Annual Report — Form 10-K Filing Table of Contents
Document/ExhibitDescriptionPagesSize
1: 10-K Form 10-K - Annual Report HTML 1.56M
2: EX-10.A.1 Amendment No.1 to 1995 Compensation Plan for HTML 20K
Non-Employee Directors
3: EX-10.B.2 Amendment No.2 to Stock Option Plan for HTML 19K
Non-Employee Directors
37: EX-10.BB.1 Amendment No.1 to 2005 Supplemental Benefits Plan HTML 23K
4: EX-10.C.1 Amendment No.1 to 2001 Stock Option Plan for HTML 19K
Non-Employee Directors
5: EX-10.C.2 Amendment No.2 to 2001 Stock Option Plan for HTML 19K
Non-Employee Directors
6: EX-10.E 1999 Omnibus Incentive Compensation Plan HTML 177K
7: EX-10.E.1 Amendment No.1 to 2001 to the 1999 Omnibus HTML 18K
Incentive Compensation Plan
8: EX-10.F 2001 Omnibus Incentive Compensation Plan HTML 177K
9: EX-10.F.1 Amendment No.1 to to the 2001 Omnibus Incentive HTML 18K
Compensation Plan
10: EX-10.F.2 Amendment No.2 to to the 2001 Omnibus Incentive HTML 19K
Compensation Plan
11: EX-10.F.3 Amendment No.3 to to the 2001 Omnibus Incentive HTML 22K
Compensation Plan
12: EX-10.G Amended Supplemental Benefits Plan HTML 79K
13: EX-10.G.1 Amendment No.1 to Supplemental Benefits Plan HTML 21K
14: EX-10.G.5 Amendment No.5 to Amended Supplemental Benefits HTML 20K
Plan
15: EX-10.H.1 Amendment No.1 to Senior Executive Survivor HTML 19K
Benefit Plan
16: EX-10.H.2 Amendment No.2 to Senior Executive Survivor HTML 23K
Benefit Plan
17: EX-10.I.1 Amendment No.1 to Key Executive Severance HTML 19K
Protection Plan
18: EX-10.I.2 Amendment No.2 to Key Executive Severance HTML 27K
Protection Plan
19: EX-10.I.3 Amendment No.3 to Key Executive Severance HTML 18K
Protection Plan
20: EX-10.I.5 Amendment No.5 to Key Executive Severance HTML 27K
Protection Plan, as Amended
21: EX-10.J.1 Amendment No.1 to 2004 Key Executive Severance HTML 28K
Protection Plan
22: EX-10.K.1 Amendment No.1 to Director Charitable Award Plan HTML 18K
23: EX-10.L Amended Strategic Stock Plan HTML 117K
24: EX-10.L.1 Amendment No.1 to Strategic Stock Plan HTML 18K
25: EX-10.L.2 Amendment No.2 to Strategic Stock Plan HTML 20K
26: EX-10.L.3 Amendment No.3 to Strategic Stock Plan HTML 18K
27: EX-10.L.4 Amendment No.4 to Strategic Stock Plan HTML 19K
28: EX-10.N.1 Termination of the Executive Award Plan of Sonat HTML 18K
Inc
29: EX-10.O Amended Omnibus Plan for Management Employees HTML 106K
30: EX-10.O.1 Amendment No.1 to Omnibus Plan for Management HTML 19K
Employees
31: EX-10.O.2 Amendment No.2 to Omnibus Plan for Management HTML 18K
Employees
32: EX-10.O.3 Amendment No.3 to Omnibus Plan for Management HTML 19K
33: EX-10.O.4 Amendment No.4 to Omnibus Plan for Management HTML 19K
Employees
34: EX-10.P.1 Amendment No.1 to Amended Severance Pay Plan HTML 24K
35: EX-10.Y.1 Amendment No.2 to 2005 Compensation Plan for HTML 19K
Non-Employee Directors
36: EX-10.Z.1 Amendment No.1 to 2005 Omnibus Incentive HTML 22K
Compensation Plan
38: EX-12 Ratio of Earnings to Combined Fixed Charges and HTML 37K
Preferred Stock Dividends
39: EX-21 Subsidiaries HTML 415K
40: EX-23.A Consent of Ernst & Young LLP HTML 24K
41: EX-23.B Consent of Pricewaterhousecoopers LLP HTML 19K
42: EX-23.C Consent of Ryder Scott Company, L.P. HTML 19K
43: EX-31.A Certification of CEO Pursuant to Section 302 HTML 21K
44: EX-31.B Certification of CFO Pursuant to Section 302 HTML 21K
45: EX-32.A Certification of CEO Pursuant to Section 906 HTML 17K
46: EX-32.B Certification of CFO Pursuant to Section 906 HTML 17K
47: EX-99.A Ryder Scott Reserve Report HTML 46K
48: EX-99.B Ryder Scott Reserve Report HTML 45K
El Paso Production
Company
El Paso Tower
1001 Louisiana Houston, TX77002
Gentlemen:
At your request, we have conducted a reserves audit of the estimates of the
