TEXT-S&P report on U.S. oil, gas industry

(The following statement was released by the ratings agency)

July 22 - The spoils of near record-high oil prices are still rolling into the U.S. oil and gas industry, but not all sectors are benefiting equally, according to a report published today by Standard & Poor's Ratings Services.

In "High Commodity Prices Pump Up The U.S. Oil And Gas Sector, But Refiners Feel The Squeeze," Standard & Poor's details how favorable rating trends that persisted in the U.S. oil and gas sector in 2007 continued during the first half of 2008. Upgrades outpaced downgrades by 14 to 4 as robust hydrocarbon prices continue to boost credit quality. Globally, the trend was similar with 29 upgrades and nine downgrades.

"Most of the negative rating actions occurred in the refining sector as high oil prices and declining gasoline demand severely crimped margins," said Standard & Poor's credit analyst Thomas Watters. "We expect some improvement in refiner margins during the second half of the year, but margin improvement will be restrained by the expectation of high oil prices continuing and softer demand for gasoline because of stratospheric gasoline prices and the general impact of a weak economy."

Generally, however, we expect the positive rating trend to continue during the second half of the year, although at a slower pace. Financial policy, limited free cash flow generation, and mergers and acquisitions will still be major factors in credit quality. Exploration and production companies, their coffers flush with cash and the ability to access debt capital markets, will continue to buy acreage or reserve positions. Also, we believe the drillers and drilling services companies are ripe for consolidation.