Capital Discipline Prevails in U.S. Upstream; Integrated Majors Plow Back Less Than 50 Cents of Cash Flow; E&P Sector Dominates Upstream Investment -- Accounting For 2/3rds of Outlays.

Energy Editors/Business Editors

NORWALK, Conn.--(BUSINESS WIRE)--May 14, 2004

Independent Exploration and Production ("E&P") companies dominated U.S. upstream oil and gas investment in 2003, accounting for two thirds of capital outlays, while Integrated and Diversified companies continued to migrate capital overseas, according to the annual research analysis of John S. Herold, Inc. The independent energy research firm's research of domestic exploration and production activity - its 37th annual study - showed that among the top 50 public companies (ranked by capital expenditures in the U.S.) the large Integrated oils reinvested only 49 cents of every dollar of domestic cash flow.

Strong wellhead oil and natural gas values led to record E&P revenues ($80 billion) and upstream cash flow ($45.3 billion). Despite the surge in profits, producers exercised financial discipline, inching investment up only 3% to $36.1 billion, less than 75% of cash flow; Industry emphasis on debt reduction and latent fears of a commodity price whipsaw were contributing factors to the modest upstream investment growth. John S. Herold, Inc. Chairman and CEO Arthur L. Smith pointed to the alarming escalation in reserve replacement costs and equally troublesome decline in volume of domestic reserve additions.. Smith explained, "Reserve replacement costs jumped more than 14% in 2003 to $8.79 per barrel, while finding and development costs climbed 6% to $9.96 per barrel, double the level achieved only four years ago in 1999. At the same time, reserve replacement rates fell for the third consecutive year, and net U.S. oil reserves for the Top 50 Companies actually declined for the first time in five years. These substandard domestic upstream investment results are the driving force behind the Integrated and Diversified oils decision to reallocate capital from the U.S. into overseas upstream projects perceived to offer superior economic returns."

John S. Herold, Inc. and Harrison Lovegrove & Co. will provide comprehensive data and analysis of worldwide oil and gas industry upstream investment in the forthcoming 37th annual Global Upstream Performance Review, which will be released during Herold's Pacesetters Energy Conference in late September. For additional information, please contact Nicholas Cacchione, Herold's Director of Research 203-847-3344 or [e-mail].

Note: Herold's 2004 study of the Top 50 U.S. Companies does not include results for the Royal Dutch/Shell Group and El Paso Corp., which have delayed 2003 reporting due to substantial, previously announced reserve revisions.