##### Table of Contents









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|                                               |  |                                                                                             
|---------------------------------------------- |  | --------------------------------------------------------------------------------------------
|(Mark One)                                     |  |                                                                                             
|þ                                              |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934    
|                                              
|For the fiscal year ended December 31, 2005   
|                                              
|or                                            
|                                              
|o                                              |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|                                              
|For the transition period
    from          to

Commission File Number 333-106586


El Paso Exploration & Production Company




|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 76-0659544                              
|(State or Other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification No.)
|                                                                  
|El Paso Building
    1001 Louisiana Street
    Houston, Texas      |  | 77002(Zip Code)                         
|(Address of Principal Executive Offices)                           |  |                                         

Telephone Number: (713) 420-2600


Securities registered pursuant to Section 12(b) of the
Act: None


Securities registered pursuant to Section 12(g) of the
Act: None


o þ


o þ


þ o


S-K 10-K 10-K. þ






|                           |                      |                         
|-------------------------- | -------------------- | ------------------------
|Large accelerated filer  o | Accelerated filer  o | Non-accelerated filer  þ

o þ


State the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant:


Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date.




EL PASO EXPLORATION &
PRODUCTION COMPANY MEETS THE CONDITIONS OF GENERAL
INSTRUCTION I(1)(a) AND (b) TO
FORM 10-K AND IS
THEREFORE FILING THIS REPORT WITH A REDUCED DISCLOSURE FORMAT AS
PERMITTED BY SUCH INSTRUCTION.


Documents Incorporated by Reference: None










---



##### 










EL PASO EXPLORATION & PRODUCTION COMPANY


TABLE OF CONTENTS


|                                                  |  |                                                                                                                                   |  |      |    | 
|------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|Caption                                           |  |                                                                                                                                   |  | Page |   
|                                                  |  |                                                                                                                                   |  |      |   
|Part I                                           
|Item 1.                                           |  | Business                                                                                                                          |  |      | 1  | 
|Item 1A.                                          |  | Risk Factors                                                                                                                      |  |      | 8  | 
|                                                  |  | Cautionary Statement for Purposes of the Safe Harbor
    Provisions of the Private Securities Litigation Reform Act of
    1995 |  |      | 8  | 
|Item 1B.                                          |  | Unresolved Staff Comments                                                                                                         |  |      | 15 | 
|Item 2.                                           |  | Properties                                                                                                                        |  |      | 15 | 
|Item 3.                                           |  | Legal Proceedings                                                                                                                 |  |      | 15 | 
|Item 4.                                           |  | Submission of Matters to a Vote of Security Holders                                                                               |  |      | *  | 
|Part II                                          
|Item 5.                                           |  | Market for Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities                  |  |      | 15 | 
|Item 6.                                           |  | Selected Financial Data                                                                                                           |  |      | *  | 
|Item 7.                                           |  | Managements Discussion and Analysis of Financial Condition
    and Results of Operations                                         |  |      | 15 | 
|Item 7A.                                          |  | Quantitative and Qualitative Disclosures About Market Risk                                                                        |  |      | 24 | 
|Item 8.                                           |  | Financial Statements and Supplementary Data                                                                                       |  |      | 25 | 
|Item 9.                                           |  | Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure                                          |  |      | 52 | 
|Item 9A.                                          |  | Controls and Procedures                                                                                                           |  |      | 52 | 
|Item 9B.                                          |  | Other Information                                                                                                                 |  |      | 52 | 
|Part III                                         
|Item 10.                                          |  | Directors and Executive Officers of the Registrant                                                                                |  |      | *  | 
|Item 11.                                          |  | Executive Compensation                                                                                                            |  |      | *  | 
|Item 12.                                          |  | Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters                                |  |      | *  | 
|Item 13.                                          |  | Certain Relationships and Related Transactions                                                                                    |  |      | *  | 
|Item 14.                                          |  | Principal Accountant Fees and Services                                                                                            |  |      | 53 | 
|Part IV                                          
|Item 15.                                          |  | Exhibits and Financial Statement Schedules                                                                                        |  |      | 53 | 
|                                                  |  | Signatures                                                                                                                        |  |      | 57 | 
|Amended and Restated Certificate of Incorporation
|Certification of CEO Pursuant to Section 302     
|Certification of CFO Pursuant to Section 302     
|Certification of CEO Pursuant to Section 1350    
|Certification of CFO Pursuant to Section 1350    








|  |                                                                                                                                                                                                   
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | We have not included a response to this item in this document
    since no response is required pursuant to the reduced disclosure
    format permitted by General Instruction I to
    Form 10-K.



|      |  |   |  |                                               
|----- |  | - |  | ----------------------------------------------
|/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 
|NGL   |  | = |  | natural gas liquids                           
|TBtu  |  | = |  | trillion British thermal units                
|Tcfe  |  | = |  | trillion cubic feet of natural gas equivalents





i



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##### Table of Contents






PART I







|        |         
|------- | --------
|ITEM 1. | BUSINESS

General


10-K






|                                   |  |                                                                                                       
|---------------------------------- |  | ------------------------------------------------------------------------------------------------------
|Region                             |  | Operating Areas/Basins                                                                                
|                                   |  |                                                                                                       
|Onshore                            |  | East Texas and North Louisiana
    Rocky Mountains
    Black Warrior
    Arkoma
    Raton
    Illinois
|                                  
|Texas Gulf Coast                   |  | South Texas                                                                                           
|                                  
|Gulf of Mexico and south Louisiana |  | Gulf of Mexico (Federal and State waters) South Louisiana                                             







| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | Re-shaping our portfolio toward longer-lived shallower decline
    rate reserves;                       
|
| |  | Leveraging operational expertise we already possess in key
    operating areas, geologies or techniques;
|
| |  | Balancing our exposure to regions, basins and commodities;                                              
|
| |  | Achieving risk-adjusted returns competitive with those available
    within our existing inventory; and 
|
| |  | Increasing our reserves more rapidly by supplementing drilling
    activities.                          

1



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##### Table of Contents



Natural Gas and Oil Properties




| |                                                                    
| | -------------------------------------------------------------------
| | Natural Gas, Oil and Condensate and NGL Reserves and
    Production



|                                  |                                                  |                        |  |           |            |  |  |         |        |  |         |       |        |            |  |           |           |  |  |      |      |  |  |         |         | 
|--------------------------------- | ------------------------------------------------ | ---------------------- |  | --------- | ---------- |  |  | ------- | ------ |  | ------- | ----- | ------ | ---------- |  | --------- | --------- |  |  | ---- | ---- |  |  | ------- | ------- | 
|                                  |                                                  | Net Proved Reserves(1) |  |           |           
|                                  |                                                  |                        |  |           |           
|                                  |                                                  | Natural                |  |           | Oil/       |  |  |         |        |  |         | 2005  |       
|                                  |                                                  | Gas                    |  |           | Condensate |  |  | NGL     |        |  | Total   |       |        | Production | 
|                                  |                                                  |                        |  |           |            |  |  |         |        |  |         |       |        |            | 
|                                  |                                                  | (MMcf)                 |  |           | (MBbls)    |  |  | (MBbls) |        |  | (MMcfe) |       |        | (Percent)  |  |           | (MMcfe)   | 
|Reserves and Production by Region |                                                  |                        |  |           |            |  |  |         |        |  |         |       |        |            |  |           |           |  |  |      |      |  |  |        
|                                  | Onshore                                          |                        |  | 1,258,329 |            |  |  | 32,007  |        |  |         | 1,207 |        |            |  | 1,457,615 |           |  |  | 67%  |      |  |  | 109,361 |        
|                                  | Texas Gulf Coast                                 |                        |  | 392,783   |            |  |  | 2,765   |        |  |         | 9,702 |        |            |  | 467,580   |           |  |  | 22%  |      |  |  | 77,014  |        
|                                  | Gulf of Mexico and south Louisiana               |                        |  | 179,654   |            |  |  | 8,456   |        |  |         | 1,653 |        |            |  | 240,311   |           |  |  | 11%  |      |  |  | 65,432  |        
|                                  |                                                  |                        |  |           |            |  |  |         |        |  |         |       |        |            |  |           |           | 
|                                  |                                                  | Total                  |  |           | 1,830,766  |  |  |         | 43,228 |  |         |       | 12,562 |            |  |           | 2,165,506 |  |  |      | 100% |  |  |         | 251,807 | 
|                                  |                                                  |                        |  |           |            |  |  |         |        |  |         |       |        |            |  |           |           | 
|                                  | Unconsolidated investment in Four
    Star(2)(3) |                        |  | 192,895   |            |  |  | 3,349   |        |  |         | 6,668 |        |            |  | 252,996   |           |  |  | 100% |      |  |  | 8,844   |        
|                                  |                                                  |                        |  |           |            |  |  |         |        |  |         |       |        |            |  |           |           | 
|Reserves by Classification        |                                                  |                        |  |           |            |  |  |         |        |  |         |       |        |            |  |           |           |  |  |      |      |  |  |        
|                                  | Producing                                        |                        |  | 1,175,838 |            |  |  | 19,831  |        |  |         | 9,503 |        |            |  | 1,351,841 |           |  |  | 63%  |      |  |  |         |        
|                                  | Non-Producing                                    |                        |  | 228,173   |            |  |  | 8,750   |        |  |         | 1,507 |        |            |  | 289,716   |           |  |  | 13%  |      |  |  |         |        
|                                  | Undeveloped                                      |                        |  | 426,755   |            |  |  | 14,647  |        |  |         | 1,552 |        |            |  | 523,949   |           |  |  | 24%  |      |  |  |         |        
|                                  |                                                  |                        |  |           |            |  |  |         |        |  |         |       |        |            |  |           |           | 
|                                  |                                                  | Total proved           |  |           | 1,830,766  |  |  |         | 43,228 |  |         |       | 12,562 |            |  |           | 2,165,506 |  |  |      | 100% |  |  |         |         | 
|                                  |                                                  |                        |  |           |            |  |  |         |        |  |         |       |        |            |  |           |           | 
|                                  | Unconsolidated investment in
    Four Star(2)    |                        |  |           |            |  |  |         |        |  |         |       |        |            |  |           |           |  |  |      |      |  |  |         |        
|                                  | Producing                                        |                        |  | 154,979   |            |  |  | 3,246   |        |  |         | 5,371 |        |            |  | 206,677   |           |  |  | 82%  |      |  |  |         |        
|                                  | Non-Producing                                    |                        |  | 3,105     |            |  |  | 20      |        |  |         | 28    |        |            |  | 3,395     |           |  |  | 1%   |      |  |  |         |        
|                                  | Undeveloped                                      |                        |  | 34,811    |            |  |  | 83      |        |  |         | 1,269 |        |            |  | 42,924    |           |  |  | 17%  |      |  |  |         |        
|                                  |                                                  |                        |  |           |            |  |  |         |        |  |         |       |        |            |  |           |           | 
|                                  |                                                  | Total Four Star        |  |           | 192,895    |  |  |         | 3,349  |  |         |       | 6,668  |            |  |           | 252,996   |  |  |      | 100% |  |  |         |         | 
|                                  |                                                  |                        |  |           |            |  |  |         |        |  |         |       |        |            |  |           |           | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net proved reserves exclude royalties and interests owned by
    others and reflect contractual arrangements and royalty
    obligations in effect at the time of the estimate.                                                                                                                                                                                                                                                                                                                                 
|(2) | Our share of Four Stars proved reserves has been estimated
    based on an evaluation of those reserves by El Pasos
    internal reservoir engineers, and not by engineers of Four Star.
    An independent reservoir engineering firm, Ryder Scott Company,
    which was engaged by us, prepared an estimate on 86 percent
    of Four Stars proved reserves. Based on the amount of Four
    Stars proved reserves determined by Ryder Scott, we
    believe our reported reserve amounts are reasonable.
|(3) | Represents our proportionate share of Four Stars
    production since the acquisition date.                                                                                                                                                                                                                                                                                                                                                                                                                    



2



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##### Table of Contents









3



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##### Table of Contents





| |                  
| | -----------------
| | Acreage and Wells





| |        
| | -------
| | Acreage

|                                   |       |           |         |           |             |  |         |          |  |  |           |           |  |          |           |           |        |  |           |           |  |  |           |           | 
|---------------------------------- | ----- | --------- | ------- | --------- | ----------- |  | ------- | -------- |  |  | --------- | --------- |  | -------- | --------- | --------- | ------ |  | --------- | --------- |  |  | --------- | --------- | 
|                                   |       | Developed |         |           | Undeveloped |  |         | Total    | 
|                                   |       |           |         |           |             |  |         |          | 
|                                   |       | Gross(1)  |         |           | Net(2)      |  |         | Gross(1) |  |  | Net(2)    |           |  | Gross(1) |           |           | Net(2) | 
|                                   |       |           |         |           |             |  |         |          |  |  |           |           |  |          |           |           |        | 
|Onshore                            |       |           | 867,392 |           |             |  | 518,892 |          |  |  | 1,591,543 |           |  |          | 1,216,552 |           |        |  | 2,458,935 |           |  |  | 1,735,444 |          
|Texas Gulf Coast                   |       |           | 103,234 |           |             |  | 79,439  |          |  |  | 151,751   |           |  |          | 109,241   |           |        |  | 254,985   |           |  |  | 188,680   |          
|Gulf of Mexico and south Louisiana |       |           | 530,464 |           |             |  | 362,938 |          |  |  | 540,972   |           |  |          | 494,481   |           |        |  | 1,071,436 |           |  |  | 857,419   |          
|                                   |       |           |         |           |             |  |         |          |  |  |           |           |  |          |           |           |        | 
|                                   | Total |           |         | 1,501,090 |             |  |         | 961,269  |  |  |           | 2,284,266 |  |          |           | 1,820,274 |        |  |           | 3,785,356 |  |  |           | 2,781,543 | 
|                                   |       |           |         |           |             |  |         |          |  |  |           |           |  |          |           |           |        | 





| |                 
| | ----------------
| | Productive Wells

|                                   |       |             |       |       |                |  |       |                  |                 |  |                   |     |  |          |     |     |           |  |       |          |  |  |        |       |  |  |    |    |  |  |    |    | 
|---------------------------------- | ----- | ----------- | ----- | ----- | -------------- |  | ----- | ---------------- | --------------- |  | ----------------- | --- |  | -------- | --- | --- | --------- |  | ----- | -------- |  |  | ------ | ----- |  |  | -- | -- |  |  | -- | -- | 
|                                   |       | Productive  |       |       |                |  |       |                  | Number of Wells | 
|                                   |       | Natural Gas |       |       | Productive Oil |  |       | Total Productive |                 |  | Being Drilled at  |    
|                                   |       | Wells       |       |       | Wells          |  |       | Wells            |                 |  | December 31, 2005 |    
|                                   |       |             |       |       |                |  |       |                  |                 |  |                   |    
|                                   |       | Gross(1)    |       |       | Net(2)         |  |       | Gross(1)         |                 |  | Net(2)            |     |  | Gross(1) |     |     | Net(2)(3) |  |       | Gross(1) |  |  | Net(2) |      
|                                   |       |             |       |       |                |  |       |                  |                 |  |                   |     |  |          |     |     |           |  |       |          |  |  |        |      
|Onshore                            |       |             | 3,424 |       |                |  | 2,614 |                  |                 |  | 514               |     |  |          | 363 |     |           |  | 3,938 |          |  |  | 2,977  |       |  |  | 36 |    |  |  | 29 |   
|Texas Gulf Coast                   |       |             | 831   |       |                |  | 702   |                  |                 |  |                  |     |  |          |    |     |           |  | 831   |          |  |  | 702    |       |  |  |   |    |  |  |   |   
|Gulf of Mexico and south Louisiana |       |             | 175   |       |                |  | 115   |                  |                 |  | 53                |     |  |          | 35  |     |           |  | 228   |          |  |  | 150    |       |  |  | 4  |    |  |  | 1  |   
|                                   |       |             |       |       |                |  |       |                  |                 |  |                   |     |  |          |     |     |           |  |       |          |  |  |        |      
|                                   | Total |             |       | 4,430 |                |  |       | 3,431            |                 |  |                   | 567 |  |          |     | 398 |           |  |       | 4,997    |  |  |        | 3,829 |  |  |    | 40 |  |  |    | 30 | 
|                                   |       |             |       |       |                |  |       |                  |                 |  |                   |     |  |          |     |     |           |  |       |          |  |  |        |      



| |              
| | -------------
| | Wells Drilled

|           |       |                  |    |    |                  |  |    |      |  |  |      |    |  |      |     |     |      |  |     |     |  |  |     |     | 
|---------- | ----- | ---------------- | -- | -- | ---------------- |  | -- | ---- |  |  | ---- | -- |  | ---- | --- | --- | ---- |  | --- | --- |  |  | --- | --- | 
|           |       | Net Exploratory  |    |    | Net Development  | 
|           |       | Wells Drilled(2) |    |    | Wells Drilled(2) | 
|           |       |                  |    |    |                  | 
|           |       | 2005             |    |    | 2004             |  |    | 2003 |  |  | 2005 |    |  | 2004 |     |     | 2003 | 
|           |       |                  |    |    |                  |  |    |      |  |  |      |    |  |      |     |     |      | 
|Productive |       |                  | 86 |    |                  |  | 13 |      |  |  | 54   |    |  |      | 279 |     |      |  | 298 |     |  |  | 272 |    
|Dry        |       |                  | 2  |    |                  |  | 10 |      |  |  | 22   |    |  |      | 4   |     |      |  | 3   |     |  |  | 1   |    
|           |       |                  |    |    |                  |  |    |      |  |  |      |    |  |      |     |     |      | 
|           | Total |                  |    | 88 |                  |  |    | 23   |  |  |      | 76 |  |      |     | 283 |      |  |     | 301 |  |  |     | 273 | 
|           |       |                  |    |    |                  |  |    |      |  |  |      |    |  |      |     |     |      | 






|    |                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross interest reflects the total acreage or wells we
    participated in, regardless of our ownership interests in the
    acreage or wells.
|(2) | Net interest is the aggregate of the fractional working interest
    that we have the gross acreage, gross wells, or gross drilled
    wells.
|(3) | At December 31, 2005, we operated 3,541 of the
    3,829 net productive wells.                                                               

