Client Franchise

1
Investor Relations Management In the Gas and
Utility Industry Presentation to the American
Gas Association March 2006
Marc Greene, Director 8 Greenwich Office
Park Greenwich, CT 06831 USA
Requests for additional information or questions
should be directed to
Phone [phone] mgreene_at_greenwich.com
Confidential
2
Greenwich Associates Who We Are

• Founded in 1972, Greenwich Associates is the
  leading research-based consulting firm in
  financial services. Our consulting focuses on
  providing comprehensive intelligence and
  actionable advice to the providers and users of
  institutional financial services.
• Over 40,000 interviews are conducted each year
  with professional buyers of institutional
  financial services our Research Partners
  who receive research in exchange for their time.
  As a Research Partner, a principal benefit of a
  relationship with Greenwich Associates is the
  exchange of ideas and market intelligence.
• Over 100 research studies are conducted annually
  in five major lines of business equity markets,
  fixed-income dealing, investment management,
  corporate finance, and commercial banking.
• Over 80 customized research projects annually
  conducted by a specialized team.
• 26 consultants work closely with clients. Over
  120 members execute research design and
  production.
• Over 150 Executive Interviewers gather data in 74
  countries and 14 languages.

3
Top Industry Group Performance 2005GREAT IR!!!
Exploration Productions
Nonferrous Metals
Oil Equipment Services
Coal
HeavyConstruction
4
Worst Industry Group Performance 2005HORRIBLE
IR???
-39
-22
-20
-20
-17
RecreationalProducts
ConsumerElectronics
MortgageFinance
Paper
Automobiles
5
Key Points of the Presentation

• Most important Investor Relations factors to the
  Buy-Side
• Benchmarking Investor Relations Efforts
• Effectively leveraging time spent with the
  Sell-Side
• Peer Perspective

6

• Most important IR factors to the Buy-Side

7
Importance of Communications to Success in
Investor RelationsAccessibility of senior
management, completeness accuracy of written
communications, and quality of in-person meetings
are the most important communication factors in
the sector.

Utility Sector Oil
Gas Sector Overall
Distribution of Evaluations
Accessibility of senior management
Completeness accuracy of writtencommunications
Quality of in-person meetings conferences
Effectiveness of conference calls
Investor relations departmentscommitment to
serving analysts
Quality of press releases
Assuring adequacy of sell-sidecoverage
8
Importance of Management to Success in
IRCredibility of both CEO and CFO are key issues
to buy-side analysts.


Utility Sector Oil Gas
Sector Overall
Distribution of Evaluations
Credibility of CFO
Credibility of CEO
Adherence to corporate governanceguidelines
Credibility of IR Department
Independence of Board of Directors
Clearly defined corporate governance guidelines
9
Importance of Financial Information to Success in
IRTransparency of accounting is a very important
factor to buy-side analysts in the sector as it
is across all sectors.


Utility Sector Oil
Gas Sector Overall
Distribution of Evaluations
Transparency of Accounting
Quality of annual reports, 10-Ks, 10-Qs
Accuracy of financial guidance
Completeness of financialguidance
Timeliness of financial guidance
10

