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Lloyd Byrne presentation

  1. 1. MORGAN STANLEY EQUITY RESEARCH Woodrow Wilson Center Cross-Border Forum on Energy Issues “Wall Street‟s Perspective on North America and Unconventional Resources?” October 17, 2005 Morgan Stanley does and seeks to do business with companies covered in its research reports. Lloyd Byrne (212) 761.8343 / Lloyd.Byrne@morganstanley.com As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Customers of Morgan Stanley in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.morganstanley.com/equityresearch or can call 800-624-2063 to request a copy of this research.
  2. 2. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 North America increasingly reliant on rest of world to meet demand. North American Crude Oil Consumption / Production (Mbbls/d) 24,000 (Mb b ls/d) 22,000 N.A. Oil Consumption 20,000 18,000 ~12 MM B/D ? = 12,397 16,000 Differential ~5= 4,903 ? MM B/D Differential 14,000 N.A. Oil Production 12,000 10,000 8,000 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 Source: BP Statistical Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 2
  3. 3. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 While rest of world increasingly reliant on OPEC to do the same. Global Oil Consumption (Mbbls/d) 85,000 (Mbbls/d) 75,000 Global Oil Consumption 65,000 ~33 MM B/D ? = 33,424 Differential 55,000 ~18 MM B/D Non-OPEC Oil Production ? = 18,197 Differential 45,000 35,000 25,000 15,000 5,000 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 Source: BP Statistical Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 3
  4. 4. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 However, rest of world increasingly reliant on smaller discoveries Number of Large Oil Discoveries Steadily Declining 50-99 MMBOE 100-199 200-499 500-999 > 1,000 MMBOE 1000 800 Number of Discoveries 600 400 200 0 pre-1950's 1950's 1960's 1970's 1980's 1990's 2000’s Source: MEES, J. LaHerrere, Oil & Gas Journal Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 4
  5. 5. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 What has this lead to? What’ the biggest change in the market? Shape and duration of forward commodity markets (i.e. the value of long- lived commodities). Crude Oil 5-Year Forward Curves ($/bbl) – Much Further Today $/bbl $72 Today Today = $62.79/bbl $62 $52 January 2005 5 Year Strip = $40.39/bbl $42 January 2004 $32 5 Year Strip = $28.41/bbl January 2000 $22 5 Year Strip = $19.34/bbl January 1999 5 Year Strip = $15.51/bbl $12 M1 M3 M5 M7 M9 M11 M13 M15 M17 M19 M21 M23 M25 M27 M29 M31 M33 M35 M37 M39 M41 M43 M45 M47 M49 M51 M53 M55 M57 M59 Jan-99 Jan-00 Jan-04 Jan-05 Today Source: Morgan Stanley Equity Research, FactSet; M = month (graph represents 60 months) Note: Most recent strip prices as of October 3, 2005. Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 5
  6. 6. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 Our Perspective As such, Wall Street has not been as worried about long term oil prices, as it has been about which companies can “best reinvest free cash flow” and capture margin in an opportunity-constrained world. Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 6
  7. 7. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 With this backdrop, market’s focus has been on large, unconventional resources. Conventional Unconventional Target characteristic: Structural or stratigraphic traps Target characteristic: Formation extends across (i.e. single target). Well-defined gas/water contact. broad area (i.e., large areal/vertical extent). Target reservoir rocks are porous AND permeable. Reservoir rocks: typically homogeneous with sufficient porosity but low permeability. Permeability & natural reservoir pressure sufficient to lift oil/gas to surface. Artificial stimulation (fracturing) required to produce oil/gas. High initial flow rates followed by steep production declines, shorter tails (short R/P, high NPV). Water Lower relative initial flow rates, steep initial declines output rises over time. that flatten to produce long tail (long R/P, lower relative NPV). Little or no water is produced. Relative risk: Higher exploration risk / lower development risk. Relative risk: Lower exploration risk / higher development risk. Upfront imaging important for well location. Upfront/ongoing imaging important to identify Repeatable? Must identify similar traps in other variations across the formation (critical to completion areas. A CORE MARKET QUESTION. technique). High degree of repeatability. Expansive formation yields multi-year inventory that provides (typically) predictable results (reserve size, flow rate, cost) and shallower decline rates. Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 7
