SEC Filing | Enterprise Products Partners L.P.

1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 1-11680 EL PASO ENERGY PARTNERS, L.P. (Exact Name of Registrant as Specified in its Charter) DELAWARE 76-0396023 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) EL PASO ENERGY BUILDING 1001 LOUISIANA STREET HOUSTON, TEXAS 77002 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (713) 420-2131 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The registrant had 30,951,554 common units and 77,210 preference units outstanding as of August 8, 2000. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------

2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EL PASO ENERGY PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (UNAUDITED) QUARTER SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ----------------- ------------------ 2000 1999 2000 1999 ------- ------- ------- -------- Operating revenues Gathering, transportation, and platform services...... $20,800 $ 6,425 $33,958 $ 10,798 Oil and natural gas sales............................. 5,841 7,845 11,414 14,040 Equity investment earnings............................ 6,222 9,252 10,072 19,953 ------- ------- ------- -------- 32,863 23,522 55,444 44,791 ------- ------- ------- -------- Operating expenses Purchased natural gas costs........................... 4,641 -- 5,585 -- Operation and maintenance, net........................ 1,593 4,760 3,510 9,874 Depreciation, depletion, and amortization............. 6,988 7,009 13,464 13,727 ------- ------- ------- -------- 13,222 11,769 22,559 23,601 ------- ------- ------- -------- Operating income........................................ 19,641 11,753 32,885 21,190 Other income, net....................................... 1,085 165 1,167 268 ------- ------- ------- -------- Income before interest, income taxes, and other charges............................................... 20,726 11,918 34,052 21,458 ------- ------- ------- -------- Interest and debt expense............................... 12,370 7,766 23,750 13,868 Income tax benefit...................................... (136) (79) (139) (177) Minority interest....................................... 125 43 135 80 ------- ------- ------- -------- 12,359 7,730 23,746 13,771 ------- ------- ------- -------- Net income.............................................. 8,367 4,188 10,306 7,687 Net income allocated to general partner................. 3,622 2,847 6,854 5,685 ------- ------- ------- -------- Net income allocated to limited partners before accounting change..................................... 4,745 1,341 3,452 2,002 Cumulative effect of accounting change.................. -- -- -- (15,427) ------- ------- ------- -------- Net income (loss) allocated to limited partners......... $ 4,745 $ 1,341 $ 3,452 $(13,425) ======= ======= ======= ======== Basic and diluted net income per unit before accounting change................................................ $ 0.18 $ 0.05 $ 0.13 $ 0.08 Cumulative effect of accounting change.................. -- -- -- (0.60) ------- ------- ------- -------- Basic and diluted net income (loss) per unit............ $ 0.18 $ 0.05 $ 0.13 $ (0.52) ======= ======= ======= ======== Weighted average number of units outstanding............ 27,029 25,244 27,029 24,808 ======= ======= ======= ======== See accompanying notes. 1

3 EL PASO ENERGY PARTNERS, L.P. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED) JUNE 30, DECEMBER 31, 2000 1999 --------- ------------ ASSETS Current assets Cash and cash equivalents................................. $ 10,630 $ 4,202 Accounts receivable....................................... 14,173 8,501 Other current assets...................................... 2,478 254 -------- -------- Total current assets.............................. 27,281 12,957 Property, plant, and equipment, net......................... 414,724 373,759 Investments in unconsolidated affiliates.................... 189,242 185,766 Other....................................................... 11,068 11,103 -------- -------- Total assets...................................... $642,315 $583,585 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Current liabilities Accounts payable and accrued liabilities.................. $ 15,071 $ 10,418 Notes payable............................................... 369,000 290,000 Long-term debt.............................................. 175,000 175,000 Other noncurrent liabilities................................ 12,772 12,164 -------- -------- Total liabilities................................. 571,843 487,582 Commitments and contingencies Minority interest........................................... (715) (486) Partners' capital Limited partners Preference units; 289,699 units issued and outstanding........................................... 3,005 2,969 Common units; 26,739,065 units issued and outstanding........................................... 68,125 93,277 General partner........................................... 57 243 -------- -------- Total partners' capital........................... 71,187 96,489 -------- -------- Total liabilities and partners' capital........... $642,315 $583,585 ======== ======== See accompanying notes. 2

4 EL PASO ENERGY PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) SIX MONTHS ENDED JUNE 30, -------------------- 2000 1999 -------- --------- Cash flows from operating activities Net income................................................ $ 10,306 $ 7,687 Adjustments to reconcile net income to net cash from operating activities Depreciation, depletion, and amortization.............. 13,464 13,727 Distributed earnings of equity investees Earnings from equity investments..................... (10,072) (19,953) Distributions from equity investments................ 15,484 24,108 Reversal of litigation reserve......................... (2,250) -- Other noncash items.................................... 1,278 721 Working capital changes, net of non-cash transactions.......................................... 1,130 (2,650) -------- --------- Net cash provided by operating activities......... 29,340 23,640 -------- --------- Cash flows from investing activities Additions to property, plant, and equipment............... (29,482) (17,441) Additions to investments in unconsolidated affiliates..... (8,888) (4,393) Cash paid for acquisitions, net of cash acquired.......... (26,476) (70,984) Other..................................................... (183) -- -------- --------- Net cash used in investing activities............. (65,029) (92,818) -------- --------- Cash flows from financing activities Revolving credit borrowings............................... 89,090 91,496 Revolving credit repayments............................... (11,000) (160,350) Net proceeds from issuance of long-term debt.............. -- 168,878 Distributions to partners................................. (35,973) (31,256) General Partner's contribution............................ -- 603 -------- --------- Net cash provided by financing activities......... 42,117 69,371 -------- --------- Increase in cash and cash equivalents....................... 6,428 193 Cash and cash equivalents Beginning of period....................................... 4,202 3,108 -------- --------- End of period............................................. $ 10,630 $ 3,301 ======== ========= See accompanying notes. 3

5 EL PASO ENERGY PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION Our 1999 Annual Report on Form 10-K includes a summary of our significant accounting policies and other disclosures. You should read it in conjunction with this Quarterly Report on Form 10-Q. The condensed consolidated financial statements at June 30, 2000, and for the quarters and six months ended June 30, 2000 and 1999, are unaudited. The condensed consolidated balance sheet at December 31, 1999, is derived from the audited financial statements. These financial statements do not include all disclosures required by accounting principles generally accepted in the United States, but have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. In our opinion, all material adjustments, all of which are of a normal, recurring nature, have been made to fairly present our results of operations. Information for any interim period may not necessarily indicate the results of operations for the entire year due to the seasonal nature of our businesses. The prior period information includes reclassifications which were made to conform to the current presentation. These reclassifications have no effect on our reported net income or partners' capital. Cumulative Effect of Accounting Change In 1999, we changed our method of allocating net income to our partners' capital accounts from a method whereby we allocated income based on percentage ownership and proportionate share of cash distributions, to a method whereby income is allocated to the partners based upon the change from period to period in their respective claims on our book value capital. We believe that the new income allocation method is preferable because it better reflects the income allocation provisions called for under the partnership agreement and the resulting partners' capital accounts are more reflective of a partner's claim on our book value capital at each period end. This change in accounting had no impact on our consolidated net income (loss) or our consolidated total partners' capital for any period presented. Furthermore, we do not expect the change to impact the declaration of future cash distributions or affect an individual partner's tax basis in the partnership. The impact of this change in accounting has been recorded as a cumulative effect of an accounting change in our income allocation for the quarter ended March 31, 1999. 2. ACQUISITIONS In March 2000, we acquired the El Paso Intrastate-Alabama pipeline system, or EPIA, from a subsidiary of El Paso Energy Corporation for $26.5 million in cash. In addition to providing transportation services, EPIA provides marketing services through the purchase and resale of natural gas. EPIA buys natural gas from regional producers and others and sells natural gas to local distribution companies and others. We accounted for the acquisition as a purchase and assigned the purchase price to the assets and liabilities acquired based upon the estimated fair value of those assets and liabilities as of the acquisition date. The values assigned are preliminary and may be revised. The following is summary information related to the acquisition (in thousands): Fair value of assets acquired.......................... $ 28,261 Fair value of liabilities assumed...................... (1,785) -------- Net cash paid................................ $ 26,476 ======== 4

