El Paso ( EP) keeps pumping out nasty surprises.

The giant energy company warned on Wednesday that it could be restating years of financial reports in order to properly account for a huge cut in reserves that stunned investors last month. In the meantime, the company has postponed its fourth-quarter earnings release -- originally slated for Thursday -- and the filing of its latest annual report until the completion of an internal audit. It is currently seeking waivers from its lenders to address the likely restatements and filing delays.

"Based on El Paso's internal technical reviews, as well as the independent review of the audit committee of the board of directors, the company believes that it is likely that a restatement of the financial statements for El Paso (and two subsidiaries) will be required," the company announced. "Consequently, investors should not rely on previously filed reports for these registrants until further notice from the company."

El Paso's stock immediately slid, falling 1.7% to $6.98 Wednesday morning.

Bad news has been gushing from the company -- and its production division in particular -- for some time. Following disappointing results last year, the company replaced its production chief and then, last month, slashed its proved reserves by an unprecedented 40%. It had originally expected to account for the change, which triggered a $1 billion "ceiling test" charge, entirely in the fourth quarter of 2003. But it now suspects the revision could hurt prior results and trigger additional charges requiring multiple restatements.

"If upon completion of these reviews, it is determined that a restatement is required, the restatement of previous periods would likely result in non-cash ceiling-test charges in certain of those periods and higher-than-reported depletion rates in some periods, and potential adjustments in gains or losses in prior sales of oil and gas properties," the company explained.

The new charges, at least, should come as little surprise. El Paso has previously warned investors -- and reminded them again on Wednesday -- that falling gas prices could trigger even larger charges going forward. After meeting with management last month, Prudential analyst Carol Coale concluded that a significant charge, totaling up to $1.5 billion, could hit the company as early as this quarter. She also cautioned that such a charge "may not sit well with Wall Street."

At the time, Coale saw no "compelling reason" to buy or sell the stock. But Morgan Stanley analyst Scott Soler was already steering clients away because of significant risks. He, too, warned about major charges that could result from falling gas prices. But he dwelled even more on the company's earnings power and cash needs going forward.

Specifically, Soler projected that El Paso could earn less than half the profits it expects in 2006. In the meantime, he said, the company will probably generate negative cash flow for the next three years. As a result, he suggested that El Paso should further pare its assets -- shedding underperforming production properties in particular -- so that it can operate within its means.

Soler, for one, expressed little surprise at El Paso's massive revision in reserves. He also insisted that the stock could be due for another hit.

"We believe that the stock has at least $3 to $4 per share of downside risk with very little upside over the next 12 to 18 months," he wrote last week.

Still, El Paso's latest news probably came as a surprise to many. Goldman Sachs analyst David Maccarrone, for example, penned a brief note Tuesday night in full anticipation of a timely earnings release. He did, however, foresee news about additional ceiling test charges. He also slashed his 2003 earnings forecast for the company by two-thirds, to just 5 cents a share.

Looking forward, most analysts suspect that El Paso remains too optimistic. But Coale, for one, keeps hoping the company will prove its doubters wrong.

"While we are inclined to believe that El Paso really has put the worst behind them -- this time -- we admit with humility that we have written this in research reports before," Coale reminded last month. "However, maybe this time the company has put the worst behind them."

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