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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: Stan, what would you add to an industry status report?

Mr. Harbison: Michael’s last comment leads me to draw a distinction, and it’s one that we just made here in our coverage comments. Broadly speaking, there are two groups of companies in which to invest: 1) those whose cash flows and value key off the global oil price and the state of downstream oil margins; and 2) the North American-based companies whose values depend strongly on the level and direction of the US natural gas price. Those are the stocks Michael just mentioned. The natural gas-based group would include almost all of the E&P companies, although not all. That group would also include the great majority of North American-based oil service and drilling stocks, because their business is, by and large, driven by an acceleration or deceleration of activity in the Natural Gas Patch. In fact, at the current time, we are in a real depression in the natural gas industry, although the price has jumped very sharply in the last month or so. There remains a huge storage surplus. We’ve had very low prices and drilling activity is very low. I think investors are correctly starting to become uncomfortable just sitting there waiting for recovery while promises of a future market remain apparently far off. They’re anticipating that there will be a change for the positive. The rest of the stocks will key much more off of oil and oil product fundamentals, meaning basically the level and direction of oil prices. Like natural gas, oil prices have risen sharply in the past month or two. Oil product prices and margins have not moved up as sharply. But they’re beginning to move up a bit with the slowdown in product production and the liquidation of excess oil inventory. So you can very easily have diverging performances between big groups of stocks. The big integrated companies and most of the European companies will not react very much to US natural gas prices. But there are about 20-30 North American companies which have grown over the past few years and are now substantial in size (with 3 to 5 billion market caps) that are primarily revolving around US natural gas.

TWST: Stan, what has driven the performance of the group?

Mr. Harbison: I think oil prices and US natural gas prices tend to be the key commodity drivers. I think the analysts who cover the sector and the portfolio managers who watch energy stocks believe that you do best by watching the companies on an individual basis. In that case, group commodity drivers may be much less relevant. You watch and see what strategic moves, portfolio changes, and what capital budget initiatives each company makes, and you place your bets on the ones that you think will perform the best.

TWST: Stan, are there any other names you like long term?

Mr. Harbison: Yes. I mentioned two of them previously — Royal Dutch/Shell (NYSE:RD) and Total (NYSE:TOT). TOTAL is a similar target, although there is a question as to whether a non-Anglo company — French or Italian or Spanish — can get the same recognition in the London or New York equity markets. But I think over time that’s being done. The London brokerage community has been quite favorable toward TOTAL. It clearly is the one company among the oils that has current strong growth. I believe their production growth is 10% this year. Its long-term suite of projects is very diversified and quite impressive. It has 30% of the European downstream market, and it is working on making that more profitable. Every year it reports incrementally improved results in chemicals as well. I think those two companies, from my point of view, are the ones that you want to stick with.

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.