A probe initiated by El Paso Corp.’s audit committee found that certain employees committed accounting fraud over a five-year period, which eventually forced the company to substantially pare its proven reserves of oil and natural gas.
In February — not long after Royal Dutch/Shell Group announced a stunning downward restatement of its proven reserves — El Paso revised its own estimate of proven reserves downward by the equivalent of about 1.8 trillion cubic feet, or 41 percent.
El Paso announced that the review, conducted by the Texas law firm Haynes and Boone LLP, found that from the beginning of 1999 through the end of 2003, certain employees used aggressive and, at times, unsupportable methods to book proved reserves. In addition, the employees provided proved reserve estimates that they knew or should have known were incorrect at the time they were reported.
The company added that it plans to restate the financials of El Paso Corp., El Paso CGP Co., and El Paso Production Holding Co. from 1999 through 2003. It also said that first-quarter reports will be delayed pending the filing of the annual reports.
As part of its rehabilitation, the company said it added individuals with extensive exploration and production experience, including five new board members and three new members of the executive management team.
El Paso also assured that it continues to cooperate with the Securities and Exchange Commission and the U.S. Attorney’s office on the results of these reviews.