (19 | )     |     |   |    |     |     |    | (665 | )     
|                                                            |                                   |                                        |                                         |      |          |    |    |          |      |    |          |     |      |          |   |     |       |    
|                                                            |                                   | Total derivatives designated as hedges |                                         |      | (407     | )  |    |          | (187 | )  |          |     | (27  | )        |   |     | (19   | )   |   |     |    |     |    |      | (640   | ) 
|                                                            |                                   |                                        |                                         |      |          |    |    |          |      |    |          |     |      |          |   |     |       |    
|Assets from power contract restructuring
    derivatives(1) |                                   |                                        | 20                                      |      |          |    | 40 |          |      |    |         |     |      |          |  |     |       |     |  |     |     |     | 60 |     
|                                                            |                                   |                                        |                                         |      |          |    |    |          |      |    |          |     |      |          |   |     |       |    
|Other commodity-based derivatives                           |                                   |                                        |                                         |      |          |    |    |          |      |    |          |     |      |          |   |     |       |     |   |     |     |     |    |     
|                                                            | Exchange-traded
    positions(2)  |                                        |                                         |      |          |    |    |          |      |    |          |     |      |          |   |     |       |     |   |     |     |     |    |      |       
|                                                            |                                   | Assets                                 |                                         |      | 115      |    |    |          | 243  |    |          |     | 135  |          |   |     | 13    |     |   |     |    |     |    |      | 506    |   
|                                                            |                                   | Liabilities                            |                                         |      | (102     | )  |    |          | (9   | )  |          |     | (1   | )        |   |     |      |     |   |     |    |     |    |      | (112   | ) 
|                                                            | Non-exchange-traded positions     |                                        |                                         |      |          |    |    |          |      |    |          |     |      |          |   |     |       |     |   |     |     |     |    |      |       
|                                                            |                                   | Assets                                 |                                         |      | 421      |    |    |          | 379  |    |          |     | 197  |          |   |     | 151   |     |   |     | 27  |     |    |      | 1,175  |   
|                                                            |                                   | Liabilities(1)                         |                                         |      | (394     | )  |    |          | (591 | )  |          |     | (312 | )        |   |     | (186  | )   |   |     | (50 | )   |    |      | (1,533 | ) 
|                                                            |                                   |                                        |                                         |      |          |    |    |          |      |    |          |     |      |          |   |     |       |    
|                                                            |                                   |                                        | Total other commodity-based derivatives |      |          | 40 |    |          |      | 22 |          |     |      | 19       |   |     |       | (22 | ) |     |     | (23 | )  |      |        | 36 | 
|                                                            |                                   |                                        |                                         |      |          |    |    |          |      |    |          |     |      |          |   |     |       |    
|                                                            | Total commodity-based derivatives |                                        | $                                       | (347 | )        |    | $  | (125     | )    |    | $        | (8  | )    |          | $ | (41 | )     |     | $ | (23 | )   |     | $  | (544 | )     
|                                                            |                                   |                                        |                                         |      |          |    |    |          |      |    |          |     |      |          |   |     |       |    






|    |                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $6 million of intercompany derivatives that
    eliminate in consolidation and had no impact on our consolidated
    assets and liabilities from price risk management activities for
    the six months ended June 30, 2005.
|   
|(2) | Exchange-traded positions are those traded on active exchanges
    such as the New York Mercantile Exchange, the International
    Petroleum Exchange and the London Clearinghouse.                                                   



|                                                       |                                                      |                                                       |      |             |               |   |       |             |      |       |             |      |    |   |      |      |      |  
|------------------------------------------------------ | ---------------------------------------------------- | ----------------------------------------------------- | ---- | ----------- | ------------- | - | ----- | ----------- | ---- | ----- | ----------- | ---- | -- | - | ---- | ---- | ---- | -
|                                                       |                                                      |                                                       |      | Derivatives |               |   |       |             |     
|                                                       |                                                      |                                                       |      | from Power  |               |   | Other |             |      | Total |            
|                                                       |                                                      | Derivatives                                           |      |             | Contract      |   |       | Commodity-  |      |       | Commodity-  |     
|                                                       |                                                      | Designated                                            |      |             | Restructuring |   |       | Based       |      |       | Based       |     
|                                                       |                                                      | as Hedges(1)                                          |      |             | Activities    |   |       | Derivatives |      |       | Derivatives |     
|                                                       |                                                      |                                                       |      |             |               |   |       |             |      |       |             |     
|                                                       |                                                      | (In millions)                                         |     
|Fair value of contracts outstanding at January 1, 2005 |                                                      | $                                                     | (536 | )           |               | $ | 665   |             |      | $     | (61         | )    |    | $ | 68   |     
|                                                       |                                                      |                                                       |      |             |               |   |       |             |      |       |             |     
|                                                       | Fair value of contract settlements during the period |                                                       |      | 182         |               |   |       | (616        | )    |       |             | 282  |    |   |      | (152 | )   
|                                                       | Change in fair value of contracts                    |                                                       |      | (286        | )             |   |       | 11          |      |       |             | (182 | )  |   |      | (457 | )   
|                                                       | Option premiums received, net                        |                                                       |      |            |               |   |       |            |      |       |             | (3   | )  |   |      | (3   | )   
|                                                       |                                                      |                                                       |      |             |               |   |       |             |      |       |             |     
|                                                       |                                                      | Net change in contracts outstanding during the period |      |             | (104          | ) |       |             | (605 | )     |             |      | 97 |   |      |      | (612 | )
|                                                       |                                                      |                                                       |      |             |               |   |       |             |      |       |             |     
|Fair value of contracts outstanding at June 30, 2005   |                                                      | $                                                     | (640 | )           |               | $ | 60    |             |      | $     | 36          |      |    | $ | (544 | )   
|                                                       |                                                      |                                                       |      |             |               |   |       |             |      |       |             |     






|    |                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In December 2004, we designated a number of our other
    commodity-based derivative contracts in our Marketing and
    Trading segment as hedges of our 2005 and 2006 natural gas
    production. As a result, we reclassified this $592 million
    liability to derivatives designated as hedges in December 2004.



39



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Segment Results






40



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##### Table of Contents





|                                                                  |                                          |                                              |      |      |                  |  |      |      |     |  |      |      |     |  |      |      |     | 
|----------------------------------------------------------------- | ---------------------------------------- | -------------------------------------------- | ---- | ---- | ---------------- |  | ---- | ---- | --- |  | ---- | ---- | --- |  | ---- | ---- | --- | 
|                                                                  |                                          | Quarter Ended                                |      |      | Six Months Ended | 
|                                                                  |                                          | June 30,                                     |      |      | June 30,         | 
|                                                                  |                                          |                                              |      |      |                  | 
|                                                                  |                                          | 2005                                         |      |      | 2004             |  |      | 2005 |     |  | 2004 |     
|                                                                  |                                          |                                              |      |      |                  |  |      |      |     |  |      |     
|                                                                  |                                          | (In millions)                                |     
|Regulated Business                                                |                                          |                                              |      |      |                  |  |      |      |     |  |      |      |     |  |      |     
|                                                                  | Pipelines                                |                                              | $    | 309  |                  |  | $    | 308  |     |  | $    | 721  |     |  | $    | 694  |    
|Non-regulated Businesses                                          |                                          |                                              |      |      |                  |  |      |      |     |  |      |      |     |  |      |     
|                                                                  | Production                               |                                              |      | 176  |                  |  |      | 204  |     |  |      | 359  |     |  |      | 408  |    
|                                                                  | Marketing and Trading                    |                                              |      | (30  | )                |  |      | (152 | )   |  |      | (215 | )   |  |      | (316 | )  
|                                                                  | Power                                    |                                              |      | (381 | )                |  |      | 102  |     |  |      | (431 | )   |  |      | (67  | )  
|                                                                  | Field Services                           |                                              |      | (3   | )                |  |      | 27   |     |  |      | 179  |     |  |      | 63   |    
|                                                                  |                                          |                                              |      |      |                  |  |      |      |     |  |      |     
|                                                                  |                                          | Segment EBIT                                 |      |      | 71               |  |      |      | 489 |  |      |      | 613 |  |      |      | 782 | 
|Corporate                                                         |                                          |                                              | (12  | )    |                  |  | 9    |      |     |  | (102 | )    |     |  | 36   |     
|                                                                  |                                          |                                              |      |      |                  |  |      |      |     |  |      |     
|                                                                  |                                          | Consolidated EBIT from continuing operations |      |      | 59               |  |      |      | 498 |  |      |      | 511 |  |      |      | 818 | 
|Interest and debt expense                                         |                                          |                                              | (340 | )    |                  |  | (410 | )    |     |  | (690 | )    |     |  | (833 | )   
|Distributions on preferred interests of consolidated subsidiaries |                                          |                                              | (3   | )    |                  |  | (6   | )    |     |  | (9   | )    |     |  | (12  | )   
|Income taxes                                                      |                                          |                                              | 51   |      |                  |  | (48  | )    |     |  | 57   |      |     |  | (58  | )   
|                                                                  |                                          |                                              |      |      |                  |  |      |      |     |  |      |     
|                                                                  | Income (loss) from continuing operations |                                              |      | (233 | )                |  |      | 34   |     |  |      | (131 | )   |  |      | (85  | )  
|Discontinued operations, net of income taxes                      |                                          |                                              | (5   | )    |                  |  | (29  | )    |     |  | (1   | )    |     |  | (106 | )   
|                                                                  |                                          |                                              |      |      |                  |  |      |      |     |  |      |     
|                                                                  | Net income (loss)                        |                                              | $    | (238 | )                |  | $    | 5    |     |  | $    | (132 | )   |  | $    | (191 | )  
|                                                                  |                                          |                                              |      |      |                  |  |      |      |     |  |      |     