remaining proved reserves attributable to the equity interest of El Paso Production
Company (El Paso) in Four Star Oil & Gas, as of December 31, 2007, as prepared by its
engineering and geological staff and based on Securities and Exchange Commission (SEC)
guidelines. The properties that we audited are comprised of 1,273 reserve
determinations and are located in the states of Alabama, Colorado, New Mexico,
Oklahoma and Texas. In our opinion, the overall proved reserves for the audited
properties as estimated by El Paso are, in the aggregate, reasonable within the
established audit tolerance guidelines of 10 percent as set forth in the Standards
Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information
promulgated by the Society of Petroleum Engineers.
The net reserves attributable to the properties that we audited account for 75
percent of the total net remaining liquid hydrocarbon reserves and 75 percent of the
total net remaining gas reserves. The properties that we audited represent 73 percent
of the total proved discounted future net income based on the unescalated pricing
policy of the SEC as taken from reserve and income projections prepared by El Paso as
of December 31, 2007. El Paso owns a 48.77 percent equity interest in Four Star Oil &
Gas.
The estimated reserves presented in this report are related to hydrocarbon
prices. El Paso has informed us that in the preparation of their reserve and income
projections, as of December 31, 2007, they used December 2007 hydrocarbon prices as
required by SEC guidelines; however, actual future prices may vary significantly from
December 2007. Therefore, volumes of reserves actually recovered and the amounts of
income actually received may differ significantly from the estimated quantities
presented in this report. The net remaining reserves as estimated by EI Paso
attributable to El Paso’s interest in properties that we audited and the reserves of
properties that we did not audit are summarized as follows:
SEC
CASE
Estimated Net Remaining Reserves
Attributable to the Equity Interest of El Paso Production Company in Four Star Oil &
Gas
As of December 31, 2007
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas
volumes are expressed in millions of cubic feet (MMCF) at the official
temperature and pressure bases of the areas in which the gas reserves are
located.
Reserves Included in This Report
In our opinion, the proved reserves presented in this report comply with
SEC definitions and guidelines, as outlined below. SEC Regulation S-X Rule 4-10
paragraph (a) defines proved reserves as follows:
Proved oil and gas reserves. Proved oil and gas reserves are the estimated
quantities of crude oil, natural gas, and natural gas liquids which geological
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions, i.e., prices and costs as of the date the estimate is made. Prices
include consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future conditions.
(i) Reservoirs are considered proved if economic producibility is supported
by either actual production or conclusive formation test. The area of a
reservoir considered proved includes:
(A) that portion delineated by drilling and defined by gas-oil and/or oil-water
contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which can
be reasonably judged as economically productive on the basis of
available geological and engineering data. In the absence of
information on fluid contacts, the lowest known structural occurrence
of hydrocarbons controls the lower proved limit of the reservoir.
(ii) Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
“proved” classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for the
engineering analysis on which the project or program was based.