6 EL PASO ENERGY PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following information represents our consolidated results of operations on a pro forma basis for the six month periods ended June 30, 2000 and 1999, as if we acquired EPIA on January 1, 1999: SIX MONTHS ENDED JUNE 30, ---------------------- 2000 1999 -------- -------- (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) Operating revenues.......................................... $64,317 $59,645 Operating income............................................ $33,829 $22,165 Net income.................................................. $10,689 $ 9,462 Basic and diluted net income per unit....................... $ 0.14 $ 0.14 3. PARTNERS' CAPITAL Public offering of common units In July 2000, we completed a public offering of 4,000,000 common units. We used the net cash proceeds of $87.2 million to temporarily reduce the balance outstanding under our revolving credit facility. If, within 30 days, the underwriters exercise in full their over-allotment option covering an additional 600,000 common units, we expect to receive an additional $13.2 million in net cash proceeds, all of which would be used to temporarily reduce the balance outstanding under our revolving credit facility. Cash distributions The following table reflects our per unit cash distributions to our preference and common unitholders and the total incentive distributions paid to our general partner during the six months ended June 30, 2000: PREFERENCE COMMON GENERAL MONTH PAID UNIT UNIT PARTNER ---------- ---------- ------- ------- (IN MILLIONS) February........................................... $0.275 $0.525 $3.2 ====== ======= ==== May................................................ $0.275 $0.5375 $3.6 ====== ======= ==== In July 2000, we declared a cash distribution of $0.275 per preference unit and $0.5375 per common unit, which we will pay on August 15, 2000, to unitholders of record as of July 31, 2000. In addition, we will pay our General Partner $4.1 million in incentive distributions. At the current distribution rates, our General Partner receives approximately 20 percent of total cash distributions we pay. 4. PROPERTY, PLANT, AND EQUIPMENT Our property, plant, and equipment consisted of the following at June 30, 2000 and December 31, 1999: 2000 1999 -------- ------------ (IN THOUSANDS) Property, plant, and equipment, at cost Pipelines................................................. $246,145 $220,816 Platforms and facilities.................................. 165,917 137,537 Oil and natural gas properties............................ 156,140 155,968 -------- -------- 568,202 514,321 Less accumulated depreciation, depletion, and amortization.............................................. 153,478 140,562 -------- -------- Property, plant, and equipment, net.................... $414,724 $373,759 ======== ======== 5

7 EL PASO ENERGY PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. DEBT AND OTHER CREDIT FACILITIES Partnership Credit Facility In June 2000, we amended and restated our revolving credit facility with a syndicate of commercial banks to provide up to $500 million of available credit. As of June 30, 2000, we had $369 million outstanding under this facility and $53 million available, and the average interest rate was 9.3%. We pay a commitment fee of 0.25% per annum on the unused and unavailable portion of the credit facility and 0.50% per annum on the unused and available portion. Other Credit Facilities Deepwater Holdings, L.L.C. and Poseidon Oil Pipeline Company, L.L.C. are parties to credit agreements under which each has outstanding obligations that may restrict their ability to pay distributions to their respective owners. Deepwater Holdings has a revolving credit facility with a syndicate of commercial banks to provide up to $175 million. As of June 30, 2000, Deepwater Holdings had $151 million outstanding under its credit facility at an average floating interest rate of 8.16% and had no additional availability under its borrowing base limitations. Poseidon has a revolving credit facility with a syndicate of commercial banks to provide up to $150 million. As of June 30, 2000, Poseidon had $150 million outstanding under its facility at an average floating interest rate of 7.5%. 6. COMMITMENTS AND CONTINGENCIES Hedging Activities At June 30, 2000, we had three oil and natural gas sales swaps covering a portion of our production for the calendar year 2000. For the six months ended June 30, 2000 and 1999, we recorded a net loss of $3.9 million and $0.7 million on these contracts. Had we settled our open hedging positions as of June 30, 2000, based on the applicable settlement prices of the NYMEX futures contracts, we would have recognized losses of approximately $0.5 million related to our oil swap and $9.0 million related to our natural gas swaps. Legal Proceedings We are a named defendant in a lawsuit filed by Transcontinental Gas Pipeline Company. Transco alleged that it had the right, under a platform lease agreement with us, to expand its facilities and operations on the offshore platform by connecting additional pipeline receiving and appurtenant facilities. We denied Transco's request to expand its facilities and operations because we do not believe the lease agreement provides for such expansion, and because Transco's activities would have interfered with the Manta Ray Offshore system and our existing and planned activities on that platform. The case went to trial on April 3, 2000, and the jury found that we were not at fault and therefore awarded no damages to Transco. Transco has filed motions related to the jury's findings. In January 2000, an anchor from a submersible drilling rig in tow damaged a section of the Poseidon system north of our Ship Shoal 332 platform. The accident resulted in the release of approximately 2,200 barrels of crude oil in the waters surrounding the system, caused damage to our platform, and resulted in initial shutdown of the system and certain surrounding facilities in which we have ownership interests. Poseidon's costs to repair the damaged pipeline and clean up the crude oil released into the Gulf was approximately $17 million, and Poseidon has filed a lawsuit against the rig's owner. As of the end of the first quarter, the pipeline was repaired and throughput returned to normal levels. In June 2000, we recorded income of $1.0 million of insurance proceeds for business interruption. 6

8 EL PASO ENERGY PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) We are named a defendant in actions brought by Jack Grynberg on behalf of the U.S. Government under the False Claims Act. Generally, these complaints allege an industry-wide conspiracy to underreport the heating value as well as the volumes of the natural gas produced from federal and Native American lands, which deprived the U.S. Government of royalties. We have also been named as a defendant in a similar class action suit, Quinque Operating Company v. Gas Pipelines. This complaint alleges that the defendants mismeasured natural gas volumes and heating content of natural gas on non-federal and non-Native American lands. The Quinque complaint was transferred to the same court handling the Grynberg complaint. We believe both complaints are without merit. We are also a named defendant in numerous lawsuits and a named party in numerous governmental proceedings arising in the ordinary course of our business. While the outcome of the matters discussed above cannot be predicted with certainty, we do not expect the ultimate resolution of these matters to have a material adverse effect on our financial position, results of operations, or cash flows. Environmental We are subject to extensive federal, state, and local laws and regulations governing environmental quality and pollution control. These laws and regulations require us to remove or remedy the effect on the environment of the disposal or release of specified substances at current and former operating sites. It is possible that new information or future developments could require us to reassess our potential exposure related to environmental matters. We may incur significant costs and liabilities in order to comply with existing environmental laws and regulations. It is also possible that other developments, such as increasingly strict environmental laws and regulations, and claims for damages to property, employees, other persons and the environment resulting from our current or past operations, could result in substantial costs and liabilities in the future. As this information becomes available, or other relevant developments occur, we will make accruals accordingly. 7

