THE WALL STREET JOURNAL/DOW JONES NEWSWIRES: British Watchdog Will Examine Why Price of Natural Gas Rose: “…will investigate contracts that involved companies such as Exxon Mobil Corp., Royal Dutch/Shell Group, BP PLC and Centrica PLC because it doesn't rule out market manipulation.”: A Shell spokesman declined to comment on the detail of Ofgem's analysis until the company has examined it more closely.” (ShellNews.net)

By ADAM SMALLMAN and NINA SOVICH

DOW JONES NEWSWIRES

October 6, 2004

LONDON -- Britain's energy watchdog said a natural-gas price surge could be attributed mostly to industry conditions but said it will investigate contracts that involved companies such as Exxon Mobil Corp., Royal Dutch/Shell Group, BP PLC and Centrica PLC because it doesn't rule out market manipulation.

In a long-awaited assessment of the causes behind unusual gas-price movements that began a year ago, Ofgem attributed almost all the rise to a mix of higher crude prices and declining output of North Sea gas. Long-term gas contracts in Europe link prices to oil.

Separately, the United Kingdom's Financial Services Authority said it, too, found no evidence of market abuse, though it promised to continue "to undertake surveillance of activities within the traded gas market."

The front-month natural-gas contract traded on London's International Petroleum Exchange rocketed in early November 2003, and prices in the futures markets are now triple the price of the 2003 summer in some cases.

Ofgem Chief Executive Alistair Buchanan said, "We are concerned that, at times of high prices, around 5% of U.K. gas supplies were physically available but did not reach the market under existing contractual arrangements." But he added, "There's a small knot of contracts that are stopping gas flowing, and we'll continue to discuss and examine those contracts."

The seven companies named in Ofgem's continuing inquiry are Shell, of the U.K. and the Netherlands; ExxonMobil, based in Irving, Texas; Centrica, of Windsor, England; London-based BP; France's Total SA; New York-based Amerada Hess Corp.; and Perenco, based in London and Paris. The inquiry covers three gas fields in the North Sea: Sean, Indefatigable and Leman.

A Shell spokesman declined to comment on the detail of Ofgem's analysis until the company has examined it more closely.

A spokesman for BP said it is surprised to be cited by Ofgem as a subject of its probe, saying the company didn't own Leman and Indefatigable in October 2003; he said BP sold the fields to Perenco in September 2003. BP is a minority owner in Sean, a field that has a long-term purchase agreement with Centrica, he added.

A Centrica spokesman said the company has purchase agreements with all three fields and has tried in at least one case to renegotiate the contracts because they are unprofitable.

A spokesman for Exxon Mobil said it was too early to comment. Representatives for Perenco, Total and Amerada Hess weren't available to comment.

---- Johannah Ladd in Aberdeen, Scotland, contributed to this article.

Write to Adam Smallman at adam.smallman@dowjones.com

and Nina Sovich at nina.sovich@dowjones.com