  8. 8. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 This focus and higher prices have coincided with conventional cost structures rising. All Sources F&D, 1 Yr. Avg. LOE & Transportation, $/BOE Worldwide United States $7.00 $12.00 $11.00 $6.00 $10.00 $9.00 $5.00 $8.00 $7.00 $4.00 $6.00 $3.00 $5.00 $4.00 $2.00 $3.00 $2.00 $1.00 $1.00 $0.00 $0.00 2005E 2006E 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005e 2006e Companies included: APA, APC, BR, DVN, EOG, KMG, NBL, PPP, Companies included: APA, APC, BR, DVN, EOG, KMG, XTO, FST, NBL, PXD, XTO, CHK, FST. PPP, PXD, NFX, BBG, CHK, ECA. Source: Company data, Morgan Stanley Research Source: Company data, Morgan Stanley Research E = Morgan Stanley e = Morgan Stanley Research estimates Research estimates Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 8
  9. 9. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 And in fact, costs at Suncor’s Millennium are now not only competitive, but advantaged. SU’s Oil Sand Economics Surpassing Conventional E&P Oil Sands Conventional E&P $20 $18 Total Operating Costs $/bbl. $16 $14 $12 $10 $8 $6 $4 91 92 93 94 95 96 98 02 03 04 97 99 00 01 19 19 19 19 19 19 19 19 19 20 20 20 20 20 Total Operating Costs include: cash costs as defined as operating, SG&A, accretion expense, taxes other than income taxes, and DD&A. In the case of SU, we also add in the cost of bitumen imported from 3rd parties, and In-Situ startup costs. Source: Company Data, Morgan Stanley Research Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 9
  10. 10. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 …With returns providing core investment attraction. Oil Sands Returns Competitive and Are Improving Oil Sands Convetional E&P 21.0% 18.0% 15.0% ROCE ROCE . 12.0% 9.0% 6.0% 3.0% 0.0% 1997 1998 1999 2000 2001 2002 2003 2004 Source: Company Data, Morgan Stanley Research Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 10
  11. 11. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 Question is; controlling costs going forward. Capital Cost Comparison Total Cost Production Cap. Cost IRR @ Integrated Projects C$ (bn) mbpd per mbpd $28 WTI Suncor - Millenium 3.4 110,000 30,909 20% Athabasca Phase -1 5.7 155,000 36,477 Integrated PetroCanada 3.7 85,000 43,588 Long Lake Phase - 1 3.2 60,000 52,503 18% Horizon Phase -1 6.8 110,000 62,130 15% Athabasca Phase - 2 7.3 100,000 73,000 12% Syncrude Phase - 3 8.3 105,000 79,047 11% Source: Company Data, Morgan Stanley Equity Research Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 11
  12. 12. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 Conclusions Attractive returns on invested capital. 50+ year reserve lives. Favorable financial & political environment and Potential for technological advances to improve returns, given process and reserve life, provides option value. (Coke gasification, mobile crushers, potential sand removal at mine face, in situ downhole efficiencies, OPTI process, etc.) Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 12
  13. 13. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 Last Question? Putting it all together, does consolidation make sense? If majors can‟t find oil, won‟t they just buy it? Especially with billions of „warehoused‟ dollars earning 1-2%? Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 13
  14. 14. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 Last question? Why not consolidation? The trends also raise eyebrows. Are average returns sustainable? Integrated Oils F&D (Worldwide, Organic, $/BOE, Simple Avg.) $12 $10 $8 $6 $4 $2 $0 1997 1998 1999 2000 2001 2002 2003 2004 Source: Morgan Stanley Research, Company Data Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 14
  15. 15. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 Last question? Why not consolidation? Organic RRR has consistently . . . driven by falling revisions – fallen . . . not exploration. Global Reserve Replacement (ex. A/D) Revisions as % of Additions (Global Integrated) 200% 30% 160% 22% 120% 14% 80% 6% 40% -2% 0% -10% 1997 1998 1999 2000 2001 2002 2003 2004 1997 1998 1999 2000 2001 2002 2003 2004 Source: Company Data, Morgan Stanley Research Source: Company Data, Morgan Stanley Research Note: RRR = Reserve Replacement Ratio Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 15
  16. 16. (Enterprise Value, $ Billions) $12.0 $16.0 $20.0 $24.0 $28.0 $32.0 $36.0 $0.0 $4.0 $8.0 Occidental Devon Burlington Apache Anadarko Unocal XTO EOG Source: Company Data, FactSet. Kerr McGee Chesapeake Noble Pioneer Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com UPR Newfield Ocean Vastar Oryx Pogo Forest Last question? Why not consolidation? Western Gas Wesport Patina Oil & Gas Louisiana Land Columbia/Triana Union Texas Vintage Seagull Cabot Spinnaker Evergreen Triton This in turn adds to US consolidation, which has been significant… Enserch Parker & Parsley Mitchell United Meridian (Dark shades – existing companies; Light shades – consolidated since 1997) Louis Dreyfus Monterey Res. TBI October 17, 2005 Barrett Flores & Rucks Forcenergy Santa Fe Snyder Llog Lomak Nuevo MORGAN STANLEY EQUITY RESEARCH 16