9 EL PASO ENERGY PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. SEGMENT INFORMATION We segregate our business activities into two segments: Gathering, Transportation, and Platform Services and Oil and Natural Gas Production. As a result of our acquisition of EPIA in March 2000, we began providing marketing services to our customers. Our marketing activities are recorded in the Gathering, Transportation, and Platform Services segment. Each of our segments are business units that offer different services and products. They are managed separately, as each requires different technology and marketing strategies. We measure segment performance based on performance cash flows, or an asset's or investment's ability to generate cash flow. We determine performance cash flows by taking earnings before interest, taxes, and depreciation, depletion, and amortization, and adding or subtracting as appropriate, cash distributions from equity investments, earnings attributable to equity investments, and other cash and non-cash items. We use this measure as a supplemental financial measurement in the evaluation of our business, and you should not consider it an alternative to earnings before interest and taxes, or EBIT, as an indicator of our operating performance or to cash flows from operating activities as a measure of our liquidity. In addition, it may not be a comparable measurement among different companies. Performance cash flows are presented here to provide you with additional information about our assets and investments. The accounting policies of the individual segments are the same as ours. The following table summarizes certain financial information for our business segments (in thousands): GATHERING, TRANSPORTATION, OIL AND AND PLATFORM NATURAL GAS SERVICES PRODUCTION OTHER(1) TOTAL --------------- ----------- -------- -------- AS OF AND FOR THE QUARTER ENDED JUNE 30, 2000 --------------------------------------------------- Revenue from external customers....................... $ 20,800 $ 5,841 $ -- $ 26,641 Intersegment revenue.................................. 3,453 -- (3,453) -- Earnings from equity investments...................... 6,222 -- -- 6,222 Depreciation, depletion, and amortization............. 3,804 3,148 36 6,988 Operating income (loss)............................... 20,924 (1,248) (35) 19,641 EBIT.................................................. 21,932 (1,248) 42 20,726 Performance cash flows................................ 26,008 1,900 78 27,986 Assets................................................ 557,909 62,509 21,897 642,315 AS OF AND FOR THE QUARTER ENDED JUNE 30, 1999 --------------------------------------------------- Revenue from external customers....................... $ 6,425 $ 7,845 $ -- $ 14,270 Intersegment revenue.................................. 3,136 -- (3,136) -- Earnings from equity investments...................... 9,252 -- -- 9,252 Depreciation, depletion, and amortization............. 2,320 4,686 3 7,009 Operating income (loss)............................... 12,932 (1,177) (2) 11,753 EBIT.................................................. 13,000 (1,177) 95 11,918 Performance cash flows................................ 20,087 3,796 98 23,981 Assets................................................ 532,647 77,871 15,395 625,913 AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 --------------------------------------------------- Revenue from external customers....................... $ 33,958 $11,414 $ -- $ 45,372 Intersegment revenue.................................. 6,619 -- (6,619) -- Earnings from equity investments...................... 10,072 -- -- 10,072 Depreciation, depletion, and amortization............. 7,165 6,208 91 13,464 Operating income (loss)............................... 35,517 (2,542) (90) 32,885 EBIT.................................................. 36,526 (2,542) 68 34,052 Performance cash flows................................ 48,853 3,303 158 52,314 Assets................................................ 557,909 62,509 21,897 642,315 - --------------- (1) Represents intersegment eliminations and other income or assets not associated with our segment activities. 8

10 EL PASO ENERGY PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) GATHERING, TRANSPORTATION, OIL AND AND PLATFORM NATURAL GAS SERVICES PRODUCTION OTHER(1) TOTAL --------------- ----------- -------- -------- AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1999 --------------------------------------------------- Revenue from external customers....................... $ 10,798 $14,040 $ -- $ 24,838 Intersegment revenue.................................. 6,010 -- (6,010) -- Earnings from equity investments...................... 19,953 -- -- 19,953 Depreciation, depletion, and amortization............. 4,236 9,484 7 13,727 Operating income (loss)............................... 25,239 (4,043) (6) 21,190 EBIT.................................................. 25,375 (4,043) 126 21,458 Performance cash flows................................ 33,765 6,093 134 39,992 Assets................................................ 532,647 77,871 15,395 625,913 - --------------------- (1) Represents intersegment eliminations and other income or assets not associated with our segment activities. 8. INVESTMENTS IN UNCONSOLIDATED AFFILIATES We hold investments in various affiliates which we account for using the equity method of accounting. Summarized financial information for these investments is as follows: SIX MONTHS ENDED JUNE 30, 2000 ------------------------------------------------------------ MANTA RAY DEEPWATER OFFSHORE(A) NAUTILUS(A) HOLDINGS(B) POSEIDON TOTAL ----------- ----------- ----------- -------- ------- OWNERSHIP INTEREST...................... 25.67% 25.67% 50% 36% ======= ======= ======== ======= (IN THOUSANDS) OPERATING RESULTS DATA: Operating revenues.................... $ 9,245 $ 5,711 $ 31,121 $30,257 Other income (expense)................ 1,134 (16) 172 464 Operating expenses.................... (1,733) (987) (16,117) (3,843) Depreciation.......................... (1,985) (2,945) (8,409) (4,815) Other expenses........................ (36) (180) (3,160) (5,423) ------- ------- -------- ------- Net income............................ $ 6,625 $ 1,583 $ 3,607 $16,640 ======= ======= ======== ======= OUR SHARE: Allocated income...................... $ 1,701 $ 406 $ 1,804 $ 5,990 Adjustments(c)........................ 3 -- 784 (616) ------- ------- -------- ------- Earnings from equity investments...... $ 1,704 $ 406 $ 2,588 $ 5,374 $10,072 ======= ======= ======== ======= ======= Allocated distributions............... $ 3,102 $ 1,218 $ 7,600 $ 3,564 $15,484 ======= ======= ======== ======= ======= - --------------------- (a) We own indirect investments in Manta Ray Offshore Gathering Company, L.L.C. and Nautilus Pipeline Company, L.L.C. However, because we believe separate data on each of these investees is more meaningful, results have been reflected separately. (b) Deepwater Holdings was formed in September 1999 and owns 100 percent of High Island Offshore System, L.L.C., East Breaks Gathering Company, L.L.C., U-T Offshore System, L.L.C., Stingray Pipeline Company, L.L.C., and West Cameron Dehydration Company, L.L.C. (c) We recorded adjustments primarily for differences from estimated year end 1999 earnings reported in our Annual Report on Form 10-K and actual earnings reported in the 1999 audited annual reports of our unconsolidated affiliates, and for purchase price adjustments under Accounting Principles Board (APB) Opinion No. 16, "Business Combinations." 9

