SEC Probing El Paso Reserve Revisions

The company now expects to restate its results going back to 2001.
Stephen TaubMarch 29, 2004

El Paso Corp. announced that the Securities and Exchange Commission has launched an investigation related to the energy company’s recently announced reserve revisions.

“We will cooperate fully with the SEC or any other government agency conducting an investigation,” said Doug Foshee, president and chief executive officer of El Paso, in a statement. El Paso added that an internal review of its reserve revisions, announced in February, would be completed “no later than the end of next month.”

On February 17 the energy giant revised its estimate of proven natural gas and oil reserves downward by 41 percent — the equivalent of about 1.8 trillion cubic feet. Earlier this month El Paso announced that it would delay the release of its fourth-quarter 2003 earnings indefinitely; the company now expects to restate its results going back to 2001.

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In response to the company’s announcement, Standard & Poor’s Ratings Services stated that the probe will not have an immediate effect on El Paso’s ratings.

“While clearly negative for credit quality, the possibility of an SEC investigation was considered when the company’s ratings were lowered in February in response to the reserve revision,” it said in a statement. “At that time, it was noted that the revision also raised corporate governance concerns, and the outcome of the company’s internal investigation into the reserve reduction and any other repercussions from the write-down could result in further rating actions.”

El Paso is not the only energy company to reveal that it has overstated its estimate of proven reserves. Earlier this year, Royal Dutch/Shell Group stunned investors by announcing that it had overstated reserves by about 20 percent. The SEC is also reportedly investigating those revisions.