• Benchmarking Investor Relations Efforts

11
Greenwich Quality Index by Industry - 2005
Greenwich Industry Quality Index
Greenwich Industry Quality Index
Hotels, Restaurants Leisure 550 Utilities 537 Tr
ansportation 533 Aerospace Defense 527 Consumer
Durables 526 Health Care, Equipment
Services 525 Oil Gas 523 Electrical Equipment
Conglomerates 521 Machinery, Home Building
Products 521 Retailing 519 Semiconductors Semi
Equipment 511 Insurance 501
Materials 500 Food, Beverage Tobacco 491 Technol
ogy Hardware Equipment 485 Banks 482 Telecommuni
cations Services 482 Software
Services 476 Pharmaceuticals Biotechnology 470 M
edia 468 Diversified Financials 468 Commercial
Environmental Services 459 Internet 454 Auto
Auto Components 420
Note Based on responses from 751 buy-side
analysts. Greenwich Quality Index is calculated
using a normalized composite of all investor
relations management qualitative evaluations,
with scores ranging from 0-lowest to 1000-highest.
12
Overall Quality of Investor Relations
ManagementTop 10 Overall Companies - 2005
Number of Greenwich Firm Evaluators Quality
Index Industry
EOG Resources (16) 759 Energy Noble
Corp. (12) 744 Energy Carnival
Corp. (15) 729 Leisure Dell Inc. (27) 711 Tech
-Hardware United Technologies (12) 708 Aerospace
Entergy Corp. (13) 708 Utilities United Health
Group (23) 696 Healthcare Burlington
Resources (15) 692 Energy SAFECO
Corp. (10) 664 Insurance Zimmer
Holdings (21) 663 Healthcare
13
IR Communication Evaluations - 2005
Note Ranks based on providers with 10 or more
mentions using either an average point score
based on 100-excellent, 50-above average,
25-average, 12.5-below average and 0-poor, or a
percent score indicated as a proportion of
buy-side analysts citing a company as needing to
improve in this area.
14
IR Management Evaluations - 2005
Note Ranks based on providers with 10 or more
mentions using either an average point score
based on 100-excellent, 50-above average,
25-average, 12.5-below average and 0-poor, or a
percent score indicated as a proportion of
buy-side analysts citing a company as needing to
improve in this area.
15
IR Financial Information Evaluations - 2005
Note Ranks based on providers with 10 or more
mentions using either an average point score
based on 100-excellent, 50-above average,
25-average, 12.5-below average and 0-poor, or a
percent score indicated as a proportion of
buy-side analysts citing a company as needing to
improve in this area.
16
Overall Quality of Investor Relations Management
Utilities
Note Based on responses from 31 buy-side
analysts covering utilities. Greenwich Quality
Index is calculated using a normalized composite
of all investor relations management qualitative
evaluations, with scores ranging from 0-lowest to
1000-highest.
17
Overall Quality of Investor Relations Management
Oil Gas
Note Based on responses from 60 buy-side
analysts covering energy companies. Greenwich
Quality Index is calculated using a normalized
composite of all investor relations management
qualitative evaluations, with scores ranging from
0-lowest to 1000-highest.
18

• Effectively leveraging time spent with the
  Sell-Side

19
Ten Factors of Sell-Side Equity Analyst Rankings

• Knowledge of the Industry
• Most Trusted
• Most Detailed Financial Analysis
• Best Major Company Studies
• Most Useful Valuation Frameworks
• Most Original Research
• Willing to Challenge Senior Management
• Best Industry Conferences
• Direct Access to Senior Management
• Best Stock Recommendations

20

Gas Utilities Sell-Side Equity Analyst
QualityMorgan Stanley has the highest research
franchise and quality of research among sell-side
firms according to buy-side analysts.
Note Based on 31 responses from analysts
covering Gas Utilities. Greenwich Quality Index
includes each respondents relationship across
all financial industry sectors and is calculated
using a normalized composite of all sales and
research qualitative evaluations, with scores
ranging from 0-lowest to 1000-highest.
21

Electric Utilities Sell-Side Equity Analyst
Quality Merrill Lynch has the highest research
franchise and quality of research among sell-side
firms according to buy-side analysts.
Note Based on 68 responses from analysts
covering Electric Utilities. Greenwich Quality
Index includes each respondents relationship
across all financial industry sectors and is
calculated using a normalized composite of all
sales and research qualitative evaluations, with
scores ranging from 0-lowest to 1000-highest.
22