11 EL PASO ENERGY PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SIX MONTHS ENDED JUNE 30, 1999 -------------------------------------------------------------------------------------------------- MANTA WEST RAY VIOSCA CAMERON OFFSHORE(A) NAUTILUS(A) KNOLL(B) STINGRAY HIOS UTOS DEHY POSEIDON TOTAL ----------- ----------- -------- -------- ------- ------- ------- -------- ------- OWNERSHIP INTEREST............ 25.67% 25.67% 50% 50% 40% 33.3% 50% 36% ======= ======= ======= ======= ======= ======= ====== ======== (IN THOUSANDS) OPERATING RESULTS DATA: Operating revenue........... $ 7,780 $ 4,453 $12,338 $ 9,068 $19,350 $ 2,119 $1,475 $ 36,217 Other income (expense)...... 1,144 (123) 31 1,105 118 33 13 191 Operating expenses.......... (1,997) (698) (925) (5,569) (8,649) (1,074) (142) (3,814) Depreciation................ (2,523) (2,964) (1,752) (3,800) (2,321) (280) (8) (2,301) Interest expense............ (18) (182) (1,973) (858) -- -- -- (4,220) ------- ------- ------- ------- ------- ------- ------ -------- Net income (loss)........... $ 4,386 $ 486 $ 7,719 $ (54) $ 8,498 $ 798 $1,338 $ 26,073 ======= ======= ======= ======= ======= ======= ====== ======== OUR SHARE: Allocated income (loss)..... $ 1,126 $ 125 $ 3,860 $ (27) $ 3,399 $ 266 $ 669 $ 9,386 Adjustments(c).............. (174) (57) -- 1,121 299 20 -- (60) ------- ------- ------- ------- ------- ------- ------ -------- Earnings from equity investments............... $ 952 $ 68 $ 3,860 $ 1,094 $ 3,698 $ 286 $ 669 $ 9,326 $19,953 ======= ======= ======= ======= ======= ======= ====== ======== ======= Allocated distributions..... $ 1,954 $ 757 $ 6,350 $ 2,501 $ 4,200 $ 333 $ 550 $ 7,463 $24,108 ======= ======= ======= ======= ======= ======= ====== ======== ======= - --------------- (a) We own indirect investments in these investees. However, because we believe separate data for each of these investees is more meaningful, results have been reflected separately. (b) The information presented for Viosca Knoll as an equity investment is through May 31, 1999. On June 1, 1999, we began consolidating the results of Viosca Knoll as a result of acquiring an additional 49 percent interest in the system. (c) We recorded adjustments primarily for differences from estimated year end 1998 earnings reported in our Annual Report on Form 10-K and actual earnings reported in the 1998 audited annual reports of our unconsolidated affiliates, and for purchase price adjustments under APB Opinion No. 16, except for Stingray which resulted from changes in estimates of reserves for uncollectible revenues. 9. RELATED PARTY TRANSACTIONS Our transactions with related parties and affiliates are as follows (in thousands): QUARTER SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ---------------- ------------------ 2000 1999 2000 1999 ------ ------ ------- ------- Revenues received from related parties: Oil and natural gas sales........................... $5,951 $8,257 $11,647 $15,026 Gathering, transportation and platform services..... 50 395 50 990 ------ ------ ------- ------- $6,001 $8,652 $11,697 $16,016 ====== ====== ======= ======= Expenses paid to related parties: Purchased natural gas costs......................... $1,565 $ -- $ 2,050 $ -- Operating expenses(1)............................... 5,092 3,551 9,621 7,137 ------ ------ ------- ------- $6,657 $3,551 $11,671 $ 7,137 ====== ====== ======= ======= Reimbursements received from related parties: Operating expenses.................................. $5,704 $ 114 $10,725 $ 302 ====== ====== ======= ======= - --------------- (1) Included in these amounts are charges for other miscellaneous costs from El Paso Field Services of approximately $0.5 million for the quarter ended June 30, 2000, $0.7 million for the quarter ended June 30, 1999, and $1.2 million for each of the six month periods ended June 30, 2000 and June 30, 1999. 10

12 EL PASO ENERGY PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) There have been no changes to our related party relationships, except as described below, from our 1999 Annual Report on Form 10-K. As a result of becoming the operator of Deepwater Holdings' assets, we began receiving a reimbursement from Deepwater Holdings for the cost of operating HIOS, UTOS, East Breaks, Stingray, and West Cameron Dehy. This reimbursement is a fixed monthly amount covering normal operating activities and is recorded as a reduction to our operation and maintenance expense. To the extent our costs are more than the monthly reimbursement, our operating expenses will be higher, and to the extent our costs are lower than the monthly reimbursement, our operating expense will be lower. In addition, due to the timing of actual costs, we may recognize fluctuations in our results of operations throughout the year. In November 1999, we entered into an agreement with El Paso Field Services under which they provide personnel to operate Stingray and West Cameron Dehy. In February 2000, El Paso Field Services also began operating HIOS, UTOS and East Breaks. On March 21, 2000, we entered into a similar agreement whereby El Paso Field Services will operate EPIA. All fees paid under these contracts approximate actual costs incurred. In October 1999, we farmed out our working interest in the Prince Field, formerly known as the Ewing Bank 958 Unit, to El Paso Production GOM, Inc., an indirect subsidiary of El Paso Energy. Under the terms of the farmout agreement, our net overriding royalty interest in the Prince Field, increased to a weighted average of approximately 9 percent. If El Paso Production GOM recoups the costs associated with its drilling and completion activities on the field, we can convert our royalty interest into a 30 percent undivided working interest. El Paso Production GOM began drilling on the Prince Field in November 1999 and encountered over 200 feet of net hydrocarbon pay. As a result, El Paso Production GOM contracted with us to build the TLP described below. In July 1999, we entered into a contract with MODEC International, L.L.C. for the design, construction, fabrication and installation of the hull, tendons, pilings and production risers for a tension-leg platform, or TLP, to be used as part of the Prince Field development. In May 2000, we entered into a letter of intent with El Paso Production GOM to install and own the TLP. 10. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED Accounting for Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, to establish accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. This pronouncement requires us to classify derivatives as either assets or liabilities on the balance sheet, with a corresponding offset to income or other comprehensive income, and measure those instruments at fair value. If certain conditions are met, we may specifically designate a derivative as a hedge of: - the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment; - the exposure to variable cash flows of a forecasted transaction; or - the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for the changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. 11

13 EL PASO ENERGY PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SFAS No. 137, Deferral of the Effective Date of SFAS No. 133, amended the standard in June 1999 to defer the effective date. Consequently, SFAS No. 133 will be effective for us January 1, 2001. In June 2000, the Financial Accounting Standards Board issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, which also amended SFAS No. 133. The amendment: - expands the normal purchases and sales exception; - redefines specific risks that can be designated as hedges; - allows recognition of foreign-currency-denominated assets and liabilities as hedged items; and - permits intercompany derivatives to be designated as hedging instruments for foreign currency risk if the hedge is offset by an unrelated third party on a net basis (netting risks is permitted only for foreign currency transactions). We are currently evaluating the effects these pronouncements will have on our financial position, results of operations, and cash flows. Staff Accounting Bulletin No. 101 In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, to provide guidance for revenue recognition issues and disclosure requirements. SAB No. 101 offers guidelines, examples, and explanations for uncertain matters relating to the recognition of revenue and will be effective for us in the fourth quarter of 2000. We do not believe the adoption of SAB No. 101 will have a material impact on our financial position, results of operations, or cash flows. 11. SUBSEQUENT EVENTS Proposed $170 million acquisition of natural gas storage facilities from an affiliate of El Paso Energy In July 2000, we entered into a letter of intent to acquire the salt dome natural gas storage businesses of Crystal Gas Storage, Inc., a subsidiary of El Paso Energy, in exchange for $170.0 million, subject to adjustment, of a new series of non-voting, preference units. See Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, Other, for further discussion. Prince Field TLP Financing In June 2000, we entered into a commitment letter regarding the syndication of a construction loan that would be convertible into a term loan upon completion of the construction project. See Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, Cash From Financing Activities, for further discussion. 12

14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in Item 2 updates, and you should read it in conjunction with, information disclosed in Part II, Items 7, 7A and 8, in our Annual Report on Form 10-K for the year ended December 31, 1999, in addition to the financial statements and notes presented in Item 1 of this Quarterly Report on Form 10-Q. RESULTS OF OPERATIONS Second Quarter Ended June 30, 2000 Compared With Second Quarter Ended June 30, 1999 For the quarter ended June 30, 2000, our net income was $8.4 million versus $4.2 million for the quarter ended June 30, 1999. Second quarter 2000 results included earnings from the newly installed Allegheny oil pipeline, the newly acquired EPIA gathering system, and a higher contribution from the Viosca Knoll gathering system due to our acquisition of an additional interest in this system in June 1999. In addition, we had lower net operating costs which included the favorable resolution of the Transco litigation. EBIT was $20.7 million for the second quarter of 2000 versus $11.9 million for the second quarter of 1999. Six Months Ended June 30, 2000 Compared With Six Months Ended June 30, 1999 For the six months ended June 30, 2000, our net income was $10.3 million versus $7.7 million for the six months ended June 30, 1999. Six months ended June 30, 2000 results included earnings from the newly installed Allegheny oil pipeline, the newly acquired EPIA system, a higher contribution from the Viosca Knoll gathering system due to our acquisition of an additional interest in this system in June 1999, and lower net operating costs. These increases were offset by lower earnings from Poseidon as a result of the pipeline rupture. EBIT was $34.1 million for the six months ended June 30, 2000 versus $21.5 million for the six months ended June 30, 1999. A more detailed analysis of our segment results and non-operating expenses is discussed below. SEGMENT RESULTS The following table presents EBIT by segment and in total for each of the three and six months ended June 30: QUARTER SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------ ------------------ 2000 1999 2000 1999 ------- ------- ------- ------- (IN THOUSANDS) EARNINGS BEFORE INTEREST EXPENSE AND INCOME TAXES Gathering, transportation, and platform services.... $21,932 $13,000 $36,526 $25,375 Oil and natural gas production...................... (1,248) (1,177) (2,542) (4,043) ------- ------- ------- ------- Segment EBIT...................................... 20,684 11,823 33,984 21,332 Non-segment activity, net........................... 42 95 68 126 ------- ------- ------- ------- Consolidated EBIT................................. $20,726 $11,918 $34,052 $21,458 ======= ======= ======= ======= EBIT variances are discussed in the segment results below. 13

