Cost of Capital Calculations Inflation Data

1983 Gulf CS 10-yr treasuries avg - 1981

Share price 39 10-yr treasuries avg - 1983
(eve of Picken's attack) 10-yr treasuries yearend
x Shares outstanding (m) 165.3 General rate of inflation
Total Equity 6446.7 (CPI forecast, applies to oil)
Former oil price before inflation
Debt/Total Capital
LT Debt (ex 1) 2,291 Time lag in reserve recovery
Debt to total capital % 26.2%
(debt/(debt+equity) Recoverable reserve yearend '83
Total Reserve
Cost of Equity Expropriations
LT gov rate 11.8% Annual Production
minus risk free 1.0% Years of reserves left
plus [beta * 1.15
market risk premium] 8.8% Finding costs
Cost of Equity 20.9%
(r*rf + ( B x mrp )) Outlays in 1981
Outlays in 1982
Equity to Total Capital Total outlays in '81 and '82
Equity to total capital 73.8%
Reserve additions, from '81
After tax cost of debt Reserve additions, from '82
tax rate 50% Total reserve additions
times AA corporate rate 13.5%
After tax cost of debt 6.8% Expenses, '81
(1-tax rate)*AA corp rate Expenses, '82
Total expenses
WACC
%debt 26% Capitalized, '81
cost of debt 6.8% Capitalized, '82
%equity 74% Total capitalization
cost of equity 21%
WACC 17.00% Finding costs per barrel
(2 digits rounding) Per barrel expense
Per barrel capitalization
 Tax Shelter from Finding Costs

16.40% Life of capitalized expenditures 8

11.80% Tax bracket 50%
10.80%
5% Tax shelter for expl cost 1.05
Tax shelter for develop cost 2.92
90 PV of expl cost tax shelter 0.90
(end of 1st yr)
PV of develop cost tax shelter 0.83
(end of 8 yrs, disc at WACC 17%)
2313 PV of total "finding cost" tax shelter 1.73
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
Table TN-A

Total (m) Per Barrel ($)

290
Operating revenues (1983 dollars) $6,503 $22.42
Less: Production $1,703 $5.87
Less: Other operating expenses (except
exploration, depletion, and depreciation) $351 $1.21

Pretax profits $4,449 $15.34

Taxes $2,224 $7.67
Profit after taxes $2,225 $7.67

Direct cost growth projection 5%

Assumptions

Inflation 0.05
Years 8
Table TN-B

Inflation rate 5%

Per Barrel ($) Total Program

336
Present value of operating profit $3.23 $1,083
Present value of E&D tax shelters $1.73 $580
Present value of finding costs -$7.94 -$2,663

Net present value for one year -$2.98 -$1,000

PV of Explor and Develop program (perpetuity) -$8,333

Loss in shareholder value -$50.41
Exhibit TN-1 Net Present Value per Share of Gulf’s Exploration and Development Program as a Function of Se

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 B/E
6 years -30.27 69.27 8 3.83
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 Inflation B/E
5 % per year -50.41 89.41 0.05 0.14
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
Value
-50.41
m as a Function of Selected Variables
 Exhibit 1

Exhibit 1 Results of 1983 Operations Compared ($ in millions)

Gulf Socal Mesa

I. Oil and Gas-Producing Activities

Revenues, proved oil and gas reserves $6,503 $5,742 $407
Less costs
Lifting costs
Production 911 1,454 19
Wellhead taxes 792 504 19
Exploration expense 601 758 61
Depreciation, etc. 1,000 646 124
Other operating expenses 351 116 (10)
Income taxes 1,933 1,368 65
Results of operations
after costs and income taxes $915 $896 $129

II. Comparison of 1983 Balance Sheets

Total current assets $5,653 $7,328 $216
Net properties 14,090 14,232 1,129
Investments in affiliates 608 2,319 –
Deferred charges and 613 141 21
other assets – – 301

