Janelle R. Courtright John C. Williams July 17, 2007

AGENDA Size and Composition of Sector Business Analysis of Sector Economic Analysis Financial Analysis Valuation Analysis Recommendation

S&P SECTOR SIZES

SIM SECTOR SIZE

Industries in Energy Sector Coal - Peabody Oil and Gas Domestic Oil and Gas International - Exxon Oil and Gas Pipelines Oil Refining and Marketing Oil Well Contract Drilling Oil Well Drill Contracting Oil Well Equipment Oil Well Services - Schlumberger

Largest Companies in Sector Exxon Mobile ** Chevron Corp. ** ConocoPhillips Schlumberger Limited ** 2 of top ten largest in S&P 500

32 COMPANIES IN SECTOR MROMarathon Oil MURMurphy Oil Corp NBRNabors Industries NENoble Corp NOVNational Oil Well Varco OXYOccidental Petroleum RDCRowan Companies RIGTransocean Inc SESpectra Energy SIISmith International SLBSchlumberger Limited SUNSunoco VLOValero Energy Corp WFTWeatherford Int’l WMBWilliams Companies XOMExxon Mobile XTOXTO Energy APAApache Corp APCAnadarko Petroleum BHIBaker Hughes, Inc BJSBJ Services BTUPeabody Energy CHKChesapeake Energy Corp CNXConsol Energy Inc COPConocoPhillips CVXChevron Corp DVNDevon Energy EOGEOG Resources EPEl Paso Corp ESVEnsco International HALHalliburton Company HESHess Corp HELD IN SIM PORTFOLIO

SECTOR PERFORMANCE Sector% Price ChangeDiff SP500 QTDYTDQTDYTD Energy Consumer Discretionary Consumer Staples Industrials Materials Info Tech Financials Healthcare

Sector Life Cycle Mature –Growth Slowing –Stabilized or shrinking margins –Extraction, refining, and processing increasing capex increasing Looking for resources in more difficult areas and moving away from core business of “oil”

Sector Life Cycle

Sector Influences U.S. Economy –Excessive Profits Tax –Commercial Petrochemical Use –Environmental Concern Movement to Alternative Energy Sources –Domestic Reserves Natural Gas, Coal, Oil –Consumer Driving Habits Stable even at higher gasoline prices

Sector Influences

External Factors –Environmental Laws Kyoto Treaty, EU –New Industrial Ages China, India –Geopolitical Climate Venezuela, Russia, Iran

Energy Users

Capacity

Reserves World Proved 1 Reserves of Oil and Natural Gas, Most Recent Estimates Oil Natural Gas (Billion Barrels) (Trillion Cubic Feet) BP Statistical Review 2 Oil & Gas Journal 3 World Oil 4 BP Statistical Review 2 CEDIGAZ 5 Oil & Gas Journal 3 World Oil 4 Year-End 2005January 1, 2007 Year-End 2005 January 1, 2006January 1, 2007Year-End 2005 World Total 1, , , , , , ,

Sector Evaluation Growing demand with a limited supply Petroleum, Natural Gas, Alternatives Concentrated in Oil and Gas EXPENSIVE to enter Customers are weak, suppliers are strong Strong Competition, prices stable Alternatives are becoming more available

CRUDE OIL PRICE FORECAST 4th-071st-082nd-083rd-084th-08 Forecast Value

Absolute Valuation

Relative Valuation

Energy Sector Valuation Absolute Sector Valuation –Trading around its ten year average: inline Relative Sector Valuation –Selling Inline to market Sector earnings/stock price driven by oil –Oil near all-time high increasing earnings and cash flow –Energy stocks likely to plateau and possibly decline in 3 – 6 months

SHORTTERM ENERGY OUTLOOK Average price of gas has gone down – Refinery problems being resolved –Higher levels of product imports Price of gas will go up modestly –High Inventories, will decrease with strong demand –Stabilizing crude oil prices –Strong demand

RECOMMENDATION Continue to underweight to S&P 500 –Oil forecasted to retreat Recommend to hold at 217 basis points below S&P –Sell equipment suppliers, specifically, Schlumberger Limited due to being overpriced –Increase holdings in other energy industries Look to underweight in the next 6 months –Short-term returns to outperform S&P 500 –Long-term returns will under perform Drop in oil prices, cheaper alternatives becoming more available

QUESTIONS??