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Four analysts and two experts examine the oil & gas sector in this special 29-page Oil & Gas: Exploration & Production issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info542.htm

TWST: Andrew, how have the E&P stocks performed over the past 12-18 months?

Mr. Lees: Since the beginning of 2001, the E&P stocks I follow have declined approximately 10%. Last year, I think my average large cap producer was down 20% in total. However, over the last three years they’re up 100%. Year to date they’re up 13%, but they’re up roughly 45% since they bottomed out, which is really a more relevant number than any particular calendar date. They bottomed out in late September 2001. They’ve had a great rally of late, in comparison to the general market.

TWST: Andrew, have recent global events affected oil and gas prices?

Mr. Lees: We’ve obviously seen an impact of a couple of dollars in oil prices for the turmoil in Venezuela! When traders thought Venezuela was going to produce at productive capacity rather than OPEC quotas, oil prices went down $2, and when Chavez went back into power oil prices went up $1! In addition to that, there is an impact of maybe $3 or $4 in oil prices for the Middle East conflict: i.e., if peace miraculously broke out in the Middle East, I think oil prices would go down $4. That said, I don’t think that’s going to happen. The events in the Middle East have solidified some part of that premium — an access premium, if you will, of a couple of dollars, anyway. So our outlook for oil prices is really quite simple. I think it’s defensible for OPEC to get the lower end of the range, say $22-$24 for their blended basket, which works out to $24 or $26 WTI. And I think the economy can flourish at that price. So we try not to predict the conflict or turmoil premiums and just go forward on the equilibrium price. For gas, with a recovering North American economy occurring at the same time as falling supply — and I agree with John regarding 3%-5% declines in year-over-year deliverability in US gas — I think things could get tight by the end of the year. I believe you’re looking at gas prices in excess of $3.50 going forward as kind of an average, although the volatility will definitely remain. I’m not sure, however, if we’ll see high enough sustainable gas prices — say, $4 or over — to see Alaskan gas flow, which I guess ultimately means a boon for LNG and for nearby Caribbean gas.

TWST: Would you tell us about Pioneer (NYSE:PXD) and Talisman (NYSE:TLM)?

Mr. Lees: I think that Pioneer is a great company. It has managed to get itself involved in some successful deepwater Gulf of Mexico plays, and I don’t think investors are paying for it. The company hasn’t traditionally played in this area. As a result, I think people are playing a wait-and-see game. These plays should enable them to deliver better growth than expected going forward. It will also enable the company to lower their finding costs below historical levels. In addition to that, PXD has been deleveraging over the last several years. 2003 should be a pretty big year for Pioneer in the deleveraging process. It should actually get back down below 50% debt to total cap, and into that 2 times debt to cash flow range. I think those benchmarks are kind of important for Pioneer from a perception vantage.

This special issue includes:

1) Oil & Gas: Exploration & Production - In an in-depth (12,300 words) Analyst Roundtable, M. Bradley Davis, Senior Vice President at SWS Securities, John P. Herrlin Jr., First Vice President at Merrill Lynch Global Securities, Andrew T. Lees, Vice President at Stifel, Nicolaus & Company, Inc. and Shannon Nome, Managing Director at J.P. Morgan Chase, examine the outlook for the sector including stock performance, industry definition and share specific stock recommendations.

2) Energy Industry Trends & Issues - In an in-depth (3,300 words) Expert Interview, Gregory B. Barnett, Founder and President of EnerCom, Inc., examines the outlook for the sector.

3) Energy Industry Trends & Challenges - In an in-depth (2,700 words) Expert Interview, Howard A. Christensen, co-Chairman of Christensen & Associates, examines the outlook for the sector.