Total assets $20,964 $24,020 $1,667

Total current liabilities $4,756 $5,117 $179

Long-term debt and capital leases 2,291 1,896 621
Deferred taxes 2,651 1,960 162
Deferred credits – 852 –
Other liabilities 355 79 120
Minority interests 783 – –

Total liabilities $10,836 $9,904 $1,082

Preferred stock – – 168

Common stock 165.3 1,026 67
Paid-in capital 1,095 871 162
Retained earnings 8,868 12,209 188
Total stockholder's equity $10,128 $14,106 $585

Total liabilities and equity $20,964 $24,010 $1,667

Beta 1.15 1.15 1.23

Number of shares (millions) 165.3 342.1 66.8

Page 8
 Exhibit 2

Exhibit 2 Exploration and Development Data for Gulf and Socal

GULF
Exploration Cost Reserve Data
($ millions) (millions of composite barrels)
Year Exp'd + Cap'd = Total Begin + Add'ns

1976 $343 $645 $988 3,672 280

1977 457 1,175 1,632 3,257 326
1978 367 905 1,273 3,333 392
1979 389 1,223 1,612 3,392 127
1980 561 1,524 2,085 3,152 198
1981 688 2,008 2,696 3,008 266
1982 727 1,919 2,646 2,951 314
1983 $594 $1,595 $2,189 2,969 359

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 to expropriation, wh
2313
725

Page 9
 Exhibit 2

SOCAL
Reserve Data Exploration Cost Reserve Da
ons of composite barrels) ($ millions) (millions of compos
- Prod'n = End Exp'd + Cap'd = Total Begin +

365 3,257(a) $256 $518 $774 3,263

338 3,333(b) 250 640 890 3,118
334 3,392 371 792 1,163 3,043
367 3,152 409 1,194 1,603 2,920
342 3,008 629 1,601 2,230 3,004
323 2,951 862 2,700 3,562 3,988
296 2,969 939 1,851 2,790 2,891
290 3,038(c) $758 $1,332 $2,090 2,832

rable due to expropriation, which reduces the recoverable reserves to

Page 10
 Exhibit 2

Reserve Data
(millions of composite barrels)
Add'ns - Prod'n = End

115 260 3,118

180 255 3,043
129 252 2,920
345 261 3,004
246 262 2,988
162 259 2,891
198 257 2,832
240 261 2,811

Page 11
 Exhibit 3

Exhibit 3 Selected Market Prices

Price per
Standard & Composite Consumer Average Stock
Year Poor's 500 Barrel (a) Price Index Price (7 majors)b

1976 $107.46 $5.76 $170.50 $56.21

1977 95.10 7.22 181.5 45.92
1978 96.73 8.35 195.4 43.20
1979 105.76 10.63 217.4 51.89
1980 136.34 16.92 246.8 70.00
1981 122.74 22.88 272.4 51.55
1982 138.34 22.21 289.1 44.48
1983 $164.90 $22.42 $298.40 $53.03

GULF SOCAL
Dividend per
Year Closing Price Share Closing Price

1976 $29 $1.73 $21

1977 27 1.83 19
1978 24 1.90 23
1979 35 2.06 28
1980 44 2.37 50
1981 35 2.65 43
1982 30 2.80 32
1983 $43 $2.85 $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 barrels
using a conversion ratio of 5.7 thousand cubic feet per barrel.
b. Exxon, Gulf, Mobil, Shell, Standard Oil California, Standard Oil Indiana, and Texaco.

Page 12
 Exhibit 3

SOCAL
Dividend
per Share

$1.08
1.18
1.28
1.45
1.80
2.20
2.40
$2.40

valent barrels

and Texaco.