Overview of Segment Results






|                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Pipelines             |  | Our Pipelines segment generated EBIT of $721 million, which
    was slightly above our expectations for the period.                                                                                                                                                                                                                                                                                                                                                                          
|                     
|Production            |  | Our Production segment generated EBIT of $359 million,
    which was slightly above our expectations for the period. Lower
    than expected production volumes and higher depreciation and
    production costs were more than offset by higher than expected
    commodity prices.                                                                                                                                                                                                         
|                     
|Marketing and Trading |  | Our Marketing and Trading segment generated an EBIT loss of
    $215 million, which was a greater loss than our
    expectations. The performance was driven by significant
    mark-to-market losses on our production-related derivatives due
    to natural gas price increases during the period. In addition,
    our power contracts, primarily our Cordova tolling agreement,
    experienced significant losses during the period due to changes
    in natural gas and power prices.
|                     
|Power                 |  | Our Power segment generated an EBIT loss of $431 million,
    which was a greater loss than expected and was impacted by
    significant impairments of our Macae project in Brazil and
    impairments of our Asian and Central American power assets based
    on additional information received about the value we may
    receive upon the sale of these assets.                                                                                                                        
|                     
|Field Services        |  | Our Field Services segment generated EBIT of $179 million,
    which was consistent with our expectations and was primarily due
    to the gain on the sale of our remaining interests in Enterprise.                                                                                                                                                                                                                                                                                        

41



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##### Table of Contents





Regulated Business  Pipelines Segment


Operating Results




|                            |                  |                                     |        |     |                  |   |        |      |  |   |        |     |  |   |        |     | 
|--------------------------- | ---------------- | ----------------------------------- | ------ | --- | ---------------- | - | ------ | ---- |  | - | ------ | --- |  | - | ------ | --- | 
|                            |                  | Quarter Ended                       |        |     | Six Months Ended |  
|                            |                  | June 30,                            |        |     | June 30,         |  
|                            |                  |                                     |        |     |                  |  
|Pipelines Segment Results   |                  | 2005                                |        |     | 2004             |   |        | 2005 |  |   | 2004   |    
|                            |                  |                                     |        |     |                  |   |        |      |  |   |        |    
|                            |                  | (In millions except volume amounts) |       
|Operating revenues          |                  | $                                   | 653    |     |                  | $ | 617    |      |  | $ | 1,421  |     |  | $ | 1,338  |    
|Operating expenses          |                  |                                     | (391   | )   |                  |   | (357   | )    |  |   | (797   | )   |  |   | (730   | )  
|                            |                  |                                     |        |     |                  |   |        |      |  |   |        |    
|                            | Operating income |                                     |        | 262 |                  |   |        | 260  |  |   |        | 624 |  |   |        | 608 | 
|Other income                |                  |                                     | 47     |     |                  |   | 48     |      |  |   | 97     |     |  |   | 86     |    
|                            |                  |                                     |        |     |                  |   |        |      |  |   |        |    
|                            | EBIT             |                                     | $      | 309 |                  |   | $      | 308  |  |   | $      | 721 |  |   | $      | 694 | 
|                            |                  |                                     |        |     |                  |   |        |      |  |   |        |    
|Throughput volumes (BBtu/d) |                  |                                     | 20,316 |     |                  |   | 19,935 |      |  |   | 21,444 |     |  |   | 21,223 |    
|                            |                  |                                     |        |     |                  |   |        |      |  |   |        |    



|                                                                                |                      |                         |    |    |                           |   |     |       |   |   |      |    |   |         |     |   |         |   |     |       |  |   |      |     |   |   |   |    |  |   |     |    | 
|------------------------------------------------------------------------------- | -------------------- | ----------------------- | -- | -- | ------------------------- | - | --- | ----- | - | - | ---- | -- | - | ------- | --- | - | ------- | - | --- | ----- |  | - | ---- | --- | - | - | - | -- |  | - | --- | -- | 
|                                                                                |                      | Quarter Ended June 30,  |    |    | Six Months Ended June 30, |  
|                                                                                |                      |                         |    |    |                           |  
|                                                                                |                      | Revenue                 |    |    | Expense                   |   |     | Other |   |   | EBIT |    |   | Revenue |     |   | Expense |   |     | Other |  |   | EBIT |    
|                                                                                |                      |                         |    |    |                           |   |     |       |   |   |      |    |   |         |     |   |         |   |     |       |  |   |      |    
|                                                                                |                      | Favorable/(Unfavorable) |    |    | Favorable/(Unfavorable)   |  
|                                                                                |                      | (In millions)           |    |    | (In millions)             |  
|Contract modifications/ terminations/ settlements                               |                      | $                       | 14 |    |                           | $ |    |       |   | $ | 1    |    |   | $       | 15  |   |         | $ | 46  |       |  | $ |     |     |   | $ | 1 |    |  | $ | 47  |   
|Gas not used in operations, processing revenues and other
    natural gas sales |                      |                         | (1 | )  |                           |   | 10  |       |   |   |     |    |   |         | 9   |   |         |   | 19  |       |  |   | 1    |     |   |   |  |    |  |   | 20  |   
|Favorable resolution in 2004 of measurement dispute at a
    processing plant   |                      |                         |   |    |                           |   |    |       |   |   |     |    |   |         |    |   |         |   | (10 | )     |  |   |     |     |   |   |  |    |  |   | (10 | ) 
|Pipeline expansions                                                             |                      |                         | 22 |    |                           |   | (8  | )     |   |   | 2    |    |   |         | 16  |   |         |   | 38  |       |  |   | (15  | )   |   |   | 2 |    |  |   | 25  |   
|Higher allocated costs                                                          |                      |                         |   |    |                           |   | (25 | )     |   |   |     |    |   |         | (25 | ) |         |   |    |       |  |   | (46  | )   |   |   |  |    |  |   | (46 | ) 
|Equity earnings from our investment in Citrus                                   |                      |                         |   |    |                           |   |    |       |   |   | (3   | )  |   |         | (3  | ) |         |   |    |       |  |   |     |     |   |   | 5 |    |  |   | 5   |   
|Other(1)                                                                        |                      |                         | 1  |    |                           |   | (11 | )     |   |   | (1   | )  |   |         | (11 | ) |         |   | (10 | )     |  |   | (7   | )   |   |   | 3 |    |  |   | (14 | ) 
|                                                                                |                      |                         |    |    |                           |   |     |       |   |   |      |    |   |         |     |   |         |   |     |       |  |   |      |    
|                                                                                | Total impact on EBIT |                         | $  | 36 |                           |   | $   | (34   | ) |   | $    | (1 | ) |         | $   | 1 |         |   | $   | 83    |  |   | $    | (67 | ) |   | $ | 11 |  |   | $   | 27 | 
|                                                                                |                      |                         |    |    |                           |   |     |       |   |   |      |    |   |         |     |   |         |   |     |       |  |   |      |    






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



Contract Modifications/ Terminations/ Settlements.


42



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##### Table of Contents







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


Expansions.










43



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##### Table of Contents





Allocated Costs.


Accounting for Pipeline Integrity Costs.


Regulatory and Other Matters




EPNG Rate Case.




SNG Rate Case and Other Matter.


44



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##### Table of Contents









Non-regulated Business  Production Segment




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





| |                                                            
| | -----------------------------------------------------------
| | Significant Operational Factors Since December 31,
    2004





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Higher realized prices. During the first six months of
    2005, we continued to benefit from a strong commodity pricing
    environment. Realized natural gas prices, which include the
    impact of our hedges, increased eight percent while oil,
    condensate and NGL prices increased 33 percent compared to
    2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Average daily production of 775 MMcfe/d (excluding
    discontinued operations of 3 MMcfe/d). Our average
    daily production in the second quarter of 2005 increased
    approximately two percent over the first quarter of 2005 and was
    relatively stable compared with the third and fourth quarters of
    2004. Specifically, during the last twelve months we have
    experienced increased production in our onshore region,
    relatively stable production in our offshore Gulf of Mexico
    region, and declining production in our Texas Gulf Coast region
    due to normal declines and mechanical well failures. In
    addition, we acquired the remaining interest in UnoPaso located
    in Brazil in July 2004 and began consolidating this operation.
    During the first six months of 2005, our operations in
    Brazil produced at an average of approximately 54 MMcfe/d,
    and our first quarter 2005 acquisitions of domestic producing
    properties discussed below benefited our average daily
    production by approximately 44 MMcfe/d. In July 2005,
    hurricanes in the Gulf of Mexico caused us to shut in production
    for periods of time impacting production volumes by
    approximately 12 MMcfe/d for the month.

45



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Acquisitions and other capital expenditures. During the
    first six months of 2005, our capital expenditures of
    $651 million included acquisitions in east and south Texas
    and the purchase of the interest held by one of our partners
    under a net profits interest agreement for a total of
    $271 million. These acquisitions added properties with
    approximately 140 Bcfe of proved reserves and
    52 MMcfe/d of production at the acquisition dates. More
    importantly, the Texas acquisitions offer additional exploration
    upside in two of our key operating areas. We have integrated
    these acquisitions into our operations with minimal additional
    administrative expenses.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In July 2005, we announced we will acquire Medicine Bow, a
    privately held energy company with an estimated 356 Bcfe of
    proved reserves, primarily in the Rocky Mountains and east
    Texas, for $814 million. Of this proved reserve amount, our
    net interest of approximately 226 Bcfe will not be
    consolidated in our reserves, as these reserves are owned by an
    unconsolidated affiliate of Medicine Bow. The operating results
    associated with these unconsolidated reserves will be reported
    through an equity interest. Concurrent with this announcement,
    our Marketing and Trading segment entered into several
    derivative positions associated with the properties to be
    acquired as further discussed on page 52. The acquisition
    of these properties will complement our existing core
    operations, diversify our commodity mix and increase our reserve
    life. The transaction is expected to close during the third
    quarter of 2005.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Drilling Results. In 2005, we have announced deep shelf
    discoveries at West Cameron Block 75 and West Cameron
    Block 62 in the Gulf of Mexico. At West Cameron
    Block 75, we tested the discovery and anticipate
    deliverability of approximately 40 MMcfe/d to begin in the
    fourth quarter of 2005, after the installation of facilities. We
    own a 36 percent working interest and an approximate
    30 percent net revenue interest in the West Cameron
    Block 75.



