Cost Pressures Continue to Rise as Capital Investment by Oil and Gas Companies Hits Record Levels; John S. Herold/Harrison Lovegrove Study Finds Oil and Gas Companies Invested for Production, Not Reserve Growth.

NORWALK, Conn. -- Twentieth graph, first sentence of release dated September 26, 2005 should read: xxx ExxonMobil at $10.5 billion; BP ($9.8 billion); EnCana ($8.6 billion) xxx (sted ExxonMobil at $10.5 billion; EnCana ($8.6 billion)).

The corrected release reads:

COST PRESSURES CONTINUE TO RISE AS CAPITAL INVESTMENT BY OIL AND GAS COMPANIES HITS RECORD LEVELS; JOHN S. HEROLD/HARRISON LOVEGROVE STUDY FINDS OIL AND GAS COMPANIES INVESTED FOR PRODUCTION, NOT RESERVE GROWTH

Global energy companies recorded upstream investment of some $195 billion in 2004, up $30 billion from 2003, according to the 2005 Global Upstream Performance Review, released today by energy research firm John S. Herold, Inc. and upstream corporate advisor Harrison Lovegrove & Co. Ltd. Cash flow moved 20% higher to $241 billion, leading to record "free cash flow" of $46 billion, up 27% on 2003.

"The industry has pressure points, however, which in time will likely impact its forward momentum," said John S. Herold, Inc. Chairman & CEO Arthur L. Smith. "First, proved and proved developed petroleum liquids reserves were essentially unchanged in 2004 - the poorest performance for many years. Secondly, finding and development costs have risen nearly 75% over the last five years. Finally, operating costs continued to rise as the industry tried to coax extra out of a system that is running at or near capacity."

Harrison Lovegrove Chief Executive Martin Lovegrove noted, "In 2004, upstream capital investment was spread reasonably widely, reversing the flight of funds to the frontiers that we saw in 2002 and 2003. The strongest growth was seen in the mature but politically and fiscally attractive US, Canada and Europe. This resurgence of OECD investment was demonstrated by the significant rise in North American transaction value (particularly among mid-sized E&Ps), which underpinned a 50% rise in global M&A activity - the first such rise since 1998."

Overall Findings

The 2005 Global Upstream Performance Review, Herold's 38th annual study of upstream performance by substantially all public oil and gas companies based on data filed with the U.S. Securities Exchange Commission (SEC), measured industry-wide performance in a number of key areas:

--Prices & Revenues - A 24% increase in worldwide revenues to $500 billion recorded by the 203 companies in the study implied an average realization of $28.13 per barrel of oil equivalent (boe), up 20% from 2003.

--Cash Flow & Capital Spending - Cash flow increased 19% to $240 billion, more than $45 billion above upstream capital investment; for the fifth consecutive year, capital investment was less than cash flow.

--Exploration & Development - Aiming to maximize deliverability in a time of high prices, development spending rose 14% to $117 billion. Exploration spending as a percentage of overall capital investment remained flat. Total exploration expenditures rose 19% primarily due to a 75% rise in unproved property acquisitions.

--Mergers & Acquisitions - Driven by record oil and gas prices, proved acquisition costs rebounded from a decline in 2003 to soar nearly 31% to $38 billion. Deal count rose to a five year high on 15% increases in both corporate and asset transactions

--Capital Flows - Capital reversed course in 2004, as investment soared in the U.S., Canada, and Europe.

--Reserves - Oil and gas production increased 2.8% worldwide in 2004, surpassing the rise in oil and gas reserves for the fourth consecutive year. Reserves fell in Europe, Africa & Middle East, and South & Central America, the later two suffering from less aggressive capital spending.

--Costs - Reserve replacement costs surged 17% to $7.41/boe in 2004, and have increased about 13% per year since 1999. The reserve replacement rate continued declining, reaching 148% of production compared with 200% in 1999.

--Profits - Our study universe earned a record $138 billion, or $7.98/boe, in 2004. The Major Oils maintained their profitability advantage over the E&Ps, although the gap narrowed in 2004.

Key regional findings of the 2005 Global Upstream Performance Review are:

--In the U.S. profitability caused investment to soar, but higher costs may squeeze future margins.

--Canada has been the most expensive of the world's regions in which to either buy or develop reserves over the past five years.

--European reserves slipped for the fourth straight year; high tax rates crimped profits; exploration efforts are scanty.

--Africa & Middle East gas reserves are rising rapidly, but oil bookings were below usual rate; profitability is now higher than in Europe.

--Asia-Pacific offered the best opportunity to find natural gas cheaply; profitability was second only to U.S.

--South America remained out of favor; high taxes discourage investment, M&A market nearly dormant.

Herold and Harrison Lovegrove noted that Royal Dutch Shell plc was the most active company in 2004 with $10.6 billion of total upstream expenditures, just ahead of ExxonMobil at $10.5 billion; BP ($9.8 billion); EnCana ($8.6 billion); PetroChina ($7.5 billion); ConocoPhillips ($6.6 billion); Chevron ($6.4 billion); Total ($6.3 billion), Statoil ($5.8 billion); and Eni ($5.7 billion).

Herold Chairman Smith and Harrison Lovegrove Chief Executive Lovegrove will lead a conference call on the results and conclusions from the 2005 Global Upstream Performance Review on Monday, September 26, 2005, at 3:00 P.M. Eastern Daylight Time. North American media and industry executives can participate by calling [phone]. For callers outside North America, the number is [phone]. A press kit is available by contacting Tom Biracree, [e-mail] or [phone].

Founded in 1948, John S. Herold, Inc. is a specialized research and consulting firm focusing on valuation, strategy and performance measurement of the world's leading oil and gas companies.

Harrison Lovegrove & Co. Ltd. advises upstream oil and gas companies on acquisitions, divestitures, swaps of assets and subsidiaries, and the takeover and defense of listed companies.