4



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##### Table of Contents







| |                                                                      
| | ---------------------------------------------------------------------
| | Net Production, Sales Prices, Transportation and Production
    Costs



|                                                                     |                                 |                        |   |         |         |  |   |         |         |  |   |         |         | 
|-------------------------------------------------------------------- | ------------------------------- | ---------------------- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                     |                                 | 2005                   |   |         | 2004    |  |   | 2003    |        
|                                                                     |                                 |                        |   |         |         |  |   |         |        
|Net Production Volumes                                               |                                 |                        |   |         |         |  |   |         |         |  |   |        
|                                                                     | Natural gas (MMcf)              |                        |   | 206,714 |         |  |   | 238,009 |         |  |   | 338,762 |        
|                                                                     | Oil, condensate and NGL (MBbls) |                        |   | 7,516   |         |  |   | 8,498   |         |  |   | 11,778  |        
|                                                                     |                                 | Total (MMcfe)          |   |         | 251,807 |  |   |         | 288,994 |  |   |         | 409,432 | 
|                                                                    
|Natural Gas Average Realized Sales Price
    ($/Mcf)(1)              |                                 |                        |   |         |         |  |   |         |         |  |   |        
|                                                                     | Excluding hedges                |                        | $ | 7.92    |         |  | $ | 6.02    |         |  | $ | 5.51    |        
|                                                                     | Including
    hedges(2)         |                        | $ | 5.33    |         |  | $ | 5.09    |         |  | $ | 4.57    |        
|                                                                    
|Oil, Condensate, and NGL Average Realized Sales Price
    ($/Bbl)(1) |                                 |                        |   |         |         |  |   |         |         |  |   |        
|                                                                     | Excluding hedges                |                        | $ | 45.86   |         |  | $ | 34.44   |         |  | $ | 26.64   |        
|                                                                     | Including
    hedges(2)         |                        | $ | 45.86   |         |  | $ | 34.44   |         |  | $ | 25.96   |        
|                                                                    
|Average Transportation Costs                                         |                                 |                        |   |         |         |  |   |         |         |  |   |        
|                                                                     | Natural gas ($/Mcf)             |                        | $ | 0.20    |         |  | $ | 0.17    |         |  | $ | 0.18    |        
|                                                                     | Oil, condensate and NGL ($/Bbl) |                        | $ | 0.69    |         |  | $ | 1.16    |         |  | $ | 1.05    |        
|                                                                    
|Average Production Costs
    ($/Mcfe)(3)                             |                                 |                        |   |         |         |  |   |         |         |  |   |        
|                                                                     | Average lease operating costs   |                        | $ | 0.75    |         |  | $ | 0.63    |         |  | $ | 0.42    |        
|                                                                     | Average production taxes        |                        |   | 0.27    |         |  |   | 0.11    |         |  |   | 0.14    |        
|                                                                     |                                 |                        |   |         |         |  |   |         |        
|                                                                     |                                 | Total production costs |   | $       | 1.02    |  |   | $       | 0.74    |  |   | $       | 0.56    | 
|                                                                     |                                 |                        |   |         |         |  |   |         |        






|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(1) | Prices are stated before transportation costs.                                                                             
|(2) | Our hedging activities are conducted with our affiliate,
    El Paso Marketing, L.P. (El Paso Marketing).                  
|(3) | Production costs include lease operating costs and production
    related taxes (including ad valorem and severance taxes).

5



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##### Table of Contents





| |                                                      
| | -----------------------------------------------------
| | Acquisition, Development and Exploration Expenditures



|                                                             |                                      |                                   |     |     |       |   |     |      |     |   |     |     |       | 
|------------------------------------------------------------ | ------------------------------------ | --------------------------------- | --- | --- | ----- | - | --- | ---- | --- | - | --- | --- | ----- | 
|                                                             |                                      | 2005                              |     |     | 2004  |   |     | 2003 |    
|                                                             |                                      |                                   |     |     |       |   |     |      |    
|                                                             |                                      | (In millions)                     |    
|Acquisition Costs:                                           |                                      |                                   |     |     |       |   |     |      |     |   |     |    
|                                                             | Proved                               |                                   | $   | 643 |       |   | $   | 33   |     |   | $   | 10  |      
|                                                             | Unproved                             |                                   |     | 143 |       |   |     | 32   |     |   |     | 35  |      
|Development Costs                                            |                                      |                                   | 503 |     |       |   | 395 |      |     |   | 668 |    
|Exploration Costs:                                           |                                      |                                   |     |     |       |   |     |      |     |   |     |    
|                                                             | Delay Rentals                        |                                   |     | 3   |       |   |     | 7    |     |   |     | 6   |      
|                                                             | Seismic Acquisition and Reprocessing |                                   |     | 7   |       |   |     | 29   |     |   |     | 56  |      
|                                                             | Drilling                             |                                   |     | 133 |       |   |     | 149  |     |   |     | 405 |      
|Asset Retirement
    Obligations(1)                          |                                      |                                   | 1   |     |       |   | 30  |      |     |   | 124 |    
|                                                             |                                      |                                   |     |     |       |   |     |      |    
|                                                             |                                      | Total full cost pool expenditures |     |     | 1,433 |   |     |      | 675 |   |     |     | 1,304 | 
|                                                             |                                      | Non-full cost pool expenditures   |     |     | 25    |   |     |      | 14  |   |     |     | 20    | 
|                                                             |                                      |                                   |     |     |       |   |     |      |    
|                                                             |                                      | Total cost
    incurred(2)        |     | $   | 1,458 |   |     | $    | 689 |   |     | $   | 1,324 | 
|                                                             |                                      |                                   |     |     |       |   |     |      |    
|Acquisition of unconsolidated investment in Four
    Star(2) |                                      | $                                 | 769 |     |       | $ |    |      |     | $ |    |    
|                                                             |                                      |                                   |     |     |       |   |     |      |    






|    |                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes an increase to our property, plant and equipment of
    approximately $113 million in 2003 associated with our
    adoption of Statement of Financial Accounting Standards
    No. 143.                                                       
|   
|(2) | Includes $179 million of additional cost associated with
    deferred income tax adjustments related to the acquisition of
    full-cost pool properties and $217 million related to the
    acquisition of our unconsolidated investment in Four Star.



6



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##### Table of Contents



Markets and Competition






Regulatory and Operating Environment






Environmental




Employees




7



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##### Table of Contents








|         |             
|-------- | ------------
|ITEM 1A. | RISK FACTORS

CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE
HARBOR


PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995






Risks Related to Our Business




| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | Natural gas and oil prices are volatile. A substantial
    decrease in natural gas and oil prices could adversely affect
    our financial results.





| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the level of consumer demand for, and the supply of, natural gas
    and oil;                                                                                                                     
|
| |  | commodity processing, gathering and transportation availability;                                                                                                                                  
|
| |  | the level of imports of, and the price of, foreign natural gas
    and oil;                                                                                                                       
|
| |  | the ability of the members of the Organization of Petroleum
    Exporting Countries to agree to and maintain oil price and
    production controls;                                               
|
| |  | domestic governmental regulations and taxes;                                                                                                                                                      
|
| |  | the price and availability of alternative fuel sources;                                                                                                                                           
|
| |  | the availability of pipeline capacity;                                                                                                                                                            
|
| |  | weather conditions;                                                                                                                                                                               
|
| |  | market uncertainty;                                                                                                                                                                               
|
| |  | political conditions or hostilities in natural gas and oil
    producing regions;                                                                                                                 
|
| |  | worldwide economic conditions; and                                                                                                                                                                
|
| |  | decreased demand for the use of natural gas and oil because of
    market concerns about global warming or changes in governmental
    policies and regulations due to climate change initiatives.

8



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##### Table of Contents







| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Our use of hedging arrangements may adversely affect our
    future results of operations or liquidity.

over-the




| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | expected production is less than the amount hedged;                                                                                     
|
| |  | the counterparty to the hedging contract defaults on its
    contractual obligations; or                                                
|
| |  | there is a change in the expected differential between the
    underlying price in the hedging agreement and actual prices
    received.





| |                                                                               
| | ------------------------------------------------------------------------------
| | Estimating our reserves, production and future net cash
    flow is difficult.







9



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##### Table of Contents







| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | The success of our business depends upon our ability to
    replace reserves that we produce.





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | The success of our business is dependent, in part, on
    factors that are beyond our control.





| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the results of future drilling activity;                                                                                                                                                                                               
|
| |  | the availability of rigs, equipment and labor to support
    drilling activity and production operations;                                                                                                                              
|
| |  | our ability to identify and precisely locate prospective
    geologic structures and to drill and successfully complete wells
    in those structures in a timely manner;                                                              
|
| |  | our ability to expand our leased land positions in desirable
    areas, which often are subject to intensely competitive
    conditions;                                                                                               
|
| |  | increased competition in the search for and acquisition of
    reserves;                                                                                                                                                               
|
| |  | significant increases in future drilling, production and
    development costs, including drilling rig rates and oil field
    services costs;                                                                                         
|
| |  | adverse changes in future tax policies, rates and drilling or
    production incentives by state, federal or foreign governments;                                                                                                      
|
| |  | increased federal or state regulations, including environmental
    regulations, that limit or restrict the ability to drill natural
    gas or oil wells, reduce operational flexibility, or increase
    capital and operating costs;
|
| |  | our lack of control over jointly owned properties and properties
    operated by others;                                                                                                                                               
|
| |  | the availability of alternative sources of energy;                                                                                                                                                                                     
|
| |  | declines in production volumes, including those from the Gulf of
    Mexico; and                                                                                                                                                       
|
| |  | continued access to sufficient capital to fund drilling programs
    to develop and replace a reserve base with rapid depletion
    characteristics.                                                                                   



| |                                                                            
| | ---------------------------------------------------------------------------
| | We face competition from third parties to acquire and
    develop reserves.



10



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| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Our natural gas and oil drilling and producing operations
    involve many risks and may not be profitable.









| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | Our drilling operations may be delayed or canceled as a
    result of factors beyond our control, resulting in significant
    costs to us.





| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | unexpected drilling conditions;                                                                                                       
|
| |  | title problems;                                                                                                                       
|
| |  | pressure or irregularities in formations;                                                                                             
|
| |  | equipment failures or accidents;                                                                                                      
|
| |  | adverse weather conditions;                                                                                                           
|
| |  | compliance with environmental and other governmental
    requirements; and                                                            
|
| |  | costs of, or shortages or delays in the availability of,
    drilling rigs, oil field equipment, qualified personnel and
    services.





| |                                                                                
| | -------------------------------------------------------------------------------
| | We are vulnerable to risks associated with operating in
    the Gulf of Mexico.





| |   |                                          
| | - | -----------------------------------------
| |  | adverse weather conditions;              
|
| |  | oil field service costs and availability;

11



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| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | compliance with environmental and other laws and regulations;                                    
|
| |  | remediation and other costs resulting from oil spills or
    releases of hazardous materials; and
|
| |  | failure of equipment or facilities.                                                              





| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our growth may be dependent upon successful acquisitions
    which are subject to many uncertainties and could subject us to
    significant unknown liabilities.





Risks Related to Legal and Regulatory Matters




| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ongoing litigation and investigations related to the
    restatement of our financial statements associated with our
    reserve estimates could significantly adversely affect our
    business.





| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to complex laws and regulations, including
    environmental and safety regulations that can negatively affect
    the cost, manner or feasibility of doing business.



12



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##### Table of Contents









| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | personal injuries;                                                                                   
|
| |  | property and natural resource damages;                                                               
|
| |  | oil spills and releases or discharges of hazardous materials;                                        
|
| |  | well reclamation costs;                                                                              
|
| |  | remediation and clean-up costs and other governmental sanctions,
    such as fines and penalties; and
|
| |  | other environmental damages.                                                                         





| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | Environmental compliance and remediation costs and the
    costs of environmental liabilities could exceed our
    estimates.

clean-up




| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the uncertainties in estimating pollution control and clean up
    costs, including sites for which only preliminary site
    investigation or assessments have been completed;
|
| |  | the discovery of new sites or additional information at existing
    sites;                                                                                                    
|
| |  | the uncertainty in quantifying liability under environmental
    laws that impose joint and several liability on all potentially
    responsible parties (PRPs); and          
|
| |  | the nature of environmental laws and regulations, including the
    interpretation and enforcement thereof.                                                                    





13



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Risks Related to Our Affiliation with El Paso






| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are a wholly-owned direct subsidiary of El Paso and its
    financial condition and business strategy subjects us to
    potential risks that are beyond our control.





| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | our payment of dividends;                                      
|
| |  | decisions on our financings and our capital raising activities;
|
| |  | mergers or other business combinations;                        
|
| |  | our acquisitions or dispositions of assets; and                
|
| |  | our participation in El Pasos cash management program.        







14



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##### Table of Contents








|         |                          
|-------- | -------------------------
|ITEM 1B. | UNRESOLVED STAFF COMMENTS








|        |           
|------- | ----------
|ITEM 2. | PROPERTIES










|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS



Environmental Proceedings


Air Permit Violation.







|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

10-K.





PART II







|        |                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
    STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES








|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA

10-K.







|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

10-K.


15



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##### Table of Contents







Overview






|                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Goal or Strategy                               |  | Actions Taken                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Results                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Improve capital
    discipline and
    returns |  | Created a standard economic measure known as PVR (present value
    ratio) to evaluate project success. This ratio represents the
    present value of future after-tax cash flows discounted at 12%
    over total investment. Our target ratio is 1.15 which simply
    means that every $1.00 invested returns $1.15 on an after-tax
    discounted basis over the life of the project. A rigorous
    post-spending analysis is prepared and a monthly scorecard for
    each operating region is evaluated by management.                                                                                  |  | Our 2005 actual post-drill PVR was 1.19 using a $4.75/MMBtu plan
    price compared to our pre-drill PVR target of 1.23. Our post
    drill PVR was 2.11 using 2005 realized prices with the year-end
    strip prices thereafter.                                                                                                                                                                                                                                                                                                                  
|Improve portfolio management                   |  | Allocated a greater percentage of capital expenditures to
    onshore exploration and development opportunities.
    Acquired Medicine Bow to expand our presence in the Rockies and
    east Texas and GMT Energy Corporation (GMT) to expand our
    presence in east Texas.
    Divested certain high cost offshore and onshore properties with
    high abandonment liabilities and only 25 Bcfe of proved
    reserves.
    Implemented a consistent risk analysis process and reduced
    capital exposure to deep drilling. Utilized comprehensive
    mapping with life-of-property exploitation plans. |  | Our Onshore region reserves increased from 61 percent of our
    total reserves at year end 2004 to 67 percent of our total
    reserves at year end 2005. Our unconventional coal seam reserves
    comprise approximately one third of our total reserve base.
    These longer-life reserves form a stable production base and
    should make our business more predictable.
    The Medicine Bow acquisition accelerated the changes in our
    portfolio since over 80 percent of the proved reserves overlap
    with our core onshore areas.
|Improve our production mix                     |  | Increased our onshore production through drilling activities and
    our acquisition program, including the acquisition of our equity
    investment in Four Star.                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | From 2004 to 2005, total onshore production grew as a percentage
    of total production. A substantial portion of the increase was
    organic growth as opposed to acquisitions.                                                                                                                                                                                                                                                                                                                                                                  

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|                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|-------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Goal or Strategy                                                           |  | Actions Taken                                                                                                                                                                                                                                                                                                                                                                                                 |  | Results                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|Grow our
    reserves base                                                 |  | Created a balanced acquisition and drilling program that focused
    on increasing long life reserves while converting proved
    undeveloped reserves (PUD) to producing developed reserves.                                                                                                                                                                                                                 |  | During 2005, we produced 252 Bcfe (excluding our equity
    share of Four Star production of 9 Bcfe) while our drilling
    and acquisition programs generated net additions of
    450 Bcfe (excluding our equity share of Four Star of
    262 Bcfe). We also increased our reserves over production
    ratio from 6.8 years to 8.6 years. In 2005, we
    developed 29 percent of our total 2004 year-end PUD
    reserves.
|Build an inventory
    of attractive
    lower risk
    drilling prospects |  | Improved our ability to grow by creating a regional structure
    that leverages a strong acreage position in key producing
    basins.
    Utilized detailed mapping and reservoir analysis and a
    standardized risk measurement system to identify drilling and
    workover or recompletion opportunities.
    Completed $1.1 billion of acquisitions that complement our
    existing core operations. |  | Identified 620 wells to be drilled in 2006 with 2,590 more in
    future years at a $5.50/MMBtu price forecast for natural gas
    that generates a PVR of 1.15 or greater.
    Created a balanced inventory along the entire risk spectrum with
    low risk development prospects coupled with high potential
    offshore exploration opportunities.                                                                        

Significant Operational Factors Affecting the Year Ended
December 31, 2005




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Higher realized prices. We benefited from a strong
    commodity pricing environment in 2005. Realized natural gas
    prices, which include the impact of our hedges, increased
    5 percent while oil, condensate and NGL prices increased
    33 percent compared to 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Average daily production of 690 MMcfe/d (excluding
    24 MMcfe/d from our equity investment in Four Star).
    Our average daily equivalent production decreased from 2004
    primarily due to several hurricanes in the Gulf of Mexico, which
    caused us to shut in significant volumes in our Gulf of Mexico
    and south Louisiana region. We have continued to increase
    production volumes in our Onshore region as a result of our
    successful drilling and acquisition programs. However,
    production volumes in our Gulf of Mexico and south Louisiana
    region, adjusted for the impact of hurricanes, and Texas Gulf
    Coast region continued to gradually decrease as drilling
    programs and overall lower capital spending in those areas have
    not been sufficient to offset the historically steep production
    decline rates in these regions.                                                                                                                                                                                                                                       
|
| |  | Impact of hurricanes on production volumes. The Gulf
    Coast hurricanes negatively impacted our annual production by
    approximately 12 Bcfe or 34 MMcfe/d during 2005. Prior
    to Hurricane Katrina in late August 2005, our production from
    the Gulf of Mexico was about 205 MMcfe/d. A substantial
    portion of our shut-in production from Hurricane Katrina was
    brought back online during September 2005 to a level of about
    170 MMcfe/d just prior to Hurricane Rita. We continue to
    experience substantial shut-in volumes from Hurricane Rita;
    however Gulf of Mexico production levels have returned to
    approximately 130 MMcfe/d at December 31, 2005 and
    currently remain at that level. We expect the majority of the
    remaining operated Gulf of Mexico production to come back online
    during the first half of 2006. Also impacted were our onshore
    Texas Gulf Coast and Arklatex areas, where damage from Hurricane
    Rita initially impacted approximately 60 MMcfe/d of
    production. However, production was restored within a few days
    of the event.
|
| |  | Drilling results. In 2005, we participated in drilling a
    total of 483 gross wells with a 99 percent success
    rate and a PVR of 1.19 based on a plan price of $4.75/MMBtu. Our
    drilling results by region were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Onshore region. We experienced a 99 percent success
    rate on 454 gross wells drilled during 2005, resulting in
    production growth in the Rockies, Raton, north Louisiana and
    Arkoma operating areas.

