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Leading analyst, two experts and and top management from seventeen sector firms examine the natural gas sector in this special 71-page Natural Gas issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info543.htm.

TWST: What’s your outlook on pricing?

Mr. Barone: Our short-term outlook is that natural gas prices may pull back over the next several weeks. As of April 19, 2002, there was over 1.5 trillion cubic feet of gas in storage. This storage level is well above normal for this time of year and was caused by one of the warmest winters in recorded history — many parts of the country experienced the warmest winter since records started to be kept (108 years ago) —and reduced industrial demand. The economy is improving, but remains quite weak by many measures. As a result, there is a possibility in the very short run that gas prices pull back a bit. Cash prices yesterday averaged 3.23 per million Btu; that is quite high, given storage levels and current demand. Later this year, I believe gas prices will be relatively high, possibly 3.5, or even a little north of that number. The reason for that is there has been a tremendous contraction in drilling activity; the natural gas rig count went from 1,068 last July, to 591 a couple of weeks ago, before improving modestly to 613 last week. There’s normally a lag of four to six months before rig activity is reflected in deliverability. Thus, I can envision a scenario that as this economy gains some steam or momentum in the last half of this year, and the demand for natural gas climbs, the deliverability and supplies of gas will be going down because of the contraction in drilling activity. We forecast that by the end of the year, daily deliverability in the United States will be 3% below where it was at the end of 2001. So in the very short term, there may be a correction in gas prices. However, for the balance of this year, gas prices could move up dramatically. In my opinion, a most likely range for prices over the next five years would be 2.5 to 2.75 per million Btu on the bottom, and 3.75 to 4 on the top.

TWST: What other names are you including on your buy list today?

Mr. Barone: I have a “strong buy” on El Paso and a “buy” on Equitable Resources (NYSE:EQT), Kinder Morgan, Inc. (NYSE:KMI) and The Williams Companies (NYSE:WMB). Equitable is about two-thirds production and development. I do not use the term exploration, since the company’s reserves are in the Appalachian Basin and 99 out of every 100 wells are successful in Appalachia. Hence, the company does not conduct a risky drilling program. Equitable has a 23-year reserve life, which is by far the largest that I know of in the industry. More than 95% of the company’s reserves are natural gas. Given the proximity of these reserves to major market areas (Philadelphia, Pittsburgh, Baltimore and Washington, DC), the company nets back a high wellhead price. Equitable’s 2002 natural gas production is 100% hedged at prices in excess of 4 per million Btu. With respect to 2003 natural gas production, the company is over 85% hedged at prices north of 4 and every 0.1 change in NYMEX natural gas prices equates to less than a 0.01 earnings per share impact to Equitable’s bottom line. About one-third of its earnings is derived from natural gas distribution in Pennsylvania. The regulatory environment in Pennsylvania is constructive and deregulation has been successfully implemented in the state. Performance-based rates could be rolled out in early 2003 and could add to the earnings growth of this business. The implementation of performance based rates could be a catalyst for consolidation in the state. Murry Gerber, the CEO of Equitable, is one of the best hands-on managers in the industry.

This special issue includes:

1) Outlook for Natural Gas - In an in-depth (6,700 words) Expert Interview, David N. Fleischer, Managing Director with Goldman, Sachs & Company and Curt Launer, Managing Director in the Equity Research Department of Credit Suisse First Boston, both examine the outlook for the sector.

2) Outlook for Natural Gas - In an in-depth (2,700 words) Analyst Interview, Ronald J. Barone, Managing Director in the Energy Group of UBS Warburg Equity Research, examines the outlook for the sector and shares specific stock recommendations.

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