15 GATHERING, TRANSPORTATION, AND PLATFORM SERVICES QUARTER SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------ -------------------- 2000 1999 2000 1999 ------- ------- -------- -------- (IN THOUSANDS) Gathering and transportation...................... $10,740 $ 3,676 $ 19,879 $ 4,938 Platform services................................. 6,767 5,885 12,786 11,870 Equity investment earnings........................ 6,222 9,252 10,072 19,953 Natural gas sales................................. 6,746 -- 7,912 -- ------- ------- -------- -------- Total operating revenues........................ 30,475 18,813 50,649 36,761 Purchased natural gas costs....................... (4,641) -- (5,585) -- Operating expenses, net........................... (4,910) (5,881) (9,547) (11,521) Other income...................................... 1,008 68 1,009 135 ------- ------- -------- -------- EBIT............................................ $21,932 $13,000 $ 36,526 $ 25,375 ======= ======= ======== ======== Second Quarter Ended June 30, 2000 Compared With Second Quarter Ended June 30, 1999 Operating revenues for the quarter ended June 30, 2000, were $11.7 million higher than 1999 primarily as a result of the purchase of the EPIA system in March 2000. EPIA, in addition to providing transportation services, provides marketing services through the purchase and resale of natural gas. EPIA buys natural gas from regional producers and others and sells natural gas to local distribution companies and others. The revenue from the sale of natural gas is reflected above as "natural gas sales" and the cost of the natural gas acquired for resale is reflected as "purchased natural gas costs." Revenues were also higher due to an additional 49 percent interest in Viosca Knoll purchased in June 1999, and the Allegheny oil pipeline, which was placed in service in the fourth quarter of 1999. These increases were partially offset by lower equity in earnings from Deepwater Holdings as a result of a decrease in volumes. Operating expenses for the quarter ended June 30, 2000, were $1.0 million lower than 1999 primarily due to the favorable resolution of the Transco litigation, partially offset by higher operating costs as a result of acquiring EPIA in March 2000. An increase in operating expenses as a result of becoming the operator of Deepwater Holdings' assets did not have a significant impact on our second quarter operating expenses since these costs were substantially offset by cost recoveries under our operating agreement with Deepwater Holdings. Other income includes $1.0 million of business interruption insurance proceeds relating to the Poseidon pipeline rupture in January 2000. Six Months Ended June 30, 2000 Compared With Six Months Ended June 30, 1999 Operating revenues for the six months ended June 30, 2000, were $13.9 million higher than 1999, primarily as a result of the purchase of the EPIA system in March 2000. Revenues were also higher due to an additional 49 percent interest in Viosca Knoll purchased in June 1999, and the Allegheny oil pipeline, which was placed in service in the fourth quarter of 1999. These increases were partially offset by lower equity in earnings from Deepwater Holdings as a result of a decrease in volumes and lower equity in earnings from Poseidon due to the pipeline rupture in January 2000. Operating expenses for the six months ended June 30, 2000, were $2.0 million lower than 1999 primarily due to the favorable resolution of the Transco litigation and cost recoveries under our operating agreement with Deepwater Holdings relative to actual costs incurred during the first quarter for those operations. These decreases were partially offset by higher operating costs as a result of acquiring EPIA in March 2000. Other income includes $1.0 million of business interruption insurance proceeds relating to the Poseidon pipeline rupture in January 2000. 14

16 OIL AND NATURAL GAS PRODUCTION QUARTER SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------ -------------------- 2000 1999 2000 1999 ------- ------- -------- -------- (IN THOUSANDS, EXCEPT VOLUMES) Natural gas...................................... $ 4,142 $ 6,551 $ 8,515 $ 11,850 Oil, condensate, and liquids..................... 1,699 1,294 2,899 2,190 ------- ------- -------- -------- Total operating revenues............... 5,841 7,845 11,414 14,040 Operating expenses............................... (7,089) (9,022) (13,956) (18,083) ------- ------- -------- -------- EBIT........................................... $(1,248) $(1,177) $ (2,542) $ (4,043) ======= ======= ======== ======== Volumes(1) Natural gas sales (MMcf)....................... 1,959 3,293 3,846 6,877 ======= ======= ======== ======== Oil, condensate, and liquid sales (MBbls)...... 75 93 134 192 ======= ======= ======== ======== Weighted average realized prices(1) Natural gas ($/Mcf)............................ $ 2.13 $ 2.08 $ 2.25 $ 1.83 ======= ======= ======== ======== Oil, condensate, and liquids ($/Bbl)........... $ 23.57 $ 15.06 $ 22.32 $ 12.69 ======= ======= ======== ======== - --------------- (1) As generally used in the energy industry and in this document, the following terms have the following meanings: MMcf = million cubic feet MBbls = thousand barrels Mcf = thousand cubic feet Bbl = barrel Second Quarter Ended June 30, 2000 Compared With Second Quarter Ended June 30, 1999 Oil and natural gas sales for the quarter ended June 30, 2000, were $2.0 million lower than 1999. The decrease was a result of lower oil and natural gas production due to normal production declines of existing reserves, offset by higher realized prices of both oil and natural gas. Operating expenses for the quarter ended June 30, 2000, were $2.0 million lower than in the same period in 1999, primarily a result of lower depletion due to lower oil and natural gas production. Six Months Ended June 30, 2000 Compared With Six Months Ended June 30, 1999 Oil and natural gas sales for the six months ended June 30, 2000, were $2.6 million lower than 1999. The decrease was a result of lower oil and natural gas production due to normal production declines of existing reserves and the temporary shut in of Garden Banks 72 and 117 as a result of the Poseidon rupture, offset by higher realized prices of both oil and natural gas. Operating expenses for the six months ended June 30, 2000, were $4.1 million lower than 1999, primarily a result of lower depletion due to lower oil and natural gas production. INTEREST AND DEBT EXPENSE Interest and debt expense, net of capitalized interest, for the second quarter and six months ending June 30, 2000, were higher than 1999, due to higher average debt levels and higher average interest rates in 2000. 15

