Consent

Midland, TX-based Costilla Energy Inc. and ONEOK Inc. formed astrategic alliance to capitalize on properties Costilla plans toacquire from Pioneer Natural Resources Co. as well as otherpotential transactions. Tulsa, OK-based ONEOK will participate inCostilla’s previously announced $335 million acquisition of oil andgas properties from Pioneer (assuming it is successful) through anequity investment in Costilla preferred stock.

U.S. Northeast gas demand would increase by 4.4 Bcf/d ifproposed environmental regulations are implemented as planned andnuclear capacity is retired, according to a recent study by WEFAtitled Northeast Gas Markets: Opportunities and Risks. The studyevaluates the Northeast gas market under a number of scenarios. Itinvestigates the impact of environmental regulations, nuclearretirements, electricity demand growth, and pipeline capacityadditions on prices and gas demand in the U.S. Northeast.

Lower costs and the opportunity to control their own supply arestill the main drivers of industrial bypass of local distributioncompanies, the energy manager for U.S. Gypsum told state regulatorsyesterday.

In its weekly outlook on gas storage levels, Salomon SmithBarney (SSB) raised its forecast of expected storage levels at theend of the winter heating season by 117 Bcf from the previous week.The firm, which has grown increasingly bearish because of theclimbing storage surplus, now expects there to be 1,423 Bcf ofworking gas in storage on April 3, which would be 522 Bcf more thanthe four-year average on that date and 364 Bcf more than the sametime last year. Working gas levels in storage as of Feb. 12 were at1,887 Bcf, which is 462 Bcf more than last year on the same date,according to the American Gas Association (AGA).

Exxon worldwide additions to proved oil and gas reserves totaled1.1 billion oil-equivalent barrels in 1998, replacing 106% ofproduction. “This year’s strong performance is the fifth year in arow that we’ve exceeded 100% replacement,” said Chairman LeeRaymond. “Over the last 10 years, we’ve added nearly 11 billionoil-equivalent barrels to proved reserves, more than replacingreserves produced. Long-term reserves portfolio management anddevelopment is a key area of emphasis in our business.”

A break in the flat price pattern that has dominated the overallcash market during February came Tuesday, and appropriately it wasto the downside, where many sources had long expected prices to beheaded because of mild weather, a softening screen and a massivestorage surplus for this late in the winter season.

Most of Monday’s late-February market resembled the rest of themonth: a little up here, a little down there, and a lot of flatnumbers in between. Once again the exception was in Northeastcitygates, which went as high as the $2.50s in some instances.

After two brief rally efforts failed to produce higher prices,the futures market again came under selling pressure as moreprominent bearish fundamentals more than offset below-normal marketarea temperatures. And in a rare occurrence, the 4.1-cent loss seenin the prompt March contract was outpaced by more substantiallosses in the April, May, June and July contracts.

Industry merger and acquisition activity yesterday was astartling confirmation of two major trends: the convergence of gasand electricity operations, and consolidation. Two more of thenation’s largest diversified gas pipeline companies were snatchedup by two major energy distributors. Sempra Energy (SRE) bought KNEnergy (KNE) in a stock-and-cash transaction valued in theaggregate at $6 billion, a 24% premium to KNE’s recent stock price,and Dominion Resources bought Consolidated Natural Gas Co. (CNG)for about $6.3 billion in stock, a 25% premium.