##### Table of Contents





















Form 10-Q/A








(Amendment No. 1)







[X]


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended June 30, 2004


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




o þ


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 |  |      | 40 | 
|                                         
|                                         
|                                         
|                                         
|                                          |  | Cautionary Statement Regarding
    Forward-Looking Statements                             |  |      | 65 | 
|                                         
|                                         
|                                         
|                                         
|Item 3.                                   |  | Quantitative and Qualitative Disclosures
    About Market Risk                            |  |      | 66 | 
|                                         
|                                         
|                                         
|                                         
|Item 4.                                   |  | Controls and Procedures                                                                   |  |      | 67 | 
|                                          |  | PART II  Other Information                                                               |  |      |    | 
|                                         
|                                         
|                                         
|                                         
|Item 1.                                   |  | Legal Proceedings                                                                         |  |      | 70 | 
|                                         
|                                         
|                                         
|                                         
|Item 2.                                   |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                           |  |      | 70 | 
|                                         
|                                         
|                                         
|                                         
|Item 3.                                   |  | Defaults Upon Senior Securities                                                           |  |      | 70 | 
|                                         
|                                         
|                                         
|                                         
|Item 4.                                   |  | Submission of Matters to a Vote of Security
    Holders                                   |  |      | 70 | 
|                                         
|                                         
|                                         
|                                         
|Item 5.                                   |  | Other Information                                                                         |  |      | 71 | 
|                                         
|                                         
|                                         
|                                         
|Item 6.                                   |  | Exhibits                                                                                  |  |      | 71 | 
|                                         
|                                         
|                                         
|                                         
|                                          |  | Signatures                                                                                |  |      | 72 | 
|Certification of CEO pursuant to Sec. 302
|Certification of CFO pursuant to Sec. 302
|Certification of CEO pursuant to Sec. 906
|Certification of CFO pursuant to Sec. 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 
|TBtu  |  | = trillion British thermal units                
|MW    |  | = megawatt                                      





i



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##### Table of Contents






EXPLANATORY NOTE








Business Combinations Goodwill and Other Intangible Assets













ii



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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)





|                                                                  |                                                              |                        |       |                  |            |   |        |            |   |   |            |       |   |   |        |       |  
|----------------------------------------------------------------- | ------------------------------------------------------------ | ---------------------- | ----- | ---------------- | ---------- | - | ------ | ---------- | - | - | ---------- | ----- | - | - | ------ | ----- | -
|                                                                  |                                                              |                        |       | Six Months Ended |           
|                                                                  |                                                              | Quarter Ended June 30, |       |                  | June 30,   |  
|                                                                  |                                                              |                        |       |                  |            |  
|                                                                  |                                                              | 2004                   |       |                  | 2003       |   |        | 2004       |   |   | 2003       |      
|                                                                  |                                                              | (Restated)             |       |                  | (Restated) |   |        | (Restated) |   |   | (Restated) |      
|                                                                  |                                                              |                        |       |                  |            |   |        |            |   |   |            |      
|Operating revenues                                                |                                                              | $                      | 1,524 |                  |            | $ | 1,569  |            |   | $ | 3,081      |       |   | $ | 3,397  |      
|                                                                  |                                                              |                        |       |                  |            |   |        |            |   |   |            |      
|Operating expenses                                                |                                                              |                        |       |                  |            |   |        |            |   |   |            |       |   |   |        |      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Cost of products and services                                |                        |       | 435              |            |   |        | 448        |   |   |            | 825   |   |   |        | 1,053 |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Operation and maintenance                                    |                        |       | 373              |            |   |        | 625        |   |   |            | 774   |   |   |        | 1,181 |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Depreciation, depletion and amortization                     |                        |       | 263              |            |   |        | 302        |   |   |            | 538   |   |   |        | 614   |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Loss on long-lived assets                                    |                        |       | 17               |            |   |        | 395        |   |   |            | 255   |   |   |        | 409   |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Taxes, other than income taxes                               |                        |       | 66               |            |   |        | 71         |   |   |            | 130   |   |   |        | 148   |  
|                                                                  |                                                              |                        |       |                  |            |   |        |            |   |   |            |      
|                                                                  |                                                              |                        | 1,154 |                  |            |   | 1,841  |            |   |   | 2,522      |       |   |   | 3,405  |      
|                                                                  |                                                              |                        |       |                  |            |   |        |            |   |   |            |      
|Operating income (loss)                                           |                                                              |                        | 370   |                  |            |   | (272   | )          |   |   | 559        |       |   |   | (8     | )    
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Earnings (losses) from unconsolidated affiliates                  |                                                              |                        | 98    |                  |            |   | 86     |            |   |   | 185        |       |   |   | (48    | )    
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Other income                                                      |                                                              |                        | 50    |                  |            |   | 46     |            |   |   | 110        |       |   |   | 83     |      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Other expense                                                     |                                                              |                        | (20   | )                |            |   | (87    | )          |   |   | (36        | )     |   |   | (129   | )    
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Interest and debt expense                                         |                                                              |                        | (410  | )                |            |   | (463   | )          |   |   | (833       | )     |   |   | (877   | )    
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Distributions on preferred interests of consolidated subsidiaries |                                                              |                        | (6    | )                |            |   | (17    | )          |   |   | (12        | )     |   |   | (38    | )    
|                                                                  |                                                              |                        |       |                  |            |   |        |            |   |   |            |      
|Income (loss) before income taxes                                 |                                                              |                        | 82    |                  |            |   | (707   | )          |   |   | (27        | )     |   |   | (1,017 | )    
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Income taxes                                                      |                                                              |                        | 48    |                  |            |   | (410   | )          |   |   | 58         |       |   |   | (513   | )    
|                                                                  |                                                              |                        |       |                  |            |   |        |            |   |   |            |      
|Income (loss) from continuing operations                          |                                                              |                        | 34    |                  |            |   | (297   | )          |   |   | (85        | )     |   |   | (504   | )    
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Discontinued operations, net of income taxes                      |                                                              |                        | (29   | )                |            |   | (939   | )          |   |   | (106       | )     |   |   | (1,154 | )    
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cumulative effect of accounting changes, net of income taxes      |                                                              |                        |      |                  |            |   |       |            |   |   |           |       |   |   | (9     | )    
|                                                                  |                                                              |                        |       |                  |            |   |        |            |   |   |            |      
|Net income (loss)                                                 |                                                              | $                      | 5     |                  |            | $ | (1,236 | )          |   | $ | (191       | )     |   | $ | (1,667 | )    
|                                                                  |                                                              |                        |       |                  |            |   |        |            |   |   |            |      
|Basic and diluted income (loss) per common share                  |                                                              |                        |       |                  |            |   |        |            |   |   |            |       |   |   |        |      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Income (loss) from continuing operations                     |                        | $     | 0.05             |            |   | $      | (0.50      | ) |   | $          | (0.13 | ) |   | $      | (0.84 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Discontinued operations, net of income taxes                 |                        |       | (0.04            | )          |   |        | (1.57      | ) |   |            | (0.17 | ) |   |        | (1.94 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Cumulative effect of accounting changes, net of income taxes |                        |       |                 |            |   |        |           |   |   |            |      |   |   |        | (0.02 | )
|                                                                  |                                                              |                        |       |                  |            |   |        |            |   |   |            |      
|                                                                  | Net income (loss) per common share                           |                        | $     | 0.01             |            |   | $      | (2.07      | ) |   | $          | (0.30 | ) |   | $      | (2.80 | )
|                                                                  |                                                              |                        |       |                  |            |   |        |            |   |   |            |      
|Basic and diluted average common shares outstanding               |                                                              |                        | 639   |                  |            |   | 596    |            |   |   | 639        |       |   |   | 595    |      
|                                                                  |                                                              |                        |       |                  |            |   |        |            |   |   |            |      
|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, |       
|                                       |                                                           | 2004                                                         |                                          |        | 2003         |       
|                                       |                                                           | (Restated)                                                   |                                          |        | (Restated)   |       
|                                       |                                                           |                                                              |                                          |        |              |       
|ASSETS                                
|Current assets                         |                                                           |                                                              |                                          |        |              |        |        |       
|                                      
|                                      
|                                      
|                                      
|                                       | Cash and cash equivalents                                 |                                                              | $                                        | 1,411  |              |        | $      | 1,429  |      
|                                       | Accounts and notes receivable                             |                                                              |                                          |        |              |        |        |        |      
|                                      
|                                      
|                                      
|                                      
|                                       |                                                           | Customers, net of allowance of $252 in 2004 and $272 in 2003 |                                          |        | 1,487        |        |        |        | 2,039 |       
|                                      
|                                      
|                                      
|                                      
|                                       |                                                           | Affiliates                                                   |                                          |        | 138          |        |        |        | 189   |       
|                                      
|                                      
|                                      
|                                      
|                                       |                                                           | Other                                                        |                                          |        | 256          |        |        |        | 245   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Inventory                                                 |                                                              |                                          | 157    |              |        |        | 181    |      
|                                      
|                                      
|                                      
|                                      
|                                       | Assets from price risk management activities              |                                                              |                                          | 467    |              |        |        | 706    |      
|                                      
|                                      
|                                      
|                                      
|                                       | Assets held for sale and from discontinued operations     |                                                              |                                          | 1,281  |              |        |        | 2,538  |      
|                                      
|                                      
|                                      
|                                      
|                                       | Restricted cash                                           |                                                              |                                          | 236    |              |        |        | 590    |      
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred income taxes                                     |                                                              |                                          | 328    |              |        |        | 593    |      
|                                      
|                                      
|                                      
|                                      
|                                       | Other                                                     |                                                              |                                          | 356    |              |        |        | 413    |      
|                                       |                                                           |                                                              |                                          |        |              |       
|                                       |                                                           |                                                              | Total current assets                     |        |              | 6,117  |        |        |       | 8,923  | 
|                                       |                                                           |                                                              |                                          |        |              |       
|Property, plant and equipment, at cost |                                                           |                                                              |                                          |        |              |        |        |       
|                                      
|                                      
|                                      
|                                      
|                                       | Pipelines                                                 |                                                              |                                          | 18,839 |              |        |        | 18,563 |      
|                                      
|                                      
|                                      
|                                      
|                                       | Natural gas and oil properties, at full cost              |                                                              |                                          | 14,945 |              |        |        | 14,689 |      
|                                      
|                                      
|                                      
|                                      
|                                       | Power facilities                                          |                                                              |                                          | 1,607  |              |        |        | 1,660  |      
|                                      
|                                      
|                                      
|                                      
|                                       | Gathering and processing systems                          |                                                              |                                          | 309    |              |        |        | 334    |      
|                                      
|                                      
|                                      
|                                      
|                                       | Other                                                     |                                                              |                                          | 923    |              |        |        | 998    |      
|                                       |                                                           |                                                              |                                          |        |              |       
|                                       |                                                           |                                                              | 36,623                                   |        |              |        | 36,244 |       
|                                      
|                                      
|                                      
|                                      
|                                       | Less accumulated depreciation, depletion and amortization |                                                              |                                          | 18,274 |              |        |        | 18,049 |      
|                                       |                                                           |                                                              |                                          |        |              |       
|                                       |                                                           |                                                              | Total property, plant and equipment, net |        |              | 18,349 |        |        |       | 18,195 | 
|                                       |                                                           |                                                              |                                          |        |              |       
|Other assets                           |                                                           |                                                              |                                          |        |              |        |        |       
|                                      
|                                      
|                                      
|                                      
|                                       | Investments in unconsolidated affiliates                  |                                                              |                                          | 3,375  |              |        |        | 3,409  |      
|                                      
|                                      
|                                      
|                                      
|                                       | Assets from price risk management activities              |                                                              |                                          | 1,415  |              |        |        | 2,338  |      
|                                      
|                                      
|                                      
|                                      
|                                       | Goodwill and other intangible assets, net                 |                                                              |                                          | 1,077  |              |        |        | 1,082  |      
|                                      
|                                      
|                                      
|                                      
|                                       | Other                                                     |                                                              |                                          | 2,252  |              |        |        | 2,996  |      
|                                       |                                                           |                                                              |                                          |        |              |       
|                                       |                                                           |                                                              | 8,119                                    |        |              |        | 9,825  |       
|                                       |                                                           |                                                              |                                          |        |              |       
|                                       |                                                           |                                                              | Total assets                             |        | $            | 32,585 |        |        | $     | 36,943 | 
|                                       |                                                           |                                                              |                                          |        |              |       






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##### Table of Contents



EL PASO CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS 
(Continued)


(In millions, except share amounts)


(Unaudited)





|                                     |                                                                                                                                                 |            |                                            |        |              |        |        |        |       |        | 
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ------------------------------------------ | ------ | ------------ | ------ | ------ | ------ | ----- | ------ | 
|                                     |                                                                                                                                                 | June 30,   |                                            |        | December 31, |       
|                                     |                                                                                                                                                 | 2004       |                                            |        | 2003         |       
|                                     |                                                                                                                                                 | (Restated) |                                            |        | (Restated)   |       
|                                     |                                                                                                                                                 |            |                                            |        |              |       
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities                  |                                                                                                                                                 |            |                                            |        |              |        |        |       
|                                     | Accounts payable                                                                                                                                |            |                                            |        |              |        |        |        |      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                                 | Trade      |                                            | $      | 1,144        |        |        | $      | 1,552 |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                                 | Affiliates |                                            |        | 25           |        |        |        | 26    |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                                 | Other      |                                            |        | 337          |        |        |        | 438   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Short-term financing obligations, including current maturities                                                                                  |            |                                            | 1,574  |              |        |        | 1,457  |      
|                                    
|                                    
|                                    
|                                    
|                                     | Liabilities from price risk management activities                                                                                               |            |                                            | 632    |              |        |        | 734    |      
|                                    
|                                    
|                                    
|                                    
|                                     | Western Energy Settlement                                                                                                                       |            |                                            | 44     |              |        |        | 633    |      
|                                    
|                                    
|                                    
|                                    
|                                     | Liabilities related to assets held for sale and discontinued
    operations                                                                     |            |                                            | 268    |              |        |        | 933    |      
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued interest                                                                                                                                |            |                                            | 327    |              |        |        | 391    |      
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                                                                                                                           |            |                                            | 794    |              |        |        | 910    |      
|                                     |                                                                                                                                                 |            |                                            |        |              |       
|                                     |                                                                                                                                                 |            | Total current liabilities                  |        |              | 5,145  |        |        |       | 7,074  | 
|                                     |                                                                                                                                                 |            |                                            |        |              |       
|Long-term financing obligations      |                                                                                                                                                 |            | 18,259                                     |        |              |        | 20,275 |       
|                                     |                                                                                                                                                 |            |                                            |        |              |       
|Other                                |                                                                                                                                                 |            |                                            |        |              |        |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Liabilities from price risk management activities                                                                                               |            |                                            | 887    |              |        |        | 781    |      
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred income taxes                                                                                                                           |            |                                            | 1,317  |              |        |        | 1,558  |      
|                                    
|                                    
|                                    
|                                    
|                                     | Western Energy Settlement                                                                                                                       |            |                                            | 354    |              |        |        | 415    |      
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                                                                                                                           |            |                                            | 1,993  |              |        |        | 2,047  |      
|                                     |                                                                                                                                                 |            |                                            |        |              |       
|                                     |                                                                                                                                                 |            | 4,551                                      |        |              |        | 4,801  |       
|                                     |                                                                                                                                                 |            |                                            |        |              |       
|Commitments and contingencies        |                                                                                                                                                 |            |                                            |        |              |        |        |       
|                                    
|                                    
|                                    
|                                    
|Securities of subsidiaries           |                                                                                                                                                 |            | 448                                        |        |              |        | 447    |       
|                                     |                                                                                                                                                 |            |                                            |        |              |       
|Stockholders equity                 |                                                                                                                                                 |            |                                            |        |              |        |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, par value $3 per share; authorized
    1,500,000,000 shares; issued 650,370,099 shares in
    2004 and 639,299,156 shares in 2003 |            |                                            | 1,950  |              |        |        | 1,917  |      
|                                    
|                                    
|                                    
|                                    
|                                     | Additional paid-in capital                                                                                                                      |            |                                            | 4,580  |              |        |        | 4,576  |      
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated deficit                                                                                                                             |            |                                            | (2,053 | )            |        |        | (1,862 | )    
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated other comprehensive income                                                                                                          |            |                                            | (44    | )            |        |        | (40    | )    
|                                    
|                                    
|                                    
|                                    
|                                     | Treasury stock (at cost); 7,432,519 shares in 2004 and
    7,097,326 shares in 2003                                                             |            |                                            | (223   | )            |        |        | (222   | )    
|                                    
|                                    
|                                    
|                                    
|                                     | Unamortized compensation                                                                                                                        |            |                                            | (28    | )            |        |        | (23    | )    
|                                     |                                                                                                                                                 |            |                                            |        |              |       
|                                     |                                                                                                                                                 |            | Total stockholders equity                 |        |              | 4,182  |        |        |       | 4,346  | 
|                                     |                                                                                                                                                 |            |                                            |        |              |       
|                                     |                                                                                                                                                 |            | Total liabilities and stockholders equity |        | $            | 32,585 |        |        | $     | 36,943 | 
|                                     |                                                                                                                                                 |            |                                            |        |              |       






3



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##### Table of Contents



EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)





|                                     |                                                                                      |                                                                                       |                                                     |        |               |        |     |        |        |       |  
|------------------------------------ | ------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------- | --------------------------------------------------- | ------ | ------------- | ------ | --- | ------ | ------ | ----- | -
|                                     |                                                                                      | Six Months Ended                                                                      |                                                    
|                                     |                                                                                      | June 30,                                                                              |                                                    
|                                     |                                                                                      |                                                                                       |                                                    
|                                     |                                                                                      | 2004                                                                                  |                                                     |        | 2003          |       
|                                     |                                                                                      | (Restated)(1)                                                                         |                                                     |        | (Restated)(1) |       
|                                     |                                                                                      |                                                                                       |                                                     |        |               |       
|Cash flows from operating activities |                                                                                      |                                                                                       |                                                     |        |               |        |     |       
|                                    
|                                    
|                                    
|                                    
|                                     | Net loss                                                                             |                                                                                       | $                                                   | (191   | )             |        | $   | (1,667 | )     
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                      | Less loss from discontinued operations, net of income taxes                           |                                                     |        | (106          | )      |     |        | (1,154 | )    
|                                     |                                                                                      |                                                                                       |                                                     |        |               |       
|                                     | Net loss before discontinued operations                                              |                                                                                       |                                                     | (85    | )             |        |     | (513   | )     
|                                     | Adjustments to reconcile net loss to net cash from operating
    activities          |                                                                                       |                                                     |        |               |        |     |        |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                      | Depreciation, depletion and amortization                                              |                                                     |        | 538           |        |     |        | 614    |      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                      | Loss on long-lived assets                                                             |                                                     |        | 255           |        |     |        | 409    |      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                      | (Earnings) losses from unconsolidated affiliates, adjusted for
    cash distributions |                                                     |        | (27           | )      |     |        | 162    |      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                      | Deferred income taxes                                                                 |                                                     |        | 37            |        |     |        | (541   | )    
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                      | Cumulative effect of accounting changes                                               |                                                     |        |              |        |     |        | 9      |      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                      | Other non-cash items                                                                  |                                                     |        | 53            |        |     |        | 312    |      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                      | Asset and liability changes                                                           |                                                     |        | (636          | )      |     |        | 467    |      
|                                     |                                                                                      |                                                                                       |                                                     |        |               |       
|                                     |                                                                                      | Cash provided by continuing operations                                                |                                                     |        | 135           |        |     |        | 919    |      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                      | Cash provided by discontinued operations                                              |                                                     |        | 161           |        |     |        | 95     |      
|                                     |                                                                                      |                                                                                       |                                                     |        |               |       
|                                     |                                                                                      |                                                                                       | Net cash provided by operating activities           |        |               | 296    |     |        |        | 1,014 |  
|                                     |                                                                                      |                                                                                       |                                                     |        |               |       
|Cash flows from investing activities |                                                                                      |                                                                                       |                                                     |        |               |        |     |       
|                                    
|                                    
|                                    
|                                    
|                                     | Additions to property, plant and equipment                                           |                                                                                       |                                                     | (782   | )             |        |     | (1,266 | )     
|                                    
|                                    
|                                    
|                                    
|                                     | Purchases of interests in equity investments                                         |                                                                                       |                                                     | (21    | )             |        |     | (20    | )     
|                                    
|                                    
|                                    
|                                    
|                                     | Net proceeds from the sale of assets and investments                                 |                                                                                       |                                                     | 165    |               |        |     | 1,282  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Cash paid for acquisitions, net of cash acquired                                     |                                                                                       |                                                     | 2      |               |        |     | (1,078 | )     
|                                    
|                                    
|                                    
|                                    
|                                     | Net change in restricted cash                                                        |                                                                                       |                                                     | 447    |               |        |     | (105   | )     
|                                    
|                                    
|                                    
|                                    
|                                     | Net change in notes receivable from unconsolidated affiliates                        |                                                                                       |                                                     | 98     |               |        |     | (79    | )     
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                                                                |                                                                                       |                                                     |       |               |        |     | 25     |       
|                                     |                                                                                      |                                                                                       |                                                     |        |               |       
|                                     |                                                                                      | Cash used in continuing operations                                                    |                                                     |        | (91           | )      |     |        | (1,241 | )    
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                      | Cash provided by discontinued operations                                              |                                                     |        | 1,113         |        |     |        | 245    |      
|                                     |                                                                                      |                                                                                       |                                                     |        |               |       
|                                     |                                                                                      |                                                                                       | Net cash provided by (used in) investing activities |        |               | 1,022  |     |        |        | (996  | )
|                                     |                                                                                      |                                                                                       |                                                     |        |               |       
|Cash flows from financing activities |                                                                                      |                                                                                       |                                                     |        |               |        |     |       
|                                    
|                                    
|                                    
|                                    
|                                     | Payments to retire long-term debt and other financing obligations                    |                                                                                       |                                                     | (1,024 | )             |        |     | (1,599 | )     
|                                    
|                                    
|                                    
|                                    
|                                     | Net proceeds from the issuance of long-term debt and other
    financing obligations |                                                                                       |                                                     | 50     |               |        |     | 3,086  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Dividends paid                                                                       |                                                                                       |                                                     | (49    | )             |        |     | (154   | )     
|                                    
|                                    
|                                    
|                                    
|                                     | Payments to redeem preferred interests of consolidated
    subsidiaries              |                                                                                       |                                                     |       |               |        |     | (1,177 | )     
|                                    
|                                    
|                                    
|                                    
|                                     | Contributions from discontinued operations                                           |                                                                                       |                                                     | 909    |               |        |     | 340    |       
|                                    
|                                    
|                                    
|                                    
|                                     | Issuances of common stock, net                                                       |                                                                                       |                                                     | 73     |               |        |     |       |       
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                                                                |                                                                                       |                                                     | (21    | )             |        |     | 20     |       
|                                     |                                                                                      |                                                                                       |                                                     |        |               |       
|                                     |                                                                                      | Cash provided by (used in) continuing operations                                      |                                                     |        | (62           | )      |     |        | 516    |      
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                      | Cash used in discontinued operations                                                  |                                                     |        | (1,274        | )      |     |        | (340   | )    
|                                     |                                                                                      |                                                                                       |                                                     |        |               |       
|                                     |                                                                                      |                                                                                       | Net cash provided by (used in) financing activities |        |               | (1,336 | )   |        |        | 176   |  
|                                     |                                                                                      |                                                                                       |                                                     |        |               |       
|Change in cash and cash equivalents  |                                                                                      |                                                                                       | (18                                                 | )      |               |        | 194 |       
|Cash and cash equivalents            |                                                                                      |                                                                                       |                                                     |        |               |        |     |       
|                                    
|                                    
|                                    
|                                    
|                                     | Beginning of period                                                                  |                                                                                       |                                                     | 1,429  |               |        |     | 1,591  |       
|                                     |                                                                                      |                                                                                       |                                                     |        |               |       
|                                     | End of period                                                                        |                                                                                       | $                                                   | 1,411  |               |        | $   | 1,785  |       
|                                     |                                                                                      |                                                                                       |                                                     |        |               |       









|    |                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Only individual line items in cash flows from operating
    activities have been restated. Total cash flows from continuing
    operating, investing and financing activities, as well as
    discontinued operations, were unaffected.



