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Converging Giants

Issue 4 and Volume 104.

The lines that distinctly divided traditional pieces of the energy industry are blurring with each merger, acquisition or joint venture announced across the globe. As the oil and gas industry explores its options in the electric power industry and the power firms try their hand at fuels, a whole new, combined industry is emerging. Gone are the stodgy old monopoly-based utilities and their mirror image, the wildcatting oil companies. The energy giants of tomorrow are being created today. And with that comes new ways of looking at these firms and of ranking their dominance.

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Petroleum Finance Co., a global energy strategic advisory firm, has released the PFC Energy 50, a new ranking of the world’s largest listed energy firms, showing key trends in the energy industry, including the increasingly international nature of the industry and the blending of lines between the previously distinct branches of energy. The companies are ranked not by volume, but by market capitalization.

For most of the oil and gas companies, oil is still their primary business, but natural gas is growing in portfolio importance. Power is generally still only a small percentage of their business. The top five companies are all oil and gas firms, but only 19 of the 50 have oil and gas as their primary business. The primary businesses of the other 31 are electricity and gas. Six are primarily gas companies.

The landscape is changing rapidly as companies acquire or get acquired. AES has shown the most rapid growth in market cap over the past five years, growing from less than $1.5 billion at the close of 1994 to more than $15 billion at the end of 1999, through its rapid power sector expansion in the U.S. and on the international scene. El Paso Energy toted the second fastest market share growth. TotalFina Elf, the Williams Companies, and BP Amoco round out the top 5 for market cap growth.

For top share price performance, look to the electricity-and-gas-based firms. AES again tops the rankings with a 222 percent 3-year share-price growth. BG Group takes second with a 142 percent share jump. National Grid, Enron and Repsol-YPF also finish in the top 5. PFC cites Calpine, CMS, Dynegy, Kinder Morgan and Reliant as fast-growing companies to watch in the coming year.

Mergers and acquisitions run rampant on all fronts of the energy industry, and these developments will likely change the composition of the Energy 50 by the time the next ranking comes out next quarter. Firms likely to reach the Energy 50 through M&A activity over coming years include:

• Dynegy, with announced intention of increasing its generation portfolio from the current 25,000 MW to 70,000 MW in four years;

• PowerGen, which is acquiring LG&E;

• NiSource, following its recent purchase of Columbia Energy Group;

• Dominion Resources, which bought Consolidated Natural Gas out from under Columbia Energy last year;

• Kinder Morgan, which accomplished a reverse takeover of KN Energy;

• CMS Energy; and

• Reliant which picked up $2.1 billion in generation assets from Sithe Energy in February.

The full Energy 50 analysis can be seen at PFC’s web site www.pfcenergy.com.