17 LIQUIDITY AND CAPITAL RESOURCES CASH FROM OPERATING ACTIVITIES Net cash provided by operating activities was approximately $29.3 million for the six months ended June 30, 2000, compared to approximately $23.6 million for the same period in 1999. The increase was due to higher revenues from acquisitions and higher distributions from equity investments in excess of equity earnings in 2000, along with favorable working capital changes in the 2000 period. CASH FROM INVESTING ACTIVITIES Net cash used in investing activities was approximately $65.0 million for the six months ended June 30, 2000 due to our acquisition of EPIA, additions to property, plant, and equipment, and additional expenditures on equity investments. We expect that funding for capital expenditures, acquisitions, and other investing expenditures will be provided by internally generated funds, available capacity under existing credit facilities, and the issuance of long-term debt or equity. CASH FROM FINANCING ACTIVITIES Net cash flows provided by financing activities totaled approximately $42.1 million for the six months ended June 30, 2000. During 2000, we increased the amounts outstanding under our credit facility by $78.1 million and made distributions to partners of $36.0 million. In June 2000, we amended our existing senior secured revolving credit facility, increasing the facility to $500.0 million from $375.0 million, with availability based upon historical cash flow. This credit facility allows us to pursue the increasing number of internal growth opportunities in the Gulf of Mexico and to implement our acquisition growth strategy. Specifically, the additional borrowing capacity will be used to expand our offshore and onshore infrastructure through acquisitions and construction. To finance a substantial portion of the estimated $140.0 million total cost of the TLP, pipelines and other facilities that we plan to install in the Prince Field, we expect to obtain a $95.0 million limited recourse project finance loan from a group of commercial lenders. Accordingly, we have entered into a commitment letter regarding the syndication of a construction loan that would be convertible into a term loan upon completion of the construction project. In July 2000, we completed a public offering of 4,000,000 common units. We used the net cash proceeds of $87.2 million to temporarily reduce the balance outstanding under our revolving credit facility. If the underwriters exercise in full their over-allotment option covering an additional 600,000 common units, we would expect to receive an additional $13.2 million in net cash proceeds, all of which would be used to temporarily reduce the balance outstanding under our revolving credit facility. We may reborrow funds available under our revolving credit facility in the future for general business purposes, including expanding our offshore and onshore infrastructure through acquisitions and construction. As a result of the third and final offer to convert our 289,699 outstanding preference units into an equal number of our common units, which expired on August 7, 2000, approximately 212,000 units were tendered for conversion by our unitholders. We have the right and intend to redeem all of the remaining outstanding preference units for $10.25 in cash per unit before December 31, 2000. Trading of the preference units has been suspended and we are in the process of delisting the units. We expect that future funding for long-term debt retirements, distributions, and other financing expenditures will be provided by internally generated funds, available capacity under existing credit facilities, and the issuance of long-term debt or equity. 16

18 COMMITMENTS AND CONTINGENCIES See Note 6, which is incorporated herein by reference. OTHER In July 2000, we entered into a letter of intent to acquire the salt dome natural gas storage businesses of Crystal Gas Storage, Inc., a subsidiary of El Paso Energy, in exchange for $170.0 million, subject to adjustment, of a new series of non-voting, preference units. These units will have an annual distribution rate of 10 percent, per year, but will not obligate us to pay these distributions in cash until 2010. These businesses, the Petal and Hattiesburg natural gas storage facilities located in Mississippi, are well situated to serve the Northeast, Mid-Atlantic and Southeast natural gas markets. On July 27, 2000, the Federal Trade Commission approved the proposed acquisition. We plan to close the acquisition in the third quarter. In June 2000, we placed our East Breaks joint venture system in service in water depths reaching 4,800 feet, making it one of the deepest pipelines in the Gulf of Mexico. This system consists of 85 miles of 20-inch diameter pipeline with current capacity in excess of 400 MMcf per day and transports natural gas from two new deepwater discoveries, the Diana and Hoover Fields (owned by ExxonMobil and BP Amoco PLC, respectively), to our HIOS joint venture system. In March 2000, we entered into a letter of intent with El Paso Production GOM under which they would commit all of the natural gas and oil produced from the Prince Field to a TLP, the related pipelines, and separating and handling facilities that we would install by July 2001. The platform is anticipated to be delivered in April 2001 with first production anticipated to commence in June 2001. El Paso Production GOM would pay us a fixed monthly demand charge beginning upon installation of our TLP, as well as a commodity charge for the natural gas, oil and water produced from the Prince Field. In addition, El Paso Production GOM would use other existing pipelines, including our Poseidon and Manta Ray Offshore joint venture systems, to transport the Prince Field production from our TLP to shore. In January 2000, El Paso Energy announced it had entered into an agreement to merge with The Coastal Corporation. Coastal is the parent company of ANR Pipeline Company, which is our joint venture partner in Deepwater Holdings. The merger, which is expected to close in the fourth quarter, is subject to certain conditions, including receipt of certain required government approvals. If the merger is completed, ANR will become our affiliate. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED See Note 10, which is incorporated herein by reference. 17

19 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS We have made statements in this document that constitute forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations. These statements may relate to information or assumptions about: - earnings per unit; - capital and other expenditures; - cash distributions; - financing plans; - capital structure; - cash flow; - pending legal proceedings and claims, including environmental matters; - future economic performance; - operating income; - cost savings; - management's plans; and - goals and objectives for future operations. Important factors that could cause actual results to differ materially from estimates or projections contained in forward-looking statements include, among others, the following: - the increasing competition within our industry; - the timing and extent of changes in commodity prices for natural gas and oil; - the uncertainties associated with customer contract expirations on our pipeline systems; - the conditions of equity and other capital market; and - the ability to successfully integrate acquisitions. These and other risk factors are more fully described in our other filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This information updates, and you should read it in conjunction with, information disclosed in Part II, Item 7A in our Annual Report on Form 10-K for the year ended December 31, 1999, in addition to the information presented in Items 1 and 2 of this Quarterly Report on Form 10-Q. At June 30, 2000, we had three oil and natural gas sales swaps covering a portion of our production for the calendar year 2000. For the six months ended June 30, 2000 and 1999, we recorded a net loss of $3.9 million and $0.7 million, respectively, on these contracts. Had we settled our open hedging positions as of June 30, 2000, based on the applicable settlement prices of the NYMEX futures contracts, we would have recognized losses of approximately $0.5 million related to our oil swap and $9.0 million related to our natural gas swaps. 18

20 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Part I -- Financial Information, Note 6, which is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 19

21 Each exhibit identified below is filed as part of this quarterly report. Exhibits not incorporated by reference to a prior filing are designated by an asterisk; all exhibits not so designated are incorporated herein by reference to a prior filing as indicated. EXHIBIT NUMBER DESCRIPTION ------- ----------- 1.1 Underwriting Agreement dated July 24, 2000 among El Paso Energy Partners, L.P., El Paso Energy Partners Company, Salomon Smith Barney Inc., Goldman, Sachs & Co., PaineWebber Incorporated, and Donaldson, Lufkin & Jenrette Securities Corporation. (Exhibit 1.1 of El Paso Energy Partners, L.P.'s Form 8-K filed on July 27, 2000). 4.7 Indenture dated as of May 27, 1999 among El Paso Energy Partners, L.P., El Paso Energy Partners Finance Corporation, the subsidiary guarantors and Chase Bank of Texas, as trustee (filed as Exhibit 4.1 to El Paso Energy Partners, L.P.'s Registration Statement on Form S-4, filed on June 24, 1999, File No. 333-81143); First Supplemental Indenture dated as of June 30, 1999 (filed as Exhibit 4.2 to El Paso Energy Partners, L.P.'s Amendment No. 1 to Registration Statement on Form S-4 filed August 27, 1999 File No. 333-81143); Second Supplemental Indenture dated as of July 27, 1999 (filed as Exhibit 4.3 to El Paso Energy Partners, L.P.'s Amendment No. 1 to Registration Statement on Form S-4, filed August 27, 1999, File No. 333-81143). *4.7.1 Third Supplemental Indenture dated as of March 21, 2000, to the Indenture dated as of May 27, 1999, among El Paso Energy Partners, L.P., El Paso Energy Partners Finance Corporation, as the issuers, and the subsidiaries party thereto, as subsidiary guarantors, and Chase Bank of Texas, National Association, as trustee. 10.1 Fourth Amended and Restated Credit Agreement dated June 30, 2000, among El Paso Energy Partners L.P., El Paso Energy Partners Finance Corporation, Credit Lyonnais, as syndication agent, BankBoston N.A., as documentation agent, and the Chase Manhattan Bank, as administrative agent, and, as applicable, the banks and other institutions parties thereto. (Exhibit 10.1 of El Paso Energy Partners, L.P.'s Form 8-K filed on July 14, 2000). *10.7.1 Amendment No. 1 to the Leviathan Gas Pipeline Partners, L.P. 1998 Unit Option Plan for Non-Employee Directors. *10.8.1 Amendment No. 1 to the Leviathan Gas Pipeline Partners, L.P. 1998 Omnibus Compensation Plan. *27 Financial Data Schedule (b) Report on Form 8-K We filed a Current Report on Form 8-K, dated April 4, 2000, with regard to the acquisition of the El Paso Intrastate-Alabama pipeline system. We filed a Current Report on Form 8-K/A, dated June 5, 2000, reporting unaudited pro forma condensed combined financial statements reflecting our purchase of the El Paso Interstate-Alabama pipeline system. We filed a Current Report on Form 8-K, dated July 14, 2000, with regard to our pending acquisition of the natural gas storage businesses of Crystal Gas Storage, Inc. and the amendment of our senior secured revolving credit facility. We filed a Current Report on Form 8-K, dated July 19, 2000, reporting unaudited pro forma condensed combined financial statements reflecting our pending acquisition of the natural gas storage businesses of Crystal Gas Storage, Inc. We filed a Current Report on Form 8-K, dated July 27, 2000, regarding the underwriting agreement related to our public offering of common units that closed on July 28, 2000. 20

