El Paso Corp. settles with SEC in reserves report case

Jul 11, 2008 (Houston Chronicle - McClatchy-Tribune Information Services via COMTEX) -- EP | Quote | Chart | News | PowerRating -- El Paso Corp. has settled federal civil charges alleging it inflated oil and gas reserves estimates in ways that made company financial statements misleading to investors.

The Securities and Exchange Commission filed the charges and notice of the settlement in Houston today, saying the pipeline and exploration company and five former employees committed fraud when they reported the reserves improperly.

According to the complaint, El Paso's former employees "lacked required supporting data in estimating reserves and ignored negative drilling results and production trends demonstrating that some fields weren't producing as projected."

Without admitting or denying guilt, El Paso and the former employees accepted permanent injunctions against future violations of antifraud and other provisions of the federal securities laws. The five former workers also agreed to fines ranging from $40,000 to $75,000.

El Paso first notified the SEC and investors of errors in its reserves reports in 2004 and began its own investigation. Eventually the company restated its financials from 1999 through the first nine months of 2003 because of the inaccuracies, cut its reported reserves by 35 percent and took a $1.7 billion charge against equity.

The SEC has been investigating since 2004 with the company's full cooperation, said El Paso spokesman Richard Wheatley.

Rodney Erskine, the former president of El Paso's exploration and production business, agreed to pay a $75,000 penalty. Former senior vice presidents Randy Bartley, Steven Hochstein, John Perry, and Bryan Simmons each agreed to pay $40,000 penalties.

Proven reserves are reported based on estimates, but Linda Chatman Thomsen, director of the SEC's Division of Enforcement said "that does not mean 'anything goes.'"

"Public companies must follow the rules for reserves estimation and reporting, and today's action emphasizes the Commission's commitment to ensuring transparency and uniformity when companies report that information to investors."

tom.fowler@chron.com

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