4



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##### Table of Contents



EL PASO CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(In millions)


(Unaudited)





|                                                                                                                   |                                                                                                                                                             |                                   |     |                  |            |   |        |            |    |   |            |     |    |   |        |     |     | 
|------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | --- | ---------------- | ---------- | - | ------ | ---------- | -- | - | ---------- | --- | -- | - | ------ | --- | --- | 
|                                                                                                                   |                                                                                                                                                             |                                   |     | Six Months Ended |           
|                                                                                                                   |                                                                                                                                                             | Quarter Ended June 30,            |     |                  | June 30,   |  
|                                                                                                                   |                                                                                                                                                             |                                   |     |                  |            |  
|                                                                                                                   |                                                                                                                                                             | 2004                              |     |                  | 2003       |   |        | 2004       |    |   | 2003       |    
|                                                                                                                   |                                                                                                                                                             | (Restated)                        |     |                  | (Restated) |   |        | (Restated) |    |   | (Restated) |    
|                                                                                                                   |                                                                                                                                                             |                                   |     |                  |            |   |        |            |    |   |            |    
|Net income (loss)                                                                                                  |                                                                                                                                                             | $                                 | 5   |                  |            | $ | (1,236 | )          |    | $ | (191       | )   |    | $ | (1,667 | )  
|                                                                                                                   |                                                                                                                                                             |                                   |     |                  |            |   |        |            |    |   |            |    
|Foreign currency translation adjustments (net of income taxes of
    $14 and $51 in 2004 and less than $1 in 2003) |                                                                                                                                                             |                                   | (24 | )                |            |   | 58     |            |    |   | (20        | )   |    |   | 116    |    
|Unrealized net gains (losses) from cash flow hedging activity                                                      |                                                                                                                                                             |                                   |     |                  |            |   |        |            |    |   |            |     |    |   |        |    
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Unrealized mark-to-market gains (losses) arising during period
    (net of income taxes of $2 and $12 in 2004 and $19 and $42 in
    2003)                  |                                   |     | (4               | )          |   |        | 17         |    |   |            | (23 | )  |   |        | 70  |    
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Reclassification adjustments for changes in initial value to the
    settlement date (net of income taxes of $7 and $15 in 2004 and
    $5 and $27 in 2003) |                                   |     | 24               |            |   |        | (13        | )  |   |            | 39  |    |   |        | (59 | )  
|                                                                                                                   |                                                                                                                                                             |                                   |     |                  |            |   |        |            |    |   |            |    
|                                                                                                                   |                                                                                                                                                             | Other comprehensive income (loss) |     |                  | (4         | ) |        |            | 62 |   |            |     | (4 | ) |        |     | 127 | 
|                                                                                                                   |                                                                                                                                                             |                                   |     |                  |            |   |        |            |    |   |            |    
|Comprehensive income (loss)                                                                                        |                                                                                                                                                             | $                                 | 1   |                  |            | $ | (1,174 | )          |    | $ | (195       | )   |    | $ | (1,540 | )  
|                                                                                                                   |                                                                                                                                                             |                                   |     |                  |            |   |        |            |    |   |            |    






5



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##### Table of Contents



EL PASO CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


1. Basis of Presentation and Significant Events
Update


Basis of Presentation













Restatements








Overview. Business Combinations Goodwill and Other Intangible Assets








Cumulative Foreign Currency Translation Adjustments
(CTA).
















Goodwill. Business
Combinations, Goodwill and Other
Intangible Assets,





6



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##### Table of Contents






















|                                  |                                              |                                              |                   |     |                          |      |   |             |       |      |             |      |       |       |   |      |       |       |  
|--------------------------------- | -------------------------------------------- | -------------------------------------------- | ----------------- | --- | ------------------------ | ---- | - | ----------- | ----- | ---- | ----------- | ---- | ----- | ----- | - | ---- | ----- | ----- | -
|                                  |                                              | For the Quarter Ended                        |                   |     | For the Six Months Ended |     
|                                  |                                              | June 30, 2004                                |                   |     | June 30, 2004            |     
|                                  |                                              |                                              |                   |     |                          |     
|                                  |                                              | As Reported                                  |                   |     | As Restated              |      |   | As Reported |       |      | As Restated |     
|                                  |                                              |                                              |                   |     |                          |      |   |             |       |      |             |     
|                                  |                                              | (In millions, except per share amounts)      |                  
|                                 
|                                 
|                                 
|                                 
|Income Statement:                 |                                              |                                              |                   |     |                          |      |   |             |       |      |             |      |       |       |   |     
|                                 
|                                 
|                                 
|                                 
|                                  | Loss on long-lived assets                    |                                              | $                 | 17  |                          |      | $ | 17          |       |      | $           | 239  |       |       | $ | 255  |      
|                                 
|                                 
|                                 
|                                 
|                                  | Operating income                             |                                              |                   | 370 |                          |      |   | 370         |       |      |             | 575  |       |       |   | 559  |      
|                                 
|                                 
|                                 
|                                 
|                                  | Earnings from unconsolidated affiliates      |                                              |                   | 98  |                          |      |   | 98          |       |      |             | 198  |       |       |   | 185  |      
|                                 
|                                 
|                                 
|                                 
|                                  | Other income                                 |                                              |                   | 50  |                          |      |   | 50          |       |      |             | 103  |       |       |   | 110  |      
|                                 
|                                 
|                                 
|                                 
|                                  | Income (loss) before income taxes            |                                              |                   | 82  |                          |      |   | 82          |       |      |             | (5   | )     |       |   | (27  | )    
|                                 
|                                 
|                                 
|                                 
|                                  | Income taxes                                 |                                              |                   | 37  |                          |      |   | 48          |       |      |             | 47   |       |       |   | 58   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Income (loss) from continuing operations     |                                              |                   | 45  |                          |      |   | 34          |       |      |             | (52  | )     |       |   | (85  | )    
|                                 
|                                 
|                                 
|                                 
|                                  | Discontinued operations, net of income taxes |                                              |                   | (29 | )                        |      |   | (29         | )     |      |             | (138 | )     |       |   | (106 | )    
|                                 
|                                 
|                                 
|                                 
|                                  | Net income (loss)                            |                                              |                   | 16  |                          |      |   | 5           |       |      |             | (190 | )     |       |   | (191 | )    
|                                 
|                                 
|                                 
|                                 
|                                  | Basic and diluted income (loss) per share:   |                                              |                   |     |                          |      |   |             |       |      |             |      |       |       |   |      |      
|                                 
|                                 
|                                 
|                                 
|                                  |                                              | Income (loss) from continuing operations     |                   | $   | 0.07                     |      |   | $           | 0.05  |      |             | $    | (0.08 | )     |   | $    | (0.13 | )    
|                                 
|                                 
|                                 
|                                 
|                                  |                                              | Discontinued operations, net of income taxes |                   |     | (0.04                    | )    |   |             | (0.04 | )    |             |      | (0.22 | )     |   |      | (0.17 | )    
|                                  |                                              |                                              |                   |     |                          |      |   |             |       |      |             |     
|                                  |                                              |                                              | Net income (loss) |     | $                        | 0.03 |   |             | $     | 0.01 |             |      | $     | (0.30 | ) |      | $     | (0.30 | )
|                                  |                                              |                                              |                   |     |                          |      |   |             |       |      |             |     
|Statement of Comprehensive Income |                                              |                                              |                   |     |                          |      |   |             |       |      |             |      |       |       |   |     
|                                 
|                                 
|                                 
|                                 
|                                  | Foreign currency translation adjustments     |                                              | $                 | (39 | )                        |      | $ | (24         | )     |      | $           | (25  | )     |       | $ | (20  | )    
|                                 
|                                 
|                                 
|                                 
|                                  | Other comprehensive income                   |                                              |                   | (19 | )                        |      |   | (4          | )     |      |             | (9   | )     |       |   | (4   | )    







|               |                                                      |                     |   |        |                         |  |   |             |   |  |             |        |   |  |   |        |  
|-------------- | ---------------------------------------------------- | ------------------- | - | ------ | ----------------------- |  | - | ----------- | - |  | ----------- | ------ | - |  | - | ------ | -
|               |                                                      | As of June 30, 2004 |   |        | As of December 31, 2003 | 
|               |                                                      |                     |   |        |                         | 
|               |                                                      | As Reported         |   |        | As Restated             |  |   | As Reported |   |  | As Restated |       
|               |                                                      |                     |   |        |                         |  |   |             |   |  |             |       
|Balance Sheet: |                                                      |                     |   |        |                         |  |   |             |   |  |             |        |   |  |   |       
|              
|              
|              
|              
|               | Deferred income tax assets                           |                     | $ | 328    |                         |  | $ | 328         |   |  | $           | 592    |   |  | $ | 593    |  
|              
|              
|              
|              
|               | Property, plant and equipment  Power facilities     |                     |   | 1,591  |                         |  |   | 1,607       |   |  |             | 1,660  |   |  |   | 1,660  |  
|               | Accumulated depreciation, depletion and amortization |                     |   | 18,258 |                         |  |   | 18,274      |   |  |             | 18,049 |   |  |   | 18,049 |  
|               | Investments in unconsolidated affiliates             |                     |   | 3,517  |                         |  |   | 3,375       |   |  |             | 3,551  |   |  |   | 3,409  |  
|              
|              
|              
|              
|               | Deferred income tax liabilities, non-current         |                     |   | 1,335  |                         |  |   | 1,317       |   |  |             | 1,571  |   |  |   | 1,558  |  
|              
|              
|              
|              
|               | Accumulated deficit                                  |                     |   | (1,975 | )                       |  |   | (2,053      | ) |  |             | (1,785 | ) |  |   | (1,862 | )
|              
|              
|              
|              
|               | Accumulated other comprehensive income               |                     |   | 2      |                         |  |   | (44         | ) |  |             | 11     |   |  |   | (40    | )
|              
|              
|              
|              
|               | Total stockholders equity                           |                     |   | 4,306  |                         |  |   | 4,182       |   |  |             | 4,474  |   |  |   | 4,346  |  







Reserve Revisions and Accounting for Certain Derivatives.





7



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##### Table of Contents











Business Update






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | completing or announcing sales of assets and investments of
    approximately $3.3 billion (see Note 4);                                                                                                                                                                                                                                                                                                                                                      
|
| |  | retiring, eliminating, or refinancing approximately
    $3.4 billion of debt and other obligations
    ($1.9 billion through June 30, 2004) (see
    Note 11);                                                                                                                                                                                                                                                                                                
|
| |  | finalizing the Western Energy Settlement, which substantially
    resolved our principal exposure relating to the western energy
    crisis and successfully raising funds to satisfy a significant
    portion of our current obligations under that settlement (see
    Note 12); and                                                                                                                                                                       
|
| |  | entering into a new credit agreement to refinance our existing
    revolving credit facility with an aggregate of $3 billion
    in financings consisting of a $1.25 billion, five year term
    loan, a new $1.0 billion, three year revolving credit
    facility, and a five year, $750 million funded letter of
    credit facility, all of which will become available to us upon
    the filing of this Quarterly Report on Form 10-Q (see
    Note 11).

Liquidity Update








8



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##### Table of Contents









2. Significant Accounting Policies






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

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





|                                                                                                                   |                                |                        |    |                  |          |   |        |            |   |   |      |       |   |   |        |       |  
|------------------------------------------------------------------------------------------------------------------ | ------------------------------ | ---------------------- | -- | ---------------- | -------- | - | ------ | ---------- | - | - | ---- | ----- | - | - | ------ | ----- | -
|                                                                                                                   |                                |                        |    | Six Months Ended |         
|                                                                                                                   |                                | Quarter Ended June 30, |    |                  | June 30, |  
|                                                                                                                   |                                |                        |    |                  |          |  
|                                                                                                                   |                                | 2004                   |    |                  |          |   | 2004   |            |   |  
|                                                                                                                   |                                | (Restated)             |    |                  | 2003     |   |        | (Restated) |   |   | 2003 |      
|                                                                                                                   |                                |                        |    |                  |          |   |        |            |   |   |      |      
|                                                                                                                   |                                | (In millions)          |   
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Net income (loss) as reported                                                                                      |                                | $                      | 5  |                  |          | $ | (1,236 | )          |   | $ | (191 | )     |   | $ | (1,667 | )    
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Add: Stock-based compensation expense in net income (loss), net
    of taxes                                       |                                |                        | 7  |                  |          |   | 16     |            |   |   | 11   |       |   |   | 27     |      
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Deduct: Stock-based compensation expense determined under fair
    value-based method for all awards, net of taxes |                                |                        | 11 |                  |          |   | 25     |            |   |   | 21   |       |   |   | 52     |      
|                                                                                                                   |                                |                        |    |                  |          |   |        |            |   |   |      |      
|Pro forma net income (loss)                                                                                        |                                | $                      | 1  |                  |          | $ | (1,245 | )          |   | $ | (201 | )     |   | $ | (1,692 | )    
|                                                                                                                   |                                |                        |    |                  |          |   |        |            |   |   |      |      
|Income (loss) per share:                                                                                           |                                |                        |    |                  |          |   |        |            |   |   |      |       |   |   |        |      
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Basic and diluted, as reported |                        | $  | 0.01             |          |   | $      | (2.07      | ) |   | $    | (0.30 | ) |   | $      | (2.80 | )
|                                                                                                                   |                                |                        |    |                  |          |   |        |            |   |   |      |      
|                                                                                                                   | Basic and diluted, pro forma   |                        | $  | 0.00             |          |   | $      | (2.09      | ) |   | $    | (0.31 | ) |   | $      | (2.84 | )
|                                                                                                                   |                                |                        |    |                  |          |   |        |            |   |   |      |      




9



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##### Table of Contents



Consolidation of
Variable Interest Entities


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




|                                               |  |                     |     |  
|---------------------------------------------- |  | ------------------- | --- | -
|                                               |  | Increase/(Decrease) |    
|                                               |  |                     |    
|                                               |  | (In millions)       |    
|                                              
|                                              
|                                              
|                                              
|Restricted cash                                |  | $                   | 34  |  
|                                              
|                                              
|                                              
|                                              
|Accounts and notes receivable from affiliates  |  |                     | (54 | )
|                                              
|                                              
|                                              
|                                              
|Investments in unconsolidated affiliates       |  |                     | (5  | )
|                                              
|                                              
|                                              
|                                              
|Property, plant, and equipment, net            |  |                     | 37  |  
|                                              
|                                              
|                                              
|                                              
|Other current and non-current assets           |  |                     | (15 | )
|                                              
|                                              
|                                              
|                                              
|Long-term financing obligations                |  |                     | 15  |  
|                                              
|                                              
|                                              
|                                              
|Other current and non-current liabilities      |  |                     | (4  | )
|                                              
|                                              
|                                              
|                                              
|Minority interest of consolidated subsidiaries |  |                     | (14 | )









10



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##### Table of Contents





|                                                              |  |               |     |   |      |   |     |  
|------------------------------------------------------------- |  | ------------- | --- | - | ---- | - | --- | -
|                                                              |  | 2004          |     |   | 2003 |  
|                                                              |  |               |     |   |      |  
|                                                              |  | (In millions) |    
|                                                             
|                                                             
|                                                             
|                                                             
|Operating revenues                                            |  | $             | (3  | ) |      | $ | 7   |  
|                                                             
|                                                             
|                                                             
|                                                             
|Current liabilities from price risk management activities     |  |               | (17 | ) |      |   | (15 | )
|                                                             
|                                                             
|                                                             
|                                                             
|Non-current liabilities from price risk management activities |  |               | (6  | ) |      |   | (93 | )



| |                                            
| | -------------------------------------------
| | Accounting for Asset Retirement Obligations

Accounting for Asset Retirement Obligations




| |                                             
| | --------------------------------------------
| | New Accounting Pronouncement Not Yet Adopted



3. Acquisitions and Consolidations


Chaparral Investors, L.L.C.




Gemstone.


11



---



##### Table of Contents



4. Divestitures




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



|                                        |                |                                                                                         |       |    |                         |   |       |       |  |   |       |       |  | 
|--------------------------------------- | -------------- | --------------------------------------------------------------------------------------- | ----- | -- | ----------------------- | - | ----- | ----- |  | - | ----- | ----- |  | 
|                                        |                | Completed                                                                               |       |    | Completed               |   |       |      
|                                        |                | Through                                                                                 |       |    | After June 30, 2004     |   |       |      
|Significant Assets and Investments Sold |                | June 30, 2004                                                                           |       |    | or Announced to Date(1) |   |       | Total | 
|                                        |                |                                                                                         |       |    |                         |   |       |       | 
|                                        |                | (In millions)                                                                           |      
|Regulated                               |                |                                                                                         |       |   
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        | Pipelines      |                                                                                         | $     | 50 |                         |   | $     | 4     |  |   | $     | 54    | 
|                                        |                |  Australia
    pipelines(2)                                                            |       |    |                         |   |       |       |  |   |       |       |  | 
|                                        |                |  Aircraft(2)                                                                           |       |    |                         |   |       |       |  |   |       |       |  | 
|                                        |                |  Interest in gathering
    systems(3)                                                  |       |    |                         |   |       |       |  |   |       |       |  | 
|                                       
|Unregulated                             |                |                                                                                         |       |    |                         |   |       |       |  |   |       |      
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        | Production     |                                                                                         |       |   |                         |   |       | 24    |  |   |       | 24    | 
|                                        |                |  Brazilian exploration and production
    assets(3)                                    |       |    |                         |   |       |       |  |   |       |       |  | 
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        | Power          |                                                                                         |       | 99 |                         |   |       | 777   |  |   |       | 876   | 
|                                        |                |  25 domestic power plants under
    contract(4)                                        |       |    |                         |   |       |       |  |   |       |       |  | 
|                                        |                |  Utility Contract Funding
    (UCF)(2)                                                 |       |    |                         |   |       |       |  |   |       |       |  | 
|                                        |                |  Mohawk River
    Funding IV(2)                                                        |       |    |                         |   |       |       |  |   |       |       |  | 
|                                        |                |  Bastrop Company equity
    investment(2)                                              |       |    |                         |   |       |       |  |   |       |       |  | 
|                                        |                |  5 other domestic power plants and
    turbines(3)                                     |       |    |                         |   |       |       |  |   |       |       |  | 
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        | Field Services |                                                                                         |       |   |                         |   |       | 1,026 |  |   |       | 1,026 | 
|                                        |                |  General partnership interest, common units and
    Series C units of
    GulfTerra(3) |       |    |                         |   |       |       |  |   |       |       |  | 
|                                        |                |  South Texas processing
    plants(3)                                                  |       |    |                         |   |       |       |  |   |       |       |  | 
|                                       
|Other                                   |                |                                                                                         |       |    |                         |   |       |       |  |   |       |      
|                                       
|                                       
|                                       
|                                       
|                                       
|Corporate                               |                |                                                                                         | 16    |    |                         |   |      |       |  |   | 16    |      
|                                        |                |  Aircraft(2)                                                                           |       |    |                         |   |       |       |  |   |       |       |  | 
|                                        |                |                                                                                         |       |    |                         |   |       |       | 
|                                       
|Total continuing                        |                |                                                                                         | 165   |    |                         |   | 1,831 |       |  |   | 1,996 |      
|                                       
|                                       
|                                       
|                                       
|                                       
|Discontinued                            |                |                                                                                         | 1,261 |    |                         |   | 34    |       |  |   | 1,295 |      
|                                        |                |  Natural gas and oil production properties in Canada
    (2)                           |       |    |                         |   |       |       |  |   |       |       |  | 
|                                        |                |  Aruba and Eagle Point refineries and other petroleum
    assets(2)                    |       |    |                         |   |       |       |  |   |       |       |  | 
|                                        |                |  Remaining Indonesian and Canadian production assets
    (3)                           |       |    |                         |   |       |       |  |   |       |       |  | 
|                                        |                |                                                                                         |       |    |                         |   |       |       | 
|                                       
|Total                                   |                | $                                                                                       | 1,426 |    |                         | $ | 1,865 |       |  | $ | 3,291 |      
|                                        |                |                                                                                         |       |    |                         |   |       |       | 






|    |                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Sales that have not been completed are estimates, subject to
    customary regulatory approvals, final negotiations and other
    conditions.
|(2) | These sales were completed as of June 30, 2004.                                                                                              
|(3) | These sales were or will be completed after June 30, 2004.                                                                                   
|(4) | The sales of 22 of these plants were completed after
    June 30, 2004.                                                                      

12



---



##### Table of Contents



|                                        |                |                                                                                     |       |     |  | 
|--------------------------------------- | -------------- | ----------------------------------------------------------------------------------- | ----- | --- |  | 
|Significant Assets and Investments Sold |                | Proceeds                                                                            |      
|                                        |                |                                                                                     |      
|                                        |                | (In millions)                                                                       |      
|As of June 30, 2003                     |                |                                                                                     |       |    
|                                       
|Regulated                               |                |                                                                                     |       |    
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        | Pipelines      |                                                                                     | $     | 63  | 
|                                        |                |  Panhandle gathering system located in Texas                                       |       |     |  | 
|                                        |                |  2.1 percent interest in Alliance pipeline and
    related assets                  |       |     |  | 
|                                        |                |  Helium processing operations in Oklahoma                                          |       |     |  | 
|                                        |                |  Table Rock sulfur extraction facility                                             |       |     |  | 
|                                       
|Unregulated                             |                |                                                                                     |       |    
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        | Production     |                                                                                     |       | 657 | 
|                                        |                |  Natural gas and oil properties in New Mexico,
    Oklahoma and the Gulf of Mexico |       |     |  | 
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        | Power          |                                                                                     |       | 289 | 
|                                        |                |  50 percent interest in CE Generation
    L.L.C. power investment                  |       |     |  | 
|                                        |                |  Mt. Carmel power plant                                                            |       |     |  | 
|                                        |                |  Interest in Kladno power project                                                  |       |     |  | 
|                                        |                |  CAPSA/CAPEX investments in Argentina                                              |       |     |  | 
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        | Field Services |                                                                                     |       | 153 | 
|                                        |                |  Gathering systems located in Wyoming                                              |       |     |  | 
|                                        |                |  Midstream assets in the north Louisiana and
    Mid-Continent regions             |       |     |  | 
|                                       
|Other                                   |                |                                                                                     |       |    
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        | Corporate      |                                                                                     |       | 68  | 
|                                        |                |  Aircraft                                                                          |       |     |  | 
|                                        |                |  Enerplus Global Energy Management Company and its
    financial operations        |       |     |  | 
|                                        |                |                                                                                     |      
|                                       
|Total continuing                        |                |                                                                                     | 1,230 | (1)
|                                       
|                                       
|                                       
|                                       
|                                       
|Discontinued                            |                |                                                                                     | 581   |    
|                                        |                |  Corpus Christi refinery                                                           |       |     |  | 
|                                        |                |  Florida petroleum terminals and tug and barge
    operations                      |       |     |  | 
|                                        |                |  Louisiana lease crude business                                                    |       |     |  | 
|                                        |                |  Coal reserves and properties in West Virginia,
    Virginia and Kentucky          |       |     |  | 
|                                        |                |  Natural gas and oil production properties in Canada                               |       |     |  | 
|                                        |                |                                                                                     |      
|                                       
|Total                                   |                | $                                                                                   | 1,811 |    
|                                        |                |                                                                                     |      






|    |                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Proceeds include costs incurred in preparing assets for disposal
    and exclude returns of invested capital and cash transferred
    with the assets sold. These items increased our sales proceeds
    by $52 million for the six months ended June 30, 2003.