  17. 17. (Enterprise Value, USD, $ Billions) $12.0 $16.0 $20.0 $24.0 $28.0 $32.0 $36.0 $40.0 $44.0 $48.0 $52.0 $0.0 $4.0 $8.0 EnCana Canadian Natural Talisman Nexen PanCanadian Penn West Source: Company Data, FactSet Renaissance Gulf Canada Alberta Energy Norcen Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com Paramount Compton Anderson Poco …And is likely to continue, in our view. Crestar Wascana Last question? Why not consolidation? Ranger Tarragon Stampeder Rigel Chauvco Amber Numac ELAN Northstar Morrison Rio Alto Pinnacle Tri Link Berkley Encal (Dark shades – existing companies; Light shades – consolidated since 1997) Ulster Cabre October 17, 2005 Northrock Remington Blue Range Newport Beau CS Resources Barrington Cimarron Baytex MORGAN STANLEY EQUITY RESEARCH 17 Summit Genesis
  18. 18. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 ModelWare Description ModelWare is a proprietary framework for financial analysis created by Morgan Stanley Research. This new framework rests on the principles of comparability, transparency, and flexibility, and aims to provide investors with better tools to view the anticipated performance of an enterprise. The result of an 18-month global effort, ModelWare harmonizes the underlying data and calculations in Morgan Stanley models with a broad set of consistently defined financial metrics. Our analysts have populated the database with over 2.5 million data points, based on an extensive taxonomy of more than 3,500 unique metrics and more than 400 Morgan Stanley calculations. The ModelWare framework will also have the flexibility to allow analysts and investors to add or change data elements, even quickly customize their own analytical approach. What makes the ModelWare architecture distinctive lies in the separation of data from calculations. Its transparency will permit users to see every component of every calculation, to choose elements or recombine them as they wish without laborious adjustments or recalculations. When choices must be made in defining standard or industry-specific measures, ModelWare defaults to economic logic, rather than favoring one accounting rule over another. This discipline facilitates comparability across sectors and regions. Underlying the ModelWare data is a new set of systems that check the internal consistency of forecast data in each of our analyst’s models. ModelWare EPS illustrates the approach taken. It represents ModelWare net income divided by average fully diluted shares outstanding. ModelWare net income sums net operating profit after tax (NOPAT), net financial income or expense (NFE), and other income or expense. ModelWare adjusts reported net income to improve comparability across companies, sectors, and regions. These adjustments include the following: We exclude goodwill amortization and items deemed by analysts to be “one-time” events; we capitalize operating leases where their use is significant (e.g., in transportation and retail); and we convert inventory to FIFO accounting when LIFO costing is used. For more information on these adjustments and others, as well as additional background, please see “Morgan Stanley ModelWare (ver. 1.0): A Road Map for Investors,” by Trevor Harris and team, August 2, 2004. Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 18
  19. 19. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 Analyst Certification and Important Disclosures Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Lloyd Byrne. Important US Regulatory Disclosures on Subject Companies The information and opinions in this report were prepared by Morgan Stanley & Co. Incorporated and its affiliates (collectively, "Morgan Stanley"). As of August 31, 2005, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in this report: Canadian Natural Res Ltd., Chesapeake Energy, EOG Resources, Nexen Inc., Noble Energy, Suncor, Talisman Energy Inc, XTO Energy Inc.. Within the last 12 months, Morgan Stanley managed or co-managed a public offering of securities of Suncor. Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Apache Corp., Bill Barrett Corporation, Burlington Resources, Chesapeake Energy, Devon Energy, EnCana Corporation, EOG Resources, Kerr McGee Corp., Newfield Exploration, Noble Energy, Plains Exploration & Production Co., Suncor, XTO Energy Inc.. In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Anadarko Petroleum Corp., Apache Corp., Bill Barrett Corporation, Burlington Resources, Canadian Natural Res Ltd., Chesapeake Energy, Devon Energy, EnCana Corporation, EOG Resources, Forest Oil, Kerr McGee Corp., Newfield Exploration, Nexen Inc., Noble Energy, Pioneer Natural Resources, Plains Exploration & Production Co., Pogo Producing, Suncor, Talisman Energy Inc, XTO Energy Inc.. Within the last 12 months, Morgan Stanley & Co. Incorporated has received compensation for products and services other than investment banking services from Anadarko Petroleum Corp., Apache Corp., Burlington Resources, Canadian Natural Res Ltd., Chesapeake Energy, Devon Energy, EnCana Corporation, EOG Resources, Kerr McGee Corp., Newfield Exploration, Noble Energy, Pioneer Natural Resources, Plains Exploration & Production Co., Suncor, Talisman Energy Inc, XTO Energy Inc.. Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following companies covered in this report: Anadarko Petroleum Corp., Apache Corp., Bill Barrett Corporation, Burlington Resources, Canadian Natural Res Ltd., Chesapeake Energy, Devon Energy, EnCana Corporation, EOG Resources, Forest Oil, Kerr McGee Corp., Newfield Exploration, Nexen Inc., Noble Energy, Pioneer Natural Resources, Plains Exploration & Production Co., Pogo Producing, Suncor, Talisman Energy Inc, XTO Energy Inc.. Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following companies covered in this report: Anadarko Petroleum Corp., Apache Corp., Burlington Resources, Canadian Natural Res Ltd., Chesapeake Energy, Devon Energy, EnCana Corporation, EOG Resources, Forest Oil, Kerr McGee Corp., Newfield Exploration, Nexen Inc., Noble Energy, Pioneer Natural Resources, Plains Exploration & Production Co., Suncor, Talisman Energy Inc, XTO Energy Inc.. The research analysts, strategists, or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. An employee or director of Morgan Stanley & Co. Incorporated and/or Morgan Stanley DW Inc. is a director of Burlington Resources, Chesapeake Energy. Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions. Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 19
  20. 20. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 Disclaimers Global Stock Ratings Distribution (as of September 30, 2005) Coverage Universe Investment Banking Clients (IBC) % of % of Total Rating Stock Rating Category Count % of Total Count IBC Category Overweight/Buy 712 35% 273 39% 38% Equal-weight/Hold 925 46% 322 46% 35% Underweight/Sell 394 19% 98 14% 25% Total 2,031 693 Data include common stock and ADRs currently assigned ratings. For disclosure purposes (in accordance with NASD and NYSE requirements), we note that Overweight, our most positive stock rating, most closely corresponds to a buy recommendation; Equal-weight and Underweight most closely correspond to neutral and sell recommendations, respectively. However, Overweight, Equal-weight, and Underweight are not the equivalent of buy, neutral, and sell but represent recommended relative weightings (see definitions below). An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley or an affiliate received investment banking compensation in the last 12 months. ANALYST STOCK RATINGS Overweight (O). The stock’s total return is expected to exceed the average total return of the analyst’s industry (or industry team’s) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Equal-weight (E). The stock’s total return is expected to be in line with the average total return of the analyst’s industry (or industry team’s) coverage universe, on a risk- adjusted basis, over the next 12-18 months. Underweight (U). The stock’s total return is expected to be below the average total return of the analyst’s industry (or industry team’s) coverage universe, on a risk-adjusted basis, over the next 12-18 months. More volatile (V). We estimate that this stock has more than a 25% chance of a price move (up or down) of more than 25% in a month, based on a quantitative assessment of historical data, or in the analyst’s view, it is likely to become materially more volatile over the next 1-12 months compared with the past three years. Stocks with less than one year of trading history are automatically rated as more volatile (unless otherwise noted). We note that securities that we do not currently consider "more volatile" can still perform in that manner. Unless otherwise specified, the time frame for price targets included in this report is 12 to 18 months. Ratings prior to March 18, 2002: SB=Strong Buy; OP=Outperform; N=Neutral; UP=Underperform. For definitions, please go to www.morganstanley.com/companycharts. ANALYST INDUSTRY VIEWS Attractive (A). The analyst expects the performance of his or her industry coverage universe to be attractive vs. the relevant broad market benchmark over the next 12-18 months. In-Line (I). The analyst expects the performance of his or her industry coverage universe to be in line with the relevant broad market benchmark over the next 12-18 months. Cautious (C). The analyst views the performance of his or her industry coverage universe with caution vs. the relevant broad market benchmark over the next 12-18 months. Stock price charts and rating histories for companies discussed in this report are also available at www.morganstanley.com/companycharts. You may also request this information by writing to Morgan Stanley at 1585 Broadway, 14th Floor (Attention: Research Disclosures), New York, NY, 10036 USA. Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 20