| |                                        
| | ---------------------------------------
| | Outlook for the last six months of 2005





| |   |                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Total capital expenditures of approximately $1.1 billion
    for the last six months of 2005, including amounts to be paid to
    acquire Medicine Bow.                                                                                                                                                                                                                                          
|
| |  | Daily production volumes for the year to average in excess of
    810 MMcfe/d, including approximately 10 MMcfe/d
    expected from the Medicine Bow acquisition and 24 MMcfe/d
    from Medicine Bows interest in an unconsolidated affiliate.                                                                                                                                                 
|
| |  | Cash operating costs to be approximately $1.45/Mcfe as we
    continue to focus on cost control, operating efficiencies, and
    process improvements.                                                                                                                                                                                                                                           
|
| |  | Industry-wide increases in drilling and oilfield service costs
    that will require constant monitoring of capital spending
    programs.                                                                                                                                                                                                                                                       
|
| |  | A domestic unit of production depletion rate of $2.10/ Mcfe in
    the third quarter of 2005 as compared to $2.04/ Mcfe in the
    second quarter of 2005, due to higher finding and development
    costs and the costs of acquired reserves. We also expect our
    depletion rate to increase further in the fourth quarter of 2005
    as we complete the announced Medicine Bow acquisition.

46



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##### Table of Contents





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





47



---



##### Table of Contents





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



|                                            |                                          |                                 |     |      |                |   |     |      |      |   |      |      |      |   |     |      |      |  
|------------------------------------------- | ---------------------------------------- | ------------------------------- | --- | ---- | -------------- | - | --- | ---- | ---- | - | ---- | ---- | ---- | - | --- | ---- | ---- | -
|                                            |                                          | Quarter Ended                   |     |      | Six Months     |  
|                                            |                                          | June 30,                        |     |      | Ended June 30, |  
|                                            |                                          |                                 |     |      |                |  
|Production Segment Results                  |                                          | 2005                            |     |      | 2004           |   |     | 2005 |      |   | 2004 |     
|                                            |                                          |                                 |     |      |                |   |     |      |      |   |      |     
|                                            |                                          | (In millions)                   |    
|Operating Revenues:                         |                                          |                                 |     |      |                |   |     |      |      |   |      |      |      |   |     |     
|                                            | Natural gas                              |                                 | $   | 354  |                |   | $   | 363  |      |   | $    | 707  |      |   | $   | 731  |     
|                                            | Oil, condensate and NGL                  |                                 |     | 96   |                |   |     | 66   |      |   |      | 181  |      |   |     | 143  |     
|                                            | Other                                    |                                 |     | 2    |                |   |     | 1    |      |   |      | 3    |      |   |     | 2    |     
|                                            |                                          |                                 |     |      |                |   |     |      |      |   |      |     
|                                            |                                          | Total operating revenues        |     |      | 452            |   |     |      | 430  |   |      |      | 891  |   |     |      | 876  |  
|Transportation and net product
    costs(1) |                                          |                                 | (12 | )    |                |   | (13 | )    |      |   | (25  | )    |      |   | (27 | )   
|                                            |                                          |                                 |     |      |                |   |     |      |      |   |      |     
|                                            |                                          | Total operating margin          |     |      | 440            |   |     |      | 417  |   |      |      | 866  |   |     |      | 849  |  
|Operating Expenses:                         |                                          |                                 |     |      |                |   |     |      |      |   |      |      |      |   |     |     
|                                            | Depreciation, depletion and amortization |                                 |     | (157 | )              |   |     | (131 | )    |   |      | (303 | )    |   |     | (271 | )   
|                                            | Production
    costs(2)                  |                                 |     | (59  | )              |   |     | (44  | )    |   |      | (114 | )    |   |     | (86  | )   
|                                            | Restructuring charges                    |                                 |     | (2   | )              |   |     | (2   | )    |   |      | (2   | )    |   |     | (11  | )   
|                                            | General and administrative expenses      |                                 |     | (43  | )              |   |     | (37  | )    |   |      | (84  | )    |   |     | (73  | )   
|                                            | Taxes other than production and income   |                                 |     | (4   | )              |   |     | (1   | )    |   |      | (8   | )    |   |     | (3   | )   
|                                            |                                          |                                 |     |      |                |   |     |      |      |   |      |     
|                                            |                                          | Total operating
    expenses(1) |     |      | (265           | ) |     |      | (215 | ) |      |      | (511 | ) |     |      | (444 | )
|                                            |                                          |                                 |     |      |                |   |     |      |      |   |      |     
|                                            | Operating income                         |                                 |     | 175  |                |   |     | 202  |      |   |      | 355  |      |   |     | 405  |     
|Other income                                |                                          |                                 | 1   |      |                |   | 2   |      |      |   | 4    |      |      |   | 3   |     
|                                            |                                          |                                 |     |      |                |   |     |      |      |   |      |     
|                                            | EBIT                                     |                                 | $   | 176  |                |   | $   | 204  |      |   | $    | 359  |      |   | $   | 408  |     
|                                            |                                          |                                 |     |      |                |   |     |      |      |   |      |     

|                           |                                                  |                                                             |                              |         |                           |      |   |          |         |      |      |    |     |      |   |         |          |      |   |         |         |      |  |     |     |    |  
|-------------------------- | ------------------------------------------------ | ----------------------------------------------------------- | ---------------------------- | ------- | ------------------------- | ---- | - | -------- | ------- | ---- | ---- | -- | --- | ---- | - | ------- | -------- | ---- | - | ------- | ------- | ---- |  | --- | --- | -- | -
|                           |                                                  | Quarter Ended June 30,                                      |                              |         | Six Months Ended June 30, |     
|                           |                                                  |                                                             |                              |         |                           |     
|                           |                                                  |                                                             |                              | Percent |                           |      |   |          | Percent |     
|                           |                                                  | 2005                                                        |                              |         | 2004                      |      |   | Variance |         |      | 2005 |    |     | 2004 |   |         | Variance |     
|                           |                                                  |                                                             |                              |         |                           |      |   |          |         |      |      |    |     |      |   |         |          |     
|Volumes, prices and costs: |                                                  |                                                             |                              |         |                           |      |   |          |         |      |      |    |     |      |   |         |          |      |   |         |         |      |  |    
|                           | Natural gas                                      |                                                             |                              |         |                           |      |   |          |         |      |      |    |     |      |   |         |          |      |   |         |         |      |  |     |    
|                           |                                                  | Volumes (MMcf)                                              |                              |         | 57,790                    |      |   |          | 61,535  |      |      |    | (6  | )%   |   |         | 113,948  |      |   |         | 127,234 |      |  |     | (10 | )%
|                           |                                                  | Average realized prices including hedges ($/Mcf)
    (3)(4) |                              | $       | 6.13                      |      |   | $        | 5.90    |      |      |    | 4   | %    |   | $       | 6.20     |      |   | $       | 5.75    |      |  |     | 8   | % 
|                           |                                                  | Average realized prices excluding hedges
    ($/Mcf)(3)     |                              | $       | 6.35                      |      |   | $        | 5.95    |      |      |    | 7   | %    |   | $       | 6.03     |      |   | $       | 5.81    |      |  |     | 4   | % 
|                           |                                                  | Average transportation costs ($/Mcf)                        |                              | $       | 0.17                      |      |   | $        | 0.14    |      |      |    | 21  | %    |   | $       | 0.17     |      |   | $       | 0.15    |      |  |     | 13  | % 
|                           | Oil, condensate and NGL                          |                                                             |                              |         |                           |      |   |          |         |      |      |    |     |      |   |         |          |      |   |         |         |      |  |     |    
|                           |                                                  | Volumes (MBbls)                                             |                              |         | 2,260                     |      |   |          | 1,937   |      |      |    | 17  | %    |   |         | 4,396    |      |   |         | 4,647   |      |  |     | (5  | )%
|                           |                                                  | Average realized prices including hedges
    ($/Bbl)(3)     |                              | $       | 42.39                     |      |   | $        | 34.11   |      |      |    | 24  | %    |   | $       | 41.16    |      |   | $       | 30.86   |      |  |     | 33  | % 
|                           |                                                  | Average realized prices excluding hedges
    ($/Bbl)(3)     |                              | $       | 43.07                     |      |   | $        | 34.11   |      |      |    | 26  | %    |   | $       | 41.68    |      |   | $       | 30.86   |      |  |     | 35  | % 
|                           |                                                  | Average transportation costs ($/Bbl)                        |                              | $       | 0.59                      |      |   | $        | 1.54    |      |      |    | (62 | )%   |   | $       | 0.67     |      |   | $       | 1.35    |      |  |     | (50 | )%
|                           | Total equivalent volumes (MMcfe)                 |                                                             |                              | 71,351  |                           |      |   | 73,157   |         |      |      | (2 | )%  |      |   | 140,327 |          |      |   | 155,115 |         |      |  | (10 | )% 
|                           | Production costs ($/Mcfe)                        |                                                             |                              |         |                           |      |   |          |         |      |      |    |     |      |   |         |          |      |   |         |         |      |  |     |    
|                           |                                                  | Average lease operating cost                                |                              | $       | 0.76                      |      |   | $        | 0.51    |      |      |    | 49  | %    |   | $       | 0.69     |      |   | $       | 0.50    |      |  |     | 38  | % 
|                           |                                                  | Average production taxes                                    |                              |         | 0.07                      |      |   |          | 0.09    |      |      |    | (22 | )%   |   |         | 0.13     |      |   |         | 0.06    |      |  |     | 117 | % 
|                           |                                                  |                                                             |                              |         |                           |      |   |          |         |      |      |    |     |      |   |         |          |     
|                           |                                                  |                                                             | Total production
    cost(2) |         | $                         | 0.83 |   |          | $       | 0.60 |      |    |     | 38   | % |         | $        | 0.82 |   |         | $       | 0.56 |  |     |     | 46 | %
|                           |                                                  |                                                             |                              |         |                           |      |   |          |         |      |      |    |     |      |   |         |          |     
|                           | Average general and administrative cost ($/Mcfe) |                                                             | $                            | 0.61    |                           |      | $ | 0.51     |         |      |      | 20 | %   |      | $ | 0.60    |          |      | $ | 0.47    |         |      |  | 28  | %  
|                           | Unit of production depletion cost ($/Mcfe)       |                                                             | $                            | 2.05    |                           |      | $ | 1.64     |         |      |      | 25 | %   |      | $ | 2.02    |          |      | $ | 1.61    |         |      |  | 25  | %  