13



---



##### Table of Contents



Accounting for the Impairment or
Disposal of Long-Lived Assets


|                                         |                   |               |     |       |              |   |     |       | 
|---------------------------------------- | ----------------- | ------------- | --- | ----- | ------------ | - | --- | ----- | 
|                                         |                   | June 30,      |     |       | December 31, |  
|                                         |                   | 2004          |     |       | 2003         |  
|                                         |                   |               |     |       |              |  
|                                         |                   | (In millions) |    
|Assets Held for Sale                    
|                                        
|                                        
|                                        
|                                        
|Current assets                           |                   | $             | 54  |       |              | $ | 46  |      
|                                        
|                                        
|                                        
|                                        
|Investments in unconsolidated affiliates |                   |               | 472 |       |              |   | 480 |      
|                                        
|                                        
|                                        
|                                        
|Property, plant and equipment, net       |                   |               | 448 |       |              |   | 477 |      
|                                        
|                                        
|                                        
|                                        
|Other assets                             |                   |               | 142 |       |              |   | 136 |      
|                                         |                   |               |     |       |              |  
|                                         | Total assets      |               | $   | 1,116 |              |   | $   | 1,139 | 
|                                         |                   |               |     |       |              |  
|Current liabilities                      |                   | $             | 59  |       |              | $ | 54  |      
|                                        
|                                        
|                                        
|                                        
|Long-term debt, less current maturities  |                   |               | 165 |       |              |   | 169 |      
|                                        
|                                        
|                                        
|                                        
|Other liabilities                        |                   |               | 11  |       |              |   | 13  |      
|                                         |                   |               |     |       |              |  
|                                         | Total liabilities |               | $   | 235   |              |   | $   | 236   | 
|                                         |                   |               |     |       |              |  





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




International Natural Gas and Oil Production Operations.





Petroleum Markets.




14



---



##### Table of Contents



Coal Mining.




|                                                       |  |               |        |               |            |   |     |        |  |       |   |  |  |   |        |  
|------------------------------------------------------ |  | ------------- | ------ | ------------- | ---------- | - | --- | ------ |  | ----- | - |  |  | - | ------ | -
|                                                       |  |               |        | International |            |   |     |        | 
|                                                       |  |               |        | Natural Gas   |            |   |     |        | 
|                                                       |  |               |        | and Oil       |            |   |     |        | 
|                                                       |  | Petroleum     |        |               | Production |   |     | Coal   |  |      
|                                                       |  | Markets       |        |               | Operations |   |     | Mining |  | Total |  
|                                                       |  |               |        |               |            |   |     |        |  |       |  
|                                                       |  | (In millions) |       
|Operating Results Data                                 |  |               |        |               |            |   |     |       
|                                                      
|                                                      
|                                                      
|                                                      
|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    | )
|                                                       |  |               |        |               |            |   |     |        |  |       |   | 
|Quarter Ended June 30, 2003                            |  |               |        |               |            |   |     |        |  |       |   |  |  |   |        |  
|                                                      
|                                                      
|                                                      
|                                                      
|Revenues                                               |  | $             | 1,511  |               |            | $ | 20  |        |  | $     |  |  |  | $ | 1,531  |  
|                                                      
|                                                      
|                                                      
|                                                      
|Costs and expenses                                     |  |               | (1,612 | )             |            |   | (33 | )      |  |       |  |  |  |   | (1,645 | )
|                                                      
|                                                      
|                                                      
|                                                      
|Loss on long-lived assets                              |  |               | (990   | )             |            |   | (5  | )      |  |       |  |  |  |   | (995   | )
|                                                      
|                                                      
|                                                      
|                                                      
|Other expense                                          |  |               | (21    | )             |            |   |    |        |  |       |  |  |  |   | (21    | )
|                                                      
|                                                      
|                                                      
|                                                      
|Interest and debt expense                              |  |               | (4     | )             |            |   |    |        |  |       |  |  |  |   | (4     | )
|                                                       |  |               |        |               |            |   |     |        |  |       |   | 
|Loss before income taxes                               |  |               | (1,116 | )             |            |   | (18 | )      |  |       |  |  |  |   | (1,134 | )
|                                                      
|                                                      
|                                                      
|                                                      
|Income taxes                                           |  |               | (198   | )             |            |   | 3   |        |  |       |  |  |  |   | (195   | )
|                                                       |  |               |        |               |            |   |     |        |  |       |   | 
|Loss from discontinued operations, net of income taxes |  | $             | (918   | )             |            | $ | (21 | )      |  | $     |  |  |  | $ | (939   | )
|                                                       |  |               |        |               |            |   |     |        |  |       |   | 

15



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##### Table of Contents






|                                                                |  |               |        |               |            |   |     |        |  |   |       |   |  |   |        |  
|--------------------------------------------------------------- |  | ------------- | ------ | ------------- | ---------- | - | --- | ------ |  | - | ----- | - |  | - | ------ | -
|                                                                |  |               |        | International |            |   |     |        | 
|                                                                |  |               |        | Natural Gas   |            |   |     |        | 
|                                                                |  |               |        | and Oil       |            |   |     |        | 
|                                                                |  | Petroleum     |        |               | Production |   |     | Coal   |  |   |      
|                                                                |  | Markets       |        |               | Operations |   |     | Mining |  |   | Total |  
|                                                                |  |               |        |               |            |   |     |        |  |   |       |  
|                                                                |  | (In millions) |       
|                                                               
|                                                               
|                                                               
|                                                               
|Six Months Ended June 30, 2004
    (Restated)(1)                |  |               |        |               |            |   |     |        |  |   |       |   |  |   |        |  
|                                                               
|                                                               
|                                                               
|                                                               
|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   | )
|                                                                |  |               |        |               |            |   |     |        |  |   |       |  
|Six Months Ended June 30, 2003                                  |  |               |        |               |            |   |     |        |  |   |       |   |  |   |        |  
|                                                               
|                                                               
|                                                               
|                                                               
|Revenues                                                        |  | $             | 3,679  |               |            | $ | 46  |        |  | $ | 27    |   |  | $ | 3,752  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Costs and expenses                                              |  |               | (3,744 | )             |            |   | (47 | )      |  |   | (21   | ) |  |   | (3,812 | )
|                                                               
|                                                               
|                                                               
|                                                               
|Loss on long-lived assets                                       |  |               | (1,286 | )             |            |   | (14 | )      |  |   | (3    | ) |  |   | (1,303 | )
|                                                               
|                                                               
|                                                               
|                                                               
|Other income (expense)                                          |  |               | (14    | )             |            |   |    |        |  |   | 1     |   |  |   | (13    | )
|                                                               
|                                                               
|                                                               
|                                                               
|Interest and debt expense                                       |  |               | (4     | )             |            |   | 1   |        |  |   |      |   |  |   | (3     | )
|                                                                |  |               |        |               |            |   |     |        |  |   |       |  
|Income (loss) before income taxes                               |  |               | (1,369 | )             |            |   | (14 | )      |  |   | 4     |   |  |   | (1,379 | )
|                                                               
|                                                               
|                                                               
|                                                               
|Income taxes                                                    |  |               | (226   | )             |            |   |    |        |  |   | 1     |   |  |   | (225   | )
|                                                                |  |               |        |               |            |   |     |        |  |   |       |  
|Income (loss) from discontinued operations, net of income taxes |  | $             | (1,143 | )             |            | $ | (14 | )      |  | $ | 3     |   |  | $ | (1,154 | )
|                                                                |  |               |        |               |            |   |     |        |  |   |       |  












|    |                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For 2004, amounts related to Canadian Natural Gas and Oil
    Production and Petroleum Markets Operations were restated. See
    Note 1 to the condensed consolidated financial statements
    for a further discussion of the restatements.




|                        |                                        |                                    |                   |               |            |     |  |       |    |    |  |   |    |     | 
|----------------------- | -------------------------------------- | ---------------------------------- | ----------------- | ------------- | ---------- | --- |  | ----- | -- | -- |  | - | -- | --- | 
|                        |                                        |                                    |                   | International |            |     | 
|                        |                                        |                                    |                   | Natural Gas   |            |     | 
|                        |                                        |                                    |                   | and Oil       |            |     | 
|                        |                                        | Petroleum                          |                   |               | Production |     |  |      
|                        |                                        | Markets                            |                   |               | Operations |     |  | Total |   
|                        |                                        |                                    |                   |               |            |     |  |       |   
|                        |                                        | (In millions)                      |                  
|Financial Position Data |                                        |                                    |                   |               |            |     |  |       |    |    |  |  
|                       
|                       
|                       
|                       
|                        | June 30, 2004                          |                                    |                   |               |            |     |  |       |    |    |  |   |   
|                        | Assets of discontinued operations      |                                    |                   |               |            |     |  |       |    |    |  |   |   
|                       
|                       
|                       
|                       
|                        |                                        | Accounts and notes receivable      |                   | $             | 60         |     |  | $     | 11 |    |  | $ | 71 |    
|                       
|                       
|                       
|                       
|                        |                                        | Inventory                          |                   |               | 7          |     |  |       |   |    |  |   | 7  |    
|                       
|                       
|                       
|                       
|                        |                                        | Other current assets               |                   |               | 7          |     |  |       | 2  |    |  |   | 9  |    
|                       
|                       
|                       
|                       
|                        |                                        | Property, plant and equipment, net |                   |               | 22         |     |  |       | 33 |    |  |   | 55 |    
|                       
|                       
|                       
|                       
|                        |                                        | Other non-current assets           |                   |               | 23         |     |  |       |   |    |  |   | 23 |    
|                        |                                        |                                    |                   |               |            |     |  |       |   
|                        |                                        |                                    | Total assets      |               | $          | 119 |  |       | $  | 46 |  |   | $  | 165 | 
|                        |                                        |                                    |                   |               |            |     |  |       |   
|                        | Liabilities of discontinued operations |                                    |                   |               |            |     |  |       |    |    |  |   |   
|                       
|                       
|                       
|                       
|                        |                                        | Accounts payable                   |                   | $             | 12         |     |  | $     | 1  |    |  | $ | 13 |    
|                       
|                       
|                       
|                       
|                        |                                        | Other current liabilities          |                   |               | 14         |     |  |       |   |    |  |   | 14 |    
|                       
|                       
|                       
|                       
|                        |                                        | Other non-current liabilities      |                   |               | 6          |     |  |       |   |    |  |   | 6  |    
|                        |                                        |                                    |                   |               |            |     |  |       |   
|                        |                                        |                                    | Total liabilities |               | $          | 32  |  |       | $  | 1  |  |   | $  | 33  | 
|                        |                                        |                                    |                   |               |            |     |  |       |   

16



---



##### Table of Contents



|                                       |                                    |                   |   |               |            |  |   |       |     |  |   |     |       | 
|-------------------------------------- | ---------------------------------- | ----------------- | - | ------------- | ---------- |  | - | ----- | --- |  | - | --- | ----- | 
|                                       |                                    |                   |   | International |            |  |  
|                                       |                                    |                   |   | Natural Gas   |            |  |  
|                                       |                                    |                   |   | and Oil       |            |  |  
|                                       |                                    | Petroleum         |   |               | Production |  |   |      
|                                       |                                    | Markets           |   |               | Operations |  |   | Total |    
|                                       |                                    |                   |   |               |            |  |   |       |    
|                                       |                                    | (In millions)     |  
|                                      
|                                      
|                                      
|                                      
|December 31, 2003                      |                                    |                   |   |               |            |  |   |       |     |  |   |    
|Assets of discontinued operations      |                                    |                   |   |               |            |  |   |       |     |  |   |    
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts and notes receivable      |                   | $ | 259           |            |  | $ | 22    |     |  | $ | 281 |      
|                                      
|                                      
|                                      
|                                      
|                                       | Inventory                          |                   |   | 385           |            |  |   | 3     |     |  |   | 388 |      
|                                      
|                                      
|                                      
|                                      
|                                       | Other current assets               |                   |   | 131           |            |  |   | 8     |     |  |   | 139 |      
|                                      
|                                      
|                                      
|                                      
|                                       | Property, plant and equipment, net |                   |   | 521           |            |  |   | 399   |     |  |   | 920 |      
|                                      
|                                      
|                                      
|                                      
|                                       | Other non-current assets           |                   |   | 70            |            |  |   | 6     |     |  |   | 76  |      
|                                       |                                    |                   |   |               |            |  |   |       |    
|                                       |                                    | Total assets      |   | $             | 1,366      |  |   | $     | 438 |  |   | $   | 1,804 | 
|                                       |                                    |                   |   |               |            |  |   |       |    
|Liabilities of discontinued operations |                                    |                   |   |               |            |  |   |       |     |  |   |    
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts payable                   |                   | $ | 172           |            |  | $ | 39    |     |  | $ | 211 |      
|                                      
|                                      
|                                      
|                                      
|                                       | Other current liabilities          |                   |   | 86            |            |  |   |      |     |  |   | 86  |      
|                                      
|                                      
|                                      
|                                      
|                                       | Long-term debt                     |                   |   | 374           |            |  |   |      |     |  |   | 374 |      
|                                      
|                                      
|                                      
|                                      
|                                       | Other non-current liabilities      |                   |   | 26            |            |  |   | 3     |     |  |   | 29  |      
|                                       |                                    |                   |   |               |            |  |   |       |    
|                                       |                                    | Total liabilities |   | $             | 658        |  |   | $     | 42  |  |   | $   | 700   | 
|                                       |                                    |                   |   |               |            |  |   |       |    

5. Restructuring Costs




|                                                   |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       |  |   |    |  |  |   |     | 
|-------------------------------------------------- |  | ------------- | - |  | ----------- | --------- | -- | ------- |  | - | ----- |  |  | -------- | - |  | --------- | - | - | ----- |  | - | -- |  |  | - | --- | 
|                                                   |  | Regulated     |   |  | Unregulated |           |    |         |  |  
|                                                   |  |               |   |  |             |           |    |         |  |  
|                                                   |  |               |   |  |             | Marketing |    |         |  |   |       |  | 
|                                                   |  |               |   |  |             | and       |    |         |  |   | Field |  |  |          |   | 
|                                                   |  | Pipelines     |   |  | Production  |           |    | Trading |  |   | Power |  |  | Services |   |  | Corporate |   |   | Total | 
|                                                   |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       | 
|                                                   |  | (In millions) |  
|                                                  
|                                                  
|                                                  
|                                                  
|2004                                               |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       |  |   |    |  |  |   |     | 
|                                                  
|                                                  
|                                                  
|                                                  
|Employee severance, retention and transition costs |  | $             | 5 |  |             | $         | 11 |         |  | $ | 2     |  |  | $        | 3 |  |           | $ | 1 |       |  | $ | 11 |  |  | $ | 33  | 
|                                                   |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       | 
|2003                                               |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       |  |   |    |  |  |   |     | 
|                                                  
|                                                  
|                                                  
|                                                  
|Employee severance, retention and transition costs |  | $             | 1 |  |             | $         | 4  |         |  | $ | 4     |  |  | $        | 4 |  |           | $ | 3 |       |  | $ | 40 |  |  | $ | 56  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Contract termination costs                         |  |               |  |  |             |           |   |         |  |   |      |  |  |          |  |  |           |   |  |       |  |   | 44 |  |  |   | 44  | 
|                                                   |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       | 
|                                                   |  | $             | 1 |  |             | $         | 4  |         |  | $ | 4     |  |  | $        | 4 |  |           | $ | 3 |       |  | $ | 84 |  |  | $ | 100 | 
|                                                   |  |               |   |  |             |           |    |         |  |   |       |  |  |          |   |  |           |   |   |       | 





17



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Office Relocation and Consolidation




6. Loss on Long-Lived Assets







|                          |  |               |    |                  |          |   |     |            |  |   |      |   |  |   |     |  
|------------------------- |  | ------------- | -- | ---------------- | -------- | - | --- | ---------- |  | - | ---- | - |  | - | --- | -
|                          |  |               |    | Six Months Ended |         
|                          |  | Quarter Ended |    |                  | June 30, |  
|                          |  | June 30,      |    |                  |          |  
|                          |  |               |    |                  | 2004     |   |     |           
|                          |  | 2004          |    |                  | 2003     |   |     | (Restated) |  |   | 2003 |  
|                          |  |               |    |                  |          |   |     |            |  |   |      |  
|                          |  | (In millions) |   
|                         
|                         
|                         
|                         
|Net realized gain         |  | $             | (6 | )                |          | $ | (21 | )          |  | $ | (14  | ) |  | $ | (16 | )
|                         
|                         
|                         
|                         
|Asset impairments         |  |               | 23 |                  |          |   | 416 |            |  |   | 269  |   |  |   | 425 |  
|                          |  |               |    |                  |          |   |     |            |  |   |      |  
|Loss on long-lived assets |  | $             | 17 |                  |          | $ | 395 |            |  | $ | 255  |   |  | $ | 409 |  
|                          |  |               |    |                  |          |   |     |            |  |   |      |  




Net Realized Gain




Asset Impairments












18



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7. Income Taxes







|                   |  |                             |    |                  |          |   |      |            |  |   |      |    |  |   |      |  
|------------------ |  | --------------------------- | -- | ---------------- | -------- | - | ---- | ---------- |  | - | ---- | -- |  | - | ---- | -
|                   |  |                             |    | Six Months Ended |         
|                   |  | Quarter Ended June 30,      |    |                  | June 30, |  
|                   |  |                             |    |                  |          |  
|                   |  | 2004                        |    |                  |          |   | 2004 |            |  |  
|                   |  | (Restated)                  |    |                  | 2003     |   |      | (Restated) |  |   | 2003 |   
|                   |  |                             |    |                  |          |   |      |            |  |   |      |   
|                   |  | (In millions, except rates) |   
|                  
|                  
|                  
|                  
|Income taxes       |  | $                           | 48 |                  |          | $ | (410 | )          |  | $ | 58   |    |  | $ | (513 | )
|                  
|                  
|                  
|                  
|Effective tax rate |  |                             | 59 | %                |          |   | 58   | %          |  |   | (215 | )% |  |   | 50   | %










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8. Earnings Per Share







|                                                             |                                                              |                                                |     |                  |          |   |        |            |   |   |      |       |   |   |        |       |  
|------------------------------------------------------------ | ------------------------------------------------------------ | ---------------------------------------------- | --- | ---------------- | -------- | - | ------ | ---------- | - | - | ---- | ----- | - | - | ------ | ----- | -
|                                                             |                                                              |                                                |     | Six Months Ended |         
|                                                             |                                                              | Quarter Ended June 30,                         |     |                  | June 30, |  
|                                                             |                                                              |                                                |     |                  |          |  
|                                                             |                                                              | 2004                                           |     |                  |          |   | 2004   |            |   |  
|                                                             |                                                              | (Restated)                                     |     |                  | 2003     |   |        | (Restated) |   |   | 2003 |      
|                                                             |                                                              |                                                |     |                  |          |   |        |            |   |   |      |      
|                                                             |                                                              | (In millions, except per common share amounts) |    
|                                                            
|                                                            
|                                                            
|                                                            
|Income (loss) from continuing operations                     |                                                              | $                                              | 34  |                  |          | $ | (297   | )          |   | $ | (85  | )     |   | $ | (504   | )    
|                                                            
|                                                            
|                                                            
|                                                            
|Discontinued operations, net of income taxes                 |                                                              |                                                | (29 | )                |          |   | (939   | )          |   |   | (106 | )     |   |   | (1,154 | )    
|                                                            
|                                                            
|                                                            
|                                                            
|Cumulative effect of accounting changes, net of income taxes |                                                              |                                                |    |                  |          |   |       |            |   |   |     |       |   |   | (9     | )    
|                                                             |                                                              |                                                |     |                  |          |   |        |            |   |   |      |      
|Net income (loss)                                            |                                                              | $                                              | 5   |                  |          | $ | (1,236 | )          |   | $ | (191 | )     |   | $ | (1,667 | )    
|                                                             |                                                              |                                                |     |                  |          |   |        |            |   |   |      |      
|Average common shares outstanding                            |                                                              |                                                | 639 |                  |          |   | 596    |            |   |   | 639  |       |   |   | 595    |      
|                                                             |                                                              |                                                |     |                  |          |   |        |            |   |   |      |      
|Income (loss) per common share                               |                                                              |                                                |     |                  |          |   |        |            |   |   |      |       |   |   |        |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Income (loss) from continuing operations                     |                                                | $   | 0.05             |          |   | $      | (0.50      | ) |   | $    | (0.13 | ) |   | $      | (0.84 | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Discontinued operations, net of income taxes                 |                                                |     | (0.04            | )        |   |        | (1.57      | ) |   |      | (0.17 | ) |   |        | (1.94 | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cumulative effect of accounting changes, net of income taxes |                                                |     |                 |          |   |        |           |   |   |      |      |   |   |        | (0.02 | )
|                                                             |                                                              |                                                |     |                  |          |   |        |            |   |   |      |      
|                                                             | Net income (loss) per common share                           |                                                | $   | 0.01             |          |   | $      | (2.07      | ) |   | $    | (0.30 | ) |   | $      | (2.80 | )
|                                                             |                                                              |                                                |     |                  |          |   |        |            |   |   |      |      






9. Price Risk Management Activities




|                         |                                                                |                                                         |   |      |              |  |   |       |       | 
|------------------------ | -------------------------------------------------------------- | ------------------------------------------------------- | - | ---- | ------------ |  | - | ----- | ----- | 
|                         |                                                                | June 30,                                                |   |      | December 31, | 
|                         |                                                                | 2004                                                    |   |      | 2003         | 
|                         |                                                                |                                                         |   |      |              | 
|                         |                                                                | (In millions)                                           |  
|Net assets (liabilities) |                                                                |                                                         |   |      |              |  |   |      
|                        
|                        
|                        
|                        
|                         | Derivatives designated as hedges                               |                                                         | $ | (32  | )            |  | $ | (31   | )    
|                        
|                        
|                        
|                        
|                         | Derivatives from power contract restructuring activities       |                                                         |   | 946  |              |  |   | 1,925 | (1)  
|                        
|                        
|                        
|                        
|                         | Other commodity-based derivative contracts                     |                                                         |   | (626 | )            |  |   | (488  | )    
|                         |                                                                |                                                         |   |      |              | 
|                         |                                                                | Total commodity-based derivatives                       |   |      | 288          |  |   |       | 1,406 | 
|                        
|                        
|                        
|                        
|                         | Interest rate and foreign currency hedging derivatives
    (2) |                                                         |   | 75   |              |  |   | 123   |      
|                         |                                                                |                                                         |   |      |              | 
|                         |                                                                | Net assets from price risk management
    activities(3) |   | $    | 363          |  |   | $     | 1,529 | 
|                         |                                                                |                                                         |   |      |              | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $942 million of derivative contracts sold in
    connection with the sales of Utility Contract Funding and Mohawk
    River Funding IV in 2004. See Note 6 for a discussion
    of the net losses related to these sales.                                                                                                                                                                            
|   
|(2) | During the six months ended June 30, 2004, we entered into
    new cross currency hedge transactions that convert
    75 million
    of our fixed rate Euro-denominated debt into $91 million of
    floating rate debt. After June 30, 2004, we entered into
    other cross currency hedge transactions that convert another
    25 million
    of fixed rate debt into $30 million of floating rate debt.
|   
|(3) | Included in both current and non-current assets and liabilities
    on the balance sheet.                                                                                                                                                                                                                                                                                                                     

20



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10. Inventory




|                                               |                         |               |     |     |              |   |     |     | 
|---------------------------------------------- | ----------------------- | ------------- | --- | --- | ------------ | - | --- | --- | 
|                                               |                         | June 30,      |     |     | December 31, |  
|                                               |                         | 2004          |     |     | 2003         |  
|                                               |                         |               |     |     |              |  
|                                               |                         | (In millions) |    
|                                              
|                                              
|                                              
|                                              
|Materials and supplies and other               |                         | $             | 131 |     |              | $ | 145 |    
|                                              
|                                              
|                                              
|                                              
|Natural gas liquids and natural gas in storage |                         |               | 26  |     |              |   | 36  |    
|                                               |                         |               |     |     |              |  
|                                               | Total current inventory |               | $   | 157 |              |   | $   | 181 | 
|                                               |                         |               |     |     |              |  

11. Debt, Other Financing Obligations and Other Credit
Facilities




|                                                                         |                                        |               |        |       |              |   |        |       | 
|------------------------------------------------------------------------ | -------------------------------------- | ------------- | ------ | ----- | ------------ | - | ------ | ----- | 
|                                                                         |                                        | June 30,      |        |       | December 31, |  
|                                                                         |                                        | 2004          |        |       | 2003         |  
|                                                                         |                                        |               |        |       |              |  
|                                                                         |                                        | (In millions) |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Current maturities of long-term debt and other financing
    obligations |                                        | $             | 1,522  |       |              | $ | 1,401  |      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Short-term financing obligations                                         |                                        |               | 52     |       |              |   | 56     |      
|                                                                         |                                        |               |        |       |              |  
|                                                                         | Total short-term financing obligations |               | $      | 1,574 |              |   | $      | 1,457 | 
|                                                                         |                                        |               |        |       |              |  
|Long-term financing obligations                                          |                                        | $             | 18,259 |       |              | $ | 20,275 |      
|                                                                         |                                        |               |        |       |              |  

