Cost of Capital Calculations
Inflation Data
1983 Gulf CS Share price (eve of Picken's attack) x Shares outstanding (m) Total Equity
10-yr treasuries avg - 1981 10-yr treasuries avg - 1983 10-yr treasuries yearend General rate of inflation (CPI forecast, applies to oil) Former oil price before inflation
39 165.3 6446.7
Debt/Total Capital LT Debt (ex 1) Debt to total capital % (debt/(debt+equity)
2,291 26.2%
Cost of Equity LT gov rate minus risk free plus [beta * market risk premium] Cost of Equity (r*rf + ( B x mrp ))
11.8% 1.0% 1.15 8.8% 20.9%
Equity to Total Capital Equity to total capital After tax cost of debt tax rate times AA corporate rate After tax cost of debt (1-tax rate)*AA corp rate WACC %debt cost of debt %equity cost of equity WACC (2 digits rounding)
Time lag in reserve recovery Recoverable reserve yearend '83 Total Reserve Expropriations Annual Production Years of reserves left Finding costs Outlays in 1981 Outlays in 1982 Total outlays in '81 and '82
73.8%
50% 13.5% 6.8%
26% 6.8% 74% 21% 17.0 7.00%
Reserve additions, from '81 Reserve additions, from '82 Total reserve additions Expenses, '81 Expenses, '82 Total expenses Capitalized, '81 Capitalized, '82 Total capitalization Finding costs per barrel Per barrel expense Per barrel capitalization
Tax Shelter from Finding Costs 16.40% 11.80% 10.80% 5% 90
2 3 13 3,038 725 290 8.0
2,696 2,646 5,342 314 359 673 688 727 1415 2,008 1,919 3,927 7.94 2.10 5.84
Life of capitalized expenditures Tax bracket
8 50%
Tax shelter for expl cost Tax shelter for develop cost PV of expl cost tax shelter (end of 1st yr) PV of develop cost tax shelter (end of 8 yrs, disc at WACC 17%) PV of total "finding cost" tax shelter
1.05 2.92 0.90 0.83 1.73
Table TN-A Total (m) Operating revenues (1983 dollars) Less: Production Less: Other operating expenses (except exploration, depletion, and depreciation)
$6,503 $1,703
Per Barrel ($) 290 $22.42 $5.87
$351
$1.21
Pretax profits Taxes Profit after taxes
$4,449 $2,224 $2,225
$15.34 $7.67 $7.67
Direct cost growth projection
5%
Assumptions Inflation Years
0.05 8
Table TN-B Inflation rate
5% Per Barrel ($)
Present value of operating profit Present value of E&D tax shelters Present value of finding costs
$3.23 $1.73 -$7.94
Total Program 336 $1,083 $580 -$2,663
Net present value for one year
-$2.98
-$1,000
PV of Explor and Develop program (perpetuity) Loss in shareholder value
-$8,333 -$50.41
Exhibit TN-1
Net Present Value per Share of Gulf’s Exploration and Development Program as a Fu
NPV of E&D program per Gulf share, assuming average elapsed time to oil recovery of Bid 8 years -50.41 89.41 7 years -41.13 80.13 Time 6 years -30.27 69.27 Break even point 3.83 Years 0.00 39 NPV of E&D program per Gulf share, assuming oil price inflation rate of Bid 0 % per year -68.05 107.05 5 % per year -50.41 89.41 10 % per year -25.80 64.80 Break even point 13.9% per year 0.00 39.00 15 % per year 8.02 30.98
B/E 8
Inflation B/E 0.05
Value -50.41
3.83
0.14
ction of Selected Variables
Exhibit 1
Exhibit 1
Results of 1983 Operations Compared ($ in millions)
Gulf
Socal
Mesa
$6,503
$5,742
$407
911 792 601 1,000 351 1,933
1,454 504 758 646 116 1,368
19 19 61 124 (10) 65
$915
$896
$129
$5,653 14,090 608 613 –
$7,328 14,232 2,319 141 –
$216 1,129 – 21 301
$20,964
$24,020
$1,667
$4,756 2,291 2,651 – 355 783