|    |                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Transportation and net product costs are included in operating
    expenses on our consolidated statements of income.                                                                                                                                                                                                                                          
|   
|(2) | Production costs include lease operating costs and production
    related taxes (including ad valorem and severance taxes).                                                                                                                                                                                                                                    
|   
|(3) | Prices are stated before transportation costs                                                                                                                                                                                                                                                                                                                  
|   
|(4) | The average realized prices for natural gas, including hedges
    listed above, reflect the amounts recorded by the Production
    segment for sales of natural gas volumes. On a consolidated
    basis, El Paso receives a lower cash price on a portion of
    the volumes sold as further discussed in our 2004 Annual Report
    on Form 10-K, as amended.

48



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| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | Quarter and Six Months Ended June 30, 2005 Compared to
    Quarter and Six Months Ended June 30, 2004



|                                                  |                                                 |                         |   |     |           |  |   |          |     |        |   |   |   |  |   |     |     |  
|------------------------------------------------- | ----------------------------------------------- | ----------------------- | - | --- | --------- |  | - | -------- | --- | ------ | - | - | - |  | - | --- | --- | -
|                                                  |                                                 | Variance                |  
|                                                  |                                                 |                         |  
|                                                  |                                                 | Operating               |   |     | Operating |  |   |          |     | EBIT   |  
|                                                  |                                                 | Revenue                 |   |     | Expense   |  |   | Other(1) |     | Impact |  
|Quarter Ended June 30,                            |                                                 |                         |   |     |           |  |   |          |     |        |  
|                                                  |                                                 | Favorable/(Unfavorable) |  
|                                                  |                                                 | (In millions)           |  
|Natural Gas Revenue                               |                                                 |                         |   |     |           |  |   |          |     |        |   |   |   |  |   |    
|                                                  | Higher realized prices in 2005                  |                         | $ | 23  |           |  | $ |         |     |        | $ |  |   |  | $ | 23  |    
|                                                  | Lower volumes in 2005                           |                         |   | (22 | )         |  |   |         |     |        |   |  |   |  |   | (22 | )  
|                                                  | Impact from hedge program in 2005 versus 2004   |                         |   | (10 | )         |  |   |         |     |        |   |  |   |  |   | (10 | )  
|Oil, Condensate, and NGL Revenue                  |                                                 |                         |   |     |           |  |   |          |     |        |   |   |   |  |   |    
|                                                  | Higher realized prices in 2005                  |                         |   | 20  |           |  |   |         |     |        |   |  |   |  |   | 20  |    
|                                                  | Higher volumes in 2005                          |                         |   | 11  |           |  |   |         |     |        |   |  |   |  |   | 11  |    
|                                                  | Impact from hedge program in 2005 versus 2004   |                         |   | (1  | )         |  |   |         |     |        |   |  |   |  |   | (1  | )  
|Depreciation, Depletion, and Amortization Expense |                                                 |                         |   |     |           |  |   |          |     |        |   |   |   |  |   |    
|                                                  | Higher depletion rate in 2005                   |                         |   |    |           |  |   | (29      | )   |        |   |  |   |  |   | (29 | )  
|                                                  | Lower production volumes in 2005                |                         |   |    |           |  |   | 3        |     |        |   |  |   |  |   | 3   |    
|Production Costs                                  |                                                 |                         |   |     |           |  |   |          |     |        |   |   |   |  |   |    
|                                                  | Higher lease operating costs in 2005            |                         |   |    |           |  |   | (17      | )   |        |   |  |   |  |   | (17 | )  
|                                                  | Lower production taxes in 2005                  |                         |   |    |           |  |   | 2        |     |        |   |  |   |  |   | 2   |    
|Other                                             |                                                 |                         |   |     |           |  |   |          |     |        |   |   |   |  |   |    
|                                                  | Higher general and administrative costs in 2005 |                         |   |    |           |  |   | (6       | )   |        |   |  |   |  |   | (6  | )  
|                                                  | Other                                           |                         |   | 1   |           |  |   | (3       | )   |        |   |  |   |  |   | (2  | )  
|                                                  |                                                 |                         |   |     |           |  |   |          |     |        |   |  
|                                                  |                                                 | Total variances         |   | $   | 22        |  |   | $        | (50 | )      |   | $ |  |  |   | $   | (28 | )
|                                                  |                                                 |                         |   |     |           |  |   |          |     |        |   |  

|                                                  |                                                 |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |     |     |  
|------------------------------------------------- | ----------------------------------------------- | ----------------------- | - | --- | --------- |  | - | -------- | --- | ---- | ------ | - | - |  | - | --- | --- | -
|                                                  |                                                 | Variance                |  
|                                                  |                                                 |                         |  
|                                                  |                                                 | Operating               |   |     | Operating |  |   |          |     | EBIT |       
|Six Months Ended June 30,                         |                                                 | Revenue                 |   |     | Expense   |  |   | Other(1) |     |      | Impact |  
|                                                  |                                                 |                         |   |     |           |  |   |          |     |      |        |  
|                                                  |                                                 | Favorable/(Unfavorable) |  
|                                                  |                                                 | (In millions)           |  
|Natural Gas Revenue                               |                                                 |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher realized prices in 2005                  |                         | $ | 25  |           |  | $ |         |     |      | $      |  |   |  | $ | 25  |    
|                                                  | Lower volumes in 2005                           |                         |   | (77 | )         |  |   |         |     |      |        |  |   |  |   | (77 | )  
|                                                  | Impact from hedge program in 2005 versus 2004   |                         |   | 28  |           |  |   |         |     |      |        |  |   |  |   | 28  |    
|Oil, Condensate, and NGL Revenue                  |                                                 |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher realized prices in 2005                  |                         |   | 48  |           |  |   |         |     |      |        |  |   |  |   | 48  |    
|                                                  | Lower volumes in 2005                           |                         |   | (8  | )         |  |   |         |     |      |        |  |   |  |   | (8  | )  
|                                                  | Impact from hedge program in 2005 versus 2004   |                         |   | (2  | )         |  |   |         |     |      |        |  |   |  |   | (2  | )  
|Depreciation, Depletion, and Amortization Expense |                                                 |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher depletion rate in 2005                   |                         |   |    |           |  |   | (58      | )   |      |        |  |   |  |   | (58 | )  
|                                                  | Lower production volumes in 2005                |                         |   |    |           |  |   | 24       |     |      |        |  |   |  |   | 24  |    
|Production Costs                                  |                                                 |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher lease operating costs in 2005            |                         |   |    |           |  |   | (19      | )   |      |        |  |   |  |   | (19 | )  
|                                                  | Higher production taxes in 2005                 |                         |   |    |           |  |   | (9       | )   |      |        |  |   |  |   | (9  | )  
|Other                                             |                                                 |                         |   |     |           |  |   |          |     |      |        |   |   |  |   |    
|                                                  | Higher general and administrative costs in 2005 |                         |   |    |           |  |   | (11      | )   |      |        |  |   |  |   | (11 | )  
|                                                  | Other                                           |                         |   | 1   |           |  |   | 6        |     |      |        | 3 |   |  |   | 10  |    
|                                                  |                                                 |                         |   |     |           |  |   |          |     |      |        |  
|                                                  |                                                 | Total variances         |   | $   | 15        |  |   | $        | (67 | )    |        | $ | 3 |  |   | $   | (49 | )
|                                                  |                                                 |                         |   |     |           |  |   |          |     |      |        |  






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

49



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Operating Revenues.


Depreciation, depletion, and amortization expense.


Production costs.


Other.


Non-regulated Business  Marketing and Trading
Segment






| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Significant factors impacting or occurring in the six months
    ended June 30, 2005:



| |   |                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increases in natural gas prices continue to have an overall
    negative impact on the fair value of our natural gas and power
    derivatives, which generally require us to supply natural gas
    and power at fixed prices. In addition, natural gas prices
    increased more than power prices, which negatively impacted the
    fair value of our Cordova tolling agreement.
|
| |  | Effective April 1, 2005 we began using new forward pricing
    data provided by Platts Research and Consulting, our independent
    pricing source, due to their decision to discontinue the
    publication of the pricing data we had been utilizing in prior
    periods. In addition, due to the nature of the new forward                                                      

50



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| |  |                                                                                                                                                                                                                                                                                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pricing data, we extended the use of that data over the entire
    contractual term of our derivative contracts. Previously we only
    used Platts pricing data to value our derivative contracts
    beyond two years. Based on our analysis, we do not believe the
    overall impact of this change in estimate was material to our
    results for the period.