21



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



|                                 |                                  |      |                            |               |               |               |       |               |         |  |   |          |  |  |  |      | 
|-------------------------------- | -------------------------------- | ---- | -------------------------- | ------------- | ------------- | ------------- | ----- | ------------- | ------- |  | - | -------- |  |  |  | ---- | 
|                                 |                                  |      |                            |               |               |               |       | Net Increase/ |         |  |  
|                                 |                                  |      |                            |               |               |               |       | Reduction     |         |  |  
|Company                          |                                  | Type |                            | Interest Rate |               | Principal     |       |               | in Debt |  |   | Due Date | 
|                                 |                                  |      |                            |               |               |               |       |               |         |  |   |          | 
|                                 |                                  |      |                            |               |               | (In millions) |       |               |        
|Issuances and other increases    |                                  |      |                            |               |               |               |       |               |         |  |   |          |  |  |  |     
|                                 | Macae                            |      | Non-recourse note          |               | LIBOR + 4.25% |               | $     | 50            |         |  | $ | 50       |  |  |  | 2007 | 
|                                 | Blue Lake Gas
    Storage(1)     |      | Non-recourse
    term loan |               | LIBOR + 1.2%  |               |       | 14            |         |  |   | 14       |  |  |  | 2006 | 
|                                 |                                  |      |                            |               |               |               |       |               |         |  |   |          | 
|                                
|                                
|                                
|                                
|Increases through June 30, 2004  |                                  |      | 64                         |               |               |               | 64    |               |         |  |   |         
|                                 | El
    Paso(2)                   |      | Note                       |               | 6.50%         |               |       | 213           |         |  |   | 213      |  |  |  | 2005 | 
|                                 |                                  |      |                            |               |               |               |       |               |         |  |   |          | 
|                                
|                                
|                                
|                                
|Increases through date of filing |                                  | $    | 277                        |               |               | $             | 277   |               |         |  |   |         
|                                 |                                  |      |                            |               |               |               |       |               |        
|Repayments and Other Retirements |                                  |      |                            |               |               |               |       |               |         |  |   |          |  | 
|                                 | El Paso CGP                      |      | Note                       |               | LIBOR + 3.5%  |               | $     | 200           |         |  | $ | 200      |  |  |  |      | 
|                                 | El Paso                          |      | Revolver                   |               | LIBOR + 3.5%  |               |       | 250           |         |  |   | 250      |  |  |  |      | 
|                                 | Gemstone                         |      | Notes                      |               | 7.71%         |               |       | 181           |         |  |   | 181      |  |  |  |      | 
|                                 | El Paso CGP                      |      | Note                       |               | 6.2%          |               |       | 190           |         |  |   | 190      |  |  |  |      | 
|                                 | Mohawk River Funding IV
    (3)  |      | Non-recourse note          |               | 7.75%         |               |       | 72            |         |  |   | 72       |  |  |  |      | 
|                                 | Utility Contract Funding
    (3) |      | Non-recourse               |               |               |               |       |               |         |  |   |          |  |  |  |      | 
|                                 |                                  |      | senior notes               |               | 7.944%        |               |       | 815           |         |  |   | 815      |  |  |  |      | 
|                                 | Other                            |      | Long-term debt             |               | Various       |               |       | 203           |         |  |   | 203      |  |  |  |      | 
|                                 |                                  |      |                            |               |               |               |       |               |         |  |   |          | 
|                                
|                                
|                                
|                                
|Decreases through June 30, 2004  |                                  |      | 1,911                      |               |               |               | 1,911 |               |         |  |   |         
|                                
|                                 | El Paso                          |      | Revolver                   |               | LIBOR + 3.5%  |               |       | 600           |         |  |   | 600      |  |  |  |      | 
|                                 | Gemstone                         |      | Notes                      |               | 7.71%         |               |       | 769           |         |  |   | 769      |  |  |  |      | 
|                                 | Lakeside                         |      | Note                       |               | LIBOR + 3.5%  |               |       | 42            |         |  |   | 42       |  |  |  |      | 
|                                 | El Paso CGP                      |      | Notes                      |               | 10.25%        |               |       | 38            |         |  |   | 38       |  |  |  |      | 
|                                 | Other                            |      | Long-term debt             |               | Various       |               |       | 63            |         |  |   | 63       |  |  |  |      | 
|                                 |                                  |      |                            |               |               |               |       |               |         |  |   |          | 
|                                
|                                
|                                
|                                
|Decreases through date of filing |                                  | $    | 3,423                      |               |               | $             | 3,423 |               |         |  |   |         
|                                 |                                  |      |                            |               |               |               |       |               |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This debt was consolidated as a result of adopting FIN
    No. 46 (see Note 2).                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(2) | In October 2004, we entered into an agreement, effective
    August 2004, with two affiliates of Enron that liquidates
    two of our derivative swap agreements in exchange for
    approximately $213 million of 6.5%, one year notes. The
    transaction was approved by the bankruptcy court in November
    2004. As of June 30, 2004, the balance of these swaps was a
    liability of $234 million, which is reflected in other
    current and other non-current liabilities in our balance sheet.
|   
|(3) | This debt was eliminated when we sold our interests in Mohawk
    River Funding IV and UCF.                                                                                                                                                                                                                                                                                                                                                                                                                 

Credit Facilities






22



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##### Table of Contents











| |                      
| | ---------------------
| | Restrictive Covenants





| |     |                                                                                                                                                                                                                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the ratio of Debt to Consolidated EBITDA, each as defined in the
    new credit agreement, shall not exceed 6.50 to 1 at any time
    prior to September 30, 2005, 6.25 to 1 at any time on or
    after September 30, 2005 and prior to June 30, 2006,
    and 6.00 to 1 at any time on or after June 30, 2006 until
    maturity;
|
| | (b) | the ratio of Consolidated EBITDA, as defined in the new credit
    agreement, to interest expense and dividends paid shall not be
    less than 1.60 to 1 prior to March 31, 2006, 1.75 to 1
    on or after March 31, 2006 and prior to
    March 31, 2007, and 1.80 to 1 on or after
    March 31, 2007 until maturity;          
|
| | (c) | EPNG, TGP, ANR, and CIG cannot incur incremental debt if the
    incurrence of this incremental Debt would cause their Debt to
    Consolidated EBITDA ratio, each as defined in the new credit
    agreement, for that particular company to exceed 5 to 1;                                                                       
|
| | (d) | the proceeds from the issuance of Debt by our pipeline company
    borrowers can only be used for maintenance and expansion capital
    expenditures or investments in other FERC-regulated assets, to
    fund working capital requirements, or to refinance existing
    debt; and                                               
|
| | (e) | the occurrence of an event of default and after the expiration
    of any applicable grace period, with respect to Debt in an
    aggregate principal amount of $200 million or more.                                                                                                                                              



Letters of Credit




23



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12. Commitments and Contingencies




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

Western Energy Settlement.






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Subject to the conditions in the settlement; (1) make
    3.29 Bcf/d of primary firm pipeline capacity on our EPNG
    system available to California delivery points during a five
    year period from the date of settlement, but only if shippers
    sign firm contracts for 3.29 Bcf/d of capacity with
    California delivery points; (2) maintain facilities
    sufficient to deliver 3.29 Bcf/d to the California delivery
    points; and (3) not add any firm incremental load to our
    EPNG system that would prevent it from satisfying its obligation
    to provide this capacity;
|
| |  | Construct a new 320 MMcf/d, Line 2000 Power-Up
    expansion project and forego recovery of the cost of service of
    this expansion until EPNGs next rate case before the FERC;                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Clarify the rights of Northern California shippers to recall
    some of EPNGs system capacity (Block II capacity) to
    serve markets in PG&Es service area; and                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | With limited exceptions, bar any of our affiliated companies
    from obtaining additional firm capacity on our EPNG pipeline
    system during a five year period from the effective date of the
    settlement.                                                                                                                                                                                                                                                                                                                                                                                    







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CPUC Complaint Proceeding Docket No. RP00-241-000.


Shareholder Class Action Suits.








ERISA Class Action Suit.


Natural Gas Commodities Litigation.


25



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##### Table of Contents





Grynberg. Qui Tam


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


MTBE.


Government Investigations


Power Restructuring.


Wash Trades.


26



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##### Table of Contents



Price Reporting.


Reserve Revisions.


CFTC Investigation.


Iraq Oil Sales.






Carlsbad.






27



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##### Table of Contents







Diane Heady et al. v.
EPEC and EPNG Baldonado
et. al. v. EPNG Baldonado








| |                      
| | ---------------------
| | Environmental Matters





28



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|              |       |               |     |     |      |   |     |     | 
|------------- | ----- | ------------- | --- | --- | ---- | - | --- | --- | 
|              |       | June 30, 2004 |    
|              |       |               |    
|Sites         |       | Expected      |     |     | High |  
|              |       |               |     |     |      |  
|              |       | (In millions) |    
|             
|             
|             
|             
|Operating     |       | $             | 149 |     |      | $ | 206 |    
|             
|             
|             
|             
|Non-operating |       |               | 220 |     |      |   | 322 |    
|             
|             
|             
|             
|Superfund     |       |               | 31  |     |      |   | 45  |    
|              |       |               |     |     |      |  
|              | Total |               | $   | 400 |      |   | $   | 573 | 
|              |       |               |     |     |      |  



|                                                 |  |   |     |  
|------------------------------------------------ |  | - | --- | -
|                                                
|                                                
|                                                
|                                                
|Balance as of January 1, 2004                    |  | $ | 412 |  
|                                                
|                                                
|                                                
|                                                
|Additions/adjustments for remediation activities |  |   | 7   |  
|                                                
|                                                
|                                                
|                                                
|Payments for remediation activities              |  |   | (20 | )
|                                                
|                                                
|                                                
|                                                
|Other changes, net                               |  |   | 1   |  
|                                                 |  |   |    
|Balance as of June 30, 2004                      |  | $ | 400 |  
|                                                 |  |   |    



Internal PCB Remediation Project.


PCB Cost Recoveries.


CERCLA Matters.


29



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##### Table of Contents







Rates and Regulatory Matters




Other


Enron Bankruptcy.




30



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##### Table of Contents



Duke Litigation.


Investments in Brazil.














31



---



##### Table of Contents







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




Guarantees




32



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##### Table of Contents



13. Retirement Benefits




|                                                           |                           |                        |     |       |                           |   |     |                  |       |                |          |   |  |      |    |   |      |   |     |      |  |   |      |     |   |   |    |    |  |   |    |    | 
|---------------------------------------------------------- | ------------------------- | ---------------------- | --- | ----- | ------------------------- | - | --- | ---------------- | ----- | -------------- | -------- | - |  | ---- | -- | - | ---- | - | --- | ---- |  | - | ---- | --- | - | - | -- | -- |  | - | -- | -- | 
|                                                           |                           | Quarter Ended June 30, |     |       | Six Months Ended June 30, |  
|                                                           |                           |                        |     |       |                           |  
|                                                           |                           |                        |     | Other |                           |   |     |                  | Other |               
|                                                           |                           | Pension                |     |       | Postretirement            |   |     |                  |       | Postretirement |         
|                                                           |                           | Benefits               |     |       | Benefits                  |   |     | Pension Benefits |       |                | Benefits |  
|                                                           |                           |                        |     |       |                           |   |     |                  |       |                |          |  
|                                                           |                           | 2004                   |     |       | 2003                      |   |     | 2004             |       |                | 2003     |   |  | 2004 |    |   | 2003 |   |     | 2004 |  |   | 2003 |    
|                                                           |                           |                        |     |       |                           |   |     |                  |       |                |          |   |  |      |    |   |      |   |     |      |  |   |      |    
|                                                           |                           | (In millions)          |    
|                                                          
|                                                          
|                                                          
|                                                          
|Service cost                                               |                           | $                      | 8   |       |                           | $ | 9   |                  |       | $              |         |   |  | $    |   |   |      | $ | 16  |      |  | $ | 18   |     |   | $ |   |    |  | $ |   |   
|                                                          
|                                                          
|                                                          
|                                                          
|Interest cost                                              |                           |                        | 30  |       |                           |   | 34  |                  |       |                | 8        |   |  |      | 9  |   |      |   | 61  |      |  |   | 68   |     |   |   | 16 |    |  |   | 18 |   
|                                                          
|                                                          
|                                                          
|                                                          
|Expected return on plan assets                             |                           |                        | (47 | )     |                           |   | (57 | )                |       |                | (3       | ) |  |      | (2 | ) |      |   | (95 | )    |  |   | (114 | )   |   |   | (6 | )  |  |   | (4 | ) 
|                                                          
|                                                          
|                                                          
|                                                          
|Amortization of net actuarial loss                         |                           |                        | 12  |       |                           |   | 1   |                  |       |                | 1        |   |  |      |   |   |      |   | 24  |      |  |   | 2    |     |   |   | 2  |    |  |   |   |   
|                                                          
|                                                          
|                                                          
|                                                          
|Amortization of transition obligation                      |                           |                        |    |       |                           |   |    |                  |       |                | 2        |   |  |      | 2  |   |      |   |    |      |  |   |     |     |   |   | 4  |    |  |   | 4  |   
|                                                          
|                                                          
|                                                          
|                                                          
|Amortization of prior service
    cost(1)                  |                           |                        | (1  | )     |                           |   | (1  | )                |       |                |         |   |  |      |   |   |      |   | (2  | )    |  |   | (2   | )   |   |   |   |    |  |   |   |   
|                                                          
|                                                          
|                                                          
|                                                          
|Settlements, curtailment, and special termination benefits |                           |                        |    |       |                           |   |    |                  |       |                |         |   |  |      |   |   |      |   |    |      |  |   |     |     |   |   |   |    |  |   | (6 | ) 
|                                                           |                           |                        |     |       |                           |   |     |                  |       |                |          |   |  |      |    |   |      |   |     |      |  |   |      |    
|                                                           | Net benefit cost (income) |                        | $   | 2     |                           |   | $   | (14              | )     |                | $        | 8 |  |      | $  | 9 |      |   | $   | 4    |  |   | $    | (28 | ) |   | $  | 16 |  |   | $  | 12 | 
|                                                           |                           |                        |     |       |                           |   |     |                  |       |                |          |   |  |      |    |   |      |   |     |      |  |   |      |    






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







14. Capital Stock


Common Stock




Dividends




33



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15. Segment Information

















|                                                                  |                                          |               |      |    |                  |   |      |            |   |   |      |     |   |   |      |      |  
|----------------------------------------------------------------- | ---------------------------------------- | ------------- | ---- | -- | ---------------- | - | ---- | ---------- | - | - | ---- | --- | - | - | ---- | ---- | -
|                                                                  |                                          | Quarter Ended |      |    | Six Months Ended |  
|                                                                  |                                          | June 30,      |      |    | June 30,         |  
|                                                                  |                                          |               |      |    |                  |  
|                                                                  |                                          | 2004          |      |    |                  |   | 2004 |            |   |  
|                                                                  |                                          | (Restated)    |      |    | 2003             |   |      | (Restated) |   |   | 2003 |    
|                                                                  |                                          |               |      |    |                  |   |      |            |   |   |      |    
|                                                                  |                                          | (In millions) |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Total EBIT                                                        |                                          | $             | 498  |    |                  | $ | (227 | )          |   | $ | 818  |     |   | $ | (102 | )   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Interest and debt expense                                         |                                          |               | (410 | )  |                  |   | (463 | )          |   |   | (833 | )   |   |   | (877 | )   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Distributions on preferred interests of consolidated subsidiaries |                                          |               | (6   | )  |                  |   | (17  | )          |   |   | (12  | )   |   |   | (38  | )   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Income taxes                                                      |                                          |               | (48  | )  |                  |   | 410  |            |   |   | (58  | )   |   |   | 513  |     
|                                                                  |                                          |               |      |    |                  |   |      |            |   |   |      |    
|                                                                  | Income (loss) from continuing operations |               | $    | 34 |                  |   | $    | (297       | ) |   | $    | (85 | ) |   | $    | (504 | )
|                                                                  |                                          |               |      |    |                  |   |      |            |   |   |      |    




34



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|                                                 |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |     |       |  |   |      |   |  |   |       |      
|------------------------------------------------ |  | ------------- | --- | - | ----------- | --------- | --- | ------- |  | - | ----- | - |  | -------- | --- | - | ------------ | - | --- | ----- |  | - | ---- | - |  | - | ----- | -----
|                                                 |  | Regulated     |     |   | Unregulated |           |     |         |  |  
|                                                 |  |               |     |   |             |           |     |         |  |  
|                                                 |  |               |     |   |             | Marketing |     |         |  |   |       |   | 
|                                                 |  |               |     |   |             | and       |     |         |  |   | Field |   |  |          |     |  
|Quarter Ended June 30,                           |  | Pipelines     |     |   | Production  |           |     | Trading |  |   | Power |   |  | Services |     |   | Corporate(1) |   |     | Total | 
|                                                 |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |     |       | 
|                                                 |  | (In millions) |    
|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                                     |  |               | 8   |   |             |           |    |         |  |   | 2     |   |  |          | 26  |   |              |   |    |       |  |   | 14   |   |  |   | 50    |      
|                                                
|                                                
|                                                
|                                                
|Other expense                                    |  |               | (1  | ) |             |           |    |         |  |   |      |   |  |          | (4  | ) |              |   | (11 | )     |  |   | (4   | ) |  |   | (20   | )    
|                                                 |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |     |       | 
|EBIT                                             |  | $             | 308 |   |             | $         | 204 |         |  | $ | (152  | ) |  | $        | 102 |   |              | $ | 27  |       |  | $ | 9    |   |  | $ | 498   |      
|                                                 |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |     |       | 
|2003                                             |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |     |       |  |   |      |   |  |   |       |      
|                                                
|                                                
|                                                
|                                                
|Revenues from external customers                 |  | $             | 588 |   |             | $         | (90 | )(2)    |  | $ | 506   |   |  | $        | 206 |   |              | $ | 255 |       |  | $ | 33   |   |  | $ | 1,498 |      
|                                                
|                                                
|                                                
|                                                
|Intersegment revenues                            |  |               | 32  |   |             |           | 658 | (2)     |  |   | (782  | ) |  |          | 137 |   |              |   | 123 |       |  |   | (97  | ) |  |   | 71    | (3)  
|                                                
|                                                
|                                                
|                                                
|Operation and maintenance                        |  |               | 325 |   |             |           | 90  |         |  |   | 25    |   |  |          | 146 |   |              |   | 39  |       |  |   |     |   |  |   | 625   |      
|                                                
|                                                
|                                                
|                                                
|Depreciation, depletion and amortization         |  |               | 101 |   |             |           | 141 |         |  |   | 6     |   |  |          | 27  |   |              |   | 8   |       |  |   | 19   |   |  |   | 302   |      
|                                                
|                                                
|                                                
|                                                
|(Gain) loss on long-lived assets                 |  |               | (8  | ) |             |           | (5  | )       |  |   | (2    | ) |  |          |    |   |              |   | (5  | )     |  |   | 415  |   |  |   | 395   |      
|                                                
|                                                
|                                                
|                                                
|                                                
|Operating income (loss)                          |  | $             | 112 |   |             | $         | 308 |         |  | $ | (306  | ) |  | $        | 68  |   |              | $ | (15 | )     |  | $ | (439 | ) |  | $ | (272  | )    
|                                                
|                                                
|                                                
|                                                
|Earnings (losses) from unconsolidated affiliates |  |               | 25  |   |             |           | 4   |         |  |   |      |   |  |          | 98  |   |              |   | (41 | )     |  |   |     |   |  |   | 86    |      
|                                                
|                                                
|                                                
|                                                
|Other income                                     |  |               | 9   |   |             |           |    |         |  |   | 8     |   |  |          | 21  |   |              |   |    |       |  |   | 8    |   |  |   | 46    |      
|                                                
|                                                
|                                                
|                                                
|Other expense                                    |  |               | (1  | ) |             |           |    |         |  |   |      |   |  |          | (2  | ) |              |   |    |       |  |   | (84  | ) |  |   | (87   | )    
|                                                 |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |     |       | 
|EBIT                                             |  | $             | 145 |   |             | $         | 312 |         |  | $ | (298  | ) |  | $        | 185 |   |              | $ | (56 | )     |  | $ | (515 | ) |  | $ | (227  | )    
|                                                 |  |               |     |   |             |           |     |         |  |   |       |   |  |          |     |   |              |   |     |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes our corporate and telecommunications activities and
    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. We record an intersegment revenue elimination, which
    is the only elimination 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 petroleum markets operations.                                                                                                                                                                                                                                                                                                                    




|                                         |  |               |       |   |             |           |     |            |       |   |            |       |  |          |      |   |              |   |     |            |  |   |      |   |  |   |       |    
|---------------------------------------- |  | ------------- | ----- | - | ----------- | --------- | --- | ---------- | ----- | - | ---------- | ----- |  | -------- | ---- | - | ------------ | - | --- | ---------- |  | - | ---- | - |  | - | ----- | ---
|                                         |  | Regulated     |       |   | Unregulated |           |     |            |       |  
|                                         |  |               |       |   |             |           |     |            |       |  
|                                         |  |               |       |   |             | Marketing |     |            |       |   |            |       | 
|                                         |  |               |       |   |             | and       |     |            |       |   |            |       | 
|                                         |  |               |       |   |             | Trading   |     |            | Power |   |            | Field |  |          |      |   | Total        |  
|Six Months Ended June 30,                |  | Pipelines     |       |   | Production  |           |     | (Restated) |       |   | (Restated) |       |  | Services |      |   | Corporate(1) |   |     | (Restated) | 
|                                         |  |               |       |   |             |           |     |            |       |   |            |       |  |          |      |   |              |   |     |            | 
|                                         |  | (In millions) |      
|2004                                     |  |               |       |   |             |           |     |            |       |   |            |       |  |          |      |   |              |   |     |            |  |   |      |   |  |   |       |    
|                                        
|                                        
|                                        
|                                        
|Revenues from external customers         |  | $             | 1,293 |   |             | $         | 277 | (2)        |       | $ | 368        |       |  | $        | 351  |   |              | $ | 720 |            |  | $ | 72   |   |  | $ | 3,081 |    
|                                        
|                                        
|                                        
|                                        
|Intersegment revenues                    |  |               | 45    |   |             |           | 599 | (2)        |       |   | (668       | )     |  |          | 92   |   |              |   | 95  |            |  |   | (163 | ) |  |   |      | (3)
|                                        
|                                        
|                                        
|                                        
|Operation and maintenance                |  |               | 352   |   |             |           | 162 |            |       |   | 22         |       |  |          | 195  |   |              |   | 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                             |  |               | 14    |   |             |           |    |            |       |   | 13         |       |  |          | 47   |   |              |   |    |            |  |   | 36   |   |  |   | 110   |    
|                                        
|                                        
|                                        
|                                        
|Other expense                            |  |               | (2    | ) |             |           |    |            |       |   |           |       |  |          | (6   | ) |              |   | (22 | )          |  |   | (6   | ) |  |   | (36   | )  
|                                         |  |               |       |   |             |           |     |            |       |   |            |       |  |          |      |   |              |   |     |            | 
|EBIT                                     |  | $             | 694   |   |             | $         | 408 |            |       | $ | (316       | )     |  | $        | (67  | ) |              | $ | 63  |            |  | $ | 36   |   |  | $ | 818   |    
|                                         |  |               |       |   |             |           |     |            |       |   |            |       |  |          |      |   |              |   |     |            | 




