1997 ANNUAL REPORT
Management Letter

Serving the Petroleum Industry as Our World Changes.

Companies Consolidate, Reorganize, Create New Entities and Find Better Ways of Doing Business .

Change certainly did create a backdrop of uncertainty for WSPA in 1997, while the association and its member companies continued to make headway on crucial legislative and regulatory issues.

WSPA made solid progress in support of the industry's positions on California's cleaner-burning gasoline, on upstream environmental issues in the San Joaquin Valley, on regulatory and legislative concerns in Arizona, Nevada, the San Francisco Bay Area and the Pacific Northwest. Details of these advances and other efforts are outlined throughout this report.

But it is the transition taking place within the industry and in the way many state and local government officials react to media sensationalism that may have the greatest impact on our industry in the years to come. Certainly, WSPA will have to be more agile and open to new approaches than ever before to balance the needs of cost containment and increased advocacy in the future. We have already begun the process!

As many of our members consolidate operations, fewer knowledgeable company experts become available for essential committee work. Meanwhile, a new generation of issues surfaces in our operating regions, and some elected officials champion any idea, no matter how unsupported by the facts, espoused on radio and television talk shows.

At the same time, "stand-alone economics" and decentralization within companies often requires more coordination and communication through WSPA channels to arm the industry in addressing critical issues. Government has little understanding --- and even less appreciation --- of the changes in the petroleum industry.

The new National Ambient Air Quality Standards (NAAQS) proposed by the federal Environmental Protection Agency (EPA) are a perfect example of regulations that would impact all businesses, including every segment of the petroleum industry and their customers.

Reauthorization of the Endangered Species Act, land valuation disputes and tax litigation, among others, face the exploration and production segment of our business.

On the downstream side, continuing concerns about remediation of MTBE in groundwater, additional oxygenate mandates and efforts to pass open supply and divorcement legislation provide a full book of work.

The lessons WSPA and its member companies have learned in the past twelve months do, however, provide clues about how we can maintain effective advocacy with fewer resources. For example, in defending the benefits of cleaner-burning gasoline and in opposing government and utility subsidies for alternative-fueled vehicles in California, we were successful when we delivered our messages directly to important segments of the public and to responsible members of the media.

Our public outreach approach supported the work of WSPA and member company advocates in state capitals and county buildings. We increased the flow of information through editorial board meetings, use of direct mail, and, very importantly, in extending the reach of our messages and the strength of our advocacy by joining with like-minded organizations. The relationships we have developed with business, consumer and citizens groups of all kinds have made us more effective. These relationships provide the groundwork for future action.

WSPA is already reorganizing our way of work to cope with the uncertainties we see ahead. We formed the Major Issues Task Force (MITF) last year to identify key legislative and regulatory issues and to coordinate industry responses to them. With fewer resources for advocacy work, the MITF has been able to eliminate duplication and make the most effective use of the funds available. As always, the MITF and WSPA's advocates rely on sound technical advice from numerous WSPA committees and task forces to develop useful information for government, media and public communications.

We are also strengthening inter-industry communications, working cooperatively with coalitions on additional issues, and making plans to encourage the expansion of the WSPA Associates. This self-supporting organization of oil service companies, suppliers and vendors, their employees and others has been recognized as an effective grassroots advocate on a number of local and state issues of importance to our industry.

Today's uncertainties will still be with us in the months ahead, of course, as the industry continues to reorganize and consolidate. And the eagerness of many public officials to craft policy to please the radio and television talk show circuit will not disappear, either.

But as material in this annual report will demonstrate, WSPA and its member companies are determined to build on the advances made in 1997 and to employ new approaches to accommodate a more streamlined industry; approaches that will meet the challenges of the economic marketplace as well as the marketplace of ideas. WSPA is excited and optimistic about meeting these challenges.

1997 WSPA Annual Report
Management Letter