17



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Texas Gulf Coast region. We experienced significant
    improvement in the second half of the year achieving a
    89 percent success rate on 18 gross wells drilled
    during 2005. New Wilcox production was established from
    exploration at the Renger Field in Lavaca County, Texas. In
    addition, the shallow Vicksburg development program in Starr and
    Hidalgo Counties, Texas provided consistent results adding
    production on existing base properties.                                                                                                                                                                                                                                      
|
| |  | Gulf of Mexico and south Louisiana region. Overall, we
    experienced a 73 percent success rate on 11 gross
    wells drilled during 2005. During the year, we announced our
    participation in two deep shelf discovery wells at West Cameron
    Blocks 75 and 62 in the Gulf of Mexico. These projects are
    expected to come on line during the first quarter of 2006 and
    produce 20 MMcfe/d or higher, net to our interest. We also
    participated in a third discovery in 2005 through a
    25 percent working interest in a well drilled at Long Point
    in Vermillion Parish, Louisiana, which tested at over
    40 MMcfe/d and is expected to come on line during the
    second quarter 2006.

Outlook for 2006






| |   |                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Capital expenditures of approximately $900 million
    excluding acquisitions;                                                                                                                                                                                   
|
| |  | Average daily production volumes for the year of approximately
    730 MMcfe/d to 755 MMcfe/d, which excludes
    approximately 70 MMcfe/d from our equity interest in Four Star;                                                                                
|
| |  | Average cash operating costs of approximately $1.67/Mcfe to
    $1.74/Mcfe for the year;                                                                                                                                                                         
|
| |  | Unit of production depletion rate of $2.32/Mcfe in the first
    quarter of 2006. This compares to $2.27/Mcfe in the fourth
    quarter of 2005. The increase is expected due to higher finding
    and development costs and the costs of acquired reserves and;
|
| |  | Significant industry-wide increases in drilling and oilfield
    service costs that will require constant monitoring of capital
    spending programs and a mitigation effort designed to manage and
    improve field efficiency.                               

Production Hedge Position








18



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##### Table of Contents





Natural Gas




|                  |  |               |        |  |              |   |      |              |  |  |              |  |  |        |      |  |              |  |        |        |  |   |              |  |  |        |        |  |              |   |      |  |  |  |        |  |  |   |      | 
|----------------- |  | ------------- | ------ |  | ------------ | - | ---- | ------------ |  |  | ------------ |  |  | ------ | ---- |  | ------------ |  | ------ | ------ |  | - | ------------ |  |  | ------ | ------ |  | ------------ | - | ---- |  |  |  | ------ |  |  | - | ---- | 
|                  |  | Quarter Ended |        |  |              |   |     
|                  |  |               |        |  |              |   |     
|                  |  | March 31      |        |  | June 30      |   |      | September 30 |  |  | December 31  |  |  | Total  |     
|                  |  |               |        |  |              |   |      |              |  |  |              |  |  |        |     
|                  |  | Volume        |        |  | Hedged Price |   |      | Volume       |  |  | Hedged Price |  |  | Volume |      |  | Hedged Price |  |        | Volume |  |   | Hedged Price |  |  | Volume |        |  | Hedged Price |  
|                  |  | (BBtu)        |        |  | (per MMBtu)  |   |      | (BBtu)       |  |  | (per MMBtu)  |  |  | (BBtu) |      |  | (per MMBtu)  |  |        | (BBtu) |  |   | (per MMBtu)  |  |  | (BBtu) |        |  | (per MMBtu)  |  
|                  |  |               |        |  |              |   |      |              |  |  |              |  |  |        |      |  |              |  |        |        |  |   |              |  |  |        |        |  |              |  
|2006              |  |               | 21,349 |  |              | $ | 3.32 |              |  |  | 21,367       |  |  | $      | 3.32 |  |              |  | 21,385 |        |  | $ | 3.33         |  |  |        | 21,385 |  |              | $ | 3.33 |  |  |  | 85,486 |  |  | $ | 3.32 | 
|2007              |  |               | 1,579  |  |              | $ | 3.79 |              |  |  | 1,447        |  |  | $      | 3.64 |  |              |  | 1,155  |        |  | $ | 3.35         |  |  |        | 1,155  |  |              | $ | 3.35 |  |  |  | 5,336  |  |  | $ | 3.56 | 
|2008              |  |               | 1,142  |  |              | $ | 3.35 |              |  |  | 1,142        |  |  | $      | 3.35 |  |              |  | 1,155  |        |  | $ | 3.49         |  |  |        | 1,155  |  |              | $ | 3.49 |  |  |  | 4,594  |  |  | $ | 3.42 | 
|2009 through 2012 |  |               | 16,026 |  |              | $ | 3.74 |             

Results of Operations


Overview






|                            |                  |               |        |     |      |   |        |     | 
|--------------------------- | ---------------- | ------------- | ------ | --- | ---- | - | ------ | --- | 
|                            |                  | 2005          |        |     | 2004 |  
|                            |                  |               |        |     |      |  
|                            |                  | (In millions) |       
|Operating revenues          |                  | $             | 1,489  |     |      | $ | 1,527  |    
|Operating expenses          |                  |               | (1,101 | )   |      |   | (1,026 | )  
|                            |                  |               |        |     |      |  
|                            | Operating income |               |        | 388 |      |   |        | 501 | 
|Other income, net           |                  |               | 24     |     |      |   | 1      |    
|                            |                  |               |        |     |      |  
|                            | EBIT             |               |        | 412 |      |   |        | 502 | 
|Affiliated interest expense |                  |               | (60    | )   |      |   | (28    | )  
|Interest expense            |                  |               | (88    | )   |      |   | (76    | )  
|Income taxes                |                  |               | (90    | )   |      |   | (144   | )  
|                            |                  |               |        |     |      |  
|Net income                  |                  | $             | 174    |     |      | $ | 254    |    
|                            |                  |               |        |     |      |  

19



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##### Table of Contents



Operating Results




|                                            |                                          |                                 |     |       |        |   |     |       |       |  
|------------------------------------------- | ---------------------------------------- | ------------------------------- | --- | ----- | ------ | - | --- | ----- | ----- | -
|                                            |                                          | 2005                            |     |       | 2004   |  
|                                            |                                          |                                 |     |       |        |  
|                                            |                                          | (In millions, except            |    
|                                            |                                          | volumes and prices)             |    
|Operating revenues:                         |                                          |                                 |     |       |        |   |     |      
|                                            | Natural gas                              |                                 | $   | 1,102 |        |   | $   | 1,211 |      
|                                            | Oil, condensate and NGL                  |                                 |     | 345   |        |   |     | 293   |      
|                                            | Other                                    |                                 |     | 42    |        |   |     | 23    |      
|                                            |                                          |                                 |     |       |        |  
|                                            |                                          | Total operating revenues        |     |       | 1,489  |   |     |       | 1,527 |  
|Transportation and net product
    costs(1) |                                          |                                 | (62 | )     |        |   | (60 | )    
|                                            |                                          |                                 |     |       |        |  
|                                            | Total operating margin                   |                                 |     | 1,427 |        |   |     | 1,467 |      
|Operating expenses:                         |                                          |                                 |     |       |        |   |     |      
|                                            | Depreciation, depletion and amortization |                                 |     | (598  | )      |   |     | (568  | )    
|                                            | Production
    costs(2)                  |                                 |     | (256  | )      |   |     | (215  | )    
|                                            | General and administrative expenses      |                                 |     | (176  | )      |   |     | (161  | )    
|                                            | Other                                    |                                 |     | (9    | )      |   |     | (22   | )    
|                                            |                                          |                                 |     |       |        |  
|                                            |                                          | Total operating
    expenses(1) |     |       | (1,039 | ) |     |       | (966  | )
|                                            |                                          |                                 |     |       |        |  
|                                            | Operating income                         |                                 |     | 388   |        |   |     | 501   |      
|                                            | Other
    income(3)                      |                                 |     | 24    |        |   |     | 1     |      
|                                            |                                          |                                 |     |       |        |  
|EBIT                                        |                                          | $                               | 412 |       |        | $ | 502 |      
|                                            |                                          |                                 |     |       |        |  

|                                                    |                                                      |                                                         |                               |         |         |         |   |          |         |      |  |     |     |    |  
|--------------------------------------------------- | ---------------------------------------------------- | ------------------------------------------------------- | ----------------------------- | ------- | ------- | ------- | - | -------- | ------- | ---- |  | --- | --- | -- | -
|                                                    |                                                      |                                                         |                               |         |         | Percent |  
|                                                    |                                                      | 2005                                                    |                               |         | 2004    |         |   | Variance |        
|                                                    |                                                      |                                                         |                               |         |         |         |   |          |        
|Consolidated volumes, prices and costs per unit:    |                                                      |                                                         |                               |         |         |         |   |          |         |      |  |    
|                                                    | Natural gas                                          |                                                         |                               |         |         |         |   |          |         |      |  |     |    
|                                                    |                                                      | Volumes (MMcf)                                          |                               |         | 206,714 |         |   |          | 238,009 |      |  |     | (13 | )%
|                                                    |                                                      | Average realized prices including
    hedges ($/Mcf)(4) |                               | $       | 5.33    |         |   | $        | 5.09    |      |  |     | 5   | % 
|                                                    |                                                      | Average realized prices excluding
    hedges ($/Mcf)(4) |                               | $       | 7.92    |         |   | $        | 6.02    |      |  |     | 32  | % 
|                                                    |                                                      | Average transportation costs ($/Mcf)                    |                               | $       | 0.20    |         |   | $        | 0.17    |      |  |     | 18  | % 
|                                                    | Oil, condensate and NGL                              |                                                         |                               |         |         |         |   |          |         |      |  |     |    
|                                                    |                                                      | Volumes (MBbls)                                         |                               |         | 7,516   |         |   |          | 8,498   |      |  |     | (12 | )%
|                                                    |                                                      | Average realized prices
    ($/Bbl)(4)                  |                               | $       | 45.86   |         |   | $        | 34.44   |      |  |     | 33  | % 
|                                                    |                                                      | Average transportation costs ($/Bbl)                    |                               | $       | 0.69    |         |   | $        | 1.16    |      |  |     | (41 | )%
|                                                    | Total equivalent volumes (MMcfe)                     |                                                         |                               | 251,807 |         |         |   | 288,994  |         |      |  | (13 | )% 
|                                                    | Production costs ($/Mcfe)                            |                                                         |                               |         |         |         |   |          |         |      |  |     |    
|                                                    |                                                      | Average lease operating costs                           |                               | $       | 0.75    |         |   | $        | 0.63    |      |  |     | 19  | % 
|                                                    |                                                      | Average production taxes                                |                               |         | 0.27    |         |   |          | 0.11    |      |  |     | 145 | % 
|                                                    |                                                      |                                                         |                               |         |         |         |   |          |        
|                                                    |                                                      |                                                         | Total production
    costs(2) |         | $       | 1.02    |   |          | $       | 0.74 |  |     |     | 38 | %
|                                                    |                                                      |                                                         |                               |         |         |         |   |          |         |      |  |    
|                                                    | Average general and administrative expenses ($/Mcfe) |                                                         | $                             | 0.70    |         |         | $ | 0.56     |         |      |  | 25  | %  
|                                                    | Unit of production depletion cost ($/Mcfe)           |                                                         | $                             | 2.20    |         |         | $ | 1.81     |         |      |  | 22  | %  
|Unconsolidated affiliate volumes (Four
    Star)(3) |                                                      |                                                         |                               |         |         |         |   |          |         |      |  |    
|                                                    | Natural Gas (MMcf)                                   |                                                         |                               | 6,689   |         |         |   |          |         |      |  |     |    
|                                                    | Oil, condensate and NGL (MBbls)                      |                                                         |                               | 359     |         |         |   |          |         |      |  |     |    
|                                                    | Total equivalent volumes (MMcfe)                     |                                                         |                               | 8,844   |         |         |   |          |         |      |  |     |    






|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Transportation and net product costs are included in operating
    expenses on our consolidated statements of income.                                                                            
|(2) | Production costs include lease operating costs and production
    related taxes (including ad valorem and severance taxes).                                                                      
|(3) | Includes equity earnings and/or volumes for our investment in
    Four Star. Our equity interest in Four Star was acquired in
    connection with our acquisition of Medicine Bow in August 2005.
|(4) | Prices are stated before transportation costs.                                                                                                                                                   

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| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2005 Compared to Year Ended
    December 31, 2004



|                                                 |                                       |                         |   |      |           |   |     |       |     |   |      |    |     |  |     |      |     |  
|------------------------------------------------ | ------------------------------------- | ----------------------- | - | ---- | --------- | - | --- | ----- | --- | - | ---- | -- | --- |  | --- | ---- | --- | -
|                                                 |                                       | Variance                |  
|                                                 |                                       |                         |  
|                                                 |                                       | Operating               |   |      | Operating |   |     |      
|                                                 |                                       | Revenue                 |   |      | Expense   |   |     | Other |     |   | EBIT |   
|                                                 |                                       |                         |   |      |           |   |     |       |     |   |      |   
|                                                 |                                       | Favorable/(Unfavorable) |  
|                                                 |                                       | (In millions)           |  
|Natural Gas Revenue                              |                                       |                         |   |      |           |   |     |       |     |   |      |    |     |  |     |     
|                                                 | Higher prices in 2005                 |                         | $ | 394  |           |   | $   |      |     |   | $    |   |     |  | $   | 394  |    
|                                                 | Impact of hedges                      |                         |   | (315 | )         |   |     |      |     |   |      |   |     |  |     | (315 | )  
|                                                 | Lower volumes in 2005                 |                         |   | (188 | )         |   |     |      |     |   |      |   |     |  |     | (188 | )  
|Oil, Condensate and NGL Revenue                  |                                       |                         |   |      |           |   |     |       |     |   |      |    |     |  |     |     
|                                                 | Higher realized prices in 2005        |                         |   | 86   |           |   |     |      |     |   |      |   |     |  |     | 86   |    
|                                                 | Lower production volumes in 2005      |                         |   | (34  | )         |   |     |      |     |   |      |   |     |  |     | (34  | )  
|Depreciation, Depletion and Amortization Expense |                                       |                         |   |      |           |   |     |       |     |   |      |    |     |  |     |     
|                                                 | Higher depletion rate in 2005         |                         |   |     |           |   |     | (99   | )   |   |      |   |     |  |     | (99  | )  
|                                                 | Lower production volumes in 2005      |                         |   |     |           |   |     | 67    |     |   |      |   |     |  |     | 67   |    
|Production Costs                                 |                                       |                         |   |      |           |   |     |       |     |   |      |    |     |  |     |     
|                                                 | Higher lease operating costs in 2005  |                         |   |     |           |   |     | (8    | )   |   |      |   |     |  |     | (8   | )  
|                                                 | Higher production taxes in 2005       |                         |   |     |           |   |     | (33   | )   |   |      |   |     |  |     | (33  | )  
|General and administrative expenses              |                                       |                         |  |      |           |   | (15 | )     |     |   |     |    |     |  | (15 | )   
|Other                                            |                                       |                         |   |      |           |   |     |       |     |   |      |    |     |  |     |     
|                                                 | Earnings from investment in Four Star |                         |   |     |           |   |     |      |     |   |      | 19 |     |  |     | 19   |    
|                                                 | Other                                 |                         |   | 19   |           |   |     | 15    |     |   |      | 2  | (1) |  |     | 36   |    
|                                                 |                                       |                         |   |      |           |   |     |       |     |   |      |   
|                                                 |                                       | Total Variances         |   | $    | (38       | ) |     | $     | (73 | ) |      | $  | 21  |  |     | $    | (90 | )
|                                                 |                                       |                         |   |      |           |   |     |       |     |   |      |   



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



| |                   
| | ------------------
| | Operating Revenues





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

Depreciation, depletion, and amortization expense.


