Welcome

London, UKMay 9, 2002

Dorchester HotelDorchester Hotel

Panelists

Neil Fleming, VP Information & Trading Services Jorge Montepeque, Director Market Reporting Gerald Bueshel, Global Crude Oil

Manager/Markets Manager, New York Peter Stewart, Manager Oil, Europe Paul Young, Executive Editor European Markets

Agenda

Production decline affects benchmarks Volume injection to revitalize benchmarks Description of volume injection mechanism Potential market implications Q & A session

The Issues

Brent production declines Full month programs are squeezed IPE and 15-day Brent disconnect from the value of

similar commodities IPE Brent and NYMEX WTI narrow excessively Dated Brent price appears distorted vis-à-vis other

similar commodities Brent ceases to reflect market conditions in the

North Sea

Definition of Problem

Is there a problem? Yes, all instruments that derive their value from

the physical Brent production are squeezable What is the core problem? There is insufficient production of Brent, and

hence Brent instruments have become disconnected from similar commodities

Where is the problem manifested? In dated Brent, paper Brent and all its derivatives

Physical Brent liquidity problems

Fact: Brent production declines, which makes market squeezes easier

Option: Consideration of other physical North Sea grades (e.g. Forties) for Dated Brent assessment purposes

Advantage: Pool of potentially 65-90 cargoes/month for key benchmark assessment

Implementation: Following consultation with the industry

Brent production:A steady decline

1999:UK July Brent throughput seen at 568,806 b/d: ShellThe average throughput of UK Brent Blend in July is expected to be 568,806 b/d, operator Shellsaid Thursday. The throughput estimate now covers co-mingled crude from the Brent System

and Ninian System pipelines delivered to Sullom Voe in Shetland, Shell noted. Throughputfor the year up to the end of May was 570,021 b/d. The July estimate is based oninformation available at present and is subject to the progress of maintenance work, associatedengineering and normal operational considerations, Shell said.

2002:UK May Brent throughput seen at 360,000 b/d: ShellThe average throughput of UK Brent Blend crude in May is expected to be around 360,000 b/d,operator Shell said Tuesday. The throughput estimate covers co-mingled crude from the BrentSystem and Ninian System pipelines delivered to Sullom Voe in Shetland, Shell noted.

Average throughput for the year up to the end of March was 385,309 b/d. The May estimate is based on information available at present and is subject to the progress of maintenance work, associated engineering and normal operational considerations, Shell said.

Dated Brent versus Long Dated Brent:Underlying lack of volume remains

Dtd Brent vs LD Brent

22

23

24

25

26

27

28

$/b

bl

LD Brent

Dtd Brent

Brent lawsuit: Tosco vs. Arcadia

Regulatory initiatives:Financial Services Authority

Brent market within regulatory ambit of UK's FSALondon (Platts)--29Apr2002/511 am EDT/911 GMTThe UK's Financial Services Authority said Friday that, inits view, squeezes on the Brent market or any such activity thatresults in price distortion in this market, fall within itsregulatory ambit. Responsibility for regulating the Brent crudemarket has in the past been a grey area. Traders note that a newcode of conduct put in place early this year by the FSA mayexpose companies to legal action if they hold a "dominant"position or cause a distortion in an investing instrument. AnFSA official said that the code of conduct applies to exchangeinstruments such as IPE futures or "other instruments thatprovide value or derive value from the IPE." By most accounts15-day Brent would therefore fall under the guidelines of theFSA.

Industry initiatives:Shell zeroes in on operational tolerance

MH0379

Shell cuts Brent contract operational tolerance to 1%New York (Platts)--24Apr2002/923 am EDT/1323 GMTShell Thursday said it was cutting the operational tolerance on15-day Brent crude contracts to 1% from the previous level of 5%with immediate effect. The change will apply to all cargoesloading in January 2003 or later, Shell said. The change hasbeen made as an amendment to the 1990 Agreement for the Sale ofBrent Blend Crude Oil on 15-Day Terms (Part 2), Shell said. Thecargo size in the 15-day Brent market is 500,000 bbl, with thebuyer currently having the right to nominate an actual volume ofbetween 475,000-525,000 b/d, representing an operationaltolerance of plus or minus 5%. The change to cut this figure to1% means nominations will have to be between 495,000-505,000bbl. Shell said it believed the reduction would "encourageliquidity and increase transparency in the Brent market." Shellis the operator of the UK North Sea Brent complex.

