Platts' Changes to Its Benchmark Crude Oil Price Methodology Spurs New Forward Market Trading Instrument

Business Wire, July 29, 2002

Business Editors

LONDON--(BUSINESS WIRE)--July 29, 2002

Platts' changes to its methodology for creating the key North Sea crude oil benchmark price have spawned a new trading instrument in the forward market, the company said Monday.

Platts is the energy information, consulting, research and marketing services division of The McGraw-Hill Companies (NYSE: MHP).

Platts changed July 10th the way it generates benchmark prices for North Sea Brent crude oil, by widening the scope of its Brent assessments to include trading activity in Forties and Oseberg, two similar grades of oil.

The Platts assessment change initially sparked the creation of several new forward paper instruments with varying delivery nomination procedures. But market players felt that a common standard was required. Platts issued a set of editorial guidelines determining size of cargo, nomination and booking out procedures where the seller had the option to deliver a cargo of Brent, Forties or Oseberg. The standard called for a 21 day nomination procedure, whereby the seller would have the obligation to declare the grade 21 days in advance of delivering the cargo.

The oil industry has increasingly rallied around the common standard with bids, offers and transactions becoming commonplace. In recent activity the following companies have traded BFO contracts with 21 day nomination procedures: BP, Shell, Sempra, Vitol, Statoil, TotalFinaElf. Companies that have posted BFO bids or offers include: Arcadia, Koch, Hetco, Morgan Stanley, Phibro, Norsk Hydro.

"The number of straight BFO deals is already into double figures," said Gerald Bueshel, Platts' Global Crude Oil Manager. "We have also seen sharp increases in the number of deals reported for stand-alone Forties and Oseberg, grades which earlier this year traded only rarely in a sufficiently public and confirmed manner to be acceptable for assessment purposes."

"We believe the development of a forward market instrument which reflects the values of Brent, Forties and Oseberg is a healthy one. The base of liquidity has expanded from the current 18 cargoes of Brent to close to 90 cargoes per month," said Jim Nicholson, Editorial Vice President of Platts.

"Any forward instrument that reflects a wider production base, and is delivered in a manner that achieves convergence with the dated North Sea cargoes, limits the potential for non-market distortions," said Jorge Montepeque, Platts' Director of Market Reporting.

Platts' intention with the new assessment was to help restore stability to an increasingly erratic Brent market by creating a much greater pool of liquidity for the oil market. Brent Blend, to give it its full name, is used as the marker grade for much of the oil production in Europe, Africa and the Middle East.

Platts is the world's largest and most authoritative provider of energy information and marketing services, with 14 offices worldwide. Products range from real-time and Internet-based news and price assessment services, to newsletters, market reports, databases, geospatial tools, magazines, conferences, research and consulting services and energy financial services. Platts offerings cover the oil, natural gas, electricity, nuclear power, coal, petrochemical and metals markets. Every day, more than $10 billion of trading activity and term contract sales are based on Platts' price assessments. Additional information is available at www.platts.com and www.plattsmetals.com.

Founded in 1888, The McGraw-Hill Companies is a global information services provider meeting worldwide needs in the financial services, education and business information markets through leading brands such as Standard & Poor's, BusinessWeek and McGraw-Hill Education. The Corporation has more than 350 offices in 33 countries. Sales in 2001 were $4.6 billion. Additional information is available at www.mcgraw-hill.com.