New York, Nov. 9: The El Paso Corp. said Friday it had lost money in the third quarter and that it planned to quit the energy trading business.
Shares of El Paso plummeted on the news, dropping 17 per cent from already depressed levels, to close at $ 7.68.
El Paso, which has been under pressure all year to clean up its balance sheet and improve its sagging credit rating amid eroding profits, said its trading unit lost $ 150 million last quarter.
The company has been trying to reduce the size of the unit’s operation. Last year, when it was still considered a growth vehicle and a prized asset, the trading operation booked $ 750 million in profits, accounting for about a third of El Paso’s pretax income.
El Paso executives said Friday that they were ready to liquidate the trading portfolio by creating a separate unit backed by some company assets.
“We have made the decision to exit trading,” William A. Wise, the chief executive, said in a conference call with analysts. “We think that alone will significantly reduce the volatility of earnings associated with that business.”
Some analysts said El Paso was forced to leave a business that investors view as troubled, uncertain and tainted by post-Enron doubts about the profitability of trading in a depressed marketplace.
“This was what any sensible management would do,” said John Olson, an analyst at Sanders Morris Harris in Houston. “They’re getting rid of the radioactive waste and holding on to their core assets.”
The decision by El Paso comes as other big energy companies are also drastically reducing their trading operations or quitting the business altogether. Dynegy and Aquila have recently said that they plan to get out of the energy trading business.
After Enron’s collapse last year, shares of some of the biggest operators of power plants and natural gas pipelines have plummeted in reaction to a series of federal investigations into their trading activities and their roles during the California energy crisis.
There have also been persistent questions about whether El Paso and some other companies have used aggressive accounting and off-the-books partnerships to hide debt or bolster their financial statements.