Energy company El Paso Corp., its subsidiaries and five former employees settled fraud charges with the Securities and Exchange Commission for improperly inflating proven oil and gas reserves and providing misleading financial statements.
"This essentially dates back to 2003," said spokesman Richard Wheatley. "We were reviewing our 2003 year-end reserves and found they were overstated by more than 40 percent, or roughly 1.8 trillion cubic feet of equivalent reserves."
El Paso restated its financial statements for years 1999 through 2002 and the first nine months of 2003, reducing its previously reported proven natural gas and oil reserves by more than 35 percent and reducing its cumulative earnings through Sept. 30, 2003, by $1.7 billion.
Without admitting or denying the allegations, El Paso, its subsidiaries El Paso CGP Co., El Paso Exploration & Production Co., and the former employees agreed to settle the SEC's enforcement action. El Paso signed a consent decree but paid no monetary penalty.
Rodney D. Erskine, the former president of El Paso's exploration and production business segment, agreed to pay a $75,000 penalty, and Randy L. Bartley, the former senior vice president, agreed to pay a $40,000 penalty. Former vice presidents Steven L. Hochstein, John D. Perry and Bryan T. Simmons each agreed to pay $40,000 penalties.
"We consider this to be a legacy issue," said Wheatley. "We're glad to put it behind us. In the period following the time when we discovered issues dealing with our reserve estimation process, we put in a number of enhancements and we believe they reflect best practices in the reserve estimation process."
He noted that El Paso had self-reported the discrepancy to the SEC, disclosed it to investors and commenced an internal investigation. Since that time, the company has been cooperating with the SEC's four-year investigation, and engaged an outside firm, Ryder Scott, to independently audit its reserves.
The company also brought in a new management team in the fall of 2003, beefed up its internal controls, formed a committee of senior executives to review the reserves and estimation process on a quarterly basis, and has taken other steps to turn around the company.
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