Oil Gas - Integrated Sell-Side Equity Analyst
Quality Morgan Stanly and Goldman Sachs have the
highest research franchises in the sector while
SC Bernstein has the highest quality of research
among sell-side firms according to buy-side
analysts.
Note Based on 70 responses from analysts
covering Oil Gas - Integrated. Greenwich
Quality Index includes each respondents
relationship across all financial industry
sectors and is calculated using a normalized
composite of all sales and research qualitative
evaluations, with scores ranging from 0-lowest to
1000-highest.
23

Oil Gas Equipment Services Sell-Side
Equity Analyst Quality Morgan Stanley and Lehman
Brother have the highest research franchises in
the sector while Simmons has the highest quality
of research among sell-side firms according to
buy-side analysts.
Note Based on 71 responses from analysts
covering Oil Gas Equipment Services.
Greenwich Quality Index includes each
respondents relationship across all financial
industry sectors and is calculated using a
normalized composite of all sales and research
qualitative evaluations, with scores ranging from
0-lowest to 1000-highest.
24

Oil Gas Exploration Production Sell-Side
Equity Analyst QualityBanc of America has the
highest research franchise in the sector while
both Banc of America and Friedman Billings Ramsey
have a high quality of research among sell-side
firms according to buy-side analysts.
Note Based on 87 responses from analysts
covering Oil Gas Exploration Production .
Greenwich Quality Index includes each
respondents relationship across all financial
industry sectors and is calculated using a
normalized composite of all sales and research
qualitative evaluations, with scores ranging from
0-lowest to 1000-highest.
25

• Peer Perspective

26
Corporate Opinion of Sell-Side Equity Research
Oil Gas
27
Corporate Opinion of Sell-Side Influence with
Buy-Side Investors Oil Gas
28
Corporate Opinion of Sell-Side Equity Research
Utilities
29
Corporate Opinion of Sell-Side Influence with
Buy-Side Investors Utilities
30
Coverage of Institutional Analysts
2004
2004
2004
2005
2005
2005
2005
Average Number of Companies Followed by Buy-Side
Analyst
31
Sell-Side Analyst Coverage
2003 2004 2005
Total Companies
Utilities
Oil Gas
Have Experienced Reduction in Number of Sell-Side
Equity Analysts Covering Company
Based on interviews with 470 companies in 2003,
503 in 2004, and 466 in 2005.
32
Earnings Guidance Practices
2003 2004 2005
Total Companies
Utilities
Oil Gas
Company Now Offers Earnings and Financial
Guidance
Based on interviews with 470 companies in 2003,
503 in 2004, and 466 in 2005.
33
Earnings Guidance Practices
2003 2004 2005
Total Companies
Utilities
Oil Gas
Of Those Offering Guidance, Likely to Slow or
Stop Communications Next Year
Based on interviews with 470 companies in 2003,
503 in 2004, and 466 in 2005.
34
How Often Companies Offer Earnings Financial
Guidance
Utilities Oil Gas Total Companies
Quarterly
Annually
Semi- Annually
Monthly
When Appropriate
Other
Note Based on interviews with 418 companies in
2005.
35
Investor Relations Observations
Strong Investor Relations programs are more
important than ever.

• Communications
• Buy-side analysts find access to senior
  management an important part of a successful
  investor relations program.
• Sell-side analysts facilitation of these meetings
  with senior management is one of the services the
  buy-side now values the most.
• Senior Management
• The credibility of senior management forms the
  foundation of a successful IR program.
• Financial Information
• Transparency and accuracy of accounting is the
  cornerstone to IR success.

36
Appendix
37
Methodology and Research Coverage
This analysis is based on a combination of
in-person, telephone, and internet research with

• 751 buy-side analysts on the investor relations
  efforts and senior management capabilities of the
  companies they follow closely, including 31
  analysts in the utility sector and 60 analysts in
  the energy sector.
• 1,138 buy-side analysts on the quality of the
  sell-side analysts at the leading brokerage
  firms, including
• 31 analysts evaluating sell-side coverage in the
  Utility - Gas sector
• 68 analysts evaluating sell-side coverage in the
  Utility - Electric sector
• 70 analysts evaluating sell-side coverage in the
  Oil Gas - Integrated sector
• 71 analysts evaluating sell-side coverage in the
  Oil Gas - Equipment Services sector
• 87 analysts evaluating sell-side coverage in the
  Oil Gas - Exploration Production sector
• 413 corporate executives at large U.S.
  corporations on the type of coverage they are
  receiving from sell side analysts, and the level
  of guidance they are providing to the financial
  community.