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|                                                 |  |               |       |   |             |           |       |         |  |   |        |   |  |          |      |   |              |   |     |       |  |   |      |   |  |   |       |    
|------------------------------------------------ |  | ------------- | ----- | - | ----------- | --------- | ----- | ------- |  | - | ------ | - |  | -------- | ---- | - | ------------ | - | --- | ----- |  | - | ---- | - |  | - | ----- | ---
|                                                 |  | Regulated     |       |   | Unregulated |           |       |         |  |  
|                                                 |  |               |       |   |             |           |       |         |  |  
|                                                 |  |               |       |   |             | Marketing |       |         |  |   |        |   | 
|                                                 |  |               |       |   |             | and       |       |         |  |   | Field  |   |  |          |      |  
|Six Months Ended June 30,                        |  | Pipelines     |       |   | Production  |           |       | Trading |  |   | Power  |   |  | Services |      |   | Corporate(1) |   |     | Total | 
|                                                 |  |               |       |   |             |           |       |         |  |   |        |   |  |          |      |   |              |   |     |       | 
|                                                 |  | (In millions) |      
|2003                                             |  |               |       |   |             |           |       |         |  |   |        |   |  |          |      |   |              |   |     |       |  |   |      |   |  |   |       |    
|                                                
|                                                
|                                                
|                                                
|Revenues from external customers                 |  | $             | 1,310 |   |             | $         | 150   | (2)     |  | $ | 653    |   |  | $        | 428  |   |              | $ | 656 |       |  | $ | 68   |   |  | $ | 3,265 |    
|                                                
|                                                
|                                                
|                                                
|Intersegment revenues                            |  |               | 63    |   |             |           | 1,153 | (2)     |  |   | (1,317 | ) |  |          | 157  |   |              |   | 280 |       |  |   | (204 | ) |  |   | 132   | (3)
|                                                
|                                                
|                                                
|                                                
|Operation and maintenance                        |  |               | 501   |   |             |           | 175   |         |  |   | 69     |   |  |          | 311  |   |              |   | 70  |       |  |   | 55   |   |  |   | 1,181 |    
|                                                
|                                                
|                                                
|                                                
|Depreciation, depletion and amortization         |  |               | 196   |   |             |           | 299   |         |  |   | 13     |   |  |          | 47   |   |              |   | 18  |       |  |   | 41   |   |  |   | 614   |    
|                                                
|                                                
|                                                
|                                                
|(Gain) loss on long-lived assets                 |  |               | (8    | ) |             |           | (5    | )       |  |   | (3     | ) |  |          | (6   | ) |              |   | (4  | )     |  |   | 435  |   |  |   | 409   |    
|                                                
|                                                
|                                                
|                                                
|                                                
|Operating income (loss)                          |  | $             | 496   |   |             | $         | 745   |         |  | $ | (747   | ) |  | $        | 63   |   |              | $ | (15 | )     |  | $ | (550 | ) |  | $ | (8    | )  
|                                                
|                                                
|                                                
|                                                
|Earnings (losses) from unconsolidated affiliates |  |               | 68    |   |             |           | 10    |         |  |   |       |   |  |          | (103 | ) |              |   | (13 | )     |  |   | (10  | ) |  |   | (48   | )  
|                                                
|                                                
|                                                
|                                                
|Other income                                     |  |               | 15    |   |             |           | 3     |         |  |   | 15     |   |  |          | 35   |   |              |   |    |       |  |   | 15   |   |  |   | 83    |    
|                                                
|                                                
|                                                
|                                                
|Other expense                                    |  |               | (5    | ) |             |           |      |         |  |   |       |   |  |          | (6   | ) |              |   | (1  | )     |  |   | (117 | ) |  |   | (129  | )  
|                                                 |  |               |       |   |             |           |       |         |  |   |        |   |  |          |      |   |              |   |     |       | 
|EBIT                                             |  | $             | 574   |   |             | $         | 758   |         |  | $ | (732   | ) |  | $        | (11  | ) |              | $ | (29 | )     |  | $ | (662 | ) |  | $ | (102  | )  
|                                                 |  |               |       |   |             |           |       |         |  |   |        |   |  |          |      |   |              |   |     |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes our corporate and telecommunications activities and
    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. We record an intersegment revenue elimination, which
    is the only elimination 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 petroleum markets operations.                                                                                                                                                                                                                                                                                                                    






|                        |                       |                           |       |        |              |  |       |        |        | 
|----------------------- | --------------------- | ------------------------- | ----- | ------ | ------------ |  | ----- | ------ | ------ | 
|                        |                       | June 30,                  |       |        | December 31, | 
|                        |                       | 2004                      |       |        | 2003         | 
|                        |                       | (Restated)                |       |        | (Restated)   | 
|                        |                       |                           |       |        |              | 
|                        |                       | (In millions)             |      
|Regulated               |                       |                           |       |        |              |  |       |       
|                       
|                       
|                       
|                       
|                        | Pipelines             |                           | $     | 15,494 |              |  | $     | 15,686 |       
|Unregulated             |                       |                           |       |        |              |  |       |       
|                       
|                       
|                       
|                       
|                        | Production            |                           |       | 3,876  |              |  |       | 3,767  |       
|                       
|                       
|                       
|                       
|                        | Marketing and Trading |                           |       | 2,176  |              |  |       | 2,666  |       
|                       
|                       
|                       
|                       
|                        | Power                 |                           |       | 5,449  |              |  |       | 6,999  |       
|                       
|                       
|                       
|                       
|                        | Field Services        |                           |       | 1,980  |              |  |       | 1,990  |       
|                        |                       |                           |       |        |              | 
|                        |                       | Total segment assets      |       |        | 28,975       |  |       |        | 31,108 | 
|                       
|                       
|                       
|                       
|Corporate               |                       |                           | 3,445 |        |              |  | 4,031 |       
|                       
|                       
|                       
|                       
|Discontinued operations |                       |                           | 165   |        |              |  | 1,804 |       
|                        |                       |                           |       |        |              | 
|                        |                       | Total consolidated assets |       | $      | 32,585       |  |       | $      | 36,943 | 
|                        |                       |                           |       |        |              | 




36



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##### Table of Contents





|    |                                                                            
|--- | ---------------------------------------------------------------------------
|16. | Investments in Unconsolidated Affiliates and Related Party
    Transactions



|                        |                                   |               |   |       |                  |  |       |       |  |  |             |    |  |       |   |     |           |  |   |        |  |  |       |     |  |             |   |     |       |  |   |    |  |  |   |       |  |  |   |       | 
|----------------------- | --------------------------------- | ------------- | - | ----- | ---------------- |  | ----- | ----- |  |  | ----------- | -- |  | ----- | - | --- | --------- |  | - | ------ |  |  | ----- | --- |  | ----------- | - | --- | ----- |  | - | -- |  |  | - | ----- |  |  | - | ----- | 
|                        |                                   | Quarter Ended |   |       | Six Months Ended | 
|                        |                                   | June 30,      |   |       | June 30,         | 
|                        |                                   |               |   |       |                  | 
|                        |                                   |               |   | Great |                  |  | Other |       |  |  |             |    |  | Great |   |     | Other     |  |   |       
|                        |                                   | GulfTerra     |   |       | Citrus           |  |       | Lakes |  |  | Investments |    |  | Total |   |     | GulfTerra |  |   | Citrus |  |  | Lakes |     |  | Investments |   |     | Total | 
|                        |                                   |               |   |       |                  |  |       |       |  |  |             |    |  |       |   |     |           |  |   |        |  |  |       |     |  |             |   |     |       | 
|                        |                                   | (In millions) |  
|                       
|                       
|                       
|                       
|2004                    |                                   |               |   |       |                  |  |       |       |  |  |             |    |  |       |   |     |           |  |   |        |  |  |       |     |  |             |   |     |       |  |   |    |  |  |   |       |  |  |   |      
|                       
|                       
|                       
|                       
|Operating results data: |                                   |               |   |       |                  |  |       |       |  |  |             |    |  |       |   |     |           |  |   |        |  |  |       |     |  |             |   |     |       |  |   |    |  |  |   |       |  |  |   |      
|                       
|                       
|                       
|                       
|                        | Operating revenues                |               | $ | 138   |                  |  | $     | 61    |  |  | $           | 32 |  |       | $ | 396 |           |  | $ | 627    |  |  | $     | 265 |  |             | $ | 114 |       |  | $ | 68 |  |  | $ | 764   |  |  | $ | 1,211 | 
|                       
|                       
|                       
|                       
|                        | Operating expenses                |               |   | 84    |                  |  |       | 25    |  |  |             | 13 |  |       |   | 297 |           |  |   | 419    |  |  |       | 166 |  |             |   | 48  |       |  |   | 26 |  |  |   | 564   |  |  |   | 804   | 
|                       
|                       
|                       
|                       
|                        | Income from continuing operations |               |   | 29    |                  |  |       | 16    |  |  |             | 11 |  |       |   | 49  |           |  |   | 105    |  |  |       | 60  |  |             |   | 26  |       |  |   | 24 |  |  |   | 107   |  |  |   | 217   | 
|                       
|                       
|                       
|                       
|                        | Net
    income(1)                 |               |   | 29    |                  |  |       | 21    |  |  |             | 11 |  |       |   | 49  |           |  |   | 110    |  |  |       | 60  |  |             |   | 28  |       |  |   | 24 |  |  |   | 107   |  |  |   | 219   | 
|                       
|                       
|                       
|                       
|2003                    |                                   |               |   |       |                  |  |       |       |  |  |             |    |  |       |   |     |           |  |   |        |  |  |       |     |  |             |   |     |       |  |   |    |  |  |   |       |  |  |   |      
|                       
|                       
|                       
|                       
|Operating results data: |                                   |               |   |       |                  |  |       |       |  |  |             |    |  |       |   |     |           |  |   |        |  |  |       |     |  |             |   |     |       |  |   |    |  |  |   |       |  |  |   |      
|                       
|                       
|                       
|                       
|                        | Operating revenues                |               | $ | 199   |                  |  | $     | 36    |  |  | $           | 30 |  |       | $ | 503 |           |  | $ | 768    |  |  | $     | 387 |  |             | $ | 111 |       |  | $ | 65 |  |  | $ | 1,060 |  |  | $ | 1,623 | 
|                       
|                       
|                       
|                       
|                        | Operating expenses                |               |   | 153   |                  |  |       | 4     |  |  |             | 14 |  |       |   | 344 |           |  |   | 515    |  |  |       | 290 |  |             |   | 45  |       |  |   | 28 |  |  |   | 713   |  |  |   | 1,076 | 
|                       
|                       
|                       
|                       
|                        | Income from continuing operations |               |   | 29    |                  |  |       | 4     |  |  |             | 7  |  |       |   | 91  |           |  |   | 131    |  |  |       | 57  |  |             |   | 15  |       |  |   | 20 |  |  |   | 210   |  |  |   | 302   | 
|                       
|                       
|                       
|                       
|                        | Net
    income(1)                 |               |   | 29    |                  |  |       | 4     |  |  |             | 7  |  |       |   | 91  |           |  |   | 131    |  |  |       | 57  |  |             |   | 15  |       |  |   | 20 |  |  |   | 210   |  |  |   | 302   | 






|    |                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes net income (loss) of $8 million and
    $(2) million for the quarters ended June 30, 2004 and
    2003, and net income of $21 million and $5 million for
    the six months ended June 30, 2004 and 2003, related to our
    proportionate share of affiliates in which we hold a greater
    than 50 percent interest.






|                                                               |                                               |               |     |                  |          |   |     |            |   |   |      |     |   |   |     |      |  
|-------------------------------------------------------------- | --------------------------------------------- | ------------- | --- | ---------------- | -------- | - | --- | ---------- | - | - | ---- | --- | - | - | --- | ---- | -
|                                                               |                                               |               |     | Six Months Ended |         
|                                                               |                                               | Quarter Ended |     |                  | June 30, |  
|                                                               |                                               | June 30,      |     |                  |          |  
|                                                               |                                               |               |     |                  | 2004     |   |     |           
|                                                               |                                               | 2004          |     |                  | 2003     |   |     | (Restated) |   |   | 2003 |    
|                                                               |                                               |               |     |                  |          |   |     |            |   |   |      |    
|                                                               |                                               | (In millions) |    
|                                                              
|                                                              
|                                                              
|                                                              
|Proportional share of income of investees                      |                                               | $             | 110 |                  |          | $ | 131 |            |   | $ | 219  |     |   | $ | 302 |     
|Impairment charges and gains and losses on sale of investments |                                               |               |     |                  |          |   |     |            |   |   |      |     |   |   |     |     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Chaparral
    impairment(1)                   |               |     |                 |          |   |     |           |   |   |      |    |   |   |     | (207 | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Milford power facility
    impairment(2)      |               |     |                 |          |   |     |           |   |   |      | (2  | ) |   |     | (86  | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Dauphin Island/Mobile Bay
    impairment(3)   |               |     |                 |          |   |     | (80        | ) |   |      |    |   |   |     | (80  | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Power plants held for sale
    impairments(3) |               |     | (19              | )        |   |     |           |   |   |      | (35 | ) |   |     |     |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gain on sales of CAPSA/CAPEX                  |               |     |                 |          |   |     | 24         |   |   |      |    |   |   |     | 24   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other gains (losses)                          |               |     | 1                |          |   |     | (3         | ) |   |      | (5  | ) |   |     | (13  | )
|                                                              
|                                                              
|                                                              
|                                                              
|Gain on issuance of GulfTerra common units                     |                                               |               |    |                  |          |   | 12  |            |   |   | 3    |     |   |   | 12  |     
|                                                              
|                                                              
|                                                              
|                                                              
|Other                                                          |                                               |               | 6   |                  |          |   | 2   |            |   |   | 5    |     |   |   |    |     
|                                                               |                                               |               |     |                  |          |   |     |            |   |   |      |    
|Total earnings (losses) from unconsolidated affiliates         |                                               | $             | 98  |                  |          | $ | 86  |            |   | $ | 185  |     |   | $ | (48 | )   
|                                                               |                                               |               |     |                  |          |   |     |            |   |   |      |    









|    |                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This impairment resulted from other than temporary declines in
    the investments fair value based on developments in our
    power business and the power industry (see Note 6).
|   
|(2) | This impairment resulted from a write-off of notes receivable
    and accruals on contracts due to ongoing difficulty at the
    project level.                                    
|   
|(3) | These impairments resulted from the anticipated sales of these
    investments.                                                                                                    

37



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Related Party
Transactions




|                                     |  |               |    |  |                |   |    |      |  |   |      |  |  |   |     | 
|------------------------------------ |  | ------------- | -- |  | -------------- | - | -- | ---- |  | - | ---- |  |  | - | --- | 
|                                     |  | Quarter Ended |    |  | Six Months     |  
|                                     |  | June 30,      |    |  | Ended June 30, |  
|                                     |  |               |    |  |                |  
|                                     |  | 2004          |    |  | 2003           |   |    | 2004 |  |   | 2003 | 
|                                     |  |               |    |  |                |   |    |      |  |   |      | 
|                                     |  | (In millions) |   
|                                    
|                                    
|                                    
|                                    
|Operating revenue                    |  | $             | 87 |  |                | $ | 76 |      |  | $ | 160  |  |  | $ | 127 | 
|                                    
|                                    
|                                    
|                                    
|Other revenue  management fees      |  |               | 3  |  |                |   | 4  |      |  |   | 5    |  |  |   | 6   | 
|                                    
|                                    
|                                    
|                                    
|Cost of sales                        |  |               | 37 |  |                |   | 37 |      |  |   | 60   |  |  |   | 59  | 
|                                    
|                                    
|                                    
|                                    
|Reimbursement for operating expenses |  |               | 36 |  |                |   | 32 |      |  |   | 66   |  |  |   | 68  | 
|                                    
|                                    
|                                    
|                                    
|Other income                         |  |               | 2  |  |                |   | 2  |      |  |   | 5    |  |  |   | 5   | 
|                                    
|                                    
|                                    
|                                    
|Interest income                      |  |               | 2  |  |                |   | 3  |      |  |   | 4    |  |  |   | 6   | 
|                                    
|                                    
|                                    
|                                    
|Interest expense                     |  |               |   |  |                |   | 1  |      |  |   |     |  |  |   | 3   | 

GulfTerra.




|                                   |       |               |     |     | 
|---------------------------------- | ----- | ------------- | --- | --- | 
|                                   |       | Book Value    |    
|                                   |       |               |    
|                                   |       | (In millions) |    
|                                  
|                                  
|                                  
|                                  
|One Percent General
    Partner(1) |       | $             | 194 |    
|                                  
|                                  
|                                  
|                                  
|Common
    Units(2)                |       |               | 245 |    
|                                  
|                                  
|                                  
|                                  
|Series C
    Units(3)              |       |               | 329 |    
|                                   |       |               |    
|                                   | Total |               | $   | 768 | 
|                                   |       |               |    






|    |                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As of June 30, 2004, Enterprise had an effective
    50 percent ownership interest in the general partner, which
    we have reflected in our balance sheet as minority interest of
    $96 million. We also had $181 million of
    indefinite-lived intangible assets related to the general
    partner interest as of June 30, 2004.
|   
|(2) | As of June 30, 2004, we owned 17.3 percent of the
    common units of GulfTerra. The remaining units are owned by
    public holders, including the partnership employees and
    management, none of which individually own more than 10 percent.                                                                                      
|   
|(3) | As of June 30, 2004, we owned all of the Series C
    units of GulfTerra.                                                                                                                                                                                                                                                               



38



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|                                       |                       |               |    |    |            |   |    |      |  |   |      |    |  |   |    |    | 
|-------------------------------------- | --------------------- | ------------- | -- | -- | ---------- | - | -- | ---- |  | - | ---- | -- |  | - | -- | -- | 
|                                       |                       | Quarter       |    |    | Six Months |  
|                                       |                       | Ended         |    |    | Ended      |  
|                                       |                       | June 30,      |    |    | June 30,   |  
|                                       |                       |               |    |    |            |  
|                                       |                       | 2004          |    |    | 2003       |   |    | 2004 |  |   | 2003 |   
|                                       |                       |               |    |    |            |   |    |      |  |   |      |   
|                                       |                       | (In millions) |   
|Revenues received from GulfTerra       |                       |               |    |    |            |   |    |      |  |   |      |    |  |   |    |   
|                                      
|                                      
|                                      
|                                      
|                                       | Marketing and Trading |               | $  | 6  |            |   | $  | 6    |  |   | $    | 15 |  |   | $  | 16 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Field Services        |               |    |   |            |   |    |     |  |   |      | 1  |  |   |    | 5  | 
|                                       |                       |               |    |    |            |   |    |      |  |   |      |   
|                                       |                       | $             | 6  |    |            | $ | 6  |      |  | $ | 16   |    |  | $ | 21 |   
|                                       |                       |               |    |    |            |   |    |      |  |   |      |   
|Expenses paid to GulfTerra             |                       |               |    |    |            |   |    |      |  |   |      |    |  |   |    |   
|                                      
|                                      
|                                      
|                                      
|                                       | Field Services        |               | $  | 34 |            |   | $  | 25   |  |   | $    | 67 |  |   | $  | 42 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Marketing and Trading |               |    | 1  |            |   |    | 8    |  |   |      | 2  |  |   |    | 19 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Production            |               |    | 2  |            |   |    | 2    |  |   |      | 4  |  |   |    | 4  | 
|                                       |                       |               |    |    |            |   |    |      |  |   |      |   
|                                       |                       | $             | 37 |    |            | $ | 35 |      |  | $ | 73   |    |  | $ | 65 |   
|                                       |                       |               |    |    |            |   |    |      |  |   |      |   
|Reimbursements received from GulfTerra |                       |               |    |    |            |   |    |      |  |   |      |    |  |   |    |   
|                                      
|                                      
|                                      
|                                      
|                                       | Field Services        |               | $  | 23 |            |   | $  | 22   |  |   | $    | 45 |  |   | $  | 46 | 
|                                       |                       |               |    |    |            |   |    |      |  |   |      |   



39



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##### Table of Contents






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












Overview


Business Update






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | completing or announcing sales of assets and investments of
    approximately $3.3 billion (see Item 1, Financial
    Statements, Note 4)                                                                                                                                                                                                                                                                                                                    
|
| |  | retiring, eliminating, or refinancing approximately
    $3.4 billion of maturing debt and other obligations,
    ($1.9 billion through June 30, 2004) (see Item 1,
    Financial Statements, Note 11);                                                                                                                                                                                                                                                       
|
| |  | finalizing the Western Energy Settlement, which substantially
    resolved our principal exposure relating to the western energy
    crisis and successfully raising funds to satisfy a significant
    portion of our current obligations under that settlement (see
    Item 1, Financial Statements, Note 12); and                                                                                                                                        
|
| |  | entering into a new credit agreement to refinance our existing
    revolving credit facility with an aggregate of $3 billion
    in financings consisting of a $1.25 billion, five year term
    loan, a new $1.0 billion three year revolving credit
    facility, and a five year, $750 million funded letter of
    credit facility, all of which will become available to us upon
    the filing of this Quarterly Report on Form 10-Q (see
    Note 11).