Operating Results




|                                           |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |      |      |      |   |      |      |      |  
|------------------------------------------ | ---------------------------------------------------- | ---------------------------------------------------------------------------- | ---------------------------------------------------------- | ---------- | -------- | --- | - | ---- | ---- | ---- | ---- | ---- | ---- | ---- | - | ---- | ---- | ---- | -
|                                           |                                                      |                                                                              |                                                            | Six Months |         
|                                           |                                                      | Quarter Ended                                                                |                                                            |            | Ended    |    
|                                           |                                                      | June 30,                                                                     |                                                            |            | June 30, |    
|                                           |                                                      |                                                                              |                                                            |            |          |    
|                                           |                                                      | 2005                                                                         |                                                            |            | 2004     |     |   | 2005 |      |      | 2004 |     
|                                           |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |     
|                                           |                                                      | (In millions)                                                                |                                                           
|Overall EBIT:                              |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |      |      |      |   |     
|                                           | Gross
    margin(1)                                  |                                                                              | $                                                          | (21        | )        |     | $ | (141 | )    |      | $    | (196 | )    |      | $ | (300 | )   
|                                           | Operating expenses                                   |                                                                              |                                                            | (11        | )        |     |   | (13  | )    |      |      | (22  | )    |      |   | (29  | )   
|                                           |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |     
|                                           |                                                      | Operating loss                                                               |                                                            |            | (32      | )   |   |      | (154 | )    |      |      | (218 | )    |   |      | (329 | )   
|                                           | Other income                                         |                                                                              |                                                            | 2          |          |     |   | 2    |      |      |      | 3    |      |      |   | 13   |     
|                                           |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |     
|                                           |                                                      | EBIT                                                                         |                                                            | $          | (30      | )   |   | $    | (152 | )    |      | $    | (215 | )    |   | $    | (316 | )   
|                                           |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |     
|Gross margin by significant contract type: |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |      |      |      |   |     
|Natural gas contracts                      |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |      |      |      |   |     
|                                           | Production-related and other natural gas derivatives |                                                                              |                                                            |            |          |     |   |      |      |      |      |      |      |      |   |      |     
|                                           |                                                      | Changes in fair value on positions designated as hedges in
    December 2004 |                                                            | $          |         |     |   | $    | (104 | )    |      | $    |     |      |   | $    | (260 | )   
|                                           |                                                      | Changes in fair value on production-related contracts                        |                                                            |            | (12      | )   |   |      |     |      |      |      | (118 | )    |   |      |     |     
|                                           |                                                      | Changes in fair value on other natural gas positions                         |                                                            |            | 93       |     |   |      | 13   |      |      |      | 119  |      |   |      | 8    |     
|                                           |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |     
|                                           |                                                      |                                                                              | Total production-related and other natural gas derivatives |            |          | 81  |   |      |      | (91  | )    |      |      | 1    |   |      |      | (252 | )
|                                           |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |     
|                                           | Transportation-related contracts                     |                                                                              |                                                            |            |          |     |   |      |      |      |      |      |      |      |   |      |     
|                                           |                                                      | Demand charges                                                               |                                                            |            | (40      | )   |   |      | (40  | )    |      |      | (79  | )    |   |      | (79  | )   
|                                           |                                                      | Settlements                                                                  |                                                            |            | 21       |     |   |      | 26   |      |      |      | 48   |      |   |      | 47   |     
|                                           |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |     
|                                           |                                                      |                                                                              | Total transportation-related contracts                     |            |          | (19 | ) |      |      | (14  | )    |      |      | (31  | ) |      |      | (32  | )
|                                           |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |     
|                                           | Total gross margin  natural gas contracts           |                                                                              |                                                            | 62         |          |     |   | (105 | )    |      |      | (30  | )    |      |   | (284 | )   
|                                           |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |     
|Power contracts                            |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |      |      |      |   |     
|                                           | Changes in fair value on Cordova tolling agreement   |                                                                              |                                                            | (78        | )        |     |   | (18  | )    |      |      | (111 | )    |      |   | (3   | )   
|                                           | Changes in fair value on other power derivatives     |                                                                              |                                                            | (22        | )        |     |   | (18  | )    |      |      | (72  | )    |      |   | (13  | )   
|                                           | Favorable resolution of bankruptcy claim             |                                                                              |                                                            | 17         |          |     |   |     |      |      |      | 17   |      |      |   |     |     
|                                           |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |     
|                                           | Total gross margin  power contracts                 |                                                                              |                                                            | (83        | )        |     |   | (36  | )    |      |      | (166 | )    |      |   | (16  | )   
|                                           |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |     
|                                           |                                                      |                                                                              | Total gross margin                                         |            | $        | (21 | ) |      | $    | (141 | )    |      | $    | (196 | ) |      | $    | (300 | )
|                                           |                                                      |                                                                              |                                                            |            |          |     |   |      |      |      |      |     






|    |                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross margin for our Marketing and Trading segment consists of
    revenues from commodity trading and origination activities less
    the costs of commodities sold, including changes in the fair
    value of our derivative contracts.

51



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



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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Derivatives designated as hedges.The amounts in the
    above table represent changes in the fair values of derivative
    contracts that were designated as accounting hedges of our
    Production segments natural gas production on
    December 1, 2004. Losses for the quarter and six months
    ended June 30, 2004 were a result of increases in
    natural gas prices relative to the fixed prices in these
    contracts. Following the designation of these derivatives as
    accounting hedges in the fourth quarter of 2004, we began
    reflecting the income impacts of these contracts in our
    Production segment.
|
| |  | Other production-related derivatives. We hold several
    option contracts that provide price protection on a portion of
    our Production segments anticipated natural gas and oil
    production. These contracts, which are not accounting hedges and
    are marked to market in our results each period, provide
    El Paso with the following floor and ceiling prices on our
    future natural gas and oil production:                                                                                                                                                                                                         

|                                          |  |      |       |  |      |  |          |      |  |  |       | 
|----------------------------------------- |  | ---- | ----- |  | ---- |  | -------- | ---- |  |  | ----- | 
|                                          |  | 2005 |       |  | 2006 |  |          | 2007 | 
|                                          |  |      |       |  |      |  |          |      | 
|Natural Gas Options Held at June 30, 2005 |  |      |       |  |      |  |          |      |  |  |       | 
|Volumes with Floor Price (TBtu)           |  |      | 36    |  |      |  | 120      |      |  |  | 30    | 
|Floor Price (per MMBtu)                   |  |      | $6.00 |  |      |  | $7.00(1) |      |  |  | $6.00 | 
|Volumes with Ceiling Price (TBtu)         |  |      |      |  |      |  | 60       |      |  |  |      | 
|Ceiling Price (per MMBtu)                 |  |      |      |  |      |  | $9.50    |      |  |  |      | 

|                                    |                                 |      |  |        |      |  |  |        |  |  |  |       | 
|----------------------------------- | ------------------------------- | ---- |  | ------ | ---- |  |  | ------ |  |  |  | ----- | 
|                                    |                                 | 2007 |  |        | 2008 |  |  | 2009   | 
|                                    |                                 |      |  |        |      |  |  |        | 
|Positions Added in July
    2005(2)
|Natural Gas Options                 |                                 |      |  |        |      |  |  |        |  |  |  |      
|                                    | Volumes (TBtu)                  |      |  | 21     |      |  |  | 18     |  |  |  | 17    | 
|                                    | Floor Price (per MMBtu)         |      |  | $7.00  |      |  |  | $6.00  |  |  |  | $6.00 | 
|                                    | Ceiling Price (per MMBtu)       |      |  | $9.00  |      |  |  | $10.00 |  |  |  | $8.75 | 
|Oil Options                         |                                 |      |  |        |      |  |  |        |  |  |  |      
|                                    | Volumes (MBbls)                 |      |  | 1,009  |      |  |  | 930    |  |  |  |      | 
|                                    | Floor Price (per Bbl)           |      |  | $55.00 |      |  |  | $55.00 |  |  |  |      | 
|                                    | Average Ceiling Price (per Bbl) |      |  | $60.38 |      |  |  | $57.03 |  |  |  |      | 






| |     |                                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------
| | (1) | In July 2005, we paid a net premium of $30 million to raise
    the floor price on these contracts from $6.00 per MMBtu.
| | (2) | We entered into these positions related to our announced
    acquisition of Medicine Bow.                               





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Other natural gas derivatives. Other natural gas
    derivatives consist of physical and financial natural gas
    contracts that impact our earnings as the fair value of these
    contracts change. These contracts obligate us to either purchase
    or sell natural gas at fixed prices. Our exposure to natural gas
    price changes will vary from period to period based on whether
    we purchase more or less natural gas than we sell under these
    contracts. Under certain of these contracts, we supply gas to
    power plants that we partially own. Due to their affiliated
    nature, we do not currently recognize mark-to-market gains or

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| |  |                                                                                                                                                                                                                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | losses on these contracts to the extent of our ownership
    interests in the plants. However, should we sell our interests
    in these plants, we would be required to record the cumulative
    unrecognized mark-to-market losses on these contracts, which
    totaled approximately $106 million as of June 30,
    2005, net of related hedges.



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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Demand charges paid on our Alliance pipeline capacity contract
    were $16 million and $32 million in the quarter and
    six months ended June 30, 2005, versus $15 million and
    $30 million in the same periods of 2004. Our ability to use
    our Alliance pipeline capacity contract was relatively
    consistent during these periods, allowing us to recover
    approximately 66 percent of our demand charges in the first
    six months of 2005 and 65 percent in the first six months
    of 2004. This resulted from the price differentials between the
    receipt and delivery points remaining relatively consistent
    during these periods.                                                                                                                                                                                                                                                                     
|
| |  | Demand charges paid on our Texas Intrastate and remaining
    transportation contracts were $24 million and
    $47 million in the quarter and six months ended
    June 30, 2005, versus $25 million and
    $49 million in the same periods of 2004. Our ability to use
    the capacity under our Texas intrastate contracts improved in
    2005 due to increased price differentials between the receipt
    and delivery points for the contracts. This allowed us to
    recover approximately 61 percent of the demand charges in
    the first six months of 2005 compared to only 18 percent
    during the same period in 2004. However, we only recovered
    62 percent of the demand charges on our other
    transportation contracts in 2005 as compared to 70 percent
    in 2004, as price differentials between receipt and delivery
    points for these contracts decreased during the first six months
    of 2005.