$5,117 1,896 1,960 852 79 –
$179 621 162 – 120 –
Total liabilities
$10,836
$9,904
$1,082
Preferred stock Common stock Paid-in capital Retained earnings
– 165.3 1,095 8,868
– 1,026 871 12,209
168 67 162 188
Total stockholder's equity
$10,128
$14,106
$585
Total liabilities and equity
$20,964
$24,010
$1,667
Beta Number of shares (millions)
1.15 165.3
1.15 342.1
1.23 66.8
I. Oil and Gas-Producing Activities Revenues, proved oil and gas reserves Less costs Lifting costs Production Wellhead taxes Exploration expense Depreciation, etc. Other operating expenses Income taxes Results of operations after costs and income taxes II. Comparison of 1983 Balance Sheets Total current assets Net properties Investments in affiliates Deferred charges and other assets Total assets Total current liabilities Long-term debt and capital leases Deferred taxes Deferred credits Other liabilities Minority interests
Page 8
Exhibit 2
Exhibit 2
Exploration and Development Data for Gulf and Socal
GULF
Year 1976 1977 1978 1979 1980 1981 1982 1983
Exp'd $343 457 367 389 561 688 727 $594
Exploration Cost ($ millions) + Cap'd = $645 1,175 905 1,223 1,524 2,008 1,919 $1,595
Total $988 1,632 1,273 1,612 2,085 2,696 2,646 $2,189
Begin 3,672 3,257 3,333 3,392 3,152 3,008 2,951 2,969
Reserv (millions of co + Add'ns 280 326 392 127 198 266 314 359
Note: Some numbers may not add due to rounding. a. Reduced by 330 million barrels expropriated by Ecuador. b. Includes 88 million barrels acquired from Kewanee Industries, Inc. c. J. S. Herold estimates that 725 million barrels in West Africa are not recoverable due t 2313 725
Page 9
Exhibit 2
SOCAL
e Data posite barrels) - Prod'n = End 365 338 334 367 342 323 296 290
3,257(a) 3,333(b) 3,392 3,152 3,008 2,951 2,969 3,038(c)
Exploration Cost ($ millions) Exp'd + Cap'd = Total $256 250 371 409 629 862 939 $758
$518 640 792 1,194 1,601 2,700 1,851 $1,332
expropriation, which reduces the recoverable reserves to
Page 10
$774 890 1,163 1,603 2,230 3,562 2,790 $2,090
(m Begin + 3,263 3,118 3,043 2,920 3,004 3,988 2,891 2,832
Exhibit 2
Reserve Data illions of composite barrels) Add'ns - Prod'n 115 180 129 345 246 162 198 240
260 255 252 261 262 259 257 261
= End 3,118 3,043 2,920 3,004 2,988 2,891 2,832 2,811
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Exhibit 3
Exhibit 3
Selected Market Prices
Year
Standard & Poor's 500
Price per Composite Barrel (a)
Consumer Price Index
Average Stock Price (7 majors)b
1976 1977 1978 1979 1980 1981 1982 1983
$107.46 95.10 96.73 105.76 136.34 122.74 138.34 $164.90
$5.76 7.22 8.35 10.63 16.92 22.88 22.21 $22.42
$170.50 181.5 195.4 217.4 246.8 272.4 289.1 $298.40
$56.21 45.92 43.20 51.89 70.00 51.55 44.48 $53.03
Year 1976 1977 1978 1979 1980 1981 1982 1983
GULF Dividend per Closing Price Share $29 27 24 35 44 35 30 $43
$1.73 1.83 1.90 2.06 2.37 2.65 2.80 $2.85
SOCAL Closing Price $21 19 23 28 50 43 32 $35
a. Composite amounts represent crude oil, natural as liquids, and natural gas on a per-barrel basis. Natural gas volumes are converted to crude oil equivalent barr using a conversion ratio of 5.7 thousand cubic feet per barrel. b. Exxon, Gulf, Mobil, Shell, Standard Oil California, Standard Oil Indiana, and Texac
Page 12
Exhibit 3
Dividend per Share $1.08 1.18 1.28 1.45 1.80 2.20 2.40 $2.40
ls .
