El Paso Critics Mull What Might Have Been

Obstacle Course

Instead, El Paso seems to be smashing into new obstacles.

These days, the company is fielding fewer questions about Enron-like issues -- such as energy trading, mark-to-mark accounting and off balance sheet debt -- and far more about the old-fashioned topic of exploration and production. El Paso has somehow wound up with 40% less proved reserves, or the amount of energy it can commercially produce, than it claimed to have last year. And that bothers some people just as much as seeing a bunch of paper trading profits evaporate into thin air.

"It is absolutely impossible to have a 40% reduction in proved reserves on a diverse portfolio like El Paso's if the engineering, geology and accounting were done with integrity and prudence," said David Scheidegger, a former employee of a company acquired by El Paso. And "for the record, I am an engineer, a geologist and an accountant."

A company-ordered study has already placed blame on past E&P employees, and two separate government agencies -- the Department of Justice and the Securities and Exchange Commission -- continue to investigate the matter. In the meantime, El Paso has replaced Rod Erskine, the former head of E&P, with a respected veteran from Apache (APA - Cramer's Take - Stockpickr).

Lisa Stewart took over as El Paso's E&P president in February. One former employee, a victim of recent layoffs, marvels that Stewart was even willing to "jump into that quagmire." But El Paso itself says that Stewart spotted opportunity.

"It was her view that the company had good assets, good people and that the situation could be turned around," explained Bruce Connery, El Paso's vice president of investor and public relations.

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But El Paso has cautioned that the division's rebound -- crucial to the company's recovery -- will take time. In the meantime, Stewart is cleaning house. One former employee estimates that she has gotten rid of nearly half of the division's past leaders. Still, he is waiting for several E&P vice presidents -- the executives who oversaw the reserves that later got cut -- to feel the broom as well.

El Paso says it is unable to comment on whether any current vice presidents were involved with the booking problems. Interestingly enough, however, some people are pointing the finger at one of El Paso's biggest foes instead.