Page 13
 Exhibit 4

Exhibit 4 Pro Forma Balance Sheet -- Gulf and Socal Combined ($ in millions)

Offer Price of Socal for All Outstanding Gulf Shares

$70 per share $80 per share $90 per share

Current assets $12,751 $12,751 $12,751

Net properties 29,768 31,421 33,075
Other assets 3,901 3,901 3,901
Total assets $46,420 $48,073 $49,727

Total current liabilities $9,873 $9,873 $9,873

Long-term debt, capital leases 15,761 17,414 19,068
Deferred items 5,463 5,463 5,463
Other liabs. and minority interests 1,217 1,217 1,217
Total liabilities 32,314 33,967 35,621
Total stockholders' equity 14,106 14,106 14,106

Total liabilities and equity $46,420 $48,073 $49,727

Page 14
 Exhibit 4

($ in millions)

per share

$0.53 #DIV/0! $0.55 #DIV/0!

Page 15
 Exhibit 4

$0.57

Page 16
 Exhibit 5

Exhibit 5 Financial Performance: Gulf Compared with Industry

Production(a) ROE
Year Oil Gas EPS(b) Gulf Industry

1972 5.30% 4.40% 49% 10% 14%

1973 5 4 56 13 15
1974 4.8 3.7 56 14 16
1975 4.6 3.6 52 10 12
1976 4.4 3.4 54 12 14
1977 4.3 3.5 48 11 14
1978 4 3.6 49 11 14
1979 3.9 3.5 44 16 21
1980 3.6 3.3 39 15 24
1981 3.2 3.1 38 13 20
1982 3.00% 2.80% 40% 9% 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 Industry

4.8% 6.0%
8.0 8.5
8.5 9.0
5.6 6.5
6.1 7.0
5.3 6.0
5.3 6.0
7.7 9.0
7.5 9.0
6.0 8.0
4.4% 5.5%

Page 18
 Exhibit 6

Exhibit 6 Results of Proxy Vote on Reincorporation Proposal

Voting by Shares (millions)

For Against Abstain(a) Subtotal

Individuals 71.1 9.2 12 92.3

Gulf Investors Group – 21.7 – 21.7
Institutions 16 23.2 12.1 51.3
Total 87.1 54.1 24.1 165.3
-52.7% -32.7% -14.6% -100.0%

Voting by Category (percent)

For Against Abstain(a) Subtotal

Individuals 77% 10% 13% 100%

Gulf Investors Group – 100 – 100%
Institutions 31% 45% 24% 100%

(a) An abstention is essentially a vote against the proposal.

Page 19
 Exhibit 7

Exhibit 7 Trading Prices and Volumes, Gulf and Socal

GULF SOCAL
Date Price Volume(a) Price Volume(a)

1983 35 5/8
6-Aug 37 3/8 16,633 21,473
13-Aug 39 23,955
20-Aug 42 5/8 49,186
27-Aug 41 1/2 13,737
3-Sep 41 1/2 8,942 37 1/4 11,452
10-Sep 41 1/2 23,020
17-Sep 41 1/2 26,515
24-Sep 44 1/2 31,475
1-Oct 42 1/8 14,590
8-Oct 44 1/8 39,708 35 3/8 17,384
15-Oct 47 71,629
22-Oct 46 1/2 91,278
29-Oct 47 1/2 19,415
5-Nov 44 1/2 39,761 35 3/8 18,269
12-Nov 45 1/8 26,660
19-Nov 42 1/4 56,685
26-Nov 43 3/4 43,358
3-Dec 45 1/8 65,168 34 1/8 14,356
10-Dec 43 15,568
17-Dec 42 3/4 13,879
24-Dec 42 5/8 5,210
31-Dec 43 1/8 10,301

1984
7-Jan 46 5/8 34,790 34 7/8 9,959
14-Jan 49 1/4 51,756 35 5/8 15,098
21-Jan 47 23,003 35 7/8 16,351
28-Jan 53 1/8 39,693 35 1/2 15,687
4-Feb 55 1/2 62,309 36 1/2 16,680
11-Feb 57 48,409 33 7/8 19,866
18-Feb 54 70,678 35 7/8 13,798
25-Feb 62 5/8 96,862 36 5/8 12,775
3-Mar 69 1/2 75,126 35 3/4 20,691
10-Mar 65 1/8 53,597 34 1/2 23,149

(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.

Page 20