(iii) Estimates of proved reserves do not include the following:
(A) oil that may become available from known reservoirs but is classified separately as “indicated additional reserves”;
(B) crude oil, natural gas, and natural gas liquids, the recovery of which is subject to
reasonable doubt because of uncertainty as to geology, reservoir characteristics, or
economic factors;
(C) crude oil, natural gas, and natural gas liquids, that may occur in undrilled
prospects; and
(D) crude oil, natural gas, and natural gas liquids, that may be recovered from oil
shales, coal, gilsonite and other such sources.
Proved developed oil and gas reserves. Proved developed oil and gas reserves are reserves that can
be expected to be recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid injection or other
improved recovery techniques for supplementing the natural forces and mechanisms of primary
recovery should be included as “proved developed reserves” only after testing by a pilot project
or after the operation of an installed program has confirmed through production response that
increased recovery will be achieved.
Proved undeveloped reserves. Proved undeveloped oil and gas reserves are reserves that are
expected to be recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be
limited to those drilling units offsetting productive units that are reasonably certain of
production when drilled. Proved reserves for other undrilled units can be claimed only where it
can be demonstrated with certainty that there is continuity of production from the existing
productive formation. Under no circumstances should estimates for proved undeveloped reserves be
attributable to any acreage for which an application of fluid injection or other improved recovery
technique is contemplated, unless such techniques have been proved effective by actual tests in
the area and in the same reservoir.
Certain Staff Accounting Bulletins published subsequent to the promulgation of Regulation S-X
have dealt with matters relating to the application of financial accounting and disclosure rules
for oil and gas producing activities. In particular, the following interpretations extracted from
Staff Accounting Bulletins set forth the Commission staff’s view on specific questions pertaining
to proved oil and gas reserves.
Economic producibility of estimated proved reserves can be supported to the satisfaction of
the Office of Engineering if geological and engineering data demonstrate with reasonable certainty
that those reserves can be recovered in future years under existing economic and operating
conditions. The relative importance of the many pieces of geological and engineering data which
should be evaluated when classifying reserves cannot be identified in advance. In certain
instances, proved reserves may be assigned to reservoirs on the basis of a combination of
electrical and other type logs and core analyses which indicate the reservoirs are analogous to
similar reservoirs in the same field which are producing or have demonstrated the ability to
produce on a formation test. (extracted from SAB-35)
In determining whether “proved undeveloped reserves” encompass acreage on which fluid
injection (or other improved recovery technique) is contemplated, is it appropriate to distinguish
between (i) fluid injection used for pressure maintenance during the early life of a field and (ii)
fluid injection used to effect secondary recovery when a field is in the late stages of depletion?
.... The Office of Engineering believes that the distinction identified in the above question may be
appropriate in a few limited circumstances, such as in the case of certain fields in the North Sea.
The staff will review estimates of proved reserves attributable to fluid injection in the light of
the strength of the evidence presented by the registrant in support of a contention that enhanced
recovery will be achieved. (extracted from SAB-35)
Companies should report reserves of natural gas liquids which are net to their leasehold
interest, i.e., that portion recovered in a processing plant and allocated to the leasehold
interest. It may be appropriate in the case of natural gas liquids not clearly attributable to
leasehold interests ownership to
follow instruction (b) of Item 2(b)(3) of Regulation S-K and report such reserves separately and
describe the nature of the ownership, (extracted from SAB-35)
The staff believes that since coalbed methane gas can be recovered from coal in its natural
and original location, it should be included in proved reserves, provided that it complies in all
other respects with the definition of proved oil and gas reserves as specified in Rule 4-10(a)(2)
including the requirement that methane production be economical at current prices, costs, (net of
the tax credit) and existing operating conditions, (extracted from SAB-85)
Statements in Staff Accounting Bulletins are not rules or interpretations of the Commission
nor are they published as bearing the Commission’s official approval; they represent
interpretations and practices followed by the Division of Corporation Finance and the Office of
the Chief Accountant in administering the disclosure requirements of the Federal securities laws.