Production costs.


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General and administrative expenses.


Other.


Other Income




Affiliated Interest Expense




Interest Expense




Income Taxes


|                   |  |                   |    |   |      |   |     |  
|------------------ |  | ----------------- | -- | - | ---- | - | --- | -
|                   |  | Year Ended        |   
|                   |  | December 31,      |   
|                   |  |                   |   
|                   |  | 2005              |    |   | 2004 |  
|                   |  |                   |    |   |      |  
|                   |  | (In millions,     |   
|                   |  | except for rates) |   
|Income taxes       |  | $                 | 90 |   |      | $ | 144 |  
|Effective tax rate |  |                   | 34 | % |      |   | 36  | %



Liquidity




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Commitments and Contingencies




New Accounting Pronouncements Issued But Not Yet Adopted




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|         |                                                           
|-------- | ----------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Commodity Price Risk






|                                                                              |  |               |      |                     |            |   |                     |            |  |   |            |   |  |          |      |   |  |   |     | 
|----------------------------------------------------------------------------- |  | ------------- | ---- | ------------------- | ---------- | - | ------------------- | ---------- |  | - | ---------- | - |  | -------- | ---- | - |  | - | --- | 
|                                                                              |  |               |      | 10 Percent Increase |            |   | 10 Percent Decrease |           
|                                                                              |  |               |      |                     |            |   |                     |           
|                                                                              |  | Fair Value    |      |                     | Fair Value |   |                     | (Decrease) |  |   | Fair Value |   |  | Increase |     
|                                                                              |  |               |      |                     |            |   |                     |            |  |   |            |   |  |          |     
|                                                                              |  | (In millions) |     
|Impact of changes in commodity prices on derivative commodity
    instruments |  |               |      |                     |            |   |                     |            |  |   |            |   |  |          |      |   |  |   |     | 
|December 31, 2005                                                             |  | $             | (732 | )                   |            | $ | (833                | )          |  | $ | (101       | ) |  | $        | (631 | ) |  | $ | 101 | 
|December 31, 2004                                                             |  | $             | (482 | )                   |            | $ | (619                | )          |  | $ | (137       | ) |  | $        | (345 | ) |  | $ | 137 | 



Interest Rate Risk


long-term


|                                                |  |                              |     |  |                   |               |       |          |  |   |       |  |  |         |       |  |       |   |       |  |  |   |       | 
|----------------------------------------------- |  | ---------------------------- | --- |  | ----------------- | ------------- | ----- | -------- |  | - | ----- |  |  | ------- | ----- |  | ----- | - | ----- |  |  | - | ----- | 
|                                                |  | December 31, 2005            |     |  | December 31, 2004 |              
|                                                |  |                              |     |  |                   |              
|                                                |  | Expected Fiscal Year of      |     |  |                   |               |      
|                                                |  | Maturity of Carrying Amounts |     |  |                   |               |      
|                                                |  |                              |     |  | Fair              |               |       | Carrying |  |   | Fair  | 
|                                                |  | 2010                         |     |  | Thereafter        |               |       | Total    |  |   | Value |  |  | Amounts |       |  | Value |  
|                                                |  |                              |     |  |                   |               |       |          |  |   |       |  |  |         |       |  |       |  
|                                                |  |                              |     |  |                   | (In millions) |       |          |  |   |      
|Long-term debt  7.75% fixed rate               |  |                              |    |  |                   | $             | 1,200 |          |  | $ | 1,200 |  |  | $       | 1,257 |  |       | $ | 1,200 |  |  | $ | 1,262 | 
|Long-term debt  average variable rate of 6.14% |  | $                            | 500 |  |                   |               |      |          |  | $ | 500   |  |  | $       | 500   |  |       | $ |      |  |  | $ |      | 

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ITEM 8.  FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA


Index to Financial Statements




|                                                            |                                                                                                        |                                                                       |    |    |    | 
|----------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------- | -- | -- | -- | 
|                                                            |                                                                                                        | Page                                                                  |   
|                                                            |                                                                                                        |                                                                       |   
|Report of Independent Registered Public
    Accounting Firm |                                                                                                        |                                                                       | 26 |   
|Consolidated Statements of Income                           |                                                                                                        |                                                                       | 27 |   
|Consolidated Balance Sheets                                 |                                                                                                        |                                                                       | 28 |   
|Consolidated Statements of Cash Flows                       |                                                                                                        |                                                                       | 29 |   
|Consolidated Statements of
    Stockholders Equity         |                                                                                                        |                                                                       | 30 |   
|Consolidated Statements of Comprehensive
    Income         |                                                                                                        |                                                                       | 31 |   
|Notes to Consolidated Financial
    Statements              |                                                                                                        |                                                                       | 32 |   
|                                                            | 1.   Basis of Presentation
    and Summary of Significant Accounting Policies                          |                                                                       |    | 32 |   
|                                                            | 2.   Acquisitions and
    Divestitures                                                                 |                                                                       |    | 36 |   
|                                                            | 3.   Income Taxes                                                                                      |                                                                       |    | 37 |   
|                                                            | 4.   Financial Instruments
    and Price Risk Management Activities                                    |                                                                       |    | 38 |   
|                                                            | 5.   Property, Plant and
    Equipment                                                                 |                                                                       |    | 40 |   
|                                                            | 6.   Debt and Available
    Credit Facilities                                                          |                                                                       |    | 40 |   
|                                                            | 7.   Commitments and
    Contingencies                                                                 |                                                                       |    | 41 |   
|                                                            | 8.   Retirement Benefits                                                                               |                                                                       |    | 43 |   
|                                                            | 9.   Supplemental Cash Flow
    Information                                                            |                                                                       |    | 43 |   
|                                                            | 10.  Investments in and Earnings
    from Unconsolidated Affiliates and Related Party
    Transactions |                                                                       |    | 43 |   
|Supplemental Financial Information                          |                                                                                                        |                                                                       |    |   
|                                                            |                                                                                                        | Supplemental Selected Quarterly
    Financial Information (Unaudited) |    |    | 46 | 
|                                                            |                                                                                                        | Supplemental Natural Gas and Oil
    Operations (Unaudited)           |    |    | 46 | 
|Financial Statement Schedule                                |                                                                                                        |                                                                       |    |   
|                                                            |                                                                                                        | Schedule II  Valuation and
    Qualifying Accounts                   |    |    | 51 | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Accounting for Asset
Retirement Obligations










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EL PASO EXPLORATION & PRODUCTION COMPANY





CONSOLIDATED STATEMENTS OF INCOME


(In millions)


|                                                            |                                          |                         |       |     |       |   |       |      |       |   |       |     |       | 
|----------------------------------------------------------- | ---------------------------------------- | ----------------------- | ----- | --- | ----- | - | ----- | ---- | ----- | - | ----- | --- | ----- | 
|                                                            |                                          | Year Ended December 31, |      
|                                                            |                                          |                         |      
|                                                            |                                          | 2005                    |       |     | 2004  |   |       | 2003 |      
|                                                            |                                          |                         |       |     |       |   |       |      |      
|Operating revenues                                          |                                          |                         |       |     |       |   |       |      |       |   |       |    
|                                                            | Natural gas and oil sales                |                         |       |     |       |   |       |      |       |   |       |     |      
|                                                            |                                          | Third parties           |       | $   | 708   |   |       | $    | 551   |   |       | $   | 242   | 
|                                                            |                                          | Affiliates              |       |     | 739   |   |       |      | 953   |   |       |     | 1,612 | 
|                                                            | Other                                    |                         |       | 42  |       |   |       | 23   |       |   |       | 10  |      
|                                                            |                                          |                         |       |     |       |   |       |      |      
|                                                            |                                          |                         | 1,489 |     |       |   | 1,527 |      |       |   | 1,864 |    
|Operating expenses                                          |                                          |                         |       |     |       |   |       |      |       |   |       |    
|                                                            | Cost of sales                            |                         |       | 62  |       |   |       | 60   |       |   |       | 87  |      
|                                                            | Operation and maintenance                |                         |       | 368 |       |   |       | 365  |       |   |       | 345 |      
|                                                            | Depreciation, depletion and amortization |                         |       | 598 |       |   |       | 568  |       |   |       | 629 |      
|                                                            | Taxes, other than income taxes           |                         |       | 73  |       |   |       | 33   |       |   |       | 63  |      
|                                                            |                                          |                         |       |     |       |   |       |      |      
|                                                            |                                          |                         |       |     | 1,101 |   |       |      | 1,026 |   |       |     | 1,124 | 
|                                                            |                                          |                         |       |     |       |   |       |      |      
|Operating income                                            |                                          |                         | 388   |     |       |   | 501   |      |       |   | 740   |    
|Earnings from unconsolidated affiliates                     |                                          |                         | 19    |     |       |   |      |      |       |   | 5     |    
|Other income                                                |                                          |                         | 5     |     |       |   | 1     |      |       |   | 4     |    
|Affiliated interest expense                                 |                                          |                         | (60   | )   |       |   | (28   | )    |       |   | (61   | )  
|Interest expense                                            |                                          |                         | (88   | )   |       |   | (76   | )    |       |   | (42   | )  
|                                                            |                                          |                         |       |     |       |   |       |      |      
|Income before income taxes                                  |                                          |                         | 264   |     |       |   | 398   |      |       |   | 646   |    
|Income taxes                                                |                                          |                         | (90   | )   |       |   | (144  | )    |       |   | (244  | )  
|                                                            |                                          |                         |       |     |       |   |       |      |      
|Income before cumulative effect of accounting change        |                                          |                         | 174   |     |       |   | 254   |      |       |   | 402   |    
|Cumulative effect of accounting change, net of income taxes |                                          |                         |      |     |       |   |      |      |       |   | (7    | )  
|                                                            |                                          |                         |       |     |       |   |       |      |      
|Net income                                                  |                                          | $                       | 174   |     |       | $ | 254   |      |       | $ | 395   |    
|                                                            |                                          |                         |       |     |       |   |       |      |      



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EL PASO EXPLORATION & PRODUCTION COMPANY





CONSOLIDATED BALANCE SHEETS


(In millions, except share amounts)


|                                       |                                                                                   |                                                           |                                            |        |              |       |        |        |        |       | 
|-------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------ | ------ | ------------ | ----- | ------ | ------ | ------ | ----- | 
|                                       |                                                                                   | December 31,                                              |                                            |        | December 31, |      
|                                       |                                                                                   | 2005                                                      |                                            |        | 2004         |      
|                                       |                                                                                   |                                                           |                                            |        |              |      
|ASSETS                                
|Current assets                         |                                                                                   |                                                           |                                            |        |              |       |        |       
|                                       | Cash and cash equivalents                                                         |                                                           | $                                          | 46     |              |       | $      | 127    |       
|                                       | Accounts receivable                                                               |                                                           |                                            |        |              |       |        |        |       
|                                       |                                                                                   | Customer, net of allowance of $10 in 2005 and $12 in 2004 |                                            |        | 53           |       |        |        | 50     |      
|                                       |                                                                                   | Affiliates                                                |                                            |        | 355          |       |        |        | 178    |      
|                                       |                                                                                   | Other                                                     |                                            |        | 81           |       |        |        | 60     |      
|                                       | Deferred income taxes                                                             |                                                           |                                            | 221    |              |       |        | 94     |       
|                                       | Other                                                                             |                                                           |                                            | 69     |              |       |        | 35     |       
|                                       |                                                                                   |                                                           |                                            |        |              |      
|                                       |                                                                                   |                                                           | Total current assets                       |        |              | 825   |        |        |        | 544   | 
|                                       |                                                                                   |                                                           |                                            |        |              |      
|Property, plant and equipment, at cost |                                                                                   |                                                           |                                            |        |              |       |        |       
|                                       | Natural gas and oil properties                                                    |                                                           |                                            |        |              |       |        |        |       
|                                       |                                                                                   | Proved properties-full cost method                        |                                            |        | 14,762       |       |        |        | 14,075 |      
|                                       |                                                                                   | Unevaluated costs excluded from amortization              |                                            |        | 384          |       |        |        | 308    |      
|                                       | Other                                                                             |                                                           |                                            | 141    |              |       |        | 162    |       
|                                       |                                                                                   |                                                           |                                            |        |              |      
|                                       |                                                                                   |                                                           | 15,287                                     |        |              |       | 14,545 |       
|                                       | Less accumulated depreciation, depletion and amortization                         |                                                           |                                            | 10,809 |              |       |        | 10,887 |       
|                                       |                                                                                   |                                                           |                                            |        |              |      
|                                       |                                                                                   |                                                           | Total property, plant and equipment, net   |        |              | 4,478 |        |        |        | 3,658 | 
|                                       |                                                                                   |                                                           |                                            |        |              |      
|Other assets                           |                                                                                   |                                                           |                                            |        |              |       |        |       
|                                       | Investments in unconsolidated affiliates                                          |                                                           |                                            | 761    |              |       |        | 6      |       
|                                       | Deferred income taxes                                                             |                                                           |                                            | 38     |              |       |        | 217    |       
|                                       | Other                                                                             |                                                           |                                            | 30     |              |       |        | 60     |       
|                                       |                                                                                   |                                                           |                                            |        |              |      
|                                       |                                                                                   |                                                           | 829                                        |        |              |       | 283    |       
|                                       |                                                                                   |                                                           |                                            |        |              |      
|                                       |                                                                                   |                                                           | Total assets                               |        | $            | 6,132 |        |        | $      | 4,485 | 
|                                       |                                                                                   |                                                           |                                            |        |              |      
|                                      
|LIABILITIES AND STOCKHOLDERS EQUITY  
|Current liabilities                    |                                                                                   |                                                           |                                            |        |              |       |        |       
|                                       | Accounts payable                                                                  |                                                           |                                            |        |              |       |        |        |       
|                                       |                                                                                   | Trade                                                     |                                            | $      | 97           |       |        | $      | 84     |      
|                                       |                                                                                   | Affiliates                                                |                                            |        | 32           |       |        |        | 2      |      
|                                       |                                                                                   | Other                                                     |                                            |        | 167          |       |        |        | 145    |      
|                                       | Notes payable to affiliate                                                        |                                                           |                                            | 125    |              |       |        | 975    |       
|                                       | Liabilities from price risk management activities                                 |                                                           |                                            | 621    |              |       |        | 210    |       
|                                       | Other                                                                             |                                                           |                                            | 73     |              |       |        | 62     |       
|                                       |                                                                                   |                                                           |                                            |        |              |      
|                                       |                                                                                   |                                                           | Total current liabilities                  |        |              | 1,115 |        |        |        | 1,478 | 
|                                       |                                                                                   |                                                           |                                            |        |              |      
|Long-term debt                         |                                                                                   |                                                           | 1,700                                      |        |              |       | 1,200  |       
|                                       |                                                                                   |                                                           |                                            |        |              |      
|Other                                  |                                                                                   |                                                           |                                            |        |              |       |        |       
|                                       | Liabilities from price risk management activities                                 |                                                           |                                            | 111    |              |       |        | 272    |       
|                                       | Deferred income taxes                                                             |                                                           |                                            | 305    |              |       |        | 6      |       
|                                       | Asset retirement obligation                                                       |                                                           |                                            | 158    |              |       |        | 227    |       
|                                       | Other                                                                             |                                                           |                                            | 53     |              |       |        | 25     |       
|                                       |                                                                                   |                                                           |                                            |        |              |      
|                                       |                                                                                   |                                                           | 627                                        |        |              |       | 530    |       
|                                       |                                                                                   |                                                           |                                            |        |              |      
|Commitments and contingencies          |                                                                                   |                                                           |                                            |        |              |       |        |       
|Stockholders equity                   |                                                                                   |                                                           |                                            |        |              |       |        |       
|                                       | Common stock, par value $1 per share; 1,000 shares
    authorized and outstanding |                                                           |                                            |       |              |       |        |       |       
|                                       | Additional paid-in capital                                                        |                                                           |                                            | 3,410  |              |       |        | 1,993  |       
|                                       | Retained earnings                                                                 |                                                           |                                            | (276   | )            |       |        | (450   | )     
|                                       | Accumulated other comprehensive loss                                              |                                                           |                                            | (444   | )            |       |        | (266   | )     
|                                       |                                                                                   |                                                           |                                            |        |              |      
|                                       |                                                                                   |                                                           | Total stockholders equity                 |        |              | 2,690 |        |        |        | 1,277 | 
|                                       |                                                                                   |                                                           |                                            |        |              |      
|                                       |                                                                                   |                                                           | Total liabilities and stockholders equity |        | $            | 6,132 |        |        | $      | 4,485 | 
|                                       |                                                                                   |                                                           |                                            |        |              |      



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EL PASO EXPLORATION & PRODUCTION COMPANY





CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


|                                     |                                                                               |                                                                              |                         |                                                     |      |      |        |      |     |      |      |        |      |     |        |  
|------------------------------------ | ----------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ----------------------- | --------------------------------------------------- | ---- | ---- | ------ | ---- | --- | ---- | ---- | ------ | ---- | --- | ------ | -
|                                     |                                                                               | Year Ended December 31,                                                      |                        
|                                     |                                                                               |                                                                              |                        
|                                     |                                                                               | 2005                                                                         |                         |                                                     | 2004 |      |        | 2003 |    
|                                     |                                                                               |                                                                              |                         |                                                     |      |      |        |      |    
|Cash flows from operating activities |                                                                               |                                                                              |                         |                                                     |      |      |        |      |     |      |      |       
|                                     | Net income                                                                    |                                                                              | $                       | 174                                                 |      |      | $      | 254  |     |      | $    | 395    |     
|                                     | Adjustments to reconcile net income to net cash from operating
    activities |                                                                              |                         |                                                     |      |      |        |      |     |      |      |        |     
|                                     |                                                                               | Depreciation, depletion and amortization                                     |                         |                                                     | 598  |      |        |      | 568 |      |      |        | 629  |    
|                                     |                                                                               | Cumulative effect of accounting change                                       |                         |                                                     |     |      |        |      |    |      |      |        | 7    |    
|                                     |                                                                               | Deferred income tax expense (benefit)                                        |                         |                                                     | 94   |      |        |      | 166 |      |      |        | (107 | )  
|                                     |                                                                               | Earnings from unconsolidated affiliates, adjusted for cash
    distributions |                         |                                                     | 15   |      |        |      |    |      |      |        |     |    
|                                     |                                                                               | Other non-cash items                                                         |                         |                                                     |     |      |        |      | 8   |      |      |        | 5    |    
|                                     |                                                                               | Asset and liability changes                                                  |                         |                                                     |      |      |        |      |     |      |      |        |      |    
|                                     |                                                                               |                                                                              | Accounts receivable     |                                                     |      | (179 | )      |      |     | (23  | )    |        |      | 138 |       
|                                     |                                                                               |                                                                              | Accounts payable        |                                                     |      | 30   |        |      |     | (15  | )    |        |      | (37 | )     
|                                     |                                                                               |                                                                              | Affiliate income taxes  |                                                     |      | (9   | )      |      |     | (190 | )    |        |      | 380 |       
|                                     |                                                                               |                                                                              | Other asset changes     |                                                     |      | 14   |        |      |     | (18  | )    |        |      |    |       
|                                     |                                                                               |                                                                              | Other liability changes |                                                     |      | (65  | )      |      |     | (52  | )    |        |      | 35  |       
|                                     |                                                                               |                                                                              |                         |                                                     |      |      |        |      |    
|                                     |                                                                               |                                                                              |                         | Net cash provided by operating activities           |      |      | 672    |      |     |      | 698  |        |      |     | 1,445  |  
|                                     |                                                                               |                                                                              |                         |                                                     |      |      |        |      |    
|Cash flows from investing activities |                                                                               |                                                                              |                         |                                                     |      |      |        |      |     |      |      |       
|                                     | Capital expenditures                                                          |                                                                              |                         | (800                                                | )    |      |        | (677 | )   |      |      | (1,335 | )   
|                                     | Net proceeds from the sale of assets                                          |                                                                              |                         | 10                                                  |      |      |        | (9   | )   |      |      | 654    |     
|                                     | Cash paid for acquisitions, net of cash acquired                              |                                                                              |                         | (1,025                                              | )    |      |        |     |     |      |      |       |     
|                                     | Change in note receivable from affiliate                                      |                                                                              |                         |                                                    |      |      |        | 215  |     |      |      | 93     |     
|                                     | Change in restricted cash                                                     |                                                                              |                         |                                                    |      |      |        |     |     |      |      | 44     |     
|                                     |                                                                               |                                                                              |                         |                                                     |      |      |        |      |    
|                                     |                                                                               |                                                                              |                         | Net cash used in investing activities               |      |      | (1,815 | )    |     |      | (471 | )      |      |     | (544   | )
|                                     |                                                                               |                                                                              |                         |                                                     |      |      |        |      |    
|Cash flows from financing activities |                                                                               |                                                                              |                         |                                                     |      |      |        |      |     |      |      |       
|                                     | Net proceeds from the issuance of long-term debt                              |                                                                              |                         | 495                                                 |      |      |        |     |     |      |      | 1,169  |     
|                                     | Dividends to parent                                                           |                                                                              |                         | (183                                                | )    |      |        | (57  | )   |      |      | (2,098 | )   
|                                     | Contributions from parent                                                     |                                                                              |                         | 263                                                 |      |      |        | 145  |     |      |      |       |     
|                                     | Change in note payable with affiliate                                         |                                                                              |                         | 487                                                 |      |      |        | (230 | )   |      |      | (88    | )   
|                                     |                                                                               |                                                                              |                         |                                                     |      |      |        |      |    
|                                     |                                                                               |                                                                              |                         | Net cash provided by (used in) financing activities |      |      | 1,062  |      |     |      | (142 | )      |      |     | (1,017 | )
|                                     |                                                                               |                                                                              |                         |                                                     |      |      |        |      |    
|Change in cash and cash equivalents  |                                                                               |                                                                              | (81                     | )                                                   |      |      | 85     |      |     |      | (116 | )     
|Cash and cash equivalents            |                                                                               |                                                                              |                         |                                                     |      |      |        |      |     |      |      |       
|                                     | Beginning of period                                                           |                                                                              |                         | 127                                                 |      |      |        | 42   |     |      |      | 158    |     
|                                     |                                                                               |                                                                              |                         |                                                     |      |      |        |      |    
|                                     | End of period                                                                 |                                                                              | $                       | 46                                                  |      |      | $      | 127  |     |      | $    | 42     |     
|                                     |                                                                               |                                                                              |                         |                                                     |      |      |        |      |    



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EL PASO EXPLORATION & PRODUCTION COMPANY





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


(In millions, except share amounts)


|                                      |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |   |       |       |       |   |     |        |       |  
|------------------------------------- | ----------------------------------------------- | -------------------------------- | ----- | ----- | ------ | - | ----- | ------ | ----- | - | ------ | ----- | ----- | ------ | ----- | ----- | ------ | - | ----- | ----- | ----- | - | --- | ------ | ----- | -
|                                      |                                                 | For the Years Ended December 31, |      
|                                      |                                                 |                                  |      
|                                      |                                                 | 2005                             |       |       | 2004   |   |       | 2003   |      
|                                      |                                                 |                                  |       |       |        |   |       |        |      
|                                      |                                                 | Shares                           |       |       | Amount |   |       | Shares |       |   | Amount |       |       | Shares |       |       | Amount |  
|                                      |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |  
|Common stock, $1.00 par:              |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |   |       |       |       |   |     |       
|                                      | Balance at beginning of year                    |                                  |       | 1,000 |        |   | $     |       |       |   |        | 1,000 |       |        | $     |      |        |   |       | 1,000 |       |   | $   |       |      
|                                      |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |  
|                                      |                                                 | Balance at end of year           |       |       | 1,000  |   |       |        |      |   |        |       | 1,000 |        |       |       |       |   |       |       | 1,000 |   |     |        |      |  
|                                      |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |  
|Additional paid-in capital:           |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |   |       |       |       |   |     |       
|                                      | Balance at beginning of year                    |                                  |       |       |        |   |       | 1,993  |       |   |        |       |       |        |       | 1,940 |        |   |       |       |       |   |     | 3,227  |      
|                                      | Contribution from parent                        |                                  |       |       |        |   |       | 1,616  |       |   |        |       |       |        |       | 190   |        |   |       |       |       |   |     | 1,026  |      
|                                      | Allocated tax benefit (expense) of equity plans |                                  |       |       |        |   |       |       |       |   |        |       |       |        |       | 1     |        |   |       |       |       |   |     | (5     | )    
|                                      | Dividends to parent                             |                                  |       |       |        |   |       | (199   | )     |   |        |       |       |        |       | (138  | )      |   |       |       |       |   |     | (2,308 | )    
|                                      |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |  
|                                      |                                                 | Balance at end of year           |       |       |        |   |       |        | 3,410 |   |        |       |       |        |       |       | 1,993  |   |       |       |       |   |     |        | 1,940 |  
|                                      |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |  
|Retained earnings (deficit):          |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |   |       |       |       |   |     |       
|                                      | Balance at beginning of year                    |                                  |       |       |        |   |       | (450   | )     |   |        |       |       |        |       | (704  | )      |   |       |       |       |   |     | (1,099 | )    
|                                      | Net income                                      |                                  |       |       |        |   |       | 174    |       |   |        |       |       |        |       | 254   |        |   |       |       |       |   |     | 395    |      
|                                      |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |  
|                                      |                                                 | Balance at end of year           |       |       |        |   |       |        | (276  | ) |        |       |       |        |       |       | (450   | ) |       |       |       |   |     |        | (704  | )
|                                      |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |  
|Accumulated other comprehensive loss: |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |   |       |       |       |   |     |       
|                                      | Balance at beginning of year                    |                                  |       |       |        |   |       | (266   | )     |   |        |       |       |        |       | (241  | )      |   |       |       |       |   |     | (222   | )    
|                                      | Other comprehensive loss                        |                                  |       |       |        |   |       | (178   | )     |   |        |       |       |        |       | (25   | )      |   |       |       |       |   |     | (19    | )    
|                                      |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |  
|                                      |                                                 | Balance at end of year           |       |       |        |   |       |        | (444  | ) |        |       |       |        |       |       | (266   | ) |       |       |       |   |     |        | (241  | )
|                                      |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |  
|Total stockholders equity            |                                                 |                                  | 1,000 |       |        | $ | 2,690 |        |       |   | 1,000  |       |       | $      | 1,277 |       |        |   | 1,000 |       |       | $ | 995 |       
|                                      |                                                 |                                  |       |       |        |   |       |        |       |   |        |       |       |        |       |       |        |  



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EL PASO EXPLORATION & PRODUCTION COMPANY





CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(In millions)


|                                                      |                                                                                                                                                         |                          |     |      |      |   |     |      |     |   |     |      |     |  
|----------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | --- | ---- | ---- | - | --- | ---- | --- | - | --- | ---- | --- | -
|                                                      |                                                                                                                                                         | Year Ended December 31,  |    
|                                                      |                                                                                                                                                         |                          |    
|                                                      |                                                                                                                                                         | 2005                     |     |      | 2004 |   |     | 2003 |    
|                                                      |                                                                                                                                                         |                          |     |      |      |   |     |      |    
|Net income                                            |                                                                                                                                                         | $                        | 174 |      |      | $ | 254 |      |     | $ | 395 |     
|                                                      |                                                                                                                                                         |                          |     |      |      |   |     |      |    
|Net gains (losses) from cash flow hedging activities: |                                                                                                                                                         |                          |     |      |      |   |     |      |     |   |     |     
|                                                      | Unrealized mark-to-market losses arising during period (net of
    income taxes of $275, $100 and $132 in 2005, 2004 and 2003)                          |                          |     | (483 | )    |   |     | (173 | )   |   |     | (230 | )  
|                                                      | Reclassification adjustments for changes in initial value to
    settlement date (net of income taxes of $176, $85 and $121 in
    2005, 2004 and 2003) |                          |     | 305  |      |   |     | 148  |     |   |     | 211  |    
|                                                      |                                                                                                                                                         |                          |     |      |      |   |     |      |    
|                                                      |                                                                                                                                                         | Other comprehensive loss |     |      | (178 | ) |     |      | (25 | ) |     |      | (19 | )
|                                                      |                                                                                                                                                         |                          |     |      |      |   |     |      |    
|Comprehensive income (loss)                           |                                                                                                                                                         | $                        | (4  | )    |      | $ | 229 |      |     | $ | 376 |     
|                                                      |                                                                                                                                                         |                          |     |      |      |   |     |      |    



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EL PASO EXPLORATION & PRODUCTION COMPANY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







|   |                                                                         
|-- | ------------------------------------------------------------------------
|1. | Basis of Presentation and Summary of Significant Accounting
    Policies



| |                      
| | ---------------------
| | Basis of Presentation









| |                            
| | ---------------------------
| | Principles of Consolidation





| |                 
| | ----------------
| | Use of Estimates





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts



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EL PASO EXPLORATION & PRODUCTION COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                               
| | ------------------------------
| | Natural Gas and Oil Properties











| |                                                                              
| | -----------------------------------------------------------------------------
| | Property, Plant and Equipment (Other than Natural Gas and Oil
    Properties)





| |                    
| | -------------------
| | Revenue Recognition



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EL PASO EXPLORATION & PRODUCTION COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                                            
| | -------------------------------------------
| | Environmental Costs and Other Contingencies

Environmental Costs.




Other Contingencies.




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





| |             
| | ------------
| | Income Taxes





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EL PASO EXPLORATION & PRODUCTION COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






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

Accounting for
Asset Retirement Obligations Accounting
for Conditional Asset Retirement Obligations








non-current


|                                               |  |               |     |   |      |   |     |  
|---------------------------------------------- |  | ------------- | --- | - | ---- | - | --- | -
|                                               |  | 2005          |     |   | 2004 |  
|                                               |  |               |     |   |      |  
|                                               |  | (In millions) |    
|Net asset retirement liability at January 1,   |  | $             | 254 |   |      | $ | 212 |  
|Liabilities
    settled(1)                     |  |               | (87 | ) |      |   | (33 | )
|Accretion expense                              |  |               | 26  |   |      |   | 23  |  
|Liabilities incurred                           |  |               | 9   |   |      |   | 23  |  
|Changes in estimate                            |  |               | (12 | ) |      |   | 29  |  
|                                               |  |               |     |   |      |  
|Net asset retirement liability at December 31, |  | $             | 190 |   |      | $ | 254 |  
|                                               |  |               |     |   |      |  




|    |                                                                             
|--- | ----------------------------------------------------------------------------
|(1) | Increase is due primarily to the sale of natural gas and oil
    properties.



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EL PASO EXPLORATION & PRODUCTION COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)







|   |                              
|-- | -----------------------------
|2. | Acquisitions and Divestitures



| |             
| | ------------
| | Acquisitions





|           |  |               |       |  |      |   |       | 
|---------- |  | ------------- | ----- |  | ---- | - | ----- | 
|           |  | Year Ended    |      
|           |  | December 31,  |      
|           |  |               |      
|           |  | 2005(1)       |       |  | 2004 |  
|           |  |               |       |  |      |  
|           |  | (In millions) |      
|Revenues   |  | $             | 1,528 |  |      | $ | 1,577 | 
|Net income |  |               | 184   |  |      |   | 243   | 






|    |                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes a $13 million pre-tax charge for change in control
    payments triggered at Medicine Bow as a result of the
    acquisition.





| |             
| | ------------
| | Divestitures



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EL PASO EXPLORATION & PRODUCTION COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)







|   |             
|-- | ------------
|3. | Income Taxes

Income Tax Expense.


|         |         |                          |    |    |      |  |     |      |     |  |      |     |     | 
|-------- | ------- | ------------------------ | -- | -- | ---- |  | --- | ---- | --- |  | ---- | --- | --- | 
|         |         | 2005                     |    |    | 2004 |  |     | 2003 |    
|         |         |                          |    |    |      |  |     |      |    
|         |         | (In millions)            |   
|Current  |         |                          |    |    |      |  |     |      |     |  |      |    
|         | Federal |                          | $  | (6 | )    |  | $   | (23  | )   |  | $    | 308 |    
|         | State   |                          |    | 2  |      |  |     | 1    |     |  |      | 43  |    
|         |         |                          |    |    |      |  |     |      |    
|         |         |                          | (4 | )  |      |  | (22 | )    |     |  | 351  |    
|         |         |                          |    |    |      |  |     |      |    
|Deferred |         |                          |    |    |      |  |     |      |     |  |      |    
|         | Federal |                          |    | 72 |      |  |     | 157  |     |  |      | (89 | )  
|         | State   |                          |    | 22 |      |  |     | 9    |     |  |      | (18 | )  
|         |         |                          |    |    |      |  |     |      |    
|         |         |                          | 94 |    |      |  | 166 |      |     |  | (107 | )  
|         |         |                          |    |    |      |  |     |      |    
|         |         | Total income tax expense |    | $  | 90   |  |     | $    | 144 |  |      | $   | 244 | 
|         |         |                          |    |    |      |  |     |      |    

Effective Tax Rate Reconciliation.


|                                                        |                                                                                     |                             |    |     |      |   |     |      |   |   |     |    | 
|------------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------- | -- | --- | ---- | - | --- | ---- | - | - | --- | -- | 
|                                                        |                                                                                     | 2005                        |    |     | 2004 |   |     | 2003 |  
|                                                        |                                                                                     |                             |    |     |      |   |     |      |  
|                                                        |                                                                                     | (In millions, except rates) |   
|Income tax expense at the statutory federal rate of 35% |                                                                                     | $                           | 92 |     |      | $ | 139 |      |   | $ | 226 |   
|Increase (decrease)                                     |                                                                                     |                             |    |     |      |   |     |      |   |   |     |   
|                                                        | State income tax, net of federal income tax benefit                                 |                             |    | 16  |      |   |     | 6    |   |   |     | 16 | 
|                                                        | Earnings from unconsolidated affiliates where we anticipate
    receiving dividends |                             |    | (11 | )    |   |     |     |   |   |     |   | 
|                                                        | Other                                                                               |                             |    | (7  | )    |   |     | (1   | ) |   |     | 2  | 
|                                                        |                                                                                     |                             |    |     |      |   |     |      |  
|Income tax expense                                      |                                                                                     | $                           | 90 |     |      | $ | 144 |      |   | $ | 244 |   
|                                                        |                                                                                     |                             |    |     |      |   |     |      |  
|Effective tax rate                                      |                                                                                     |                             | 34 | %   |      |   | 36  | %    |   |   | 38  | % 
|                                                        |                                                                                     |                             |    |     |      |   |     |      |  