Industry initiatives:Shell’s move opens floodgates

Brent cash market starts to move to 1% tolerance levelLondon (Platts)--1May2002/740 am EDT/1140 GMTThe Brent crude cash market has already started to migratetowards 1% commercial tolerance on cargo sizes, and a completeswitch to the new tolerance band could happen far earlier thaninitially anticipated, trading sources reported Wednesday. Shelllast week announced a reduction in the operational tolerance ofBrent cargoes from 5% to 1%, effective on all cargoes fromJanuary 2003. Only one deal has been confirmed so far on 1%tolerance--a Sep/Oct concluded Tuesday at +26 cts--but Jun/Jul,Jul/Aug and Aug/Sep were all offered early Wednesday on a1%-tolerance basis. In addition, sources said, there had been anumber of discussions to convert existing 2002 Brent positionsbased on the older tolerance level of 5% to the new 1% level.

Dated Brent Differential to Ekofisk

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50Jan-0

0

Apr-

00

Jul-00

Oct-

00

Jan-0

1

Apr-

01

Jul-01

Oct-

01

Jan-0

2

Apr-

02

$/b

bl

Feb/Mar IPE Brent Spread

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

$/b

bl

IPE EFP

May/June IPE Brent Spread

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

$/b

bl

Feb IPE Brent/NYMEX WTI

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

$/b

bl

May IPE Brent/NYMEX WTI

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

$/b

bl

Dated to June Brent DifferentialsForties to dated Brent Spread

-1.00

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

$/b

bl

dated/June

Forties

Scapa Flow Brent

Finding a Solution

What is the solution to low Brent production volume? Inject volume through alternative crude delivery What alternative grades? Oseberg and Forties Why those grades? Oseberg and Forties bear close resemblance to Brent Where would the volume injection take place? In the paper Brent, dated Brent market and derivatives

Alternative grade injection

Injection of volume to revitalize dated and pre-dated instruments.

Injection to encompass all faces of Brent markets that derive their value from the underlying physical Brent production.

Alternative grades to be injected at par with Brent

Equity ownership

Approx. equity share Approx. equity shareYear Volume Phillips 25% Year Volume Norway State 37%2002 700 TFE 25% 2002 500 NH 19%

Ekofisk 2003 800 Agip 8% Oseberg 2003 450 Statoil 14%2005 600 Shell 5% 2005 350 Conoco 7%2010 300 XOM 5% 2010 150 XOM 3%

BP 10% TFE 3%

Approx. equity share Approx. equity shareYear Volume BP 35-45% Year Volume Norway State 20-25%2002 900 TFE 10-20% 2002 550 NH 10%

Forties 2003 850 Enterprise 5-10% Statfjord 2003 500 Statoil 25-30%2005 700 XOM 5-10% 2005 400 Conoco 5%2010 300 Shell 5% 2010 200 XOM 15-20%

Hess 5% TFE 5%Shell 5%

Average Crude Valuesfrom January 2000

25.60

25.65

25.70

25.75

25.80

25.85

25.90

25.95

26.00

Ekofisk Brent Forties Oseberg

$/b

bl

Editorial Volume Injection

How would the alternative grades be injected into the Brent benchmark?

Through acceptability of alternative grades for the dated Brent assessment process

How would the system actually work? Platts would implement, at a future date, three

editorial Brent assessment changes

Three editorial changes to the Brent assessments

Elimination of commercial tolerance Declaration of dates/grades 21 days in advance Substitutability of Oseberg and Forties into

Brent -dated and pre-dated instruments- for assessment purposes.

