For the fifth consecutive year, we improved performance in every key area of our business in 2007. Each of the two core businesses, Pipelines and Exploration and Production, had solid operational performances, and we completed the process of returning El Paso to full financial health. The combination of these achievements, along with the efforts of our dedicated employees, resulted in another year of increased, and more important, sustainable profitability.

After the sale of ANR was completed early in 2007 we used nearly all of the proceeds from the transaction to reduce our debt. This helped the company achieve another significant milestone— returning our pipeline business to investment-grade status.

Our pipeline business continues to perform very well. In 2007, earnings before interest and taxes from this segment were $1.3 billion, up seven percent over 2006, which was up 28 percent from the prior year. We started 2007 with a backlog of contracted growth projects of more than $2 billion. During the year, we placed approximately $560 million of projects in service. And our success in developing new growth opportunities in this business had us entering 2008 with a nearly $4-billion committed backlog.

When we announced the acquisition of 50 percent of a new marine LNG import terminal project—Gulf LNG. We will build and then operate this facility on behalf of its owners. Gulf LNG is strategically situated in Pascagoula, Mississippi, and is supported by long-term contracts for 100 percent of its capacity. This project adds to our already significant position in LNG with our ownership of Elba Island, which is currently undergoing a significant expansion under long-term contracts. We will also add significant new pipeline capacity to meet the growing demands for natural gas-fired power in Florida.

The initial public offering (IPO) of our master limited partnership (MLP) El Paso Pipeline Partners, L. P. in November 2007 was another important achievement. It was the largest energy MLP IPO in history, and was well-received in a very turbulent market.

El Paso E&P met or exceeded all of its primary financial and operational objectives. Volumes averaged 862 million cubic feet of natural gas equivalent (MMcfe) per day, an eight percent increase for the year. Direct lifting costs were $0.88 per million cubic feet (Mcf), a 7 percent improvement over 2006 levels. Reserves grew 472 billion cubic feet of natural gas equivalent (Bcfe), to more than 3.1 trillion cubic feet of natural gas equivalent (Tcfe). Both volumes and reserves include our proportionate share of our Four Star equity investment. And the business generated $909 million in earnings before interest and taxes, a 42-perent improvement over 2006.

We also began a process of strategic acquisitions and divestitures to high-grade the E&P portfolio, which resulted in the acquisition of Peoples Energy Production. On the international front, our E&P company drilled four successful exploration wells in Brazil that have led to two large development projects. We also opened our office in Cairo and began shooting an onshore 3D seismic program in Egypt, which will lead to exploratory drilling in 2008.

The macroeconomic environment supports the growth of our core businesses. Commodity prices remain supportive of investments in exploration and production. To satisfy growing energy demands, the United States stills need substantial investments in infrastructure to move domestic supplies from natural gas basins and new LNG supplies to market.

We expect to grow earnings at our pipeline business at an annual average of six to eight percent for the next five years. This growth trajectory is based solely on the projects that exist in our backlog today. Incremental success from securing new projects would increase that trajectory. In E&P, we expect to grow our volumes over a three-year period at an annual rate of eight to 12 percent. We are optimistic about the growth outlook for El Paso Pipeline Partners, given the embedded growth in its current asset base, with the considerable pipeline assets still remaining at El Paso Corporation that are very suitable for this MLP, and potentially with third-party acquisitions over time.

We value the support of our shareholders and work hard to provide comprehensive information about the company and stock performance on our Web site. Our Investor Relations’ resource page is highly interactive, providing up-to-date information on-demand. Information on our share price, earnings, cash flow, and debt reduction can be found in the Investor Relations section of our Web site, elpaso.com.

Overview of Cash Flow Activities

During 2007, El Paso generated operating cash flow of approximately $1.8 billion, primarily as a result of cash provided by our Pipeline and Exploration and Production operations. Sale of the ANR pipeline and related assets generated $3.7 billion of net proceeds. In November 2007, units in the initial public offering of our MLP generated gross proceeds of $575 million in the initial public offering.

Taxes

El Paso Corporation’s policy is to consider and apply appropriate tax-planning strategies and to use conservative, prudent judgment in the estimation, accrual, and recording of income taxes. Additionally, it is our policy in accounting for income taxes to recognize the amount of taxes payable or refundable for the current and previous years, as well as, to recognize deferred tax liabilities and assets for the future tax consequences of events that have been recorded in our financial statements. Our policy is to comply, in all material respects, with the Internal Revenue Code, state tax laws and Accounting Principles Generally Accepted in the United States (GAAP). El Paso paid federal income tax payments of $16,817,175 in 2007.