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EL PASO EXPLORATION & PRODUCTION COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Deferred Tax Assets and Liabilities.


|                                   |                                                 |                              |     |     |      |   |     |     |     | 
|---------------------------------- | ----------------------------------------------- | ---------------------------- | --- | --- | ---- | - | --- | --- | --- | 
|                                   |                                                 | 2005                         |     |     | 2004 |  
|                                   |                                                 |                              |     |     |      |  
|                                   |                                                 | (In millions)                |    
|Deferred tax liabilities           |                                                 |                              |     |     |      |   |     |    
|                                   | Property, plant and equipment                   |                              | $   | 276 |      |   | $   | 15  |    
|                                   | Employee benefits                               |                              |     | 27  |      |   |     | 39  |    
|                                   | Investment in unconsolidated subsidiaries       |                              |     | 214 |      |   |     |    |    
|                                   | Other                                           |                              |     | 60  |      |   |     | 59  |    
|                                   |                                                 |                              |     |     |      |  
|                                   |                                                 | Total deferred tax liability |     | $   | 577  |   |     | $   | 113 | 
|                                   |                                                 |                              |     |     |      |  
|Deferred tax assets                |                                                 |                              |     |     |      |   |     |    
|                                   | Net operating loss and tax credit carryforwards |                              | $   | 245 |      |   | $   | 208 |    
|                                   | Price risk management activities                |                              |     | 274 |      |   |     | 184 |    
|                                   | Other                                           |                              |     | 12  |      |   |     | 24  |    
|                                   |                                                 |                              |     |     |      |  
|                                   |                                                 | Total deferred tax asset     |     | $   | 531  |   |     | $   | 416 | 
|                                   |                                                 |                              |     |     |      |  
|Net deferred tax asset (liability) |                                                 | $                            | (46 | )   |      | $ | 303 |    
|                                   |                                                 |                              |     |     |      |  

Net operating loss and tax carryovers.


|                                |  |               |     |  |                 |  |           | 
|------------------------------- |  | ------------- | --- |  | --------------- |  | --------- | 
|                                |  | Amount        |     |  | Expiration Year | 
|                                |  |               |     |  |                 | 
|                                |  | (In millions) |     |  |                
|U.S. federal net operating loss |  | $             | 550 |  |                 |  | 2009-2024 | 
|State net operating loss        |  | $             | 320 |  |                 |  | 2007-2023 | 








|   |                                                           
|-- | ----------------------------------------------------------
|4. | Financial Instruments and Price Risk Management Activities



|                                                      |  |               |       |   |       |   |       |          |  |   |            |   |  |   |       |  
|----------------------------------------------------- |  | ------------- | ----- | - | ----- | - | ----- | -------- |  | - | ---------- | - |  | - | ----- | -
|                                                      |  | 2005          |       |   | 2004  |  
|                                                      |  |               |       |   |       |  
|                                                      |  | Carrying      |       |   | Fair  |   |       | Carrying |  |   |           
|                                                      |  | Amount        |       |   | Value |   |       | Amount   |  |   | Fair Value |  
|                                                      |  |               |       |   |       |   |       |          |  |   |            |  
|                                                      |  | (In millions) |      
|Long-term debt                                        |  | $             | 1,700 |   |       | $ | 1,757 |          |  | $ | 1,200      |   |  | $ | 1,262 |  
|Net liabilities from price risk management activities |  | $             | (732  | ) |       | $ | (732  | )        |  | $ | (482       | ) |  | $ | (482  | )





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EL PASO EXPLORATION & PRODUCTION COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)














39



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EL PASO EXPLORATION & PRODUCTION COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)







|   |                              
|-- | -----------------------------
|5. | Property, Plant and Equipment



|            |  |              |     |  |                    |   |     |              |  |   |      |  |  |      |    |  |  |   |    | 
|----------- |  | ------------ | --- |  | ------------------ | - | --- | ------------ |  | - | ---- |  |  | ---- | -- |  |  | - | -- | 
|            |  | Cumulative   |     |  | Costs Excluded     |   |     | Cumulative   | 
|            |  | Balance(1)   |     |  | for Years Ended(1) |   |     | Balance      | 
|            |  |              |     |  | December 31        |   |     |              | 
|            |  | December 31, |     |  |                    |   |     | December 31, | 
|            |  | 2005         |     |  | 2005               |   |     | 2004         |  |   | 2003 |  |  | 2002 |   
|            |  |              |     |  |                    |   |     |              |  |   |      |  |  |      |   
|Acquisition |  | $            | 326 |  |                    | $ | 215 |              |  | $ | 41   |  |  | $    | 23 |  |  | $ | 47 | 
|Exploration |  |              | 57  |  |                    |   | 20  |              |  |   | 9    |  |  |      | 24 |  |  |   | 4  | 
|Development |  |              | 1   |  |                    |   |    |              |  |   |     |  |  |      |   |  |  |   | 1  | 
|            |  |              |     |  |                    |   |     |              |  |   |      |  |  |      |   
|            |  | $            | 384 |  |                    | $ | 235 |              |  | $ | 50   |  |  | $    | 47 |  |  | $ | 52 | 
|            |  |              |     |  |                    |   |     |              |  |   |      |  |  |      |   






|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes capitalized interest of $19 million,
    $7 million, and less than $1 million for the years
    ended December 31, 2005, 2004, and 2003.










|   |                                     
|-- | ------------------------------------
|6. | Debt and Available Credit Facilities



|                                                       |       |               |                   |  |         |            |                 |                    |  |   |       |       | 
|------------------------------------------------------ | ----- | ------------- | ----------------- |  | ------- | ---------- | --------------- | ------------------ |  | - | ----- | ----- | 
|Description                                            |       | Interest Rate |                   |  | Term(1) |            |                 | Amount Outstanding | 
|                                                       |       |               |                   |  |         |            |                 |                    | 
|                                                       |       |               |                   |  |         | (Millions) |                
|$1.2 billion senior notes                              |       |               | 7.75%             |  |         |            | June 1, 2013    |                    |  | $ | 1,200 |      
|$500 million credit facility                           |       |               | LIBOR plus 1.875% |  |         |            | August 30, 2010 |                    |  | $ | 500   |      
|$400 million revolving borrowing base credit agreement |       |               | Varies            |  |         |            | May 2006        |                    |  | $ |      |      
|                                                       |       |               |                   |  |         |            |                 |                    | 
|                                                       | Total |               |                   |  |         |            |                 |                    |  |   | $     | 1,700 | 
|                                                       |       |               |                   |  |         |            |                 |                    | 






|    |                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We have the ability to call $1.7 billion of our debt in
    2006 or thereafter. However, we do not currently have the intent
    to call this debt.

$1.2 billion senior notes.


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EL PASO EXPLORATION & PRODUCTION COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


$500 million credit facility.


$400 million credit facility.







|   |                              
|-- | -----------------------------
|7. | Commitments and Contingencies



| |                                          
| | -----------------------------------------
| | Legal Proceedings and Other Contingencies

Grynberg. Qui Tam


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


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EL PASO EXPLORATION & PRODUCTION COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Reserve Revisions.






Environmental Matters








| |                  
| | -----------------
| | Lease Obligations



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EL PASO EXPLORATION & PRODUCTION COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                             
| | ----------------------------
| | Other Commercial Commitments








|   |                    
|-- | -------------------
|8. | Retirement Benefits



| |                                
| | -------------------------------
| | Pension and Retirement Benefits





| |                              
| | -----------------------------
| | Other Postretirement Benefits








|   |                                   
|-- | ----------------------------------
|9. | Supplemental Cash Flow Information



|                                          |  |               |     |  |      |   |     |      |  |   |    | 
|----------------------------------------- |  | ------------- | --- |  | ---- | - | --- | ---- |  | - | -- | 
|                                          |  | 2005          |     |  | 2004 |   |     | 2003 | 
|                                          |  |               |     |  |      |   |     |      | 
|                                          |  | (In millions) |    
|Interest paid, net of amounts capitalized |  | $             | 146 |  |      | $ | 105 |      |  | $ | 95 | 
|Income tax payments                       |  |               | 45  |  |      |   | 180 |      |  |   | 61 | 






|    |                                                                                              
|--- | ---------------------------------------------------------------------------------------------
|10. | Investments in and Earnings from Unconsolidated Affiliates
    and Related Party Transactions

Investments in Unconsolidated Affiliates


Four Star Oil & Gas Company. unit-of


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EL PASO EXPLORATION & PRODUCTION COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


|                         |                               |             |   |     | 
|------------------------ | ----------------------------- | ----------- | - | --- | 
|                         |                               | In millions
|                         |                               |            
|Operating results data:  |                               |             |   |    
|                         | Operating revenues            |             | $ | 81  | 
|                         | Operating expenses            |             |   | 20  | 
|                         | Net income                    |             |   | 39  | 
|Financial position data: |                               |             |   |    
|                         | Current assets                |             |   | 64  | 
|                         | Non-current assets            |             |   | 101 | 
|                         | Other current liabilities     |             |   | 51  | 
|                         | Other non-current liabilities |             |   | 29  | 
|                         | Equity in net assets          |             |   | 85  | 

Black Warrior Transmission Corp.


Related Party Transactions


Cash Management Program.


Red River Financing (Red River).




Capital Contributions.


Dividends. non-cash.


Other Affiliated Transactions.


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EL PASO EXPLORATION & PRODUCTION COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                           |  |               |     |      |  |      |     |  |  |   |       | 
|---------------------------------------------------------- |  | ------------- | --- | ---- |  | ---- | --- |  |  | - | ----- | 
|                                                           |  | 2005          |     | 2004 |  | 2003
|                                                           |  |               |     |      |  |     
|                                                           |  | (In millions)
|Operating revenues                                         |  | $             | 741 |      |  | $    | 953 |  |  | $ | 1,613 | 
|Operating expenses from affiliates                         |  |               | 122 |      |  |      | 135 |  |  |   | 142   | 
|Reimbursements of operating expenses charged to affiliates |  |               | 18  |      |  |      | 18  |  |  |   |      | 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | El Paso. El Paso bills us directly for certain
    general and administrative costs and allocates a portion of its
    general and administrative costs to us. This allocation is based
    on the estimated level of resources devoted to our operations
    and the relative size of our EBIT, gross property and payroll.
    These expenses are primarily related to management, legal,
    financial, tax, consultative, administrative and other services,
    including employee benefits, annual incentive bonuses, rent,
    insurance, and information technology. El Paso currently
    bills us directly for compensation expense related to certain
    stock-based compensation awards granted directly to our
    employees as well as allocates to us our proportionate share of
    El Pasos corporate compensation expense. On
    January 1, 2006, El Paso adopted SFAS No. 123(R),
    Share-Based Payment, which requires that companies
    measure all employee stock-based compensation awards at fair
    value on the date they are granted to employees and recognize
    compensation costs in its financial statements over the
    requisite service period. As a result, beginning in 2006, we
    will record additional expenses for all stock-based compensation
    awards (including stock options) granted directly to our
    employees as well as our allocable share of El Pasos
    corporate stock-based compensation expense.
|
| |   | At December 31, 2005 and 2004, we had accounts payable to
    our affiliates of approximately $32 million and
    $2 million. We also have a service agreement with
    El Paso that provides for a reimbursement of 2.5 cents
    per MMBtu in 2005 and 2006 for our expected administrative costs
    associated with hedging transactions we entered into in December
    2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | El Paso Marketing. We sell our natural gas primarily
    to El Paso Marketing at spot market prices. At
    December 31, 2005 and 2004, substantially all of our
    affiliated accounts receivable of $355 million and
    $178 million related to sales of natural gas to
    El Paso Marketing. We are also a party to a master hedging
    contract with El Paso Marketing whereby we hedge a portion
    of our natural gas production with El Paso Marketing. Realized
    gains and losses on these hedges are included in our affiliated
    operating revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | El Paso Pipelines. We also contract for services
    with El Pasos regulated interstate pipelines that
    provide transportation and related services for our natural gas
    production. At December 31, 2005 and
    December 31, 2004, we had contractual deposits of
    $6 million with El Pasos regulated interstate
    pipelines.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Taxes.




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Supplemental Selected Quarterly Financial Information
(Unaudited)




|     |                                                      |                |   |     |         |  |   |              |  |  |             |     |  |       |   |     |  |  |   |       | 
|---- | ---------------------------------------------------- | -------------- | - | --- | ------- |  | - | ------------ |  |  | ----------- | --- |  | ----- | - | --- |  |  | - | ----- | 
|     |                                                      | Quarters Ended |   |     |        
|     |                                                      |                |   |     |        
|     |                                                      | March 31       |   |     | June 30 |  |   | September 30 |  |  | December 31 |     |  | Total |  
|     |                                                      |                |   |     |         |  |   |              |  |  |             |     |  |       |  
|     |                                                      | (In millions)  |  
|2005 |                                                      |                |   |     |         |  |   |              |  |  |             |     |  |       |   |     |  |  |   |      
|     | Operating revenues                                   |                | $ | 348 |         |  | $ | 380          |  |  | $           | 390 |  |       | $ | 371 |  |  | $ | 1,489 | 
|     | Operating income                                     |                |   | 94  |         |  |   | 108          |  |  |             | 111 |  |       |   | 75  |  |  |   | 388   | 
|     | Income before cumulative effect of accounting change |                |   | 45  |         |  |   | 49           |  |  |             | 51  |  |       |   | 29  |  |  |   | 174   | 
|     | Net income                                           |                |   | 45  |         |  |   | 49           |  |  |             | 51  |  |       |   | 29  |  |  |   | 174   | 

|     |                                                      |                |   |     |         |  |   |              |  |  |             |     |  |       |   |     |  |  |   |       | 
|---- | ---------------------------------------------------- | -------------- | - | --- | ------- |  | - | ------------ |  |  | ----------- | --- |  | ----- | - | --- |  |  | - | ----- | 
|     |                                                      | Quarters Ended |   |     |        
|     |                                                      |                |   |     |        
|     |                                                      | March 31       |   |     | June 30 |  |   | September 30 |  |  | December 31 |     |  | Total |  
|     |                                                      |                |   |     |         |  |   |              |  |  |             |     |  |       |  
|     |                                                      | (In millions)  |  
|2004 |                                                      |                |   |     |         |  |   |              |  |  |             |     |  |       |   |     |  |  |   |      
|     | Operating revenues                                   |                | $ | 401 |         |  | $ | 389          |  |  | $           | 347 |  |       | $ | 390 |  |  | $ | 1,527 | 
|     | Operating income                                     |                |   | 145 |         |  |   | 149          |  |  |             | 102 |  |       |   | 105 |  |  |   | 501   | 
|     | Income before cumulative effect of accounting change |                |   | 66  |         |  |   | 81           |  |  |             | 50  |  |       |   | 57  |  |  |   | 254   | 
|     | Net income                                           |                |   | 66  |         |  |   | 81           |  |  |             | 50  |  |       |   | 57  |  |  |   | 254   | 




Supplemental Natural Gas and Oil Operations (Unaudited)






|                                                          |                                   |               |        |        |      |   |        |        | 
|--------------------------------------------------------- | --------------------------------- | ------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                                                          |                                   | 2005          |        |        | 2004 |  
|                                                          |                                   |               |        |        |      |  
|                                                          |                                   | (In millions) |       
|Natural gas and oil properties:                           |                                   |               |        |        |      |   |        |       
|                                                          | Costs subject to amortization     |               | $      | 14,903 |      |   | $      | 14,237 | 
|                                                          | Costs not subject to amortization |               |        | 384    |      |   |        | 308    | 
|                                                          |                                   |               |        |        |      |  
|                                                          |                                   |               | 15,287 |        |      |   | 14,545 |       
|Less accumulated depreciation, depletion and amortization |                                   |               | 10,809 |        |      |   | 10,887 |       
|                                                          |                                   |               |        |        |      |  
|Net capitalized costs                                     |                                   | $             | 4,478  |        |      | $ | 3,658  |       
|                                                          |                                   |               |        |        |      |  
|FAS 143 abandonment liability                             |                                   | $             | 190    |        |      | $ | 254    |       
|                                                          |                                   |               |        |        |      |  

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|                                                             |                     |                             |     |       |       |   |     |      |     |   |     |       |       | 
|------------------------------------------------------------ | ------------------- | --------------------------- | --- | ----- | ----- | - | --- | ---- | --- | - | --- | ----- | ----- | 
|                                                             |                     | 2005                        |     |       | 2004  |   |     | 2003 |    
|                                                             |                     |                             |     |       |       |   |     |      |    
|                                                             |                     | (In millions)               |    
|Property acquisition costs                                   |                     |                             |     |       |       |   |     |      |     |   |     |      
|                                                             | Proved properties   |                             | $   | 643   |       |   | $   | 33   |     |   | $   | 10    |      
|                                                             | Unproved properties |                             |     | 143   |       |   |     | 32   |     |   |     | 35    |      
|Exploration costs                                            |                     |                             | 143 |       |       |   | 185 |      |     |   | 467 |      
|Development costs                                            |                     |                             | 503 |       |       |   | 395 |      |     |   | 668 |      
|                                                             |                     |                             |     |       |       |   |     |      |    
|                                                             | Costs expended      |                             |     | 1,432 |       |   |     | 645  |     |   |     | 1,180 |      
|Asset retirement obligation
    costs(1)                     |                     |                             | 1   |       |       |   | 30  |      |     |   | 124 |      
|                                                             |                     |                             |     |       |       |   |     |      |    
|                                                             |                     | Total costs
    incurred(2) |     | $     | 1,433 |   |     | $    | 675 |   |     | $     | 1,304 | 
|                                                             |                     |                             |     |       |       |   |     |      |    
|Acquisition of unconsolidated investment in Four
    Star(2) |                     | $                           | 769 |       |       | $ |    |      |     | $ |    |      
|                                                             |                     |                             |     |       |       |   |     |      |    






|    |                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes an increase to our property, plant and equipment of
    approximately $113 million in 2003 associated with our
    adoption of Statement of Financial Accounting Standard
    No. 143.                                                            
|   
|(2) | Includes $179 million of additional cost associated with
    deferred income tax adjustments related to the acquisitions of
    full-cost pool properties and of $217 million related to
    the acquisition of our unconsolidated investment in Four Star.