22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EL PASO ENERGY PARTNERS, L.P. By: EL PASO ENERGY PARTNERS COMPANY, its General Partner Date: August 9, 2000 By: /s/ KEITH B. FORMAN ------------------------------------ Keith B. Forman Vice President and Chief Financial Officer Date: August 9, 2000 By: /s/ D. MARK LELAND ------------------------------------ D. Mark Leland Senior Vice President and Controller (Principal Accounting Officer) 21

23 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION ------- ----------- 1.1 Underwriting Agreement dated July 24, 2000 among El Paso Energy Partners, L.P., El Paso Energy Partners Company, Salomon Smith Barney Inc., Goldman, Sachs & Co., PaineWebber Incorporated, and Donaldson, Lufkin & Jenrette Securities Corporation. (Exhibit 1.1 of El Paso Energy Partners, L.P.'s Form 8-K filed on July 27, 2000). 4.7 Indenture dated as of May 27, 1999 among El Paso Energy Partners, L.P., El Paso Energy Partners Finance Corporation, the subsidiary guarantors and Chase Bank of Texas, as trustee (filed as Exhibit 4.1 to El Paso Energy Partners, L.P.'s Registration Statement on Form S-4, filed on June 24, 1999, File No. 333-81143); First Supplemental Indenture dated as of June 30, 1999 (filed as Exhibit 4.2 to El Paso Energy Partners, L.P.'s Amendment No. 1 to Registration Statement on Form S-4 filed August 27, 1999 File No. 333-81143); Second Supplemental Indenture dated as of July 27, 1999 (filed as Exhibit 4.3 to El Paso Energy Partners, L.P.'s Amendment No. 1 to Registration Statement on Form S-4, filed August 27, 1999, File No. 333-81143). *4.7.1 Third Supplemental Indenture dated as of March 21, 2000, to the Indenture dated as of May 27, 1999, among El Paso Energy Partners, L.P., El Paso Energy Partners Finance Corporation, as the issuers, and the subsidiaries party thereto, as subsidiary guarantors, and Chase Bank of Texas, National Association, as trustee. 10.1 Fourth Amended and Restated Credit Agreement dated June 30, 2000, among El Paso Energy Partners L.P., El Paso Energy Partners Finance Corporation, Credit Lyonnais, as syndication agent, BankBoston N.A., as documentation agent, and the Chase Manhattan Bank, as administrative agent, and, as applicable, the banks and other institutions parties thereto. (Exhibit 10.1 of El Paso Energy Partners, L.P.'s Form 8-K filed on July 14, 2000). *10.7.1 Amendment No. 1 to the Leviathan Gas Pipeline Partners, L.P. 1998 Unit Option Plan for Non-Employee Directors. *10.8.1 Amendment No. 1 to the Leviathan Gas Pipeline Partners, L.P. 1998 Omnibus Compensation Plan. *27 Financial Data Schedule

1 EXHIBIT 4.7.1 =============================================================================== EL PASO ENERGY PARTNERS, L.P. EL PASO ENERGY PARTNERS FINANCE CORPORATION, AS THE ISSUERS, AND THE SUBSIDIARIES PARTY HERETO, AS SUBSIDIARY GUARANTORS AND CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, AS TRUSTEE -------------------- THIRD SUPPLEMENTAL INDENTURE DATED AS OF MARCH 21, 2000 TO INDENTURE DATED AS OF MAY 27, 1999 -------------------- $175,000,000 10 3/8% SENIOR SUBORDINATED NOTES DUE 2009, SERIES A 10 3/8% SENIOR SUBORDINATED NOTES DUE 2009, SERIES B ===============================================================================

2 THIRD SUPPLEMENTAL INDENTURE THIS THIRD SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of March 21, 2000, is by and among El Paso Energy Partners, L.P., a Delaware limited partnership (formerly Leviathan Gas Pipeline Partners, L.P.), El Paso Energy Partners Finance Corporation, a Delaware corporation (formerly Leviathan Finance Corporation), the guarantor parties hereto, and Chase Bank of Texas, National Association, a national banking association, as trustee. W I T N E S S E T H: WHEREAS, the Issuers (herein defined), the Subsidiary Guarantors (herein defined) and the Trustee (herein defined) entered into an Indenture, dated as of May 27, 1999 (the "Indenture"), relating to $175,000,000 of the Company's 10 3/8% Senior Subordinated Notes due 2009; WHEREAS, the Restricted Subsidiary (herein defined) Green Canyon Pipe Line Company, L.L.C., a Delaware limited liability company, has been converted into Green Canyon Pipe Line Company, L.P., a Delaware limited partnership (the "New Guarantor"), which will become a Subsidiary Guarantor under the Indenture pursuant to the terms of this Supplemental Indenture. WHEREAS, this Supplemental Indenture is executed and delivered pursuant to Sections 4.14 and 11.01 of the Indenture; WHEREAS, the Issuers, the Subsidiary Guarantors (which term includes the New Guarantor) and the Trustee desire to enter into this Supplemental Indenture to provide for the New Guarantor's guarantee of the payment of securities on the same terms and conditions as the Guarantees by the other Subsidiary Guarantors; WHEREAS, all conditions precedent provided for in the Indenture relating to this Supplemental Indenture have been complied with; and NOW, THEREFORE, in consideration of the premises herein contained, and for other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the Issuers, the Subsidiary Guarantors and the Trustee mutually covenant and agree for the equal and proportionate benefit of all Holders (herein defined) of the Notes (herein defined) as follows: SECTION 1. INCORPORATION OF INDENTURE; DEFINITIONS 1.1 INCORPORATION OF INDENTURE. This Supplemental Indenture constitutes a supplement to the Indenture, and the Indenture and this Supplemental Indenture shall be read together and shall have effect so far as practicable as though all of the provisions thereof and hereof are contained in one instrument. 1.2 DEFINITIONS. All capitalized terms used herein and not otherwise defined herein shall have the respective meanings assigned to such terms in the Indenture. 1

3 SECTION 2. SUPPLEMENTAL PROVISIONS 2.1 UNCONDITIONAL GUARANTEE. Subject to the provisions of Article 11 of the Indenture, the New Guarantor shall be a Subsidiary Guarantor under the terms of the Indenture and hereby unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the Obligations of the Issuers under the Indenture or the Notes, that: (a) the principal of, premium, interest and Liquidated Damages, if any, on the Notes shall be promptly paid in full when due, whether at the maturity or interest payment or mandatory redemption date, by acceleration, redemption or otherwise, and interest on the overdue principal of, premium, interest and Liquidated Damages, if any, on the Notes, if any, if lawful, and all other Obligations of the Issuers to the Holders or the Trustee under the Indenture and the Notes shall be promptly paid in full or performed, all in accordance with the terms of the Indenture and the Notes; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Subsidiary Guarantors shall be jointly and severally obligated to pay the same immediately. The New Guarantor hereby agrees that its obligations hereunder and under the Indenture shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions of the Indenture and the Notes, the recovery of any judgment against the Issuers, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Subsidiary Guarantor. The New Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Issuers, any right to require a proceeding first against the Issuers, protest, notice and all demands whatsoever and covenant that the Guarantees shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Issuers or Subsidiary Guarantors, or any custodian, trustee, liquidator or other similar official acting in relation to either the Issuers or Subsidiary Guarantors, any amount paid by either to the Trustee or such Holder, these Guarantees, to the extent theretofore discharged, shall be reinstated in full force and effect. The New Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed under the Indenture until payment in full of all obligations guaranteed under the Indenture. The New Guarantor further agrees that, as between the Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations guaranteed under the Indenture may be accelerated as provided in Article 6 of the Indenture for the purposes of these Guarantees, notwithstanding any stay, injunction or other prohibition preventing 2

