In This Issue: Fluctuating Oil Prices: Why The Impact Has So Far Been Minimal: Rising oil prices often fuel worries about the economy, but now falling prices are generating optimism. Since reaching a peak of $78 a barrel last summer, prices have dropped more than 35%. Unseasonably warm weather, stronger-than-expected supply, and weaker demand are among the reasons for the decline.The Top 10 Trends In Global Oil And Gas For 2007: After touching record levels-almost $80 a barrel in the summer of 2006-crude oil prices have retreated roughly 30% over the past six months. Still, prices remain choppy, with West Texas Intermediate and Brent prices fluctuating between $50 and $60 per barrel over the past several weeks. While it's important to note that declining prices have led to slightly weaker-than-expected fourth-quarter 2006 earnings for some producers, prices remain at robust levels relative to those of recent history. Ongoing Political Risk In Venezuela Still Poses Challenges For Foreign Oil And Gas Companies: Following the reelection of President Hugo Chavez, and after announcing certain nationalization plans, the Venezuelan government has intensified its rhetoric against foreign oil and gas companies, particularly those operating the heavy-oil projects in the Orinoco Belt. In spite of increasing political risk, Standard & Poor's does not foresee any rating action on major foreign companies operating there. Unpredictable Weather Will Make For Volatile Global Oil And Gas Prices: The most significant near-term influence on the credit quality of global oil and gas companies will be the one least in their control: the weather. Temperatures have been generally warmer in key U.S. heating markets and, to a lesser extent, some global markets. A continuation of this trend could further erode demand for crude oil and natural gas used for heating, and ultimately depress hydrocarbon prices. Exploring Standard & Poor's Oil And Gas Company Reconciliation Tables: Standard & Poor's has designed a reconciliation table that provides a clear bridge between a company's reported amounts and the adjusted amounts that we use in calculating our fully adjusted ratios. This year, we will introduce reconciliation tables for all North American companies as part of our full analysis reports and our rationales. Rollout in Asia- Pacific and Latin America will follow later. For U.S. Oil Refiner Ratings, "Crack Spread" And Differential Assumptions Are Crucial: Projecting financial performance in the U.S. oil refining industry is notoriously difficult because of the sector's volatility. Therefore, Standard & Poor's financial modeling aims to provide a reasonable basis for assessing a refiner's credit strength, with a degree of independence from near-term market fluctuations. For refiners, our models include certain assumptions; one of those is for "crack spreads"-the difference between the price of a barrel of crude oil and the selling prices for a slate of products refined from that barrel. Despite Volatility, Oil And Gas Price Assumptions Remain Largely Unchanged: Oil and natural gas prices continue to be characterized by a remarkable amount of volatility. Oil prices dropped as much as one-third since their mid-2006 peak, before their recent upswing. Natural gas prices have fluctuated significantly as well. Despite, the recent swift price shifts, the current price assumptions are largely unchanged from those that Standard & Poor's put in place in September 2006. Metals & Mining: Prices Down, But Not Out: It might look like the party is over in some sectors of the metals and mining world, where falling prices in recent months have raised questions about producers' long-term prospects and credit quality. But, Standard & Poor's believes the essential message is that healthy fundamentals should remain in place for at least the next couple of years, and will sustain prices at levels that offset rising costs and serve to maintain or even improve credit quality. Equity Insight: The Global Energy Market's New Competitive Dynamic: A surge in oil and gas prices over the past three years has enabled international oil companies (IOCs) to make record profits and build up considerable cash. Nevertheless, these are uncertain times for IOCs. A major concern is how these oil giants will replace their reserves. They face increased difficulties in gaining access to new upstream resources and, in particular, greater competition from national oil companies. The Future Of Coal Is Up In The Air: Power plants that generate electricity burn nearly 90% of coal mined in the U.S. and coal-fired power plants generate 50% of the electricity consumed. Still, the future of coal depends on the policies and decisions of electric utility executives and regulators. | 