|                                                     |                   |                                   |  |       |            |   |  |         |        |   |  |        |        |  
|---------------------------------------------------- | ----------------- | --------------------------------- |  | ----- | ---------- | - |  | ------- | ------ | - |  | ------ | ------ | -
|                                                     |                   |                                   |  | Oil & |            |   | 
|                                                     |                   | Natural Gas                       |  |       | Condensate |   |  | NGL     |       
|                                                     |                   | (Bcf)                             |  |       | (MBbls)    |   |  | (MBbls) |       
|                                                     |                   |                                   |  |       |            |   |  |         |       
|Net proved developed and undeveloped
    reserves(1) |                   |                                   |  |       |            |   |  |         |        |   |  |       
|                                                     | January 1, 2003   |                                   |  | 2,488 |            |   |  | 38,354  |        |   |  | 21,607 |       
|                                                     |                   | Revisions of previous estimates   |  |       | (24        | ) |  |         | 895    |   |  |        | (2,717 | )
|                                                     |                   | Extensions, discoveries and other |  |       | 405        |   |  |         | 5,000  |   |  |        | 1,795  |  
|                                                     |                   | Purchases of reserves in place    |  |       | 2          |   |  |         | 5      |   |  |        | 27     |  
|                                                     |                   | Sales of reserves in place        |  |       | (471       | ) |  |         | (4,328 | ) |  |        | (504   | )
|                                                     |                   | Production                        |  |       | (339       | ) |  |         | (7,555 | ) |  |        | (4,223 | )
|                                                     |                   |                                   |  |       |            |   |  |         |       
|                                                     | December 31, 2003 |                                   |  | 2,061 |            |   |  | 32,371  |        |   |  | 15,985 |       
|                                                     |                   | Revisions of previous estimates   |  |       | (172       | ) |  |         | (999   | ) |  |        | 724    |  
|                                                     |                   | Extensions, discoveries and other |  |       | 79         |   |  |         | 2,214  |   |  |        | 58     |  
|                                                     |                   | Purchases of reserves in place    |  |       | 15         |   |  |         |       |   |  |        |       |  
|                                                     |                   | Sales of reserves in place        |  |       | (21        | ) |  |         | (1,276 | ) |  |        | (47    | )
|                                                     |                   | Production                        |  |       | (238       | ) |  |         | (4,979 | ) |  |        | (3,519 | )
|                                                     |                   |                                   |  |       |            |   |  |         |       

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|                                              |                                               |                                   |  |       |            |   |  |         |        |   |  |        |        |  
|--------------------------------------------- | --------------------------------------------- | --------------------------------- |  | ----- | ---------- | - |  | ------- | ------ | - |  | ------ | ------ | -
|                                              |                                               |                                   |  | Oil & |            |   | 
|                                              |                                               | Natural Gas                       |  |       | Condensate |   |  | NGL     |       
|                                              |                                               | (Bcf)                             |  |       | (MBbls)    |   |  | (MBbls) |       
|                                              |                                               |                                   |  |       |            |   |  |         |       
|                                              | December 31, 2004                             |                                   |  | 1,724 |            |   |  | 27,331  |        |   |  | 13,201 |       
|                                              |                                               | Revisions of previous estimates   |  |       | (43        | ) |  |         | 260    |   |  |        | 1,148  |  
|                                              |                                               | Extensions, discoveries and other |  |       | 183        |   |  |         | 8,145  |   |  |        | 169    |  
|                                              |                                               | Purchase of reserves in place     |  |       | 192        |   |  |         | 13,338 |   |  |        | 772    |  
|                                              |                                               | Sales of reserves in place        |  |       | (18        | ) |  |         | (969   | ) |  |        | (89    | )
|                                              |                                               | Production                        |  |       | (207       | ) |  |         | (4,877 | ) |  |        | (2,639 | )
|                                              |                                               |                                   |  |       |            |   |  |         |       
|                                              | December 31,2005                              |                                   |  | 1,831 |            |   |  | 43,228  |        |   |  | 12,562 |       
|                                              |                                               |                                   |  |       |            |   |  |         |       
|Proved developed reserves                     |                                               |                                   |  |       |            |   |  |         |        |   |  |       
|                                              | December 31, 2003                             |                                   |  | 1,428 |            |   |  | 22,821  |        |   |  | 14,088 |       
|                                              | December 31, 2004                             |                                   |  | 1,287 |            |   |  | 19,641  |        |   |  | 11,943 |       
|                                              | December 31, 2005                             |                                   |  | 1,404 |            |   |  | 28,581  |        |   |  | 11,010 |       
|Unconsolidated Investment in Four
    Star(2) |                                               |                                   |  |       |            |   |  |         |        |   |  |       
|                                              | December 31, 2005                             |                                   |  |       |            |   |  |         |        |   |  |        |       
|                                              | Net proved developed and undeveloped reserves |                                   |  | 193   |            |   |  | 3,349   |        |   |  | 6,668  |       
|                                              | Proved developed reserves                     |                                   |  | 158   |            |   |  | 3,266   |        |   |  | 5,399  |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net proved reserves exclude royalties and interests owned by
    others and reflects contractual arrangements and royalty
    obligations in effect at the time of the estimate.                                                                                                                                                                                                                                                                                                                             
|(2) | Our unconsolidated share of Four Stars proved reserves has
    been estimated based on an evaluation of those reserves by El
    Pasos internal reservoir engineers, and not by engineers
    of Four Star. An independent reservoir engineering firm, Ryder
    Scott, which was engaged by us, prepared an estimate on
    86 percent of Four Stars proved reserves. Based on
    the amount of proved reserves determined by Ryder Scott, we
    believe these reported reserve amounts are reasonable.





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|                                                            |                             |               |      |       |      |   |      |       |  |   |      |       | 
|----------------------------------------------------------- | --------------------------- | ------------- | ---- | ----- | ---- | - | ---- | ----- |  | - | ---- | ----- | 
|                                                            |                             | 2005          |      |       | 2004 |   |      | 2003  | 
|                                                            |                             |               |      |       |      |   |      |       | 
|                                                            |                             | (In millions) |     
|Revenues                                                    |                             |               |      |       |      |   |      |       |  |   |      |      
|                                                            | Affiliated sales            |               | $    | 741   |      |   | $    | 953   |  |   | $    | 1,613 | 
|                                                            | Sales to external customers |               |      | 748   |      |   |      | 574   |  |   |      | 251   | 
|                                                            |                             |               |      |       |      |   |      |       | 
|                                                            | Total                       |               |      | 1,489 |      |   |      | 1,527 |  |   |      | 1,864 | 
|Transportation and net product costs                        |                             |               | (62  | )     |      |   | (60  | )     |  |   | (87  | )    
|Production
    costs(1)                                     |                             |               | (256 | )     |      |   | (215 | )     |  |   | (231 | )    
|Depreciation, depletion and amortization                    |                             |               | (598 | )     |      |   | (568 | )     |  |   | (629 | )    
|                                                            |                             |               |      |       |      |   |      |       | 
|                                                            |                             |               | 573  |       |      |   | 684  |       |  |   | 917  |      
|Income tax expense                                          |                             |               | (204 | )     |      |   | (248 | )     |  |   | (346 | )    
|                                                            |                             |               |      |       |      |   |      |       | 
|Results of operations from producing activities             |                             | $             | 369  |       |      | $ | 436  |       |  | $ | 571  |      
|                                                            |                             |               |      |       |      |   |      |       | 
|Equity earnings from unconsolidated investment in Four Star |                             | $             | 19   |       |      | $ |     |       |  | $ |     |      
|                                                            |                             |               |      |       |      |   |      |       | 






|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(1) | Production costs include lease operating costs and production
    related taxes (including ad valorem and severance taxes).



|                                                                                                      |  |               |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------------------------------------------------- |  | ------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                      |  | 2005          |        |   | 2004 |   |        | 2003 | 
|                                                                                                      |  |               |        |   |      |   |        |      | 
|                                                                                                      |  | (In millions) |       
|Future cash
    inflows(1)                                                                            |  | $             | 18,175 |   |      | $ | 11,895 |      |  | $ | 13,302 |  
|Future production costs                                                                               |  |               | (3,968 | ) |      |   | (3,585 | )    |  |   | (3,025 | )
|Future development costs                                                                              |  |               | (1,335 | ) |      |   | (1,234 | )    |  |   | (1,325 | )
|Future income tax expenses                                                                            |  |               | (3,160 | ) |      |   | (1,184 | )    |  |   | (1,695 | )
|                                                                                                      |  |               |        |   |      |   |        |      | 
|Future net cash flows                                                                                 |  |               | 9,712  |   |      |   | 5,892  |      |  |   | 7,257  |  
|10% annual discount for estimated timing of cash flows                                                |  |               | (3,660 | ) |      |   | (2,004 | )    |  |   | (2,449 | )
|                                                                                                      |  |               |        |   |      |   |        |      | 
|Standardized measure of discounted future net cash flows                                              |  | $             | 6,052  |   |      | $ | 3,888  |      |  | $ | 4,808  |  
|                                                                                                      |  |               |        |   |      |   |        |      | 
|Standardized measure of discounted future net cash flows,
    including effects of hedging activities |  | $             | 5,573  |   |      | $ | 3,547  |      |  | $ | 4,367  |  
|                                                                                                      |  |               |        |   |      |   |        |      | 
|Unconsolidated investment in Four Star                                                                |  |               |        |   |      |   |        |      |  |   |        |  
|Standardized measure of discounted future net cash flows                                              |  | $             | 617    |   |      | $ |       |      |  | $ |       |  
|                                                                                                      |  |               |        |   |      |   |        |      | 






|    |                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes $760 million, $524 million and
    $739 million of future net cash outflows attributable to
    open hedging positions as of December 31, 2005, 2004 and
    2003.





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|                                                                                |            |                             |        |       |      |   |        |      |   |   |        |     | 
|------------------------------------------------------------------------------- | ---------- | --------------------------- | ------ | ----- | ---- | - | ------ | ---- | - | - | ------ | --- | 
|                                                                                |            | Years Ended December 31,(1) |       
|                                                                                |            |                             |       
|                                                                                |            | 2005                        |        |       | 2004 |   |        | 2003 |  
|                                                                                |            |                             |        |       |      |   |        |      |  
|                                                                                |            | (In millions)               |       
|Sales and transfers of natural gas and oil produced net of
    production costs |            | $                           | (1,432 | )     |      | $ | (1,444 | )    |   | $ | (1,829 | )  
|Net changes in prices and production costs                                      |            |                             | 2,738  |       |      |   | (62    | )    |   |   | 1,586  |    
|Extensions, discoveries and improved recovery, less related costs               |            |                             | 772    |       |      |   | 208    |      |   |   | 975    |    
|Changes in estimated future development costs                                   |            |                             | 17     |       |      |   | 4      |      |   |   | (16    | )  
|Previously estimated development costs incurred during the period               |            |                             | 247    |       |      |   | 156    |      |   |   | 220    |    
|Revision of previous quantity estimates                                         |            |                             | (140   | )     |      |   | (457   | )    |   |   | (94    | )  
|Accretion of discount                                                           |            |                             | 436    |       |      |   | 555    |      |   |   | 526    |    
|Net change in income taxes                                                      |            |                             | (1,007 | )     |      |   | 278    |      |   |   | 205    |    
|Purchases of reserves in place                                                  |            |                             | 956    |       |      |   | 27     |      |   |   | 5      |    
|Sale of reserves in place                                                       |            |                             | (83    | )     |      |   | (75    | )    |   |   | (1,229 | )  
|Change in production rates, timing and other                                    |            |                             | (340   | )     |      |   | (110   | )    |   |   | 150    |    
|                                                                                |            |                             |        |       |      |   |        |      |  
|                                                                                | Net change |                             | $      | 2,164 |      |   | $      | (920 | ) |   | $      | 499 | 
|                                                                                |            |                             |        |       |      |   |        |      |  






|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(1) | This disclosure reflects changes in the standardized measure
    calculation excluding the effects of hedging activities.

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SCHEDULE II


EL PASO EXPLORATION & PRODUCTION COMPANY


VALUATION AND QUALIFYING ACCOUNTS


Years Ended December 31, 2005, 2004 and 2003


(In millions)


|            |                                        |            |   |         |          |  |   |            |  |          |          |    |         |           |   |    |   |  |   |    | 
|----------- | -------------------------------------- | ---------- | - | ------- | -------- |  | - | ---------- |  | -------- | -------- | -- | ------- | --------- | - | -- | - |  | - | -- | 
|            |                                        |            |   | Charged |          |  |   |            |  |          |         
|            |                                        | Balance at |   |         | to Costs |  |   |            |  | Charged  |          |    | Balance |          
|            |                                        | Beginning  |   |         | and      |  |   |            |  | to Other |          |    | at End  |          
|Description |                                        | of Period  |   |         | Expenses |  |   | Deductions |  |          | Accounts |    |         | of Period |  
|            |                                        |            |   |         |          |  |   |            |  |          |          |    |         |           |  
|2005        |                                        |            |   |         |          |  |   |            |  |          |          |    |         |           |   |    |   |  |   |   
|            | Allowance for doubtful accounts        |            | $ | 12      |          |  | $ |           |  |          | $        | (1 | )       |           | $ | (1 | ) |  | $ | 10 | 
|            | Legal reserves and other contingencies |            |   | 17      |          |  |   | 7          |  |          |          | (2 | )       |           |   |   |   |  |   | 22 | 
|            | Environmental reserves                 |            |   | 5       |          |  |   |           |  |          |          |   |         |           |   |   |   |  |   | 5  | 
|2004        |                                        |            |   |         |          |  |   |            |  |          |          |    |         |           |   |    |   |  |   |   
|            | Allowance for doubtful accounts        |            | $ | 14      |          |  | $ | 1          |  |          | $        | (4 | )       |           | $ | 1  |   |  | $ | 12 | 
|            | Legal reserves and other contingencies |            |   | 20      |          |  |   |           |  |          |          | (2 | )       |           |   | (1 | ) |  |   | 17 | 
|            | Environmental reserves                 |            |   | 5       |          |  |   |           |  |          |          |   |         |           |   |   |   |  |   | 5  | 
|2003        |                                        |            |   |         |          |  |   |            |  |          |          |    |         |           |   |    |   |  |   |   
|            | Allowance for doubtful accounts        |            | $ | 11      |          |  | $ | 4          |  |          | $        |   |         |           | $ | (1 | ) |  | $ | 14 | 
|            | Legal reserves and other contingencies |            |   | 19      |          |  |   | 2          |  |          |          | (1 | )       |           |   |   |   |  |   | 20 | 
|            | Environmental reserves                 |            |   | 4       |          |  |   |           |  |          |          |   |         |           |   | 1  |   |  |   | 5  | 

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
    AND FINANCIAL DISCLOSURE








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures






Changes in Internal Control over Financial Reporting









|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION



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PART III


10-K.







|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees




All Other Fees




Policy for Approval of Audit and Non-Audit Fees







PART IV







|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as a part of this
report:






|                                                                                             |                                                                                         |      |    |    | 
|-------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ---- | -- | -- | 
|                                                                                             |                                                                                         | Page |   
|                                                                                             |                                                                                         |      |   
|                                                                                             | Report of Independent Registered Public Accounting Firm                                 |      |    | 26 | 
|                                                                                             | Consolidated Statements of Income                                                       |      |    | 27 | 
|                                                                                             | Consolidated Balance Sheets                                                             |      |    | 28 | 
|                                                                                             | Consolidated Statements of Cash Flows                                                   |      |    | 29 | 
|                                                                                             | Consolidated Statements of Stockholders Equity                                         |      |    | 30 | 
|                                                                                             | Consolidated Statements of Comprehensive Income                                         |      |    | 31 | 
|                                                                                             | Notes to Consolidated Financial Statements                                              |      |    | 32 | 
|2. Financial statement schedules and supplementary
    information required to be submitted. |                                                                                         |      |    |   
|                                                                                             | Schedule II  Valuation and Qualifying
    accounts                                     |      |    | 51 | 
|                                                                                             | Schedules other than that listed above are omitted because
    they are not applicable. |      |    |    | 
|3. Exhibit list                                                                              |                                                                                         |      | 54 |   

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EL PASO EXPLORATION & PRODUCTION COMPANY