Page 13
Exhibit 4
Exhibit 4
Pro Forma Balance Sheet -- Gulf and Socal Combined ($ in milli
er Price of Socal for All Outstanding Gulf Sha $70 per share
$80 per share
$90 per shar
Current assets Net properties Other assets Total assets
$12,751 29,768 3,901 $46,420
$12,751 31,421 3,901 $48,073
$12,751 33,075 3,901 $49,727
Total current liabilities Long-term debt, capital leases Deferred items
$9,873 15,761 5,463
$9,873 17,414 5,463
$9,873 19,068 5,463
Other liabs. and minority interes Total liabilities Total stockholders' equity
1,217 32,314 14,106
1,217 33,967 14,106
1,217 35,621 14,106
$46,420
$48,073
$49,727
Total liabilities and equity
Page 14
Exhibit 4
ns)
$0.53
#DIV/0!
Page 15
$0.55
#DIV/0!
Exhibit 4
$0.57
Page 16
Exhibit 5
Exhibit 5
Year 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982
Financial Performance: Gulf Compared with Industry
Production(a) Oil Gas 5.30% 5 4.8 4.6 4.4 4.3 4 3.9 3.6 3.2 3.00%
4.40% 4 3.7 3.6 3.4 3.5 3.6 3.5 3.3 3.1 2.80%
ROE EPS(b)
Gulf
Industry
49% 56 56 52 54 48 49 44 39 38 40%
10% 13 14 10 12 11 11 16 15 13 9%
14% 15 16 12 14 14 14 21 24 20 11%
Note: The industry consists of seven major producers: Exxon, Gulf, Mobil, Shell, Standard Oil California, Standard Oil Indiana, and Texaco. (a) Gulf's U.S. production as percentage of U.S. production of the seven major companies. (b) Earnings per share as percentage of the seven-company average.
Page 17
Exhibit 5
ROA Gulf 4.8% 8.0 8.5 5.6 6.1 5.3 5.3 7.7 7.5 6.0 4.4%
Industry 6.0% 8.5 9.0 6.5 7.0 6.0 6.0 9.0 9.0 8.0 5.5%
Page 18
Exhibit 6
Exhibit 6
Results of Proxy Vote on Reincorporation Proposal
For Individuals Gulf Investors Grou Institutions Total
71.1 – 16 87.1 -52.7%
For Individuals Gulf Investors Grou Institutions
77% – 31%
Voting by Shares (millions) Against Abstain(a) Subtotal 9.2 21.7 23.2 54.1 -32.7%
12 – 12.1 24.1 -14.6%
92.3 21.7 51.3 165.3 -100.0%
Voting by Category (percent) Against Abstain(a) Subtotal 10% 100 45%
13% – 24%
(a) An abstention is essentially a vote against the proposal.
Page 19
100% 100% 100%
Exhibit 7
Exhibit 7
Date
Trading Prices and Volumes, Gulf and Socal GULF Price Volume(a)
SOCAL Price Volume(a) 35 5/8
1983 6-Aug 13-Aug 20-Aug 27-Aug 3-Sep 10-Sep 17-Sep 24-Sep 1-Oct 8-Oct 15-Oct 22-Oct 29-Oct 5-Nov 12-Nov 19-Nov 26-Nov 3-Dec 10-Dec 17-Dec 24-Dec 31-Dec
37 3/8 39 42 5/8 41 1/2 41 1/2 41 1/2 41 1/2 44 1/2 42 1/8 44 1/8 47 46 1/2 47 1/2 44 1/2 45 1/8 42 1/4 43 3/4 45 1/8 43 42 3/4 42 5/8 43 1/8
16,633 23,955 49,186 13,737 8,942 23,020 26,515 31,475 14,590 39,708 71,629 91,278 19,415 39,761 26,660 56,685 43,358 65,168 15,568 13,879 5,210 10,301
1984 7-Jan 14-Jan 21-Jan 28-Jan 4-Feb 11-Feb 18-Feb 25-Feb 3-Mar 10-Mar
46 5/8 49 1/4 47 53 1/8 55 1/2 57 54 62 5/8 69 1/2 65 1/8
34,790 51,756 23,003 39,693 62,309 48,409 70,678 96,862 75,126 53,597
21,473
37 1/4
11,452
35 3/8
17,384
35 3/8
18,269
34 1/8
14,356
34 35 35 35 36 33 35 36 35 34
9,959 15,098 16,351 15,687 16,680 19,866 13,798 12,775 20,691 23,149
7/8 5/8 7/8 1/2 1/2 7/8 7/8 5/8 3/4 1/2
(a) Total volume for week. All dates shown are Fridays. Volume is shown in 100-share lots. For the week ending 8/5/83, Gulf volume is 1.66 million shares.
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