38
Greenwich Associates Greenwich Quality Index -
MG

• The Greenwich Quality Index summarizes all
  qualitative evaluations provided by clients about
  their financial service providers into a single
  number. This methodology provides a reliable,
  objective and easy to use quantitative measure of
  a firms aggregate qualitative performance. This
  score identifies the relative competitive
  differences between each financial service
  provider for every client relationship. The
  client relationship scores are displayed on a
  scale from 0 to 1,000, with a mean score of 500
  and a standard deviation of 166.7.
• The scores on the Greenwich Quality Index are
  classified into five strength of relationship
  groups that yield approximately (10, 20, 40,
  20, 10) from the distribution of scores
  respectively.

39
Questions Asked of the Buy-Side Investors

• IR Communications
• Using a 5-point scale, from 1-not at all
  important to 5-extremely important, please rate
  the following factors on their importance to a
  successful investor relations program
• A Accessibility of senior management
• B Completeness and accuracy of written
  communication
• C Quality of in-person meetings and conferences
• D Effectiveness of conference calls
• E Quality of press releases
• F Investor relations managers commitment to
  serving analysts
• G Assuring adequacy of sell-side coverage
• Management
• Using a 5-point scale, from 1-not at all
  important to 5-extremely important, please rate
  the following factors on their importance to a
  successful investor relations program
• A Credibility of CFO
• B Credibility of CEO
• C Credibility of Investor Relations Department
• D Independence of board of directors
• E Clearly defined corporate governance guidelines
• F Adherence to corporate governance guidelines

40
Questions Asked of the Buy-Side Investors
(continued)

• Financial Information
• Using a 5-point scale, from 1-not at all
  important to 5-extremely important, please rate
  the following factors on their importance to a
  successful investor relations program
• A Transparency of accounting
• B Completeness of financial guidance
• C Accuracy of financial guidance
• D Timeliness of financial guidance
• E Quality of annual reports, 10-Ks, and 10-Qs
• Evaluation of the companies you follow closely
• 1 Using the 5-point scale indicated, please
  evaluate the companies you follow closely on
• Candor, clarity, and frequency of
  communications
• 2 Using the 5-point scale indicated, please
  evaluate the companies you follow closely on
• Individual integrity and credibility of senior
  management
• 3 Using the 5-point scale indicated, please
  evaluate the companies you follow closely on
• Accessibility of senior management
• 4 Using the 5-point scale indicated, please
  evaluate the companies you follow closely on
• Quality of financial guidance
• 5 Using the 5-point scale indicated, please
  evaluate the companies you follow closely on
• Clarity of, and conformity to, their corporate
  governance guidelines

41
Questions Asked of the Buy-Side Investors
(continued)

• Evaluation of the companies you follow closely
  (continued)
• 6 Of the companies you follow, please name the
  companies that most need to improve
• Transparency of accounting
• 7 Of the companies you follow, please name the
  companies that most need to improve
• Candor in answering analysts questions
• 8 Of the companies you follow, please name the
  companies that most need to improve
• Capability of Investor Relations Department
• 9 Of the companies you follow, please name the
  companies that most need to improve
• Quality of written communications (annual
  reports, 10-Qs, etc.)
• 10 Of the companies you follow, please name the
  companies that most need to improve
• Clarity in defining long-term strategy
• 11 Of the companies you follow, please name the
  companies that most need to improve
• Quality of press releases and conference calls
  surrounding corporate events
• 12 Of the companies you follow, please name the
  companies that most need to improve
• Quality of investor meetings