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



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



| |                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Cordova agreement is sensitive to changes in forecasted
    natural gas and power prices. During 2005 and 2004, forecasted
    natural gas prices increased relative to power prices, resulting
    in a decrease in the fair value of the contract.



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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | During the first quarter of 2005, we assigned our contracts to
    supply power to our Power segments Cedar Brakes I and
    II entities to Constellation Energy Commodities Group, Inc.
    These contracts decreased in fair value by $15 million and
    $38 million in the quarter and six months ended
    June 30, 2004. In conjunction with the transfer, we also
    entered into derivative contracts with Constellation that swap
    the locational differences in power prices at the Camden,
    Bayonne and Newark Bay power plants and the Pennsylvania-New
    Jersey-Maryland power pools West Hub through 2013. The
    fair value of these swaps decreased by $6 million and
    $13 million during the quarter and six months ended
    June 30, 2005, due to unfavorable changes in the power
    prices at each location.
|
| |  | We have a contract to supply power to Morgan Stanley at a fixed
    price through 2016. This contract increased in fair value by
    less than $1 million and $10 million during the
    quarters ended June 30, 2005 and 2004, and decreased in
    fair value by $90 million and $45 million during the
    six months ended June 30, 2005 and 2004. The overall
    decrease in the fair value of these derivatives during the six
    months ended June 30, 2005 and 2004 resulted from
    increasing power prices related to these obligations during
    these periods. However prices during the second quarters of 2005
    and 2004 decreased.                                                                                                                                                                                         
|
| |  | During the six months ended June 30, 2005 and 2004, we were
    required to purchase power under remaining power contracts,
    which include those used to manage the risk associated with our
    other power supply obligations. Due to changes in power prices,
    the fair value of these contracts decreased by $16 million
    and increased by $31 million during the quarter and six
    months ended June 30, 2005, and decreased by
    $13 million and increased by $70 million during the
    same periods of 2004.                                                                                                                                                                                                                                                                                                                

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| |   |                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On March 24, 2005, a bankruptcy court entered an order
    allowing Mohawk River Funding IIIs (MRF III)
    bankruptcy claims with USGen New England. We received payment on
    this claim and recognized a gain of $17 million for amounts
    received in excess of receivables previously recorded.



| |                   
| | ------------------
| | Operating Expenses



Non-regulated Business  Power Segment






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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Brazil.Our Macae project in Brazil has a contract that
    requires Petrobras to make minimum revenue payments until August
    2007. Petrobras has not paid amounts due under the contract for
    December 2004 through the second quarter of 2005 and has
    initiated arbitration proceedings related to that obligation.
    For a further discussion of this matter, see Item 1,
    Financial Statements, Note 10. As a result of continued
    negotiations and discussions with Petrobras regarding this
    dispute, we recorded an impairment of this investment in the
    second quarter of 2005. This impairment was based on information
    regarding the potential value we would receive from the
    resolution of this matter. The future financial performance of
    the Macae plant will be affected by the ultimate outcome of this
    dispute, the timing of that outcome, and by regional changes in
    the Brazilian power markets.
|
| |  | Asia.During the second and third quarters of 2005, we
    announced the sale of substantially all of our Asian power
    assets. We recorded impairments on certain of these assets based
    on information received regarding the potential value we may
    receive when we sell them. In July 2005, we completed the
    sale of our 50 percent interest in the KIECO power facility
    in Korea. The sale resulted in a gain of $109 million,
    which will be recorded in the third quarter of 2005. We expect
    to receive total proceeds of approximately $180 million
    from the sale of our remaining Asian assets, which we expect
    will be substantially completed by the end of 2005. We will
    continue to assess the fair value of those assets throughout the
    sales process, which may result in additional impairments or
    gains in future periods.                                                                           
|
| |  | Other International Power.During the second quarter of
    2005, we engaged an investment banker to facilitate the sale of
    our Central American power assets. We recorded an impairment in
    the second quarter of 2005 based on information received about
    the value we may receive upon the sale of these assets. We will
    continue to assess the value of these assets throughout the
    sales process, which may result in additional impairments that
    may be significant. See Item 1, Financial Statements,
    Note 3 for further information on our divestitures.                                                                                                                                                                                                                                                                                                                                                                       

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



|              |                                         |                                   |                |            |          |      |   |      |      |    |      |     |      |      |   |     |      |      |  
|------------- | --------------------------------------- | --------------------------------- | -------------- | ---------- | -------- | ---- | - | ---- | ---- | -- | ---- | --- | ---- | ---- | - | --- | ---- | ---- | -
|              |                                         |                                   |                | Six Months |         
|              |                                         | Quarter Ended                     |                |            | Ended    |     
|              |                                         | June 30,                          |                |            | June 30, |     
|              |                                         |                                   |                |            |          |     
|              |                                         | 2005                              |                |            | 2004     |      |   | 2005 |      |    | 2004 |    
|              |                                         |                                   |                |            |          |      |   |      |      |    |      |    
|              |                                         | (In millions)                     |               
|Overall EBIT: |                                         |                                   |                |            |          |      |   |      |      |    |      |     |      |      |   |    
|              | Gross
    margin(1)                     |                                   | $              | 101        |          |      | $ | 194  |      |    | $    | 160 |      |      | $ | 354 |     
|              | Operating expenses                      |                                   |                |            |          |      |   |      |      |    |      |     |      |      |   |     |     
|              |                                         | Loss on long-lived assets         |                |            | (361     | )    |   |      | (16  | )  |      |     | (388 | )    |   |     | (256 | )   
|              |                                         | Other operating expenses          |                |            | (97      | )    |   |      | (122 | )  |      |     | (167 | )    |   |     | (246 | )   
|              |                                         |                                   |                |            |          |      |   |      |      |    |      |    
|              |                                         |                                   | Operating loss |            |          | (357 | ) |      |      | 56 |      |     |      | (395 | ) |     |      | (148 | )
|              | Earnings from unconsolidated affiliates |                                   |                |            |          |      |   |      |      |    |      |     |      |      |   |     |     
|              |                                         | Impairments, net of gains on sale |                |            | (87      | )    |   |      | (15  | )  |      |     | (148 | )    |   |     | (38  | )   
|              |                                         | Equity in earnings                |                |            | 28       |      |   |      | 39   |    |      |     | 61   |      |   |     | 78   |     
|              | Other income                            |                                   |                | 35         |          |      |   | 22   |      |    |      | 51  |      |      |   | 41  |     
|              |                                         |                                   |                |            |          |      |   |      |      |    |      |    
|              |                                         | EBIT                              |                | $          | (381     | )    |   | $    | 102  |    |      | $   | (431 | )    |   | $   | (67  | )   
|              |                                         |                                   |                |            |          |      |   |      |      |    |      |    






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

|                                   |                                                                |                                          |    |            |          |   |    |      |     |  |      |      |      |   |     |      |     |  
|---------------------------------- | -------------------------------------------------------------- | ---------------------------------------- | -- | ---------- | -------- | - | -- | ---- | --- |  | ---- | ---- | ---- | - | --- | ---- | --- | -
|                                   |                                                                |                                          |    | Six Months |         
|                                   |                                                                | Quarter Ended                            |    |            | Ended    |  
|                                   |                                                                | June 30,                                 |    |            | June 30, |  
|                                   |                                                                |                                          |    |            |          |  
|                                   |                                                                | 2005                                     |    |            | 2004     |   |    | 2005 |     |  | 2004 |     
|                                   |                                                                |                                          |    |            |          |   |    |      |     |  |      |     
|                                   |                                                                | (In millions)                            |   
|EBIT by Area:                      |                                                                |                                          |    |            |          |   |    |      |     |  |      |      |      |   |     |     
|Brazil                             |                                                                |                                          |    |            |          |   |    |      |     |  |      |      |      |   |     |     
|                                   | Impairments                                                    |                                          | $  | (294       | )        |   | $  |     |     |  | $    | (294 | )    |   | $   | (151 | )  
|                                   | Earnings from consolidated and unconsolidated plant operations |                                          |    | 12         |          |   |    | 50   |     |  |      | 26   |      |   |     | 106  |    
|Asia and Other International Power |                                                                |                                          |    |            |          |   |    |      |     |  |      |      |      |   |     |     
|                                   | Impairments,
    net(1)                                        |                                          |    | (161       | )        |   |    |     |     |  |      | (258 | )    |   |     | (5   | )  
|                                   | Dividend on investment fund                                    |                                          |    | 16         |          |   |    |     |     |  |      | 16   |      |   |     |     |    
|                                   | Gain on sale of PPN power plant                                |                                          |    |           |          |   |    |     |     |  |      | 22   |      |   |     |     |    
|                                   | Earnings from consolidated and unconsolidated plant operations |                                          |    | 11         |          |   |    | 20   |     |  |      | 31   |      |   |     | 36   |    
|Domestic Power                     |                                                                |                                          |    |            |          |   |    |      |     |  |      |      |      |   |     |     
|                                   | Power Contract Restructurings:                                 |                                          |    |            |          |   |    |      |     |  |      |      |      |   |     |      |    
|                                   |                                                                | Favorable resolution of bankruptcy claim |    |            | 53       |   |    |      |    |  |      |      | 53   |   |     |      |    |  
|                                   |                                                                | Impairments,
    net(1)                  |    |            |         |   |    |      |    |  |      |      |     |   |     |      | (96 | )
|                                   |                                                                | Change in fair value of contracts        |    |            | 1        |   |    |      | 39  |  |      |      | 11   |   |     |      | 58  |  
|                                   | Other Domestic Operations                                      |                                          |    | (10        | )        |   |    | 2    |     |  |      | (8   | )    |   |     | 6    |    
|Other(2)                           |                                                                |                                          | (9 | )          |          |   | (9 | )    |     |  | (30  | )    |      |   | (21 | )   
|                                   |                                                                |                                          |    |            |          |   |    |      |     |  |      |     
|                                   |                                                                | EBIT                                     |    | $          | (381     | ) |    | $    | 102 |  |      | $    | (431 | ) |     | $    | (67 | )
|                                   |                                                                |                                          |    |            |          |   |    |      |     |  |      |     






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes impairment charges and gains (losses) on sales of
    assets and investments, net of any related minority interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(2) | Other consists of the indirect expenses and general and
    administrative costs associated with our domestic and
    international operations, including legal, finance and
    engineering costs. Direct general and administrative expenses of
    our domestic and international operations are included in EBIT
    of those operations. Other also includes gains and losses
    associated with our power turbine inventory. During the first
    quarter of 2005, we recorded a $15 million impairment of
    those turbines based on the receipt of further information about
    their fair value.