Because of the direct relationship between volumes of proved undeveloped reserves and
development plans, we include in the proved undeveloped category only reserves assigned to
undeveloped locations that we have been assured will definitely be drilled and reserves assigned
to the undeveloped portions of secondary or tertiary projects which we have been assured will
definitely be developed.
Audit Procedure and Opinion
As prescribed by the Society of Petroleum Engineers in Paragraph 2.2(f) of the Standards
Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information a reserves audit is
defined as “the process of reviewing certain of the pertinent facts interpreted and assumptions
made that have resulted in an estimate of reserves prepared by others and the rendering of an
opinion about (1) the appropriateness of the methodologies employed, (2) the adequacy and quality
of the data relied upon, (3) the depth and thoroughness of the reserves estimation process, (4)
the classification of reserves appropriate to the relevant definitions used, and (5) the
reasonableness of the estimated reserve quantities.”
In performing our audit, we have relied upon data furnished by El Paso with respect to
property interests owned, production and well tests from examined wells, historical costs of
operation and development, product prices, geological structural and isopach maps, well logs, core
analyses, and pressure measurements. These data were accepted as authentic and sufficient for
determining the reserves unless, during the course of our examination, a matter of question came
to our attention in which case the data were not accepted until all questions were satisfactorily
resolved. Our audit included such tests and procedures as we considered necessary under the
circumstances to render the conclusions set forth herein.
In our opinion, El Paso’s estimates of future reserves for the audited properties were
prepared in accordance with generally accepted petroleum engineering and evaluation principles for
the estimation of future reserves as set forth in the Standards Pertaining to the Estimating and
Auditing of Oil and Gas Reserves Information, and we found no bias in the utilization and analysis
of data in estimates for these properties. In general, we were in reasonable agreement with El
Paso’s estimates of remaining proved reserves for the properties which we audited; however, in
certain cases there was more than an acceptable variance in El Paso’s estimates and our estimates
due to a difference in interpretation of data or due to our having access to data which were not
available to El Paso when its reserve estimates were prepared. In these cases, El Paso revised its
estimates to conform to our estimates. As a consequence, it is our opinion that the data presented
herein for the properties that we audited fairly reflect the estimated net reserves owned by El
Paso.
Certain technical personnel of El Paso are responsible for the preparation of reserve
estimates on new properties and for the preparation of revised estimates, when necessary, on old
properties. These personnel assembled the necessary data and maintained the data and workpapers in
an orderly manner. We consulted with these technical personnel and had access to their workpapers
and supporting data in the course of our audit.
Other properties, as used herein, are those properties of El Paso which we did not audit. The
reserves attributable to the other properties account for 25 percent of the total net remaining
oil/condensate reserves and 25 percent of the total net remaining gas reserves. The same technical
personnel of El Paso prepared the reserve estimates for the properties that we audited and for the
other properties.
Reserves Estimates
The reserves for the properties that we audited were estimated by performance methods or the
volumetric method. The reserves estimates by the performance method utilized extrapolations of
various historical data in those cases where such data were definitive. Reserves were estimated by
the volumetric method in those cases where there were inadequate historical data to establish a
definitive trend or where the use of production performance data as a basis for the reserves
estimates was considered to be inappropriate and the volumetric data were adequate for a
reasonable estimate.
The reserves presented herein, as estimated by El Paso and audited by us, are estimates only
and should not be construed as being exact quantities. Moreover, estimates of reserves may
increase or decrease as a result of future operations.
General
In general, the reserve estimates for the properties that we audited are based on data
available through December, 2007. Gas imbalances, if any, were not taken into account in the gas
reserve estimates audited.
Neither we nor any of our employees have any interest in the subject properties, and neither
the employment to do this work nor the compensation is contingent on our estimates of reserves for
the properties which were audited.
This report was prepared for the exclusive use of El Paso Production Company. The data and
work papers used in the preparation of this report are available for examination by authorized
parties in our offices. Please contact us if we can be of further service.
