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Three analysts and top management from three sector firms examine the integrated oil producers sector in this special 37-page Integrated Oil Producers issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info518.htm

TWST: Fadel, how did the integrated oil stocks perform in 2001 and so far this year?

Mr. Gheit: The group is up by more than 10% since the beginning of the year after a decline of 7% last year. ChevronTexaco, which led the group last year with a 6.1% gain, has lagged its peers since the beginning of the year and is the only stock in the group to lag the S&P 500 so far this year. ENI is the best performer in the group this year, up almost 20%. BP, Royal Dutch and Exxon Mobil, which declined last year, are all up since January by more than 11%. The secondary oil group is up by less than 5% year to date with Amerada Hess in the lead with a gain of approximately 20%. Marathon is the only stock to decline since January. Refining and marketing stocks continue to outperform other energy groups and the S&P 500. The group is up approximately 11% this year on top of an almost 42% gain last year, benefiting from the acquisition of Tosco by Phillips and of Ultramar by Valero, which is leading this group in performance this year with a gain of 25%. Ashland is the only stock in the group to decline this year. E&P stocks have outperformed all energy groups and the market in recent weeks as a result of the surge in domestic natural gas prices and also in crude oil prices. The group is up by more than 10% this year, a rebound from a 24% decline last year after a record performance of 107% in 2000. Devon is the top performer in this group so far this year, up by more than 23%.

TWST: Fadel, what macro trends have had the greatest impact on the integrated oils in 2001?

Mr. Gheit: Changes in oil and gas prices have less impact on the earnings and the stock performance of major oils. For example, despite record earnings in 2000 and second best ever earnings in 2001, major oil stocks managed an anemic gain of less than 2% in 2000 and a decline of almost 7% in 2001. BP lost almost 20% of its market value in 2000, and Royal Dutch had the same poor performance in 2001. The key factors to this group’s stock performance is operating efficiency, production growth and dividend growth. Despite their size, these companies have no pricing power and, therefore, only their ability to control their costs and replace their reserves while increasing production gives investors confidence in their outlook. Because of their shear size even a large oil or gas discovery usually has little or no impact on the stock price. Investors don’t normally buy these stocks because of their upside exploration, but rather on their return on average capital employed (ROACE), which has become a key performance measure.

TWST: Fadel, how are current valuations?

Mr. Gheit: We downgraded most oil and gas stocks in our energy universe earlier this year to hold — not sell — with a few buys for specific reasons as we expected oil and gas prices to decline. We maintained our buy investment rating on Royal Dutch (NYSE:RD) because of its attractive relative valuation to its two main competitors. In addition to its size, global reach and strong financial flexibility, it has a new, younger and more focused management. The company, which continues to grow its cash dividend, has recently implemented a large share repurchase program that is likely to improve capital efficiency and boost shareholder value. In addition, the shares have suffered their worst decline in decades, losing almost 20% of their value last year.

This special issue includes:

1) Integrated Oil Producers - In an in-depth (13,700 words) Analyst Roundtable, Fadel Gheit, Senior Energy Analyst at Fahnestock & Company, Inc., Stanley Harbison, Senior Vice President at Zurich Scudder Investments Inc. and Michael C. Young, Managing Director at Gerard Klauer Mattison & Company, Inc., examine the outlook for the sector including dividend growth, pricing outlook and share specific stock recommendations.

2) TWST confidential Off-The-Record survey of management performance of eight sector firms asked market insiders about the ability of management teams to create shareholder value.

3) CEO interviews (average 2,500 words). Top management of three sector firms examine the outlook for their firm and the sector.