Elimination of commercial tolerance

Platts would consider for its forward Brent assessments (aka paper, cash Brent), transactions effected with zero commercial tolerance and with a maximum of 1% -plus or minus- for actual terminal operational tolerance.

21-day advance declaration

Platts would consider into its forward Brent assessments, transactions where seller has the obligation to declare grade and dates 21 days in advance of loading.

Grades aceptable are Brent, Oseberg and Forties

Grade substitution in the Dated Market

Platts would consider for its dated Brent assessments alternative grades loading 10-21 days forward, specifically Oseberg and Forties besides Brent.

Platts would consider bids and offers made on an any dated Brent basis, where seller has the obligation to declare the grade at time of execution.

Platts would consider specific grade bids and offers and would reflect the broader North Sea trading fundamentals in its assessments

Precedents

Brent is already a physical blend NYMEX light crude has optional grade delivery Oman was injected into the Dubai assessment Several contracts have 0% commercial tolerance Window of assessment has been changed in other

markers

Mechanism for substitute delivery

Seller offers dated Brent and has right to declare grade at time of execution.

Buyer bids for dated Brent and has obligation to accept any grade at time of execution.

Seller offers ‘only’ dated Brent.

Buyers bids ‘only’ dated Brent.

Offer valid for assessment purposes unless specific grade bids surpass value of offer.

Bid valid for assessment purpose.

Offer valid if most competitive among similar grades.

Bid valid if value has not crossed those of similar grades

Brent Assessment Example

Company A buys 21-day Brent loading in June at $25.00/bbl from company B.

Company A is declared Forties loading June 21-23 on May 31. Company A offers dated Forties June 21-23 at June plus 10 cts. Company C offers dated Oseberg June 21-23 at June plus 5 cts. Company D bids any dated Brent June 21-23 at June flat. Assessment value for June 21-23 = June 0/+5 cts

Impact of Proposal

Value of Brent benchmark would reflect broader North Sea light crude fundamentals

Expected effects of Brent proposals

More harmony in trading windows with other Atlantic Basin grades. This would enable players to better optimize grades.

The option to deliver other grades into forward paper contract would reduce the possibility of a squeeze in Brent prior to expiration.

Brent/Dubai spread would contract. Brent/WTI would widen. Forward and futures differentials would narrow. Forward and dated Brent would diverge less. Implied backwardation would ease.

Requests

Some participants have requested cargo size to be redefined to 600,000 bbls.

More detail on Scapa Flow Brent , Oseberg or Forties delivery.

Greater monitoring of performance, including operations, after cargo has been bought/sold.

Establish deadline for valid bid/offers for dated Brent, Oseberg, Forties.

Move Brent assessment window to a close of business during European time.

Assessments Structure to Remain Unchanged

BrentMAY 26.00-26.02 Dubai(JUL) 24.51-24.56BrentJUN 25.53-25.54 Dubai(AUG) 24.20-24.27BrentJUL 25.62-25.65 Dubai(SEP) 23.93-24.02Brent(Dtd) 25.84-25.86 LD Brent 25.74-25.75 Oman(JUL) 24.56-24.65NS Basket 25.34-25.39 Oman(AUG) 24.33-24.44Forties 25.19-25.26 Oman(SEP) 24.08-24.20Ekofisk 25.09-25.16Statfjord 25.04-25.11 Oman(JUL)MOG 0.06- 0.08Oseberg 25.24-25.31 Oman(AUG)MOG 0.07- 0.09Flotta 24.57-24.63 Oman(SEP)MOG 0.06- 0.07

Dubai Inter-month Differentials

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0Jan-0

1

Feb-0

1

Mar-

01

Apr-

01

May-0

1

Jun-0

1

Jul-01

Aug-0

1

Sep-0

1

Oct-

01

Nov-0

1

Dec-0

1

Jan-0

2

Feb-0

2

Mar-

02

$/b

bl

Oman Behavior Changes

-1.00

-0.75

-0.50

-0.25

0.00

0.25

0.50

0.75

1.00

1.25

$/b

bl

??Questions & Answers