EXHIBIT LIST


December 31, 2005




|        |     |      |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | --- | ---- | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |      |            
|Number  |     |      | Description
|        |     |      |            
|        | *3  | .A   |             | Amended and Restated Certificate of Incorporation as filed with
    the Delaware Secretary of State on February 16, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 3   | .B   |             | By-laws effective as of June 24, 2002 (Exhibit 3.2 to
    our Form S-4 filed on June 27, 2003, Registration
    No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 4   | .A   |             | Indenture dated as of May 23, 2003 by and between
    El Paso Production Holding Company, the Subsidiary
    Guarantors named therein and Wilmington Trust Company, as
    Trustee (Exhibit 4.1 to our Form S-4 filed on
    June 27, 2003, Registration No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                      
|        | 4   | .A.1 |             | First Supplemental Indenture dated January 31, 2004 among
    El Paso Production Holding Company, the Subsidiary
    Guarantors named therein and Wilmington Trust Company, as
    Trustee (Exhibit 4.A.1 to our 2003 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 4   | .A.2 |             | Consent by the Holders (as defined therein) effective
    July 26, 2004 Relating to a Proposed Waiver under the
    Indenture, as Supplemented, Governing El Paso Production
    Holding Companys $1,200,000,000 Aggregate Principal Amount
    of Issued and Outstanding
    73/4%
    Senior Notes due 2013 (Exhibit 4.A.2 to our 2003
    Form 10-K).                                                                                                                                                                                                                                                                                      
|        | 4   | .A.3 |             | Second Supplemental Indenture dated July 26, 2004 among El
    Paso Production Holding Company, the Subsidiary Guarantors named
    therein and Wilmington Trust Company, as Trustee
    (Exhibit 4.A.3 to our 2003 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 4   | .A.4 |             | Third Supplemental Indenture, dated as of August 31, 2005,
    among El Paso Production Holding Company, as Issuer,
    El Paso Production Company, El Paso Production GOM,
    Inc., El Paso Energy Raton Corporation, Medicine Bow Energy
    Corporation, Medicine Bow Operating Company and MBOW Four Star
    Corporation, as Subsidiary Guarantors, and Wilmington Trust
    Company, as Trustee (Exhibit 10.C to our Form 8-K
    filed on September 1, 2005).                                                                                                                                                                          
|        | 4   | .A.5 |             | Fourth Supplemental Indenture, dated as of December 31,
    2005, among El Paso Exploration & Production
    Company, as Issuer, El Paso Production Company, Medicine
    Bow Energy Corporation, Medicine Bow Operating Company, MBOW
    Four Star Corporation, El Paso E&P Company, L.P.,
    El Paso Production Oil & Gas Company, El Paso
    E&P Holdings, Inc., El Paso Production Resale Company,
    El Paso Energy Oil Transmission, L.L.C. and El Paso
    Production Oil & Gas Gathering, L.P., as Subsidiary
    Guarantors, and Wilmington Trust Company, as Trustee
    (Exhibit 4.A to our Form 8-K filed January 4,
    2006).
|        | 10  | .A   |             | ISDA Master Agreement, dated as of January 1, 2001, between
    El Paso Merchant Energy, L.P. and El Paso Production
    Company (Exhibit 10.1 to our Form S-4 filed on
    June 27, 2003, Registration No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10  | .B   |             | Services Agreement, dated as of May 23, 2003, between
    El Paso Energy Service Company and El Paso Production
    Holding Company (Exhibit 10.2 to our Form S-4 filed on
    June 27, 2003, Registration No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | +10 | .C   |             | El Paso Production Companies Long-Term Incentive Plan
    effective as of January 1, 2003 (Exhibit 10.AA to
    El Pasos 2003 First Quarter Form 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | +10 | .C.1 |             | Amendment No. 1 to the El Paso Production Companies
    Long-Term Incentive Plan effective as of June 6, 2003
    (Exhibit 10.13 to our Form S-4 filed on June 27,
    2003, Registration No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                                                                     

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|        |     |      |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | --- | ---- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |      |            
|Number  |     |      | Description
|        |     |      |            
|        | +10 | .C.2 |             | Amendment No. 2 to the El Paso Production Companies
    Long-Term Incentive Plan effective as of December 31, 2003
    (Exhibit 10.D.2 to our 2003 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10  | .D   |             | Federal and State Tax Reimbursement Agreement among El Paso
    Corporation and the Controlled Entities (named therein),
    effective as of May 22, 2003 (Exhibit 10.18 to our
    Form S-4 filed on June 27, 2003, Registration
    No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10  | .E   |             | El Paso Corporation and Consolidated Subsidiaries
    Accounting Policy for the Accrual of U.S. Federal Income
    Taxes, effective as of January 1, 2002 (Exhibit 10.19
    to our Form S-4 filed on June 27, 2003, Registration
    No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10  | .F   |             | Intercompany State Income Tax Allocation and Payments Policy,
    effective for tax years beginning after January 29, 2001
    (Exhibit 10.20 to our Form S-4 filed on June 27,
    2003, Registration No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10  | .G   |             | Purchase and Sale Agreement (Red River) by and among
    El Paso Production Company, El Paso Production GOM
    Inc. and Lehman Commercial Paper Inc., dated October 3,
    2003 (Exhibit 10.21 to Amendment No. 2 to our
    Form S-4 filed on November 24, 2003, Registration
    No. 333-106586).                                                                                                                                                                                                                                                                                                                                                     
|        | 10  | .H   |             | First Amendment to Purchase and Sale Agreement by and among
    El Paso Production Company, El Paso Production GOM
    Inc. and Lehman Commercial Paper Inc., dated October 6,
    2003 (Exhibit 10.22 to Amendment No. 2 to our Form S-4
    filed on November 24, 2003, Registration
    No. 333-106586).                                                                                                                                                                                                                                                                                                                                              
|        | 10  | .I   |             | Purchase and Sale Agreement (Red River) by and among
    El Paso Production Company, El Paso Production GOM
    Inc. and Ramshorn Investments, Inc., dated October 8, 2003
    (Exhibit 10.23 to Amendment No. 2 to our Form S-4
    filed on November 24, 2003, Registration
    No. 333-106586).                                                                                                                                                                                                                                                                                                                                                       
|        | 10  | .J   |             | Stock Purchase Agreement dated July 18, 2005 among the
    Registrant, Medicine Bow Energy Corporation and the other
    parties identified therein (Exhibit 10.A to our
    Form 8-K filed on July 19, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10  | .K   |             | Credit Agreement dated as of August 30, 2005, among
    El Paso Production Holding Company, El Paso Production
    Company, El Paso Energy Raton Corporation and El Paso
    Production GOM, Inc. and Fortis Capital Corp., The Royal Bank of
    Scotland plc and The Bank of Nova Scotia, and the Several
    Lenders from time to time Parties thereto (Exhibit 10.A to
    our Form 8-K filed on September 1, 2005).                                                                                                                                                                                                                                 
|        | 10  | .L   |             | Amended and Restated Credit Agreement, dated as of
    October 19, 2005, among El Paso Production Holding
    Company, El Paso Production Company, El Paso Energy
    Raton Corporation and El Paso Production GOM, Inc., as
    Borrowers, and Fortis Capital Corp., The Royal Bank of Scotland
    plc, The Bank of Nova Scotia, Societe Generale and WESTLB AG,
    New York Branch and the Several Lenders from time to time
    Parties thereto, including the Form of Guarantee Agreement made
    by the Guarantors in favor of Fortis Capital Corp., as agent for
    the Creditors (Exhibit 10.A to our Form 8-K filed on
    October 24, 2005).
|        | 10  | .M   |             | Credit Agreement, dated as of November 3, 2005, among
    El Paso Corporation and El Paso Production
    Oil & Gas USA, L.P., as Borrowers, Fortis Capital
    Corp., as Administrative Agent, Arranger and Bookrunner, and the
    several Lenders party from time to time thereto
    (Exhibit 10.A to our Form 8-K filed January 4,
    2006).                                                                                                                                                                                                                                                                                                        
|        | 10  | .N   |             | First Amendment, Consent and Waiver Agreement, dated as of
    December 20, 2005, among El Paso Corporation and
    El Paso Production Oil & Gas USA, L.P., as
    Borrowers, Fortis Capital Corp., as Administrative Agent for the
    Lenders, and the several Lenders party from time to time thereto
    (Exhibit 10.B to our Form 8-K filed January 4,
    2006).                                                                                                                                                                                                                                                                                   
|        | 21  |      |             | Omitted pursuant to the reduced disclosure format permitted by
    General Instruction I to Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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|        |     |    |             |                                                                                                                                                    
|------- | --- | -- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|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.

Undertaking


S-K,


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SIGNATURES






| |                                         
| | ----------------------------------------
| | El Paso Exploration & Production Company



| |     |                    
| | --- | -------------------
| | By: | /s/ LISA A. STEWART

| |                
| | ---------------
| |                
| | Lisa A. Stewart
| | President      



|                                         |  |                                                                                                                           |  |                |  | 
|---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                |  | Title                                                                                                                     |  | Date          
|                                         |  |                                                                                                                           |  |               
|                                        
|/s/ LISA A. STEWARTLisa A. Stewart       |  | President and Director (Principal Executive Officer)                                                                      |  | March 17, 2006
|                                        
|/s/ GENE T. WAGUESPACKGene T. Waguespack |  | Senior Vice President, Chief Financial Officer, Treasurer and
    Controller (Principal Accounting and Financial Officer) |  | March 17, 2006

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EL PASO EXPLORATION & PRODUCTION COMPANY


EXHIBIT INDEX




|        |     |      |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | --- | ---- | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |      |            
|Number  |     |      | Description
|        |     |      |            
|        | *3  | .A   |             | Amended and Restated Certificate of Incorporation as filed with
    the Delaware Secretary of State on February 16, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 3   | .B   |             | By-laws effective as of June 24, 2002 (Exhibit 3.2 to
    our Form S-4 filed on June 27, 2003, Registration
    No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 4   | .A   |             | Indenture dated as of May 23, 2003 by and between
    El Paso Production Holding Company, the Subsidiary
    Guarantors named therein and Wilmington Trust Company, as
    Trustee (Exhibit 4.1 to our Form S-4 filed on
    June 27, 2003, Registration No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                      
|        | 4   | .A.1 |             | First Supplemental Indenture dated January 31, 2004 among
    El Paso Production Holding Company, the Subsidiary
    Guarantors named therein and Wilmington Trust Company, as
    Trustee (Exhibit 4.A.1 to our 2003 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 4   | .A.2 |             | Consent by the Holders (as defined therein) effective
    July 26, 2004 Relating to a Proposed Waiver under the
    Indenture, as Supplemented, Governing El Paso Production
    Holding Companys $1,200,000,000 Aggregate Principal Amount
    of Issued and Outstanding
    73/4%
    Senior Notes due 2013 (Exhibit 4.A.2 to our 2003
    Form 10-K).                                                                                                                                                                                                                                                                                      
|        | 4   | .A.3 |             | Second Supplemental Indenture dated July 26, 2004 among El
    Paso Production Holding Company, the Subsidiary Guarantors named
    therein and Wilmington Trust Company, as Trustee
    (Exhibit 4.A.3 to our 2003 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 4   | .A.4 |             | Third Supplemental Indenture, dated as of August 31, 2005,
    among El Paso Production Holding Company, as Issuer,
    El Paso Production Company, El Paso Production GOM,
    Inc., El Paso Energy Raton Corporation, Medicine Bow Energy
    Corporation, Medicine Bow Operating Company and MBOW Four Star
    Corporation, as Subsidiary Guarantors, and Wilmington Trust
    Company, as Trustee (Exhibit 10.C to our Form 8-K
    filed on September 1, 2005).                                                                                                                                                                          
|        | 4   | .A.5 |             | Fourth Supplemental Indenture, dated as of December 31,
    2005, among El Paso Exploration & Production
    Company, as Issuer, El Paso Production Company, Medicine
    Bow Energy Corporation, Medicine Bow Operating Company, MBOW
    Four Star Corporation, El Paso E&P Company, L.P.,
    El Paso Production Oil & Gas Company, El Paso
    E&P Holdings, Inc., El Paso Production Resale Company,
    El Paso Energy Oil Transmission, L.L.C. and El Paso
    Production Oil & Gas Gathering, L.P., as Subsidiary
    Guarantors, and Wilmington Trust Company, as Trustee
    (Exhibit 4.A to our Form 8-K filed January 4,
    2006).
|        | 10  | .A   |             | ISDA Master Agreement, dated as of January 1, 2001, between
    El Paso Merchant Energy, L.P. and El Paso Production
    Company (Exhibit 10.1 to our Form S-4 filed on
    June 27, 2003, Registration No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10  | .B   |             | Services Agreement, dated as of May 23, 2003, between
    El Paso Energy Service Company and El Paso Production
    Holding Company (Exhibit 10.2 to our Form S-4 filed on
    June 27, 2003, Registration No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | +10 | .C   |             | El Paso Production Companies Long-Term Incentive Plan
    effective as of January 1, 2003 (Exhibit 10.AA to
    El Pasos 2003 First Quarter Form 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | +10 | .C.1 |             | Amendment No. 1 to the El Paso Production Companies
    Long-Term Incentive Plan effective as of June 6, 2003
    (Exhibit 10.13 to our Form S-4 filed on June 27,
    2003, Registration No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | +10 | .C.2 |             | Amendment No. 2 to the El Paso Production Companies
    Long-Term Incentive Plan effective as of December 31, 2003
    (Exhibit 10.D.2 to our 2003 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10  | .D   |             | Federal and State Tax Reimbursement Agreement among El Paso
    Corporation and the Controlled Entities (named therein),
    effective as of May 22, 2003 (Exhibit 10.18 to our
    Form S-4 filed on June 27, 2003, Registration
    No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                         



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##### Table of Contents



|        |     |    |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | --- | -- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |    |            
|Number  |     |    | Description
|        |     |    |            
|        | 10  | .E |             | El Paso Corporation and Consolidated Subsidiaries
    Accounting Policy for the Accrual of U.S. Federal Income
    Taxes, effective as of January 1, 2002 (Exhibit 10.19
    to our Form S-4 filed on June 27, 2003, Registration
    No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10  | .F |             | Intercompany State Income Tax Allocation and Payments Policy,
    effective for tax years beginning after January 29, 2001
    (Exhibit 10.20 to our Form S-4 filed on June 27,
    2003, Registration No. 333-106586).                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10  | .G |             | Purchase and Sale Agreement (Red River) by and among
    El Paso Production Company, El Paso Production GOM
    Inc. and Lehman Commercial Paper Inc., dated October 3,
    2003 (Exhibit 10.21 to Amendment No. 2 to our
    Form S-4 filed on November 24, 2003, Registration
    No. 333-106586).                                                                                                                                                                                                                                                                                                                                                     
|        | 10  | .H |             | First Amendment to Purchase and Sale Agreement by and among
    El Paso Production Company, El Paso Production GOM
    Inc. and Lehman Commercial Paper Inc., dated October 6,
    2003 (Exhibit 10.22 to Amendment No. 2 to our Form S-4
    filed on November 24, 2003, Registration
    No. 333-106586).                                                                                                                                                                                                                                                                                                                                              
|        | 10  | .I |             | Purchase and Sale Agreement (Red River) by and among
    El Paso Production Company, El Paso Production GOM
    Inc. and Ramshorn Investments, Inc., dated October 8, 2003
    (Exhibit 10.23 to Amendment No. 2 to our Form S-4
    filed on November 24, 2003, Registration
    No. 333-106586).                                                                                                                                                                                                                                                                                                                                                       
|        | 10  | .J |             | Stock Purchase Agreement dated July 18, 2005 among the
    Registrant, Medicine Bow Energy Corporation and the other
    parties identified therein (Exhibit 10.A to our
    Form 8-K filed on July 19, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10  | .K |             | Credit Agreement dated as of August 30, 2005, among
    El Paso Production Holding Company, El Paso Production
    Company, El Paso Energy Raton Corporation and El Paso
    Production GOM, Inc. and Fortis Capital Corp., The Royal Bank of
    Scotland plc and The Bank of Nova Scotia, and the Several
    Lenders from time to time Parties thereto (Exhibit 10.A to
    our Form 8-K filed on September 1, 2005).                                                                                                                                                                                                                                 
|        | 10  | .L |             | Amended and Restated Credit Agreement, dated as of
    October 19, 2005, among El Paso Production Holding
    Company, El Paso Production Company, El Paso Energy
    Raton Corporation and El Paso Production GOM, Inc., as
    Borrowers, and Fortis Capital Corp., The Royal Bank of Scotland
    plc, The Bank of Nova Scotia, Societe Generale and WESTLB AG,
    New York Branch and the Several Lenders from time to time
    Parties thereto, including the Form of Guarantee Agreement made
    by the Guarantors in favor of Fortis Capital Corp., as agent for
    the Creditors (Exhibit 10.A to our Form 8-K filed on
    October 24, 2005).
|        | 10  | .M |             | Credit Agreement, dated as of November 3, 2005, among
    El Paso Corporation and El Paso Production
    Oil & Gas USA, L.P., as Borrowers, Fortis Capital
    Corp., as Administrative Agent, Arranger and Bookrunner, and the
    several Lenders party from time to time thereto
    (Exhibit 10.A to our Form 8-K filed January 4,
    2006).                                                                                                                                                                                                                                                                                                        
|        | 10  | .N |             | First Amendment, Consent and Waiver Agreement, dated as of
    December 20, 2005, among El Paso Corporation and
    El Paso Production Oil & Gas USA, L.P., as
    Borrowers, Fortis Capital Corp., as Administrative Agent for the
    Lenders, and the several Lenders party from time to time thereto
    (Exhibit 10.B to our Form 8-K filed January 4,
    2006).                                                                                                                                                                                                                                                                                   
|        | 21  |    |             | Omitted pursuant to the reduced disclosure format permitted by
    General Instruction I to Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | *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.