Energy and Utilities

1. Energy and Utilities

2. ConocoPhillips Analysis of: Business, Financials and Valuation Recommended action: Maintain current weight in SIM Portfolio – 0.74%.

3. ConocoPhillips (COP)Business Analysis ConocoPhillips is an integrated, global energy company. The Company is the result of the merger between Conoco Inc. (Conoco) and Phillips Petroleum Company (Phillips), which was consumated on August 30, 2002, at which time Conoco and Phillips combined their businesses by merging with separate acquisition subsidiaries of ConocoPhillips. As a result of the merger, Conoco and Phillips each became wholly owned subsidiaries of ConocoPhillips. The Company's business is organized into five operating segments: exploration and production, midstream, refining and marketing, chemicals and emerging businesses. August 31, 2001 (fiscal 2001).

4. Petroleum exploration and production Petroleum refining, marketing, supply, and transportation Emerging technologies 30.3% interest in Duke Energy Field Services - Natural gas gathering, processing, and marketing 50% interest in Chevron Phillips Chemical Company – chemicals and plastics distribution and production ConocoPhillips (COP)Business Analysis

5. ConocoPhillips (COP)Business Analysis Factors Impacting Valuation Positive Factors Negative Factors • Innovative company • Economic cycles and demand volatility • Threat of lower oil prices (Current valuations reflect a forecast of $20/BBL) • Improving credit rating • Tight inventories and capacity in industry

6. ConocoPhillips (COP)Business Analysis Catalysts Major shifts in supply and demand Revolutionary Technologies Revolutionary energy sources Force a major restructuring of the industry Increases energy price volatility Reduces cost of exploration, production, distribution, etc. • Forecast: • Lower energy prices are “baked” into valuations ($20/BBL) • Economic recovery could drive prices higher than expectations

7. SUMMARY OF 2002 • Continued benefit from merger, cost cutting • CAPEX up (negative factor for valuation) • Negative financing cash flow (positive factor for valuation)

14. ConocoPhillips (COP)Conclusions Recommended action: NONE

15. ExxonMobil Analysis of: Business, Financials and Valuation Recommended action: Increase the number of shares in the portfolio by 10%

16. ExxonMobil (XOM)Business Analysis XOM is a global integrated energy company Major Business Segments Upstream Downstream Chemicals • Production • Exploration • Refining & Supply • Fuels Marketing • Specialties 83% 10% 7% % Earnings 51% % Capital 32% 17% 22% 5% 6% ROCE

17. ExxonMobil (XOM)Business Analysis Competitor Analysis: ROCE 1985-2002 16 14 ExxonMobil 12 Royal Dutch 10 Shell 8 BP 6 ChevronTexaco 4 2 0 $10-15 $15-20 $20-25 $25-30 Brent Price in $’s per barrel XOM has outperformed its competition at all price levels during this period.

18. ExxonMobil (XOM)Business Analysis Sources of Competitive Advantage Low cost producer (Economies of scale) XOM cost/barrel oil Last 5 yrs. Avg. cost $4.39 Current cost $3.50 to $3.75 • Hydrocarbon detection • Optimal drilling location • Long-distance pipelines • Liquefy natural gas • Greenhouse-gas emissions Technology (Future low cost leadership)

19. ExxonMobil (XOM)Business Analysis Factors Impacting Valuation Positive Factors Negative Factors • Economic cycles and demand volatility • Threat of lower oil prices (Current valuations reflect a forecast of $20/BBL) • Declining net reserve base • Disruptive innovations creating substitute products (e.g. hydrogen) • Dividend up 21 consecutive yrs. • AAA debt rating 84 years • Share repurchase program • Stronger emphasis on natural gas (Qatar deal) • Reserve additions in 2003 should outpace declining base • Tight inventories and capacity in industry

20. ExxonMobil (XOM)Business Analysis Catalysts Major shifts in supply and demand Revolutionary Technologies Revolutionary energy sources Force a major restructuring of the industry Increases energy price volatility Reduces cost of exploration, production, distribution, etc. • Forecast: • Lower energy prices are “baked” into valuations ($20/BBL) • Economic recovery could drive prices higher than expectations

21. a a b c Summary of 2002 • Weak economy, lower natural gas prices, poor downstream margins • CAPEX up (negative factor for valuation) • Negative financing cash flow (positive factor for valuation)

23. EPS 1.69 in 2002 • Lower oil prices projected 2004 - 2005 Attractive dividend

24. Neutral Good Good Bad

25. Bad Neutral Good

26. Neutral Good

28. ExxonMobil (XOM)Conclusions • Recommended action: • Increase the number of shares in the portfolio by 10% • Positive Factors: • Economic recovery is driving higher earnings in 2003 • Current valuations seem reasonable • Current valuations reflect expectations of lower oil prices • Risk of lower than expected oil prices seems low • Low inventories, low refining capacity, and a strong economic recovery bode well for higher prices

29. Entergy Continue to hold weight at 1.09% of SIM

30. Entergy - Business Analysis • ETR is in electric production, retail distribution operations, energy marketing and trading and gas transportation. • Major business segments

31. Entergy- Business AnalysisSources of competitive advantage • Asset based revenues with generating plants of about 30000 MW. • Second largest nuclear power generator in US • Regulated utility business in mainly Arkansas, Louisiana, Mississippi (Retail competition only in Texas) • Trading contracts of short duration unlike competitors

32. Entergy – Business AnalysisFactors Impacting Valuation • Positive factors Strong credit rating Tight capacity in industry Leader in nuclear energy (low cost and safe producer) • Negative factors Economic cycles and weather dependency Uncertainty in utility regulation Likely consolidation in the industry with repeal of PUHCA

33. Entergy – Business AnalysisCatalysts • Major shifts in supply and demand (resulting in energy price volatility) • Shifts in utility regulatory policies (retail and wholesale markets, FERC and EPA) • Revolutionary technologies

41. Conclusions Though there is higher expected dividend, it is recommended to continue to hold at 1.09% of portfolio because of the following reasons: • Already overweight against S&P 500 of 0.13% • Uncertainty in utility regulation

42. Sempra Energy Analysis of: Business, Financials and Valuation Recommended action: Hold weight at 1.08% of SIM

43. Sempra Energy (SRE)Business Analysis SRE is a gas and electric utility also engaged in unregulated power, natural gas, and international energy products

44. Sempra Energy (SRE)Business Analysis

45. Sempra Energy (SRE)Business Analysis Factors Impacting Valuation Positive Factors Negative Factors • Strong emphasis on LNG • Economic cycles and demand volatility • Heavily regulated • Geographic concentration (California) • Strong credit rating • Tight inventories and capacity in industry

46. Sempra Energy (SRE)Business Analysis Catalysts Major shifts in supply and demand Revolutionary Technologies Revolutionary energy sources Force a major restructuring of the industry Increases energy price volatility Reduces cost of exploration, production, distribution, etc. • Forecast: • Increased consumption of gas as well as low US reserves • Natural Gas importing is becoming increasingly important

47. Natural Gas Reserves • United States 5% • Middle East 35% • Former Soviet Union 38%

48. Natural Gas Consumption • United States 22.9% of world production • United States 27.2% of total consumption

49. Liquefied Natural Gas • Sempra Energy has taken an aggressive approach towards LNG • Regasification facilities • Baja, CA will begin operations in 2006 • Hackberry, LA will begin operations in 2007 • Goal is to position Sempra as the leading North American LNG developer

50. a a b c Summary of 2002 • Weak economy, lower natural gas prices • CAPEX up (negative factor for valuation) • Positive financing cash flow (negative factor for valuation)