4 such acceleration in respect of the obligations guaranteed under the Indenture, and (y) in the event of any declaration of acceleration of such Obligations as provided in Article 6 of the Indenture, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantors for the purpose of these Guarantees. The New Guarantor agrees that the Subsidiary Guarantors shall have the right to seek contribution from any non-paying Subsidiary Guarantor so long as the exercise of such right does not impair the rights of the Holders under these Guarantees. 2.2 OTHER GUARANTEE TERMS. The New Guarantor hereby confirms, adopts and acknowledges each of the provisions of the Indenture relating to the Subsidiary Guarantors and the Guarantees, including, but not limited to Articles 4 and 11. SECTION 3. MISCELLANEOUS 3.1 COUNTERPARTS. This Supplemental Indenture may be signed in counterparts and by the different parties hereto in separate counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. 3.2 SEVERABILITY. In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 3.3 HEADINGS. The headings of the Sections of this Supplemental Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 3.4 SUCCESSORS. All agreements of the Issuers and the Subsidiary Guarantors in this Supplemental Indenture shall bind their respective successors. All agreements of the Trustee in this Supplemental Indenture shall bind its successors. 3.5 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 3.6 FULL FORCE AND EFFECT. The Indenture, as supplemented by this Supplemental Indenture, remains in full force and effect and is hereby ratified and confirmed as the valid and binding obligation of the parties hereto. 3

5 3.7 TRUSTEE. The Trustee accepts the modifications of trusts referenced in the Indenture and effected by this Supplemental Indenture. Without limiting the generality of the foregoing, the Trustee assumes no responsibility for the correctness of the recitals herein contained, which shall be taken as the statements of the Company and the Subsidiary Guarantors, and the Trustee shall not be responsible or accountable in any way whatsoever for or with respect to the validity or execution or sufficiency of this Supplemental Indenture, and the Trustee makes no representation with respect thereto.

6 IN WITNESS WHEREOF, the parties hereto have executed this Supplemental Indenture as of the date first above written. EL PASO ENERGY PARTNERS, EL PASO ENERGY PARTNERS L.P. FINANCE CORPORATION By: /s/ KEITH FORMAN By: /s/ KEITH FORMAN ----------------------------- ------------------------------------ Name: Keith Forman Name: Keith Forman Title: Chief Financial Officer Title: Chief Financial Officer CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Trustee By: /s/ MAURI J. COWEN ------------------------------------- Name: Mauri J. Cowen ----------------------------------- Title: Vice President and Trust Officer ---------------------------------- NEW GUARANTOR: GREEN CANYON PIPE LINE COMPANY, L.P. By: /s/ KEITH FORMAN ----------------------------- Name: Keith Forman Title: Chief Financial Officer

7 Each of the undersigned hereby ratifies and confirms its respective obligations under the Indenture, as supplemented by this Supplemental Indenture: DELOS OFFSHORE COMPANY, L.L.C. EWING BANK GATHERING COMPANY, L.L.C. EL PASO ENERGY PARTNERS DEEPWATER, L.L.C. EL PASO ENERGY PARTNERS OIL TRANSPORT, L.L.C. EL PASO ENERGY PARTNERS OPERATING COMPANY, L.L.C. FLEXTREND DEVELOPMENT COMPANY, L.L.C. MANTA RAY GATHERING COMPANY, L.L.C. MORAY PIPELINE COMPANY, L.L.C. POSEIDON PIPELINE COMPANY, L.L.C. SAILFISH PIPELINE COMPANY, L.L.C. TARPON TRANSMISSION COMPANY VK DEEPWATER GATHERING COMPANY, L.L.C. VK-MAIN PASS GATHERING COMPANY, L.L.C. By: /s/ KEITH FORMAN ---------------------------------------------- Name: Keith Forman Title: Chief Financial Officer of Each Such Entity

1 EXHIBIT 10.7.1 AMENDMENT NO. 1 TO THE LEVIATHAN 1998 UNIT OPTION PLAN FOR NON-EMPLOYEE DIRECTORS Pursuant to Section 9.1 of the Leviathan 1998 Unit Option Plan for Non-Employee Directors, effective as of August 14, 1998 (the "Plan"), the Plan is hereby amended as follows, effective December 1, 1999: WHEREAS, effective as of December 1, 1999, the name of the General Partner and the Partnership changed to El Paso Energy Partners Company and El Paso Energy Partners, L.P., respectively. NOW, THEREFORE, the name of the Plan is hereby changed to "El Paso Energy Partners, L.P. 1998 Unit Option Plan for Non-Employee Directors." All references in the Plan to "Leviathan Gas Pipeline Company" or the "Company" shall mean "El Paso Energy Partners Company" and all references to "Leviathan Gas Pipeline Partners, L.P." or the "Partnership" shall mean "El Paso Energy Partners, L.P." IN WITNESS WHEREOF, the General Partner has caused this amendment to be duly executed on behalf of the Partnership on this 1st day of December, 1999. EL PASO ENERGY PARTNERS, L.P. By: El Paso Energy Partners Company The General Partner By /s/ H. Brent Austin ----------------------------------------- Title: Executive Vice President ATTEST: By /s/ David L. Siddall - ----------------------------- Title: Corporate Secretary

1 EXHIBIT 10.8.1 AMENDMENT NO. 1 TO THE LEVIATHAN GAS PIPELINE PARTNERS, L.P. 1998 OMNIBUS COMPENSATION PLAN Pursuant to Section 13.1 of the Leviathan Gas Pipeline Partners, L.P. 1998 Omnibus Compensation Plan, amended and restated effective as of January 1, 1999 (the "Plan"), the Plan is hereby amended as follows, effective as of December 1, 1999: WHEREAS, effective as of December 1, 1999, the name of the General Partner and the Partnership changed to El Paso Energy Partners Company and El Paso Energy Partners, L.P., respectively. NOW, THEREFORE, the name of the Plan is hereby changed to "El Paso Energy Partners, L.P. 1998 Omnibus Compensation Plan." All references in the Plan to "Leviathan Gas Pipeline Company" or the "General Partner" shall mean "El Paso Energy Partners Company" and all references in the Plan to "Leviathan Gas Pipeline Partners, L.P." or the "Company" shall mean "El Paso Energy Partners, L.P." IN WITNESS WHEREOF, the General Partner has caused this amendment to be duly executed on behalf of the Partnership on this 1st day of December, 1999. EL PASO ENERGY PARTNERS, L.P. By: El Paso Energy Partners Company The General Partner By /s/ H. Brent Austin ----------------------------------------- Title: Executive Vice President ATTEST: By : /s/ David L. Siddall - --------------------------- Title: Corporate Secretary

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 10,630 0 14,173 0 0

27,281 568,202 153,478 642,315 15,071 544,000 0 3,005 68,125 57 642,315 11,414 55,444 5,585 22,559 0 0 23,750 10,167 (139) 10,306 0 0 0 10,306 0.13

0.13 Not separately identified in the consolidated financial statements or accompanying notes thereto. Represents basic and diluted net income per unit allocated to limited partners.