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##### Table of Contents



Brazil.


Asia and Other International Power.




Domestic Power Contract Restructurings.




Other Domestic Operations.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | MCV.In 2004, we impaired our investment in MCV based on
    a decline in the value of the investment due to increased fuel
    costs. During the quarter ended June 30, 2005, we recorded
    a further impairment of $4 million based on a decrease in
    the fair value of the investment due to delays in the timing of
    expected cash flow receipts from this investment. After
    eliminating affiliated transactions, our proportionate share of
    MCVs reported losses during the second quarter of 2005 was
    $14 million and our proportionate share of their earnings
    during the six months ended June 30, 2005 was
    $58 million. A significant portion of these earnings
    (losses) related to mark-to-market changes recorded by MCV on
    their unaffiliated fuel supply contracts. We determined that
    these fair value changes did not increase or decrease the fair
    value of our equity investment and could not be realized in the
    future. Accordingly, we decreased our proportionate share of
    MCVs losses by $14 million during the second quarter
    of 2005 and decreased our proportionate share of their earnings
    by $57 million during the six months ended June 30,
    2005. We will continue to assess our ability to recover our
    investment in MCV and its related operations in the future.
|
| |  | Other Domestic Assets.During the quarter and six months
    ended June 30, 2004, we recorded earnings from
    consolidated and unconsolidated affiliates of approximately
    $41 million and $48 million and impairments of
    approximately $34 million and $45 million on our
    domestic power plants to adjust their book value to their
    estimated sales proceeds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

56



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Non-regulated Business  Field Services Segment






|                                                           |                                   |                    |     |     |                    |   |     |     | 
|---------------------------------------------------------- | --------------------------------- | ------------------ | --- | --- | ------------------ | - | --- | --- | 
|                                                           |                                   | Favorable          |     |     | Favorable          |  
|                                                           |                                   | (unfavorable) EBIT |     |     | (unfavorable) EBIT |  
|                                                           |                                   | impact for the     |     |     | impact for the     |  
|                                                           |                                   | quarter ended      |     |     | six months ended   |  
|                                                           |                                   | June 30, 2005      |     |     | June 30, 2005      |  
|                                                           |                                   | compared to 2004   |     |     | compared to 2004   |  
|                                                           |                                   |                    |     |     |                    |  
|Gathering and processing margins                           |                                   | $                  | (37 | )   |                    | $ | (79 | )  
|Operating expenses                                         |                                   |                    | 25  |     |                    |   | 59  |    
|Gain on sale of GP interest and common units to Enterprise |                                   |                    |    |     |                    |   | 183 |    
|Other equity earnings                                      |                                   |                    | (30 | )   |                    |   | (68 | )  
|Minority interest                                          |                                   |                    | 11  |     |                    |   | 22  |    
|Other                                                      |                                   |                    | 1   |     |                    |   | (1  | )  
|                                                           |                                   |                    |     |     |                    |  
|                                                           | Total increase (decrease) in EBIT |                    | $   | (30 | )                  |   | $   | 116 | 
|                                                           |                                   |                    |     |     |                    |  





Corporate, Net




57



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|                                                    |                        |                    |     |     |                    |   |     |      |  
|--------------------------------------------------- | ---------------------- | ------------------ | --- | --- | ------------------ | - | --- | ---- | -
|                                                    |                        | Favorable          |     |     | Favorable          |  
|                                                    |                        | (unfavorable) EBIT |     |     | (unfavorable) EBIT |  
|                                                    |                        | impact for         |     |     | impact for         |  
|                                                    |                        | quarter ended      |     |     | six months ended   |  
|                                                    |                        | June 30, 2005      |     |     | June 30, 2005      |  
|                                                    |                        | compared to 2004   |     |     | compared to 2004   |  
|                                                    |                        |                    |     |     |                    |  
|                                                    |                        | (In millions)      |    
|Western Energy Settlement charge in
    2005(1)     |                        | $                  |    |     |                    | $ | (59 | )   
|Losses on early extinguishment of debt in 2005      |                        |                    |    |     |                    |   | (29 | )   
|Lease termination costs due to office consolidation |                        |                    | (27 | )   |                    |   | (27 | )   
|Change in litigation, insurance and other reserves  |                        |                    | (1  | )   |                    |   | (16 | )   
|Other                                               |                        |                    | 7   |     |                    |   | (7  | )   
|                                                    |                        |                    |     |     |                    |  
|                                                    | Total decrease in EBIT |                    | $   | (21 | )                  |   | $   | (138 | )
|                                                    |                        |                    |     |     |                    |  






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





Interest and Debt Expense




|                                             |                                 |               |     |            |          |   |     |      |  |   |      |     |  |   |     |     | 
|-------------------------------------------- | ------------------------------- | ------------- | --- | ---------- | -------- | - | --- | ---- |  | - | ---- | --- |  | - | --- | --- | 
|                                             |                                 |               |     | Six Months |         
|                                             |                                 | Quarter Ended |     |            | Ended    |  
|                                             |                                 | June 30,      |     |            | June 30, |  
|                                             |                                 |               |     |            |          |  
|                                             |                                 | 2005          |     |            | 2004     |   |     | 2005 |  |   | 2004 |    
|                                             |                                 |               |     |            |          |   |     |      |  |   |      |    
|                                             |                                 | (In millions) |    
|Long-term debt, including current maturities |                                 | $             | 331 |            |          | $ | 391 |      |  | $ | 675  |     |  | $ | 795 |    
|Other                                        |                                 |               | 9   |            |          |   | 19  |      |  |   | 15   |     |  |   | 38  |    
|                                             |                                 |               |     |            |          |   |     |      |  |   |      |    
|                                             | Total interest and debt expense |               | $   | 340        |          |   | $   | 410  |  |   | $    | 690 |  |   | $   | 833 | 
|                                             |                                 |               |     |            |          |   |     |      |  |   |      |    



58



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##### Table of Contents



Income Taxes




|                   |  |                                 |     |   |                  |   |    |      |  |   |      |   |  |   |      |   
|------------------ |  | ------------------------------- | --- | - | ---------------- | - | -- | ---- |  | - | ---- | - |  | - | ---- | --
|                   |  | Quarter Ended                   |     |   | Six Months Ended |  
|                   |  | June 30,                        |     |   | June 30,         |  
|                   |  |                                 |     |   |                  |  
|                   |  | 2005                            |     |   | 2004             |   |    | 2005 |  |   | 2004 |  
|                   |  |                                 |     |   |                  |   |    |      |  |   |      |  
|                   |  | (In millions, except for rates) |    
|Income taxes       |  | $                               | (51 | ) |                  | $ | 48 |      |  | $ | (57  | ) |  | $ | 58   |   
|Effective tax rate |  |                                 | 18  | % |                  |   | 59 | %    |  |   | 30   | % |  |   | (215 | )%





Discontinued Operations








Commitments and Contingencies




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##### Table of Contents






CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE
HARBOR PROVISIONS


OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995






| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | earnings per share;                                                                                 
|
| |  | capital and other expenditures;                                                                     
|
| |  | dividends;                                                                                          
|
| |  | financing plans;                                                                                    
|
| |  | capital structure;                                                                                  
|
| |  | liquidity and cash flow;                                                                            
|
| |  | pending legal proceedings, claims and governmental proceedings,
    including environmental matters;
|
| |  | future economic performance;                                                                        
|
| |  | operating income;                                                                                   
|
| |  | managements plans; and                                                                             
|
| |  | goals and objectives for future operations.                                                         



60



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





Market Risk




Interest Rate Risk




61



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##### Table of Contents








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

Material Weaknesses Previously Disclosed




Evaluation of Disclosure Controls and Procedures




Changes in Internal Control Over Financial Reporting






| |   |                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Implemented automated and manual controls for our primary
    financial system to monitor unauthorized password changes;                                                                                                                  
|
| |  | Developed a segregation of duties matrix for our primary
    financial system that documents existing role assignments;                                                                                                                   
|
| |  | Formalized and issued a company-wide account reconciliation
    policy;                                                                                                                                                                   
|
| |  | Implemented an account reconciliation monitoring tool that also
    allows for aggregation of unreconciled amounts;                                                                                                                       
|
| |  | Provided additional training regarding the company-wide account
    reconciliation policy and appropriate use of the account
    reconciliation monitoring tool;                                                                          
|
| |  | Developed a process to improve communication between commercial
    and accounting personnel to allow for complete and timely
    communication of information to record non-routine transactions
    related to divestiture activity; and
|
| |  | Implemented an accounting policy that requires a higher level of
    review of non-routine transactions.                                                                                                                                  





| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Performed an in-depth analysis of the companys primary
    financial accounting system to examine existing functional
    access to identify any potentially incompatible duties.
|
| |  | Enhanced the segregation of duties matrix for our primary
    financial accounting system based on the in-depth analysis of
    user access.                                      
|
| |  | Modified the primary financial accounting system to eliminate or
    modify potentially conflicting functionality.                                                                

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| |   |                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rewrote the computer programs for Marketing and Tradings
    mark-to-market accounting system to significantly reduce the
    number of different combinations of user access and to modify
    remaining capabilities to eliminate potentially conflicting
    duties.
|
| |  | Implemented a process to evaluate all new user access requests
    against segregation of duties matrices to ensure no new
    conflicts are created for our applications described above.                                                                              
|
| |  | Separated security administration rights from system update
    capabilities for our applications described above.                                                                                                                                                      
|
| |  | Implemented monitoring procedures to monitor activities of
    security administration roles for our applications described
    above.                                                                                                                                  
|
| |  | Improved communications to establish the expectation that
    non-routine transactions must be communicated to ensure timely
    identification and thorough review of transactions.                                                                                    
|
| |  | Established periodic business unit meetings to ensure relevant
    information related to non-routine transactions is captured and
    validated.                                                                                                                       
|
| |  | Enhanced the Disclosure Committee Charter and meeting content to
    better address areas impacted by non-routine transactions,
    including discussion of impairments, significant estimates and
    legal and regulatory changes.                                    
|
| |  | Established a more rigorous top-down review of the financial
    statements at the management, corporate and Disclosure Committee
    levels.                                                                                                                           



63



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##### Table of Contents






PART II  OTHER INFORMATION





Item 1. Legal Proceedings




Shoup Natural Gas Processing Plant.