Liquidity Update




40



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Capital Structure




41



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##### Table of Contents





|                                                               |                                                                       |   |        |        | 
|-------------------------------------------------------------- | --------------------------------------------------------------------- | - | ------ | ------ | 
|                                                              
|                                                              
|                                                              
|                                                              
|Short-term financing obligations, including current maturities |                                                                       | $ | 1,457  |       
|                                                              
|                                                              
|                                                              
|                                                              
|Long-term financing obligations                                |                                                                       |   | 20,275 |       
|                                                              
|                                                              
|                                                              
|                                                              
|Securities of subsidiaries                                     |                                                                       |   | 447    |       
|                                                               |                                                                       |   |       
|                                                               | Total debt and securities of subsidiaries as of
    December 31, 2003 |   |        | 22,179 | 
|                                                               |                                                                       |   |       
|Principal amounts borrowed                                     |                                                                       |   | 50     |       
|                                                              
|                                                              
|                                                              
|                                                              
|Repayments/retirements of
    principal(1)                     |                                                                       |   | (1,024 | )     
|                                                              
|                                                              
|                                                              
|                                                              
|Sales of
    entities(2)                                       |                                                                       |   | (887   | )     
|                                                              
|                                                              
|                                                              
|                                                              
|Other                                                          |                                                                       |   | (37    | )     
|                                                               |                                                                       |   |       
|                                                               | Total debt and securities of subsidiaries as of June 30,
    2004     |   | $      | 20,281 | 
|                                                               |                                                                       |   |       






|    |                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amount includes $250 million of repayments under our existing
    revolving credit facility and excludes $370 million of
    repayments of long-term debt related to our Aruba refinery
    classified as part of our discontinued operations prior to the
    sale of this facility in early 2004.
|   
|(2) | This debt was eliminated when we sold our interests in Mohawk
    River Funding IV and Utility Contract Funding.                                                                                                                                                                                   



Capital Resources and Liquidity


Overview of Cash Flow Activities for the Six Months Ended
June 30, 2004 and 2003







|                                                |                                                                            |                                                 |     |        |      |   |        |      |     | 
|----------------------------------------------- | -------------------------------------------------------------------------- | ----------------------------------------------- | --- | ------ | ---- | - | ------ | ---- | --- | 
|                                                |                                                                            | 2004                                            |     |        |     
|                                                |                                                                            | (Restated)                                      |     |        | 2003 |  
|                                                |                                                                            |                                                 |     |        |      |  
|                                                |                                                                            | (In millions)                                   |    
|Cash flows from continuing operating activities |                                                                            |                                                 |     |        |      |   |        |     
|                                               
|                                               
|                                               
|                                               
|                                                | Net loss before discontinued operations                                    |                                                 | $   | (85    | )    |   | $      | (513 | )  
|                                               
|                                               
|                                               
|                                               
|                                                | Non-cash income adjustments                                                |                                                 |     | 856    |      |   |        | 965  |    
|                                               
|                                               
|                                               
|                                               
|                                                | Changes in assets and liabilities                                          |                                                 |     | (636   | )    |   |        | 467  |    
|                                                |                                                                            |                                                 |     |        |      |  
|                                                |                                                                            | Cash flows from continuing operating activities |     |        | 135  |   |        |      | 919 | 
|                                                |                                                                            |                                                 |     |        |      |  
|Cash flows from continuing investing activities |                                                                            |                                                 | (91 | )      |      |   | (1,241 | )   
|                                                |                                                                            |                                                 |     |        |      |  
|Cash flows from continuing financing activities |                                                                            |                                                 | (62 | )      |      |   | 516    |     
|                                                |                                                                            |                                                 |     |        |      |  
|                                                | Change in cash and cash equivalents related to continuing
    operations   |                                                 |     | (18    | )    |   |        | 194  |    
|                                                |                                                                            |                                                 |     |        |      |  
|Discontinued operations                         |                                                                            |                                                 |     |        |      |   |        |     
|                                               
|                                               
|                                               
|                                               
|                                                | Cash flows from operating activities                                       |                                                 |     | 161    |      |   |        | 95   |    
|                                               
|                                               
|                                               
|                                               
|                                                | Cash flows from investing activities                                       |                                                 |     | 1,113  |      |   |        | 245  |    
|                                               
|                                               
|                                               
|                                               
|                                                | Cash flows from financing activities                                       |                                                 |     | (1,274 | )    |   |        | (340 | )  
|                                                |                                                                            |                                                 |     |        |      |  
|                                                | Change in cash and cash equivalents related to discontinued
    operations |                                                 |     |       |      |   |        |     |    
|                                                |                                                                            |                                                 |     |        |      |  
|                                                |                                                                            | Total change in cash and cash equivalents       |     | $      | (18  | ) |        | $    | 194 | 
|                                                |                                                                            |                                                 |     |        |      |  




42



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|                                         |                                                      |                                                     |                      |      |      |   | 
|---------------------------------------- | ---------------------------------------------------- | --------------------------------------------------- | -------------------- | ---- | ---- | - | 
|Cash inflows from continuing operations  |                                                      |                                                     |                      |     
|                                        
|                                        
|                                        
|                                        
|                                         | Cash flows from operating activities                 |                                                     | $                    | 0.1  |     
|                                        
|                                        
|                                        
|                                        
|                                         | Net proceeds from the sale of assets and investments |                                                     |                      | 0.2  |     
|                                        
|                                        
|                                        
|                                        
|                                         | Net change in restricted
    cash(1)                 |                                                     |                      | 0.4  |     
|                                        
|                                        
|                                        
|                                        
|                                         | Other                                                |                                                     |                      | 0.2  |     
|                                         |                                                      |                                                     |                     
|                                         |                                                      | Total cash inflows from continuing operations       |                      |      | 0.9  |  
|                                         |                                                      |                                                     |                     
|Cash outflows from continuing operations |                                                      |                                                     |                      |     
|                                        
|                                        
|                                        
|                                        
|                                         | Additions to property, plant and equipment           |                                                     |                      | (0.8 | )   
|                                        
|                                        
|                                        
|                                        
|                                         | Payments to retire long-term debt                    |                                                     |                      | (1.0 | )   
|                                         |                                                      |                                                     |                     
|                                         |                                                      | Total cash outflows from continuing operations      |                      |      | (1.8 | )
|                                         |                                                      |                                                     |                     
|Cash flows from discontinued operations  |                                                      |                                                     |                      |     
|                                        
|                                        
|                                        
|                                        
|                                         | Cash from operations                                 |                                                     |                      | 0.1  |     
|                                        
|                                        
|                                        
|                                        
|                                         | Net proceeds from sale of assets                     |                                                     |                      | 1.2  |     
|                                        
|                                        
|                                        
|                                        
|                                         | Payments to retire long-term debt                    |                                                     |                      | (0.4 | )   
|                                         |                                                      |                                                     |                     
|                                         |                                                      | Total net cash inflows from discontinued operations |                      |      | 0.9  |  
|                                         |                                                      |                                                     |                     
|                                         |                                                      |                                                     | Net increase in cash |      | $    |  | 
|                                         |                                                      |                                                     |                     






|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(1) | Amounts consist primarily of the release of escrowed funds
    related to the Western Energy Settlement.



Cash From Continuing
Operating Activities




43



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##### Table of Contents



Cash From Continuing
Investing Activities




|                                                                 |                                       |   |      |      |  
|---------------------------------------------------------------- | ------------------------------------- | - | ---- | ---- | -
|                                                                
|                                                                
|                                                                
|                                                                
|Production exploration, development and acquisition expenditures |                                       | $ | (0.4 | )   
|                                                                
|                                                                
|                                                                
|                                                                
|Pipeline expansion, maintenance and integrity projects           |                                       |   | (0.4 | )   
|                                                                
|                                                                
|                                                                
|                                                                
|Restricted cash
    activity(1)                                  |                                       |   | 0.4  |     
|                                                                
|                                                                
|                                                                
|                                                                
|Proceeds from the sale of assets and investments                 |                                       |   | 0.2  |     
|                                                                
|                                                                
|                                                                
|                                                                
|Other                                                            |                                       |   | 0.1  |     
|                                                                 |                                       |   |     
|                                                                 | Total continuing investing activities |   | $    | (0.1 | )
|                                                                 |                                       |   |     






|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(1) | Amounts consist primarily of the release of escrowed funds
    related to the Western Energy Settlement.



Cash From Continuing
Financing Activities






| |                                  
| | ---------------------------------
| | Cash from Discontinued Operations



44



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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                            |                                        | $                                       | 27   |          |      | $   | 47       |      |      | $        |    |      |          | $   |    |       |     | $ |   |     |    | $   | 74   |       
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Liabilities                       |                                        |                                         | (32  | )        |      |     | (57      | )    |      |          | (11 | )    |          |     | (6  | )     |     |   |   |     |    |     | (106 | )     
|                                                            |                                   |                                        |                                         |      |          |      |     |          |      |      |          |     |      |          |     |     |       |    
|                                                            |                                   | Total derivatives designated as hedges |                                         |      | (5       | )    |     |          | (10  | )    |          |     | (11  | )        |     |     | (6    | )   |   |    |    |    |     |      | (32    | )   
|                                                            |                                   |                                        |                                         |      |          |      |     |          |      |      |          |     |      |          |     |     |       |    
|Assets from power contract restructuring
    derivatives(1) |                                   |                                        | 133                                     |      |          |      | 270 |          |      |      | 220      |     |      |          | 323 |     |       |     |  |    |     |    | 946 |     
|                                                            |                                   |                                        |                                         |      |          |      |     |          |      |      |          |     |      |          |     |     |       |    
|Other commodity-based derivatives                           |                                   |                                        |                                         |      |          |      |     |          |      |      |          |     |      |          |     |     |       |     |   |    |     |    |     |     
|                                                            | Exchange-traded
    positions(2)  |                                        |                                         |      |          |      |     |          |      |      |          |     |      |          |     |     |       |     |   |    |     |    |     |      |       
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            |                                   | Assets                                 |                                         |      | 24       |      |     |          | 58   |      |          |     | 46   |          |     |     |      |     |   |    |    |    |     |      | 128    |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            |                                   | Liabilities                            |                                         |      | (53      | )    |     |          | (8   | )    |          |     |     |          |     |     |      |     |   |    |    |    |     |      | (61    | )   
|                                                            | Non-exchange-traded positions     |                                        |                                         |      |          |      |     |          |      |      |          |     |      |          |     |     |       |     |   |    |     |    |     |      |       
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            |                                   | Assets                                 |                                         |      | 330      |      |     |          | 279  |      |          |     | 120  |          |     |     | 150   |     |   |    | 41  |    |     |      | 920    |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            |                                   | Liabilities(1)                         |                                         |      | (592     | )    |     |          | (593 | )    |          |     | (179 | )        |     |     | (199  | )   |   |    | (50 | )  |     |      | (1,613 | )   
|                                                            |                                   |                                        |                                         |      |          |      |     |          |      |      |          |     |      |          |     |     |       |    
|                                                            |                                   |                                        | Total other commodity-based derivatives |      |          | (291 | )   |          |      | (264 | )        |     |      | (13      | )   |     |       | (49 | ) |    |     | (9 | )   |      |        | (626 | )
|                                                            |                                   |                                        |                                         |      |          |      |     |          |      |      |          |     |      |          |     |     |       |    
|                                                            | Total commodity-based derivatives |                                        | $                                       | (163 | )        |      | $   | (4       | )    |      | $        | 196 |      |          | $   | 268 |       |     | $ | (9 | )   |    | $   | 288  |       
|                                                            |                                   |                                        |                                         |      |          |      |     |          |      |      |          |     |      |          |     |     |       |    






|    |                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $269 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, 2004.
|   
|(2) | Exchange-traded positions are 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                                             |     |             | Activities    |   |       | Derivatives |      |       | Derivatives |     
|                                                       |                                                      |                                                       |     |             |               |   |       |             |      |       |             |     
|                                                       |                                                      | (In millions)                                         |    
|                                                      
|                                                      
|                                                      
|                                                      
|Fair value of contracts outstanding at January 1, 2004 |                                                      | $                                                     | (31 | )           |               | $ | 1,925 |             |      | $     | (488        | )    |      | $ | 1,406 |     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Fair value of contract settlements during the period |                                                       |     | 34          |               |   |       | (1,037      | )(1) |       |             | 180  |      |   |       | (823 | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Change in fair value of contracts                    |                                                       |     | (35         | )             |   |       | 58          |      |       |             | (315 | )(2) |   |       | (292 | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Option premiums received, net                        |                                                       |     |            |               |   |       |            |      |       |             | (3   | )    |   |       | (3   | )     
|                                                       |                                                      |                                                       |     |             |               |   |       |             |      |       |             |     
|                                                       |                                                      | Net change in contracts outstanding during the period |     |             | (1            | ) |       |             | (979 | )     |             |      | (138 | ) |       |      | (1,118 | )
|                                                       |                                                      |                                                       |     |             |               |   |       |             |      |       |             |     
|Fair value of contracts outstanding at June 30, 2004   |                                                      | $                                                     | (32 | )           |               | $ | 946   |             |      | $     | (626        | )    |      | $ | 288   |     
|                                                       |                                                      |                                                       |     |             |               |   |       |             |      |       |             |     






|    |                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $861 million and $75 million of derivative
    contracts sold in connection with the sale of Utility Contract
    Funding and Mohawk River Funding IV in 2004. See
    Item I, Financial Statements, Notes 4 and 6 for
    additional information on these sales.
|   
|(2) | In the second quarter of 2004, we reclassified a
    $69 million liability from our Western Energy Settlement
    obligation to our price risk management activities.                                                                                                     

45



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Segment Results






46



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##### Table of Contents








|                                                                  |                                          |                                              |      |      |                  |  |      |               |      |   |      |      |     |  |        |        |      |  
|----------------------------------------------------------------- | ---------------------------------------- | -------------------------------------------- | ---- | ---- | ---------------- |  | ---- | ------------- | ---- | - | ---- | ---- | --- |  | ------ | ------ | ---- | -
|                                                                  |                                          | Quarter Ended                                |      |      | Six Months Ended | 
|                                                                  |                                          | June 30,                                     |      |      | June 30,         | 
|                                                                  |                                          |                                              |      |      |                  | 
|                                                                  |                                          | 2004                                         |      |      |                  |  | 2004 |               |      |  
|                                                                  |                                          | (Restated)(1)                                |      |      | 2003             |  |      | (Restated)(1) |      |   | 2003 |     
|                                                                  |                                          |                                              |      |      |                  |  |      |               |      |   |      |     
|                                                                  |                                          | (In millions)                                |     
|Regulated Businesses                                              |                                          |                                              |      |      |                  |  |      |               |      |   |      |      |     |  |        |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Pipelines                                |                                              | $    | 308  |                  |  | $    | 145           |      |   | $    | 694  |     |  | $      | 574    |     
|Unregulated Businesses                                            |                                          |                                              |      |      |                  |  |      |               |      |   |      |      |     |  |        |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Production                               |                                              |      | 204  |                  |  |      | 312           |      |   |      | 408  |     |  |        | 758    |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Marketing and Trading                    |                                              |      | (152 | )                |  |      | (298          | )    |   |      | (316 | )   |  |        | (732   | )   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Power                                    |                                              |      | 102  |                  |  |      | 185           |      |   |      | (67  | )   |  |        | (11    | )   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Field Services                           |                                              |      | 27   |                  |  |      | (56           | )    |   |      | 63   |     |  |        | (29    | )   
|                                                                  |                                          |                                              |      |      |                  |  |      |               |      |   |      |     
|                                                                  |                                          | Segment EBIT                                 |      |      | 489              |  |      |               | 288  |   |      |      | 782 |  |        |        | 560  |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Corporate                                                         |                                          |                                              | 9    |      |                  |  | (515 | )             |      |   | 36   |      |     |  | (662   | )     
|                                                                  |                                          |                                              |      |      |                  |  |      |               |      |   |      |     
|                                                                  |                                          | Consolidated EBIT from continuing operations |      |      | 498              |  |      |               | (227 | ) |      |      | 818 |  |        |        | (102 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Interest and debt expense                                         |                                          |                                              | (410 | )    |                  |  | (463 | )             |      |   | (833 | )    |     |  | (877   | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Distributions on preferred interests of consolidated subsidiaries |                                          |                                              | (6   | )    |                  |  | (17  | )             |      |   | (12  | )    |     |  | (38    | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Income taxes                                                      |                                          |                                              | (48  | )    |                  |  | 410  |               |      |   | (58  | )    |     |  | 513    |       
|                                                                  |                                          |                                              |      |      |                  |  |      |               |      |   |      |     
|                                                                  | Income (loss) from continuing operations |                                              |      | 34   |                  |  |      | (297          | )    |   |      | (85  | )   |  |        | (504   | )   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Discontinued operations, net of income taxes                      |                                          |                                              | (29  | )    |                  |  | (939 | )             |      |   | (106 | )    |     |  | (1,154 | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cumulative effect of accounting changes, net of income taxes      |                                          |                                              |     |      |                  |  |     |               |      |   |     |      |     |  | (9     | )     
|                                                                  |                                          |                                              |      |      |                  |  |      |               |      |   |      |     
|                                                                  | Net income (loss)                        |                                              | $    | 5    |                  |  | $    | (1,236        | )    |   | $    | (191 | )   |  | $      | (1,667 | )   
|                                                                  |                                          |                                              |      |      |                  |  |      |               |      |   |      |     












|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The restatement of our 2004 financial statements affected the
    amount of losses on long-lived assets, earnings from
    unconsolidated affiliates and other income for certain foreign
    operations in our Power and Marketing and Trading segments and
    discontinued foreign operations, as well as the related taxes on
    these assets and investments. See Item 1, Financial
    Statements and Supplementary Data, Note 1 for a further
    discussion of the restatement and the manner in which our
    segments and other operations were affected.




Overview of Results of Operations












|                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Pipelines             |  | Our Pipelines segment generated EBIT of $694 million, which
    was generally consistent with our expectations for the period.                                                                                                                                                                                                                                                                                                                                                           
|                     
|Production            |  | Our Production segment generated EBIT of $408 million,
    which was above our expectations for the period. Higher than
    expected commodity prices and lower than expected depreciation
    costs, due to the impact of the reserve and hedge restatements
    in periods prior to 2004, more than offset lower than expected
    production volumes and higher than expected production costs.                                                                                       
|                     
|                     
|Marketing and Trading |  | Our Marketing and Trading segment generated an EBIT loss of
    $316 million, which was below our expectations. The
    performance was driven primarily by mark-to-market losses in our
    natural gas portfolio due to natural gas price increases in the
    period. Our natural gas portfolio exposure was impacted by the
    hedge restatement in periods prior to 2004, resulting in a
    mark-to-market position that will result in losses if natural
    gas prices increase.
|                     

47



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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              
|Power          |  | Our Power segment generated an EBIT loss of $67 million,
    which was below our expectations for the period, primarily due
    to asset impairments of $302 million. These impairments
    were primarily related to events at two power plants in Brazil
    in the first quarter of 2004 that may make it difficult to
    extend their power sales agreements that expire in 2005 and
    2006, and due to certain of our domestic operations which were
    sold or are being sold.
|              
|              
|Field Services |  | Our Field Services segment generated EBIT of $63 million,
    which was consistent with our expectations for the period and
    impacted by the significant asset sales activity in the segment
    in 2003.                                                                                                                                                                                                                                                                            








|                                                             |       |                    |      |           |            |   |       |         |   |       |            |    |   |          |      |      |           |   |     |     |   |   |      |      |  
|------------------------------------------------------------ | ----- | ------------------ | ---- | --------- | ---------- | - | ----- | ------- | - | ----- | ---------- | -- | - | -------- | ---- | ---- | --------- | - | --- | --- | - | - | ---- | ---- | -
|                                                             |       | Operating Segments |      |           |           
|                                                             |       |                    |      |           |           
|                                                             |       |                    |      | Marketing |            |   |       |         |  
|                                                             |       |                    |      | and       |            |   | Power |         |   | Field |            |    |  
|                                                             |       | Pipelines          |      |           | Production |   |       | Trading |   |       | (Restated) |    |   | Services |      |      | Corporate |  
|                                                             |       |                    |      |           |            |   |       |         |   |       |            |    |   |          |      |      |           |  
|                                                             |       | (In millions)      |     
|2004                                                         |       |                    |      |           |            |   |       |         |   |       |            |    |   |          |      |      |           |   |     |     |   |   |      |     
|                                                            
|                                                            
|                                                            
|                                                            
|Asset and investment impairments, net of gain (loss) on sale |       | $                  | (1   | )         |            | $ |      |         |   | $     |           |    |   | $        | (293 | )    |           | $ | (11 | )   |   | $ | 8    |     
|                                                            
|                                                            
|                                                            
|                                                            
|Restructuring charges                                        |       |                    | (5   | )         |            |   | (11   | )       |   |       | (2         | )  |   |          | (3   | )    |           |   | (1  | )   |   |   | (11  | )   
|                                                             |       |                    |      |           |            |   |       |         |   |       |            |    |   |          |      |      |           |  
|                                                             | Total |                    | $    | (6        | )          |   | $     | (11     | ) |       | $          | (2 | ) |          | $    | (296 | )         |   | $   | (12 | ) |   | $    | (3   | )
|                                                             |       |                    |      |           |            |   |       |         |   |       |            |    |   |          |      |      |           |  
|2003                                                         |       |                    |      |           |            |   |       |         |   |       |            |    |   |          |      |      |           |   |     |     |   |   |      |     
|                                                            
|                                                            
|                                                            
|                                                            
|Asset and investment impairments, net of gain (loss) on sale |       | $                  | 8    |           |            | $ | 5     |         |   | $     | 3          |    |   | $        | (269 | )    |           | $ | (75 | )   |   | $ | (443 | )   
|                                                            
|                                                            
|                                                            
|                                                            
|Restructuring charges                                        |       |                    | (1   | )         |            |   | (4    | )       |   |       | (4         | )  |   |          | (4   | )    |           |   | (3  | )   |   |   | (84  | )   
|                                                            
|                                                            
|                                                            
|                                                            
|Western Energy
    Settlement(1)                             |       |                    | (159 | )         |            |   |      |         |   |       | (6         | )  |   |          |     |      |           |   |    |     |   |   | (3   | )   
|                                                             |       |                    |      |           |            |   |       |         |   |       |            |    |   |          |      |      |           |  
|                                                             | Total |                    | $    | (152      | )          |   | $     | 1       |   |       | $          | (7 | ) |          | $    | (273 | )         |   | $   | (78 | ) |   | $    | (530 | )
|                                                             |       |                    |      |           |            |   |       |         |   |       |            |    |   |          |      |      |           |  









|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $44 million of accretion expense and other charges
    and is included in operations and maintenance expense in our
    consolidated statements of income.



48



---



##### Table of Contents



Regulated Businesses  Pipelines Segment




|                                   |                  |                                      |        |     |                  |   |        |      |  |   |        |     |  |   |        |     | 
|---------------------------------- | ---------------- | ------------------------------------ | ------ | --- | ---------------- | - | ------ | ---- |  | - | ------ | --- |  | - | ------ | --- | 
|                                   |                  | Quarter Ended                        |        |     | Six Months Ended |  
|                                   |                  | June 30,                             |        |     | June 30,         |  
|                                   |                  |                                      |        |     |                  |  
|Pipelines Segment Results          |                  | 2004                                 |        |     | 2003             |   |        | 2004 |  |   | 2003   |    
|                                   |                  |                                      |        |     |                  |   |        |      |  |   |        |    
|                                   |                  | (In millions, except volume amounts) |       
|                                  
|                                  
|                                  
|                                  
|Operating revenues                 |                  | $                                    | 617    |     |                  | $ | 620    |      |  | $ | 1,338  |     |  | $ | 1,373  |    
|                                  
|                                  
|                                  
|                                  
|Operating expenses                 |                  |                                      | (357   | )   |                  |   | (508   | )    |  |   | (730   | )   |  |   | (877   | )  
|                                   |                  |                                      |        |     |                  |   |        |      |  |   |        |    
|                                   | Operating income |                                      |        | 260 |                  |   |        | 112  |  |   |        | 608 |  |   |        | 496 | 
|                                  
|                                  
|                                  
|                                  
|Other income                       |                  |                                      | 48     |     |                  |   | 33     |      |  |   | 86     |     |  |   | 78     |    
|                                   |                  |                                      |        |     |                  |   |        |      |  |   |        |    
|                                   | EBIT             |                                      | $      | 308 |                  |   | $      | 145  |  |   | $      | 694 |  |   | $      | 574 | 
|                                   |                  |                                      |        |     |                  |   |        |      |  |   |        |    
|Throughput volumes
    (BBtu/d)(1) |                  |                                      | 19,935 |     |                  |   | 18,993 |      |  |   | 21,223 |     |  |   | 21,268 |    
|                                   |                  |                                      |        |     |                  |   |        |      |  |   |        |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Throughput volumes exclude volumes related to our equity
    investments in the Portland Natural Gas Transmission System and
    EPIC Energy Australia Trust which were sold in the fourth
    quarter of 2003 and second quarter of 2004. In addition, volumes
    exclude intrasegment activities. Throughput volumes includes
    volumes related to our Mexico investments which were transferred
    from our Power segment effective January 1, 2004.