  21. 21. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 Other Disclosures Other Important Disclosures For a discussion, if applicable, of the valuation methods used to determine the price targets included in this summary and the risks related to achieving these targets, please refer to the latest relevant published research on these stocks. Research is available through your sales representative or on Client Link at www.morganstanley.com and other electronic systems. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. This report is not an offer to buy or sell any security or to participate in any trading strategy. In addition to any holdings disclosed in the section entitled "Important US Regulatory Disclosures on Subject Companies", Morgan Stanley and/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of companies mentioned in this report, and may trade them in ways different from those discussed in this report. Derivatives may be issued by Morgan Stanley or associated persons. Morgan Stanley & Co. Incorporated and its affiliate companies do business that relates to companies covered in its research reports, including market making and specialized trading, risk arbitrage and other proprietary trading, fund management, investment services and investment banking. Morgan Stanley sells to and buys from customers the equity securities of companies covered in its research reports on a principal basis. Morgan Stanley makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when opinions or information in this report change apart from when we intend to discontinue research coverage of a subject company. With the exception of information regarding Morgan Stanley, reports prepared by Morgan Stanley research personnel are based on public information. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley business areas, including investment banking personnel. Morgan Stanley research personnel conduct site visits from time to time but are prohibited from accepting payment or reimbursement by the company of travel expenses for such visits. (continued on next page) Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 21
  22. 22. MORGAN STANLEY EQUITY RESEARCH October 17, 2005 Other Disclosures Other Important Disclosures (continued) The value of and income from your investments may vary because of changes in interest rates or foreign exchange rates, securities prices or market indexes, operational or financial conditions of companies or other factors. There may be time limitations on the exercise of options or other rights in your securities transactions. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. This publication is disseminated in Japan by Morgan Stanley Japan Limited; in Hong Kong by Morgan Stanley Dean Witter Asia Limited; in Singapore by Morgan Stanley Dean Witter Asia (Singapore) Pte., regulated by the Monetary Authority of Singapore, which accepts responsibility for its contents; in Australia by Morgan Stanley Dean Witter Australia Limited A.B.N. 67 003 734 576, a licensed dealer, which accepts responsibility for its contents; in Canada by Morgan Stanley Canada Limited, which has approved of, and has agreed to take responsibility for, the contents of this publication in Canada; in Spain by Morgan Stanley, S.V., S.A., a Morgan Stanley group company, which is supervised by the Spanish Securities Markets Commission (CNMV) and states that this document has been written and distributed in accordance with the rules of conduct applicable to financial research as established under Spanish regulations; in the United States by Morgan Stanley & Co. Incorporated and Morgan Stanley DW Inc., which accept responsibility for its contents; and in the United Kingdom, this publication is approved by Morgan Stanley & Co. International Limited, solely for the purposes of section 21 of the Financial Services and Markets Act 2000 and is distributed in the European Union by Morgan Stanley & Co. International Limited, except as provided above.Private U.K. investors should obtain the advice of their Morgan Stanley & Co. International Limited representative about the investments concerned. In Australia, this report, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The trademarks and service marks contained herein are the property of their respective owners. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. The Global Industry Classification Standard ("GICS") was developed by and is the exclusive property of MSCI and S&P. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Morgan Stanley. Morgan Stanley research is disseminated and available primarily electronically, and, in some cases, in printed form. Additional information on recommended securities is available on request. © 2004 Morgan Stanley Lloyd Byrne (212) 761-8343 / Lloyd.Byrne@morganstanley.com 22

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