Air Permit Violation.





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






|                     |  |     |             |  |          |  |             | 
|-------------------- |  | --- | ----------- |  | -------- |  | ----------- | 
|Nominee              |  | FOR |             |  | WITHHELD | 
|                     |  |     |             |  |          | 
|Juan Carlos Braniff  |  |     | 485,595,368 |  |          |  | 88,809,979  | 
|James L. Dunlap      |  |     | 541,603,167 |  |          |  | 32,802,181  | 
|Douglas L. Foshee    |  |     | 543,249,311 |  |          |  | 31,156,036  | 
|Robert W. Goldman    |  |     | 542,550,733 |  |          |  | 31,854,615  | 
|Anthony W. Hall Jr.  |  |     | 542,862,204 |  |          |  | 31,543,144  | 
|Thomas R. Hix        |  |     | 542,674,189 |  |          |  | 31,731,159  | 
|William H. Joyce     |  |     | 467,120,817 |  |          |  | 107,284,531 | 
|Ronald L. Kuehn, Jr. |  |     | 538,531,144 |  |          |  | 35,874,204  | 
|J. Michael Talbert   |  |     | 541,856,536 |  |          |  | 32,548,812  | 
|Robert F. Vagt       |  |     | 543,436,611 |  |          |  | 30,968,737  | 
|John L. Whitmire     |  |     | 542,343,901 |  |          |  | 32,061,447  | 
|Joe B. Wyatt         |  |     | 542,582,667 |  |          |  | 31,822,681  | 

64



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##### Table of Contents





|                                                                                                  |  |     |             |  |         |  |            |         |  |  |           | 
|------------------------------------------------------------------------------------------------- |  | --- | ----------- |  | ------- |  | ---------- | ------- |  |  | --------- | 
|                                                                                                  |  | FOR |             |  | AGAINST |  |            | ABSTAIN | 
|                                                                                                  |  |     |             |  |         |  |            |         | 
|Proposal to approve the El Paso Corporation 2005
    Compensation Plan for Non-Employee Directors |  |     | 406,537,306 |  |         |  | 31,591,247 |         |  |  | 5,942,757 | 
|Proposal to approve the El Paso Corporation 2005 Omnibus
    Incentive Compensation Plan          |  |     | 379,557,767 |  |         |  | 58,362,022 |         |  |  | 6,151,522 | 



|                                                                                                                     |  |     |             |  |         |  |            |         |  |  |           | 
|-------------------------------------------------------------------------------------------------------------------- |  | --- | ----------- |  | ------- |  | ---------- | ------- |  |  | --------- | 
|                                                                                                                     |  | FOR |             |  | AGAINST |  |            | ABSTAIN | 
|                                                                                                                     |  |     |             |  |         |  |            |         | 
|Proposal to ratify the appointment of
    PricewaterhouseCoopers LLP as independent certified public
    accountants |  |     | 488,435,384 |  |         |  | 81,459,708 |         |  |  | 4,510,255 | 




Item 5. Other Information




65



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##### Table of Contents






Item 6. Exhibits




|        |      |             |  |                                                                                                                                                                                                       
|------- | ---- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 3    | .A          |  | Second Amended and Restated Certificate of Incorporation Stock
    (Exhibit 3.A to our Form 8-K filed on May 31,
    2005).                                                                           
|        | 3    | .B          |  | Certificate of Designations of 4.99% Convertible Perpetual
    Preferred Stock (Exhibit 3.A to our Form 8-K filed on
    April 15, 2005).                                                             
|        | 4    | .A          |  | Registration Rights Agreement, dated April 15, 2005, by and
    among El Paso Corporation and the Initial Purchasers party
    thereto (Exhibit 4.A to our Form 8-K filed on
    April 15, 2005).     
|        | 4    | .B          |  | Ninth Supplemental Indenture dated as of July 1, 2005
    between El Paso Corporation and HSBC Bank USA, National
    Association, as trustee (Exhibit 4.A to our Form 8-K
    filed on July 1, 2005).
|        | 4    | .C          |  | Form of 7.625% Senior Note Due August 16, 2007 (included in
    Exhibit 4.A to our Form 8-K filed July 1, 2005).                                                                                      
|        | 10   | .A          |  | Purchase Agreement, dated April 11, 2005, by and among
    El Paso Corporation and the Initial Purchasers party
    thereto (Exhibit 10.A to our Form 8-K filed on
    April 15, 2005).               
|        | 10   | .B          |  | Agreement and General Release dated May 4, 2005, by and
    between El Paso Corporation and John W. Somerhalder II
    (Exhibit 10.A to our Form 8-K filed on May 4,
    2005).                       
|        | 10   | .C          |  | El Paso Corporation 2005 Compensation Plan for Non-Employee
    Directors (Exhibit 10.A to our Form 8-K filed on
    May 31, 2005).                                                                   
|        | 10   | .D          |  | El Paso Corporation 2005 Omnibus Incentive Compensation Plan
    (Exhibit 10.B to our Form 8-K filed on May 31,
    2005).                                                                            
|        | *10  | .E          |  | El Paso Corporation Employee Stock Purchase Plan, Amended
    and Restated Effective as of July 1, 2005.                                                                                              
|        | 10   | .F          |  | Registration Rights Agreement dated as of July 1, 2005
    between El Paso Corporation and Credit Suisse First Boston
    LLC (Exhibit 10.A to our Form 8-K filed on
    July 1, 2005).               
|        | *10  | .G          |  | Form of Indemnification Agreement executed by El Paso for the
    benefit of each officer listed in Schedule A thereto, effective
    August 4, 2005.                                                 
|        | *31  | .A          |  | Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                               
|        | *31  | .B          |  | Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                               
|        | **32 | .A          |  | Certification of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                               
|        | **32 | .B          |  | Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                               





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We hereby undertake, pursuant to Regulation S-K,
    Item 601(b), paragraph (4)(iii), to furnish to the
    U.S. Securities and Exchange Commission, upon request, all
    constituent instruments defining the rights of holders of our
    long-term debt not filed herewith for the reason that the total
    amount of securities authorized under any of such instruments
    does not exceed 10 percent of our total consolidated assets.

66



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##### Table of Contents






SIGNATURES






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



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



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

67



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##### Table of Contents



EL PASO CORPORATION


EXHIBIT INDEX




|        |      |             |  |                                                                                                                                                                                                       
|------- | ---- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 3    | .A          |  | Second Amended and Restated Certificate of Incorporation Stock
    (Exhibit 3.A to our Form 8-K filed on
    May 31, 2005).                                                                           
|        | 3    | .B          |  | Certificate of Designations of 4.99% Convertible Perpetual
    Preferred Stock (Exhibit 3.A to our Form 8-K filed on
    April 15, 2005).                                                             
|        | 4    | .A          |  | Registration Rights Agreement, dated April 15, 2005, by and
    among El Paso Corporation and the Initial Purchasers party
    thereto (Exhibit 4.A to our Form 8-K filed on
    April 15, 2005).     
|        | 4    | .B          |  | Ninth Supplemental Indenture dated as of July 1, 2005
    between El Paso Corporation and HSBC Bank USA, National
    Association, as trustee (Exhibit 4.A to our Form 8-K
    filed on July 1, 2005).
|        | 4    | .C          |  | Form of 7.625% Senior Note Due August 16, 2007 (included in
    Exhibit 4.A to our Form 8-K filed
    July 1, 2005).                                                                                  
|        | 10   | .A          |  | Purchase Agreement, dated April 11, 2005, by and among
    El Paso Corporation and the Initial Purchasers party
    thereto (Exhibit 10.A to our Form 8-K filed on
    April 15, 2005).               
|        | 10   | .B          |  | Agreement and General Release dated May 4, 2005, by
    and between El Paso Corporation and John W.
    Somerhalder II (Exhibit 10.A to our Form 8-K
    filed on May 4, 2005).                       
|        | 10   | .C          |  | El Paso Corporation 2005 Compensation Plan for Non-Employee
    Directors (Exhibit 10.A to our Form 8-K filed on
    May 31, 2005).                                                                   
|        | 10   | .D          |  | El Paso Corporation 2005 Omnibus Incentive Compensation Plan
    (Exhibit 10.B to our Form 8-K filed on
    May 31, 2005).                                                                            
|        | *10  | .E          |  | El Paso Corporation Employee Stock Purchase Plan, Amended and
    Restated Effective as of July 1, 2005.                                                                                              
|        | 10   | .F          |  | Registration Rights Agreement dated as of July 1, 2005
    between El Paso Corporation and Credit Suisse First Boston
    LLC (Exhibit 10.A to our Form 8-K filed on
    July 1, 2005).               
|        | *10  | .G          |  | Form of Indemnification Agreement executed by El Paso for the
    benefit of each officer listed in Schedule A thereto, effective
    August 4, 2005.                                                 
|        | *31  | .A          |  | Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                               
|        | *31  | .B          |  | Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                               
|        | **32 | .A          |  | Certification of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                               
|        | **32 | .B          |  | Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.