| |                         
| | ------------------------
| | Operating Results (EBIT)



|                                   |                                                   |                         |   |      |                           |   |   |       |      |  |        |    |    |         |   |     |         |  |   |       |     |   |        |     |     |  |   |    |   |  |   |     |     | 
|---------------------------------- | ------------------------------------------------- | ----------------------- | - | ---- | ------------------------- | - | - | ----- | ---- |  | ------ | -- | -- | ------- | - | --- | ------- |  | - | ----- | --- | - | ------ | --- | --- |  | - | -- | - |  | - | --- | --- | 
|                                   |                                                   | Quarter Ended June 30,  |   |      | Six Months Ended June 30, |  
|                                   |                                                   |                         |   |      |                           |  
|                                   |                                                   |                         |   | EBIT |                           |   |   |       | EBIT | 
|                                   |                                                   | Revenue                 |   |      | Expense                   |   |   | Other |      |  | Impact |    |    | Revenue |   |     | Expense |  |   | Other |     |   | Impact |    
|                                   |                                                   |                         |   |      |                           |   |   |       |      |  |        |    |    |         |   |     |         |  |   |       |     |   |        |    
|                                   |                                                   | Favorable/(Unfavorable) |   |      | Favorable/(Unfavorable)   |  
|                                   |                                                   | (In millions)           |   |      | (In millions)             |  
|                                  
|                                  
|                                  
|                                  
|ANR                                |                                                   |                         |   |      |                           |   |   |       |      |  |        |    |    |         |   |     |         |  |   |       |     |   |        |     |     |  |   |    |   |  |   |    
|                                  
|                                  
|                                  
|                                  
|                                   | Dakota contract termination                       |                         | $ | (12  | )                         |   | $ | 12    |      |  | $      |   |    |         | $ |    |         |  | $ | (28   | )   |   | $      | 27  |     |  | $ |   |   |  | $ | (1  | )  
|                                  
|                                  
|                                  
|                                  
|                                   | Contract remarketing/ restructurings              |                         |   | (6   | )                         |   |   |      |      |  |        |   |    |         |   | (6  | )       |  |   | (26   | )   |   |        |    |     |  |   |   |   |  |   | (26 | )  
|                                  
|                                  
|                                  
|                                  
|Southern Natural Gas Company (SNG) |                                                   |                         |   |      |                           |   |   |       |      |  |        |    |    |         |   |     |         |  |   |       |     |   |        |     |     |  |   |    |   |  |   |    
|                                  
|                                  
|                                  
|                                  
|                                   | Equity earnings from Citrus                       |                         |   |     |                           |   |   |      |      |  |        | 15 |    |         |   | 15  |         |  |   |      |     |   |        |    |     |  |   | 6  |   |  |   | 6   |    
|                                  
|                                  
|                                  
|                                  
|                                   | Mainline expansions                               |                         |   | 9    |                           |   |   | (1    | )    |  |        | (2 | )  |         |   | 6   |         |  |   | 19    |     |   |        | (4  | )   |  |   | (3 | ) |  |   | 12  |    
|                                  
|                                  
|                                  
|                                  
|EPNG                               |                                                   |                         |   |      |                           |   |   |       |      |  |        |    |    |         |   |     |         |  |   |       |     |   |        |     |     |  |   |    |   |  |   |    
|                                  
|                                  
|                                  
|                                  
|                                   | Western Energy Settlement  2003                  |                         |   |     |                           |   |   | 154   |      |  |        |   |    |         |   | 154 |         |  |   |      |     |   |        | 158 |     |  |   |   |   |  |   | 158 |    
|                                  
|                                  
|                                  
|                                  
|                                   | Lower power purchase costs in 2003                |                         |   |     |                           |   |   |      |      |  |        |   |    |         |   |    |         |  |   |      |     |   |        | (4  | )   |  |   |   |   |  |   | (4  | )  
|                                  
|                                  
|                                  
|                                  
|                                   | Risk sharing mechanism termination                |                         |   | (6   | )                         |   |   |      |      |  |        |   |    |         |   | (6  | )       |  |   | (12   | )   |   |        |    |     |  |   |   |   |  |   | (12 | )  
|                                  
|                                  
|                                  
|                                  
|                                   | Capacity obligation  former FR customers         |                         |   |     |                           |   |   |      |      |  |        |   |    |         |   |    |         |  |   | (4    | )   |   |        |    |     |  |   |   |   |  |   | (4  | )  
|                                  
|                                  
|                                  
|                                  
|CIG                                |                                                   |                         |   |      |                           |   |   |       |      |  |        |    |    |         |   |     |         |  |   |       |     |   |        |     |     |  |   |    |   |  |   |    
|                                  
|                                  
|                                  
|                                  
|                                   | Table Rock facility sold in 2003                  |                         |   |     |                           |   |   | (6    | )    |  |        |   |    |         |   | (6  | )       |  |   |      |     |   |        | (6  | )   |  |   |   |   |  |   | (6  | )  
|                                  
|                                  
|                                  
|                                  
|                                   | Storage facility gas loss replacement  2004      |                         |   |     |                           |   |   |      |      |  |        |   |    |         |   |    |         |  |   |      |     |   |        | (6  | )   |  |   |   |   |  |   | (6  | )  
|                                  
|                                  
|                                  
|                                  
|                                   | Change to regulated depreciation method           |                         |   |     |                           |   |   | (2    | )    |  |        |   |    |         |   | (2  | )       |  |   |      |     |   |        | (4  | )   |  |   |   |   |  |   | (4  | )  
|                                  
|                                  
|                                  
|                                  
|Other                              |                                                   |                         |   |      |                           |   |   |       |      |  |        |    |    |         |   |     |         |  |   |       |     |   |        |     |     |  |   |    |   |  |   |    
|                                  
|                                  
|                                  
|                                  
|                                   | Fuel recoveries, net of gas used                  |                         |   | 11   |                           |   |   |      |      |  |        |   |    |         |   | 11  |         |  |   | 8     |     |   |        |    |     |  |   |   |   |  |   | 8   |    
|                                  
|                                  
|                                  
|                                  
|                                   | Favorable resolution of measurement dispute  TGP |                         |   |     |                           |   |   |      |      |  |        |   |    |         |   |    |         |  |   | 10    |     |   |        |    |     |  |   |   |   |  |   | 10  |    
|                                  
|                                  
|                                  
|                                  
|                                   | Mexico
    investments(1)                         |                         |   | 2    |                           |   |   | (1    | )    |  |        | 5  |    |         |   | 6   |         |  |   | 5     |     |   |        | (3  | )   |  |   | 8  |   |  |   | 10  |    
|                                  
|                                  
|                                  
|                                  
|                                   | Other                                             |                         |   | (1   | )                         |   |   | (5    | )    |  |        | (3 | )  |         |   | (9  | )       |  |   | (7    | )   |   |        | (11 | )   |  |   | (3 | ) |  |   | (21 | )  
|                                   |                                                   |                         |   |      |                           |   |   |       |      |  |        |    |    |         |   |     |         |  |   |       |     |   |        |    
|                                   |                                                   | Total                   |   | $    | (3                        | ) |   | $     | 151  |  |        | $  | 15 |         |   | $   | 163     |  |   | $     | (35 | ) |        | $   | 147 |  |   | $  | 8 |  |   | $   | 120 | 
|                                   |                                                   |                         |   |      |                           |   |   |       |      |  |        |    |    |         |   |     |         |  |   |       |     |   |        |    






|    |                                                                  
|--- | -----------------------------------------------------------------
|(1) | Transferred from our Power segment effective January 1,
    2004.

49



---



##### Table of Contents











Unregulated Businesses  Production Segment






Production and Capital
Expenditures




|                      |  |            
|--------------------- |  | -----------
|                     
|                     
|                     
|                     
|January-October 2004  |  | 820 MMcfe/d
|                     
|                     
|                     
|                     
|Month of October 2004 |  | 761 MMcfe/d



50



---



##### Table of Contents









Production Hedging






|            |  |        |       |         |             |   |      |          |  |  |                    | 
|----------- |  | ------ | ----- | ------- | ----------- | - | ---- | -------- |  |  | ------------------ | 
|            |  |        |       | Average |             |   |     
|            |  | Volume |       |         | Hedge Price |   |      |         
|            |  | (BBtu) |       |         | (per MMbtu) |   |      | Duration | 
|            |  |        |       |         |             |   |      |          | 
|           
|           
|           
|           
|Natural gas |  |        | 5,325 |         |             | $ | 5.62 |          |  |  | July 2004-May 2007 | 

|             |  |         |       |         |             |   |       |          |  |  |                           | 
|------------ |  | ------- | ----- | ------- | ----------- | - | ----- | -------- |  |  | ------------------------- | 
|             |  |         |       | Average |             |   |      
|             |  | Volume  |       |         | Hedge Price |   |       |         
|             |  | (MBbls) |       |         | (per Bbl)   |   |       | Duration | 
|             |  |         |       |         |             |   |       |          | 
|            
|            
|            
|            
|Oil (Brazil) |  |         | 1,119 |         |             | $ | 35.15 |          |  |  | August 2004-December 2007 | 





51



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##### Table of Contents





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



|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |      |         |      |      |       |         |       |  
|---------------------------------------------------- | --------------------------------------------- | ------------------------------------------------------- | ------------------------------- | ---- | ---------------- | ---- | ---- | ---- | ------ | ---- | ---- | ---- | ------- | ---- | ---- | ----- | ------- | ----- | -
|                                                     |                                               | Quarter Ended                                           |                                 |      | Six Months Ended |     
|                                                     |                                               | June 30,                                                |                                 |      | June 30,         |     
|                                                     |                                               |                                                         |                                 |      |                  |     
|Production Segment Results                           |                                               | 2004                                                    |                                 |      | 2003             |      |      | 2004 |        |      | 2003 |     
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     |                                               | (In millions, except volumes and prices)                |                                
|                                                    
|                                                    
|                                                    
|                                                    
|Operating revenues:                                  |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |      |         |      |      |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Natural gas                                   |                                                         | $                               | 363  |                  |      | $    | 494  |        |      | $    | 731  |         |      | $    | 1,126 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Oil, condensate and liquids                   |                                                         |                                 | 66   |                  |      |      | 67   |        |      |      | 143  |         |      |      | 169   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                         |                                                         |                                 | 1    |                  |      |      | 7    |        |      |      | 2    |         |      |      | 8     |        
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     |                                               |                                                         | Total operating revenues        |      |                  | 430  |      |      |        | 568  |      |      |         | 876  |      |       |         | 1,303 |  
|                                                    
|                                                    
|                                                    
|                                                    
|Transportation and net product costs                 |                                               |                                                         | (13                             | )    |                  |      | (20  | )    |        |      | (27  | )    |         |      | (50  | )    
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     |                                               |                                                         | Total operating margin          |      |                  | 417  |      |      |        | 548  |      |      |         | 849  |      |       |         | 1,253 |  
|                                                    
|                                                    
|                                                    
|                                                    
|Operating expenses:                                  |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |      |         |      |      |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Depreciation, depletion and amortization      |                                                         |                                 | (131 | )                |      |      | (141 | )      |      |      | (271 | )       |      |      | (299  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Production
    costs(1)                       |                                                         |                                 | (44  | )                |      |      | (54  | )      |      |      | (86  | )       |      |      | (114  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other
    charges(2)                          |                                                         |                                 | (2   | )                |      |      | 4    |        |      |      | (11  | )       |      |      | 1     |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | General and administrative expenses           |                                                         |                                 | (37  | )                |      |      | (47  | )      |      |      | (73  | )       |      |      | (91   | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Taxes, other than production and income taxes |                                                         |                                 | (1   | )                |      |      | (2   | )      |      |      | (3   | )       |      |      | (5    | )      
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     |                                               |                                                         | Total operating
    expenses(3) |      |                  | (215 | )    |      |        | (240 | )    |      |         | (444 | )    |       |         | (508  | )
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     | Operating income                              |                                                         |                                 | 202  |                  |      |      | 308  |        |      |      | 405  |         |      |      | 745   |        
|                                                    
|                                                    
|                                                    
|                                                    
|Other income                                         |                                               |                                                         | 2                               |      |                  |      | 4    |      |        |      | 3    |      |         |      | 13   |      
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     | EBIT                                          |                                                         | $                               | 204  |                  |      | $    | 312  |        |      | $    | 408  |         |      | $    | 758   |        
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|Volumes, prices and costs per unit:                  |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |      |         |      |      |      
|                                                     | Natural gas                                   |                                                         |                                 |      |                  |      |      |      |        |      |      |      |         |      |      |       |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                               | Volumes (MMcf)                                          |                                 |      | 61,535           |      |      |      | 93,241 |      |      |      | 127,234 |      |      |       | 191,117 |      
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     |                                               | Average realized prices including hedges
    ($/Mcf)(4) |                                 | $    | 5.90             |      |      | $    | 5.30   |      |      | $    | 5.75    |      |      | $     | 5.89    |      
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     |                                               | Average realized prices excluding hedges
    ($/Mcf)(4) |                                 | $    | 5.95             |      |      | $    | 5.34   |      |      | $    | 5.81    |      |      | $     | 6.05    |      
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     |                                               | Average transportation costs ($/Mcf)                    |                                 | $    | 0.14             |      |      | $    | 0.18   |      |      | $    | 0.15    |      |      | $     | 0.20    |      
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     | Oil, condensate and liquids                   |                                                         |                                 |      |                  |      |      |      |        |      |      |      |         |      |      |       |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                               | Volumes (MBbls)                                         |                                 |      | 1,937            |      |      |      | 2,577  |      |      |      | 4,647   |      |      |       | 6,169   |      
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     |                                               | Average realized prices including hedges
    ($/Bbl)(4) |                                 | $    | 34.11            |      |      | $    | 26.14  |      |      | $    | 30.86   |      |      | $     | 27.34   |      
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     |                                               | Average realized prices excluding hedges
    ($/Bbl)(4) |                                 | $    | 34.11            |      |      | $    | 26.86  |      |      | $    | 30.86   |      |      | $     | 28.12   |      
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     |                                               | Average transportation costs ($/Bbl)                    |                                 | $    | 1.54             |      |      | $    | 0.94   |      |      | $    | 1.35    |      |      | $     | 0.98    |      
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|Production costs ($/Mcfe)                            |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |      |         |      |      |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                               | Average lease operating costs                           |                                 | $    | 0.51             |      |      | $    | 0.38   |      |      | $    | 0.50    |      |      | $     | 0.35    |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                               | Average production taxes                                |                                 |      | 0.09             |      |      |      | 0.12   |      |      |      | 0.06    |      |      |       | 0.15    |      
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|                                                     |                                               |                                                         | Total production
    cost(1)    |      | $                | 0.60 |      |      | $      | 0.50 |      |      | $       | 0.56 |      |       | $       | 0.50  |  
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|Average general and administrative expenses ($/Mcfe) |                                               | $                                                       | 0.51                            |      |                  | $    | 0.43 |      |        | $    | 0.47 |      |         | $    | 0.40 |      
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     
|Unit of production depletion cost ($/Mcfe)           |                                               | $                                                       | 1.64                            |      |                  | $    | 1.22 |      |        | $    | 1.61 |      |         | $    | 1.23 |      
|                                                     |                                               |                                                         |                                 |      |                  |      |      |      |        |      |      |     






|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(1) | Production costs include lease operating costs and production
    related taxes (including ad valorem and severance taxes).
|   
|(2) | Includes restructuring charges and gains on asset sales.                                                                   
|   
|(3) | Transportation costs are included in operating expenses on our
    consolidated statements of income.                      
|   
|(4) | Prices are stated before transportation costs.                                                                             

52



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##### Table of Contents



Quarter Ended June 30,
2004 Compared to Quarter Ended June 30, 2003




Operating Revenues.


|                                     |                                  |               |    |  |         |   |      |        |  |   |       |  |  |   |      |      |  
|------------------------------------ | -------------------------------- | ------------- | -- |  | ------- | - | ---- | ------ |  | - | ----- |  |  | - | ---- | ---- | -
|                                     |                                  | Variance      |   
|                                     |                                  |               |   
|Production Revenue Variance Analysis |                                  | Prices        |    |  | Volumes |   |      | Hedges |  |   | Total | 
|                                     |                                  |               |    |  |         |   |      |        |  |   |       | 
|                                     |                                  | (In millions) |   
|                                    
|                                    
|                                    
|                                    
|Natural gas                          |                                  | $             | 38 |  |         | $ | (169 | )      |  | $ |      |  |  | $ | (131 | )   
|                                    
|                                    
|                                    
|                                    
|Oil, condensate and liquids          |                                  |               | 14 |  |         |   | (17  | )      |  |   | 2     |  |  |   | (1   | )   
|                                     |                                  |               |    |  |         |   |      |        |  |   |       | 
|                                     |                                  | $             | 52 |  |         | $ | (186 | )      |  | $ | 2     |  |  |   | (132 | )   
|                                     |                                  |               |    |  |         |   |      |        |  |   |       | 
|Other                                |                                  |               |    |  |         |   |      |        |  |   |       |  |  |   | (6   | )   
|                                     |                                  |               |    |  |         |   |      |        |  |   |       | 
|                                     | Total operating revenue variance |               |    |  |         |   |      |        |  |   |       |  |  |   | $    | (138 | )
|                                     |                                  |               |    |  |         |   |      |        |  |   |       | 





Operating Expenses.










| |                                                                              
| | -----------------------------------------------------------------------------
| | Six Months Ended June 30, 2004 Compared to Six Months
    Ended June 30, 2003



53



---



##### Table of Contents





Operating Revenues.


|                                     |                                  |               |     |   |         |   |      |        |  |   |       |  |  |   |      |      |  
|------------------------------------ | -------------------------------- | ------------- | --- | - | ------- | - | ---- | ------ |  | - | ----- |  |  | - | ---- | ---- | -
|                                     |                                  | Variance      |    
|                                     |                                  |               |    
|Production Revenue Variance Analysis |                                  | Prices        |     |   | Volumes |   |      | Hedges |  |   | Total | 
|                                     |                                  |               |     |   |         |   |      |        |  |   |       | 
|                                     |                                  | (In millions) |    
|                                    
|                                    
|                                    
|                                    
|Natural gas                          |                                  | $             | (30 | ) |         | $ | (386 | )      |  | $ | 21    |  |  | $ | (395 | )   
|                                    
|                                    
|                                    
|                                    
|Oil, condensate and liquids          |                                  |               | 12  |   |         |   | (43  | )      |  |   | 5     |  |  |   | (26  | )   
|                                     |                                  |               |     |   |         |   |      |        |  |   |       | 
|                                     |                                  | $             | (18 | ) |         | $ | (429 | )      |  | $ | 26    |  |  |   | (421 | )   
|                                     |                                  |               |     |   |         |   |      |        |  |   |       | 
|Other                                |                                  |               |     |   |         |   |      |        |  |   |       |  |  |   | (6   | )   
|                                     |                                  |               |     |   |         |   |      |        |  |   |       | 
|                                     | Total operating revenue variance |               |     |   |         |   |      |        |  |   |       |  |  |   | $    | (427 | )
|                                     |                                  |               |     |   |         |   |      |        |  |   |       | 





Operating Expenses.








Unregulated Business  Marketing and Trading
Segment




54



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Marketing
and Trading Segment Results





|                    |                |               |      |                  |          |   |      |            |   |   |      |      |   |   |      |      |  
|------------------- | -------------- | ------------- | ---- | ---------------- | -------- | - | ---- | ---------- | - | - | ---- | ---- | - | - | ---- | ---- | -
|                    |                |               |      | Six Months Ended |         
|                    |                | Quarter Ended |      |                  | June 30, |  
|                    |                | June 30,      |      |                  |          |  
|                    |                |               |      |                  | 2004     |   |      |           
|                    |                | 2004          |      |                  | 2003     |   |      | (Restated) |   |   | 2003 |     
|                    |                |               |      |                  |          |   |      |            |   |   |      |     
|                    |                | (In millions) |     
|                   
|                   
|                   
|                   
|Gross
    margin(1) |                | $             | (141 | )                |          | $ | (275 | )          |   | $ | (300 | )    |   | $ | (665 | )   
|                   
|                   
|                   
|                   
|Operating expenses  |                |               | (13  | )                |          |   | (31  | )          |   |   | (29  | )    |   |   | (82  | )   
|                    |                |               |      |                  |          |   |      |            |   |   |      |     
|                    | Operating loss |               |      | (154             | )        |   |      | (306       | ) |   |      | (329 | ) |   |      | (747 | )
|                   
|                   
|                   
|                   
|Other income        |                |               | 2    |                  |          |   | 8    |            |   |   | 13   |      |   |   | 15   |     
|                    |                |               |      |                  |          |   |      |            |   |   |      |     
|                    | EBIT           |               | $    | (152             | )        |   | $    | (298       | ) |   | $    | (316 | ) |   | $    | (732 | )
|                    |                |               |      |                  |          |   |      |            |   |   |      |     









|    |                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross margin 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.



| |                                                                        
| | -----------------------------------------------------------------------
| | Quarter Ended June 30, 2004 Compared to Quarter Ended
    June 30, 2003



55



---



##### Table of Contents











| |                                                                              
| | -----------------------------------------------------------------------------
| | Six Months Ended June 30, 2004 Compared to Six Months
    Ended June 30, 2003





56



---



##### Table of Contents



Unregulated Businesses  Power Segment







|                       |                                                |               |      |                  |          |   |      |            |  |   |      |      |   |   |      |      |  
|---------------------- | ---------------------------------------------- | ------------- | ---- | ---------------- | -------- | - | ---- | ---------- |  | - | ---- | ---- | - | - | ---- | ---- | -
|                       |                                                |               |      | Six Months Ended |         
|                       |                                                | Quarter Ended |      |                  | June 30, |  
|                       |                                                | June 30,      |      |                  |          |  
|                       |                                                |               |      |                  | 2004     |   |      |           
|Power Segment Results  |                                                | 2004          |      |                  | 2003     |   |      | (Restated) |  |   | 2003 |     
|                       |                                                |               |      |                  |          |   |      |            |  |   |      |     
|                       |                                                | (In millions) |     
|                      
|                      
|                      
|                      
|Gross
    margin(1)    |                                                | $             | 194  |                  |          | $ | 255  |            |  | $ | 354  |      |   | $ | 434  |     
|                      
|                      
|                      
|                      
|Operating expenses     |                                                |               | (138 | )                |          |   | (187 | )          |  |   | (502 | )    |   |   | (371 | )   
|                       |                                                |               |      |                  |          |   |      |            |  |   |      |     
|                       | Operating income (loss)                        |               |      | 56               |          |   |      | 68         |  |   |      | (148 | ) |   |      | 63   |  
|                      
|                      
|                      
|                      
|Other income (expense) |                                                |               | 46   |                  |          |   | 117  |            |  |   | 81   |      |   |   | (74  | )   
|                       |                                                |               |      |                  |          |   |      |            |  |   |      |     
|                       | EBIT                                           |               | $    | 102              |          |   | $    | 185        |  |   | $    | (67  | ) |   | $    | (11  | )
|                       |                                                |               |      |                  |          |   |      |            |  |   |      |     
|Domestic Power         |                                                |               |      |                  |          |   |      |            |  |   |      |      |   |   |      |     
|                      
|                      
|                      
|                      
|                       | Domestic power plant operations                |               |      | 7                |          |   |      | 50         |  |   |      | 8    |   |   |      | (211 | )
|                      
|                      
|                      
|                      
|                       | Domestic power contract restructuring business |               |      | 34               |          |   |      | 53         |  |   |      | (40  | ) |   |      | 81   |  
|International Power    |                                                |               |      |                  |          |   |      |            |  |   |      |      |   |   |      |     
|                      
|                      
|                      
|                      
|                       | Brazilian power operations                     |               |      | 50               |          |   |      | 51         |  |   |      | (45  | ) |   |      | 73   |  
|                      
|                      
|                      
|                      
|                       | Other international power operations           |               |      | 20               |          |   |      | 40         |  |   |      | 31   |   |   |      | 67   |  
|                      
|                      
|                      
|                      
|Other(2)               |                                                |               | (9   | )                |          |   | (9   | )          |  |   | (21  | )    |   |   | (21  | )   
|                       |                                                |               |      |                  |          |   |      |            |  |   |      |     
|                       | EBIT                                           |               | $    | 102              |          |   | $    | 185        |  |   | $    | (67  | ) |   | $    | (11  | )
|                       |                                                |               |      |                  |          |   |      |            |  |   |      |     









|    |                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross margin consists of revenues from our power plants and the
    initial net gains and losses incurred in connection with the
    restructuring of power contracts, as well as the subsequent
    revenues, cost of electricity purchases and changes in fair
    value of those contracts. The cost of fuel used in the power
    generation process is included in operating expenses.                                 
|   
|(2) | Our other power operations consist of the indirect expenses and
    general and administrative costs associated with our domestic
    and international operations, including legal, finance and
    engineering costs, and the costs of carrying our power turbine
    inventory. Direct general and administrative expenses of our
    domestic and international operations are included in EBIT of
    those operations.

Domestic Power Plant
Operations




| |                                                                        
| | -----------------------------------------------------------------------
| | Quarter Ended June 30, 2004 Compared to Quarter Ended
    June 30, 2003



Six
Months Ended June 30, 2004 Compared to Six Months Ended
June 30, 2003




57



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##### Table of Contents







| |                                               
| | ----------------------------------------------
| | Domestic Power Contract Restructuring Business



| |                                                                        
| | -----------------------------------------------------------------------
| | Quarter Ended June 30, 2004 Compared to Quarter Ended
    June 30, 2003





| |                                                                              
| | -----------------------------------------------------------------------------
| | Six Months Ended June 30, 2004 Compared to Six Months
    Ended June 30, 2003





| |                                     
| | ------------------------------------
| | International Power Plant Operations



| |                                                                        
| | -----------------------------------------------------------------------
| | Quarter Ended June 30, 2004 Compared to Quarter Ended
    June 30, 2003

Brazil.


Other International.




| |                                                                              
| | -----------------------------------------------------------------------------
| | Six Months Ended June 30, 2004 Compared to Six Months
    Ended June 30, 2003

Brazil.


58



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##### Table of Contents


















Other International.







Unregulated Businesses  Field Services Segment








59



---



##### Table of Contents





|                                                               |  |               |    |  |                  |   |    |            |  |   |          |  |  |   |    | 
|-------------------------------------------------------------- |  | ------------- | -- |  | ---------------- | - | -- | ---------- |  | - | -------- |  |  | - | -- | 
|                                                               |  | Quarter Ended |    |  | Six Months Ended |  
|                                                               |  | June 30,      |    |  | June 30,         |  
|                                                               |  |               |    |  |                  |  
|                                                               |  | Earnings      |    |  | Cash             |   |    | Earnings   |  |   | Cash     | 
|                                                               |  | Recognized    |    |  | Received         |   |    | Recognized |  |   | Received | 
|                                                               |  |               |    |  |                  |   |    |            |  |   |          | 
|                                                               |  | (In millions) |   
|                                                              
|                                                              
|                                                              
|                                                              
|General partners share of distributions                       |  | $             | 21 |  |                  | $ | 22 |            |  | $ | 42       |  |  | $ | 43 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Proportionate share of income available to common unit holders |  |               | 3  |  |                  |   | 7  |            |  |   | 8        |  |  |   | 14 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Series C units                                                 |  |               | 5  |  |                  |   | 8  |            |  |   | 10       |  |  |   | 16 | 
|                                                              
|                                                              
|                                                              
|                                                              
|Gains on issuance by GulfTerra of its common units             |  |               |   |  |                  |   |   |            |  |   | 3        |  |  |   |   | 
|                                                               |  |               |    |  |                  |   |    |            |  |   |          | 
|                                                               |  | $             | 29 |  |                  | $ | 37 |            |  | $ | 63       |  |  | $ | 73 | 
|                                                               |  |               |    |  |                  |   |    |            |  |   |          | 



|                                              |                         |                                          |     |    |                  |   |     |      |       |   |      |    |       |   |     |     |       | 
|--------------------------------------------- | ----------------------- | ---------------------------------------- | --- | -- | ---------------- | - | --- | ---- | ----- | - | ---- | -- | ----- | - | --- | --- | ----- | 
|                                              |                         | Quarter Ended                            |     |    | Six Months Ended |  
|                                              |                         | June 30,                                 |     |    | June 30,         |  
|                                              |                         |                                          |     |    |                  |  
|Field Services Segment Results                |                         | 2004                                     |     |    | 2003             |   |     | 2004 |       |   | 2003 |   
|                                              |                         |                                          |     |    |                  |   |     |      |       |   |      |   
|                                              |                         | (In millions, except volumes and prices) |    
|                                             
|                                             
|                                             
|                                             
|Processing and gathering gross
    margins(1) |                         | $                                        | 44  |    |                  | $ | 29  |      |       | $ | 89   |    |       | $ | 76  |    
|                                             
|                                             
|                                             
|                                             
|Operating expenses                            |                         |                                          | (37 | )  |                  |   | (44 | )    |       |   | (72  | )  |       |   | (91 | )  
|                                              |                         |                                          |     |    |                  |   |     |      |       |   |      |   
|                                              | Operating income (loss) |                                          |     | 7  |                  |   |     | (15  | )     |   |      | 17 |       |   |     | (15 | )    
|                                             
|                                             
|                                             
|                                             
|Other income (expense)                        |                         |                                          | 20  |    |                  |   | (41 | )    |       |   | 46   |    |       |   | (14 | )  
|                                              |                         |                                          |     |    |                  |   |     |      |       |   |      |   
|                                              | EBIT                    |                                          | $   | 27 |                  |   | $   | (56  | )     |   | $    | 63 |       |   | $   | (29 | )    
|                                              |                         |                                          |     |    |                  |   |     |      |       |   |      |   
|Volumes and Prices:                           |                         |                                          |     |    |                  |   |     |      |       |   |      |    |       |   |     |    
|                                              | Processing              |                                          |     |    |                  |   |     |      |       |   |      |    |       |   |     |     |      
|                                             
|                                             
|                                             
|                                             
|                                              |                         | Volumes (inlet BBtu/d)                   |     |    | 3,135            |   |     |      | 3,202 |   |      |    | 3,189 |   |     |     | 3,254 | 
|                                              |                         |                                          |     |    |                  |   |     |      |       |   |      |   
|                                              |                         | Prices ($/MMBtu)                         |     | $  | 0.12             |   |     | $    | 0.08  |   |      | $  | 0.12  |   |     | $   | 0.09  | 
|                                              |                         |                                          |     |    |                  |   |     |      |       |   |      |   
|                                              | Gathering               |                                          |     |    |                  |   |     |      |       |   |      |    |       |   |     |     |      
|                                             
|                                             
|                                             
|                                             
|                                              |                         | Volumes (BBtu/d)                         |     |    | 251              |   |     |      | 444   |   |      |    | 218   |   |     |     | 510   | 
|                                              |                         |                                          |     |    |                  |   |     |      |       |   |      |   
|                                              |                         | Prices ($/MMBtu)                         |     | $  | 0.11             |   |     | $    | 0.18  |   |      | $  | 0.11  |   |     | $   | 0.20  | 
|                                              |                         |                                          |     |    |                  |   |     |      |       |   |      |   






|    |                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross margins consist of operating revenues less cost of
    products sold. We believe this measurement is more meaningful
    for understanding and analyzing our operating results because
    commodity costs play such a significant role in the
    determination of profit from our midstream activities.

60



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|                                    |                              |                         |    |    |                           |   |   |        |   |   |        |     |   |        |    |     |           |   |    |        |   |   |        |    |   |   |    |     |   |   |    |     |  
|----------------------------------- | ---------------------------- | ----------------------- | -- | -- | ------------------------- | - | - | ------ | - | - | ------ | --- | - | ------ | -- | --- | --------- | - | -- | ------ | - | - | ------ | -- | - | - | -- | --- | - | - | -- | --- | -
|                                    |                              | Quarter Ended June 30,  |    |    | Six Months Ended June 30, |  
|                                    |                              |                         |    |    |                           |  
|                                    |                              | Gross                   |    |    | Operating                 |   |   | Other  |   |   | EBIT   |     |   | Gross  |    |     | Operating |   |    | Other  |   |   | EBIT   |   
|                                    |                              | Margin                  |    |    | Expense                   |   |   | Income |   |   | Impact |     |   | Margin |    |     | Expense   |   |    | Income |   |   | Impact |   
|                                    |                              |                         |    |    |                           |   |   |        |   |   |        |     |   |        |    |     |           |   |    |        |   |   |        |   
|                                    |                              | Favorable (Unfavorable) |   
|                                    |                              | (In millions)           |   
|                                   
|                                   
|                                   
|                                   
|Higher NGL Prices                   |                              |                         |    |    |                           |   |   |        |   |   |        |     |   |        |    |     |           |   |    |        |   |   |        |    |   |   |    |     |   |   |    |    
|                                   
|                                   
|                                   
|                                   
|                                    | Processing                   |                         | $  | 11 |                           |   | $ |       |   |   | $      |    |   |        | $  | 11  |           |   | $  | 24     |   |   | $      |   |   |   | $  |    |   |   | $  | 24  |  
|                                   
|                                   
|                                   
|                                   
|                                    | Javelina equity investment   |                         |    |   |                           |   |   |       |   |   |        | 4   |   |        |    | 4   |           |   |    |       |   |   |        |   |   |   |    | 8   |   |   |    | 8   |  
|                                   
|                                   
|                                   
|                                   
|Lower fuel and transportation costs |                              |                         | 4  |    |                           |   |  |        |   |   |       |     |   |        | 4  |     |           |   | 9  |        |   |   |       |    |   |   |   |     |   |   | 9  |    
|                                   
|                                   
|                                   
|                                   
|Asset sales                         |                              |                         |    |    |                           |   |   |        |   |   |        |     |   |        |    |     |           |   |    |        |   |   |        |    |   |   |    |     |   |   |    |    
|                                   
|                                   
|                                   
|                                   
|                                    | Impact of reduced operations |                         |    | (6 | )                         |   |   | 11     |   |   |        |    |   |        |    | 5   |           |   |    | (20    | ) |   |        | 26 |   |   |    |    |   |   |    | 6   |  
|                                   
|                                   
|                                   
|                                   
|                                    | Net gains recorded in 2003   |                         |    |   |                           |   |   | (6     | ) |   |        |    |   |        |    | (6  | )         |   |    |       |   |   |        | (5 | ) |   |    |    |   |   |    | (5  | )
|                                   
|                                   
|                                   
|                                   
|                                    | Impairments(1)               |                         |    |   |                           |   |   |       |   |   |        | 80  |   |        |    | 80  |           |   |    |       |   |   |        |   |   |   |    | 80  |   |   |    | 80  |  
|                                   
|                                   
|                                   
|                                   
|Investment in GulfTerra             |                              |                         |    |    |                           |   |   |        |   |   |        |     |   |        |    |     |           |   |    |        |   |   |        |    |   |   |    |     |   |   |    |    
|                                   
|                                   
|                                   
|                                   
|                                    | Higher SAB 51 gains in 2003  |                         |    |   |                           |   |   |       |   |   |        | (12 | ) |        |    | (12 | )         |   |    |       |   |   |        |   |   |   |    | (9  | ) |   |    | (9  | )
|                                   
|                                   
|                                   
|                                   
|                                    | Minority interest            |                         |    |   |                           |   |   |       |   |   |        | (11 | ) |        |    | (11 | )         |   |    |       |   |   |        |   |   |   |    | (21 | ) |   |    | (21 | )
|                                   
|                                   
|                                   
|                                   
|Other                               |                              |                         | 6  |    |                           |   | 2 |        |   |   |       |     |   |        | 8  |     |           |   |   |        |   |   | (2     | )  |   |   | 2  |     |   |   |   |    
|                                    |                              |                         |    |    |                           |   |   |        |   |   |        |     |   |        |    |     |           |   |    |        |   |   |        |   
|                                    |                              | $                       | 15 |    |                           | $ | 7 |        |   | $ | 61     |     |   | $      | 83 |     |           | $ | 13 |        |   | $ | 19     |    |   | $ | 60 |     |   | $ | 92 |    
|                                    |                              |                         |    |    |                           |   |   |        |   |   |        |     |   |        |    |     |           |   |    |        |   |   |        |   






|    |                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our equity investments in Dauphin Island and Mobile Bay were
    impaired in 2003 based on anticipated losses on the sales of
    these investments. These sales were completed in the third
    quarter of 2004.



Corporate, Net




61



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|                                                                       |                        |               |     |     |               |   |     |     | 
|---------------------------------------------------------------------- | ---------------------- | ------------- | --- | --- | ------------- | - | --- | --- | 
|                                                                       |                        | Increase in   |     |     | Increase in   |  
|                                                                       |                        | EBIT for      |     |     | EBIT for six  |  
|                                                                       |                        | quarter ended |     |     | months ended  |  
|                                                                       |                        | June 30, 2004 |     |     | June 30, 2004 |  
|                                                                       |                        | compared to   |     |     | compared to   |  
|                                                                       |                        | 2003          |     |     | 2003          |  
|                                                                       |                        |               |     |     |               |  
|                                                                       |                        | (In millions) |    
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Lower impairments on the assets in our telecommunications
    business |                        | $             | 396 |     |               | $ | 412 |    
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Lower foreign currency losses on Euro-denominated debt                 |                        |               | 51  |     |               |   | 96  |    
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Lower impairments and contract terminations in our LNG business        |                        |               | 20  |     |               |   | 85  |    
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Lower losses on early extinguishment of debt                           |                        |               | 37  |     |               |   | 37  |    
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Lower employee severance, retention and transition costs               |                        |               | 13  |     |               |   | 29  |    
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Other increases                                                        |                        |               | 7   |     |               |   | 39  |    
|                                                                       |                        |               |     |     |               |  
|                                                                       | Total increase in EBIT |               | $   | 524 |               |   | $   | 698 | 
|                                                                       |                        |               |     |     |               |  




Interest and Debt Expense




|                                             |                                 |               |     |     |                  |   |     |      |  |   |      |     |  |   |     |     | 
|-------------------------------------------- | ------------------------------- | ------------- | --- | --- | ---------------- | - | --- | ---- |  | - | ---- | --- |  | - | --- | --- | 
|                                             |                                 | Quarter Ended |     |     | Six Months Ended |  
|                                             |                                 | June 30,      |     |     | June 30,         |  
|                                             |                                 |               |     |     |                  |  
|                                             |                                 | 2004          |     |     | 2003             |   |     | 2004 |  |   | 2003 |    
|                                             |                                 |               |     |     |                  |   |     |      |  |   |      |    
|                                             |                                 | (In millions) |    
|                                            
|                                            
|                                            
|                                            
|Long-term debt, including current maturities |                                 | $             | 383 |     |                  | $ | 415 |      |  | $ | 780  |     |  | $ | 786 |    
|                                            
|                                            
|                                            
|                                            
|Revolving credit facilities                  |                                 |               | 27  |     |                  |   | 35  |      |  |   | 55   |     |  |   | 55  |    
|                                            
|                                            
|                                            
|                                            
|Other interest                               |                                 |               | 8   |     |                  |   | 18  |      |  |   | 16   |     |  |   | 46  |    
|                                            
|                                            
|                                            
|                                            
|Capitalized interest                         |                                 |               | (8  | )   |                  |   | (5  | )    |  |   | (18  | )   |  |   | (10 | )  
|                                             |                                 |               |     |     |                  |   |     |      |  |   |      |    
|                                             | Total interest and debt expense |               | $   | 410 |                  |   | $   | 463  |  |   | $    | 833 |  |   | $   | 877 | 
|                                             |                                 |               |     |     |                  |   |     |      |  |   |      |    



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | Quarter and Six Months Ended June 30, 2004 Compared to
    Quarter and Six Months Ended June 30, 2003



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Distributions on Preferred Interests of Consolidated
Subsidiaries




Income Taxes







|                   |  |                                 |    |                  |          |   |      |            |  |   |      |    |  |   |      |  
|------------------ |  | ------------------------------- | -- | ---------------- | -------- | - | ---- | ---------- |  | - | ---- | -- |  | - | ---- | -
|                   |  |                                 |    | Six Months Ended |         
|                   |  | Quarter Ended June 30,          |    |                  | June 30, |  
|                   |  |                                 |    |                  |          |  
|                   |  | 2004                            |    |                  |          |   | 2004 |            |  |  
|                   |  | (Restated)                      |    |                  | 2003     |   |      | (Restated) |  |   | 2003 |   
|                   |  |                                 |    |                  |          |   |      |            |  |   |      |   
|                   |  | (In millions, except for rates) |   
|                  
|                  
|                  
|                  
|Income taxes       |  | $                               | 48 |                  |          | $ | (410 | )          |  | $ | 58   |    |  | $ | (513 | )
|                  
|                  
|                  
|                  
|Effective tax rate |  |                                 | 59 | %                |          |   | 58   | %          |  |   | (215 | )% |  |   | 50   | %








| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | state income taxes, net of federal income tax benefit;                                                   
|
| |  | foreign income taxed at different rates, including impairments
    of certain of our foreign investments;
|
| |  | earnings from unconsolidated affiliates where we anticipate
    receiving dividends; and                 
|
| |  | non-deductible dividends on the preferred stock of subsidiaries.                                         







Discontinued Operations










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Commitments and Contingencies




64



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CAUTIONARY STATEMENT REGARDING


FORWARD-LOOKING STATEMENTS






| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | earnings per share;                                                                                 
|
| |  | capital and other expenditures;                                                                     
|
| |  | dividends;                                                                                          
|
| |  | financing plans;                                                                                    
|
| |  | capital structure;                                                                                  
|
| |  | liquidity and cash flow;                                                                            
|
| |  | credit ratings;                                                                                     
|
| |  | 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.                                                         



65



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





Market Risk




Interest Rate Risk




66



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















| |   |                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A weak control environment surrounding the booking of proved
    natural gas and oil reserves in our Production segment;                                                                                                                                                                                         
|
| |  | Inadequate controls over access to our proved natural gas and
    oil reserve system;                                                                                                                                                                                                                            
|
| |  | Inadequate documentation of policies and procedures related to
    booking proved natural gas and oil reserves;                                                                                                                                                                                                  
|
| |  | Inadequate documentation of accounting conclusions related to
    complex accounting standards;                                                                                                                                                                                                                  
|
| |  | Lack of formal documentation and communication of policies and
    procedures with respect to accounting matters;                                                                                                                                                                                                
|
| |  | Ineffective monitoring activities to ensure compliance with
    existing policies, procedures and accounting conclusions (in
    some cases as a result of inadequate staffing);                                                                                                                                 
|
| |  | Lack of formal evidence to substantiate monitoring activities
    were adequately performed (e.g. monitoring activities, such as
    meetings and report reviews, were not always documented in a way
    to objectively confirm the monitoring activities occurred);                                            
|
|
| |  | Inadequate change management and security access to our
    information systems (e.g., program developers were allowed to
    migrate system changes into production and passwords for some of
    our applications did not adhere to the corporate policy for
    passwords);                                   
|
|
|
| |  | Lack of segregation of duties related to manual journal entry
    preparation and procurement activities (e.g., our financial
    accounting system was not designed to prevent the same person
    from posting an entry that prepared the entry and a buyer of
    goods could also receive for the goods); and
|
|
|
| |  | Untimely preparation and review of volume and account
    reconciliations.                                                                                                                                                                                                                                       
|



67



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| |   |                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Added members to our Board of Directors, including our Audit
    Committee, and our executive management team with extensive
    experience in the natural gas and oil industry;                                                                                                                                                      
|
| |  | Formed an internal committee to provide oversight of the proved
    natural gas and oil reserve estimation process, which is staffed
    with appropriate technical, financial reporting and legal
    expertise;                                                                                                                     
|
| |  | Continued the use of an independent third-party reserve
    engineering firm, selected by and reporting annually to the
    Audit Committee of the Board of Directors, to perform an
    independent assessment of our proved natural gas and oil
    reserves;                                                                       
|
| |  | Formed a centralized proved natural gas and oil reserve
    evaluation and reporting function, staffed primarily with newly
    hired personnel that have extensive industry experience, that is
    separate from the operating divisions and reports to the
    president of Production and Non-regulated Operations;               
|
| |  | Restricted security access to the proved natural gas and oil
    reserve system to the centralized reserve reporting staff;                                                                                                                                                                                                           
|
| |  | Revised our documentation of procedures and controls for
    estimating proved natural gas and oil reserves;                                                                                                                                                                                                                          
|
| |  | Enhanced internal audit reviews to monitor booking of proved
    natural gas and oil reserves;                                                                                                                                                                                                                                        
|
| |  | Implemented standard information system policies and procedures
    to enforce change management and segregation of responsibilities
    when migrating programming changes to production and
    strengthened security policies and procedures around passwords
    for applications and databases;                                  
|
| |  | Modified systems and procedures to ensure appropriate
    segregation of responsibilities for manual journal entry
    preparation and procurement activities;                                                                                                                                                                        
|
| |  | Formalized our account reconciliation policy and completed all
    material account reconciliations; and                                                                                                                                                                                                                              
|
| |  | Developed and implemented formal training to educate company
    personnel on managements responsibilities mandated by SOX
    Section 404, the components of the internal control
    framework on which we rely and its relationship to our company
    values including accountability, stewardship, integrity and
    excellence.





| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Improved training regarding SEC guidelines for booking proved
    natural gas and oil reserves;                                                                                                                                        
|
| |  | Formal communication of procedures for documenting accounting
    conclusions involving interpretation of complex accounting
    standards, including identification of critical factors that
    support the basis for our conclusion;
|
| |  | Evaluation, formalization and communication of required policies
    and procedures;                                                                                                                                                   
|
| |  | Improved monitoring activities to ensure compliance with
    policies, procedures and accounting conclusions; and                                                                                                                      
|
| |  | Review of the adequacy, proficiency and training of our finance
    and accounting staff.                                                                                                                                              



68



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69



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##### Table of Contents






PART II  OTHER INFORMATION





Item 1. Legal Proceedings







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 | 
|                     |  |     |             |  |          | 
|John M. Bissell      |  |     | 484,639,859 |  |          |  | 101,741,034 | 
|                    
|                    
|                    
|                    
|Juan Carlos Braniff  |  |     | 485,212,690 |  |          |  | 101,168,202 | 
|                    
|                    
|                    
|                    
|James L. Dunlap      |  |     | 503,715,688 |  |          |  | 82,665,204  | 
|                    
|                    
|                    
|                    
|Douglas L. Foshee    |  |     | 564,694,430 |  |          |  | 21,686,462  | 
|                    
|                    
|                    
|                    
|Robert W. Goldman    |  |     | 503,086,283 |  |          |  | 83,294,609  | 
|                    
|                    
|                    
|                    
|Anthony W. Hall, Jr. |  |     | 490,112,165 |  |          |  | 96,268,727  | 
|                    
|                    
|                    
|                    
|Thomas R. Hix        |  |     | 563,913,752 |  |          |  | 22,467,140  | 
|                    
|                    
|                    
|                    
|William H. Joyce     |  |     | 564,050,375 |  |          |  | 22,330,518  | 
|                    
|                    
|                    
|                    
|Ronald L. Kuehn, Jr. |  |     | 483,437,462 |  |          |  | 102,943,431 | 
|                    
|                    
|                    
|                    
|J. Michael Talbert   |  |     | 503,779,161 |  |          |  | 82,601,731  | 
|                    
|                    
|                    
|                    
|John L. Whitmire     |  |     | 502,420,108 |  |          |  | 83,960,784  | 
|                    
|                    
|                    
|                    
|Joe B. Wyatt         |  |     | 487,881,511 |  |          |  | 98,499,382  | 



|                                                                                                                     |  |     |             |  |         |  |            |         |  |  |           | 
|-------------------------------------------------------------------------------------------------------------------- |  | --- | ----------- |  | ------- |  | ---------- | ------- |  |  | --------- | 
|                                                                                                                     |  | For |             |  | Against |  |            | Abstain | 
|                                                                                                                     |  |     |             |  |         |  |            |         | 
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|Proposal to ratify the appointment of
    PricewaterhouseCoopers LLP as independent certified public
    accountants |  |     | 512,328,324 |  |         |  | 68,245,737 |         |  |  | 5,806,831 | 





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|                                                                  |  |     |             |  |         |  |             |         |  |  |            | 
|----------------------------------------------------------------- |  | --- | ----------- |  | ------- |  | ----------- | ------- |  |  | ---------- | 
|                                                                  |  | For |             |  | Against |  |             | Abstain | 
|                                                                  |  |     |             |  |         |  |             |         | 
|Stockholder proposal regarding expensing stock options            |  |     | 303,127,387 |  |         |  | 125,027,119 |         |  |  | 12,236,275 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Stockholder proposal regarding Commonsense Executive Compensation |  |     | 50,700,938  |  |         |  | 379,536,201 |         |  |  | 10,153,643 | 




Item 5. Other Information







Item 6. Exhibits




|        |     |    |             |                                                                                                                                                    
|------- | --- | -- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |    |            
|Number  |     |    | Description
|        |     |    |            
|        | *31 | .A |             | Certification of Chief Executive Officer pursuant to
    sec. 302 of the Sarbanes-Oxley Act of 2002.                                               
|        | *31 | .B |             | Certification of Chief Financial Officer pursuant to
    sec. 302 of the Sarbanes-Oxley Act of 2002.                                               
|        | *32 | .A |             | Certification of Chief Executive Officer pursuant to
    18 U.S.C. sec. 1350 as adopted pursuant to
    sec. 906 of the Sarbanes-Oxley Act of 2002.
|        | *32 | .B |             | Certification of Chief Financial Officer pursuant to
    18 U.S.C. sec. 1350 as adopted pursuant to
    sec. 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.

71



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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)      

72



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EXHIBIT INDEX




|        |     |    |             |                                                                                                                                                    
|------- | --- | -- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |    |            
|Number  |     |    | Description
|        |     |    |            
|        | *31 | .A |             | Certification of Chief Executive Officer pursuant to
    sec. 302 of the Sarbanes-Oxley Act of 2002.                                               
|        | *31 | .B |             | Certification of Chief Financial Officer pursuant to
    sec. 302 of the Sarbanes-Oxley Act of 2002.                                               
|        | *32 | .A |             | Certification of Chief Executive Officer pursuant to
    18 U.S.C. sec. 1350 as adopted pursuant to
    sec. 906 of the Sarbanes-Oxley Act of 2002.
|        | *32 | .B |             | Certification of Chief Financial Officer pursuant to
    18 U.S.C. sec. 1350 as adopted pursuant to
    sec. 906 of the Sarbanes-Oxley Act of 2002.