Gulf Oil/Takeover

Harvard Business School Case #285-053

Case Software #XLS064

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

Gulf Socal Mesa

I. Oil- and Gas-Producing Activities $6,503 $5,742 $407

Revenues, proved oil and gas reserves
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 1,026 67
Paid-in capital 1,095 871 162
Retained earnings 8,868 12,209 188
Total stockholders’ 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
 1983 Gulf Common Stock 6446.7 2,291
Debt/ Total Capital 0.262197
Cost of Equity 21% 11% + 1.15*8.8%

6446.7
Exhibit 2 Exploration and Development Data for Gulf and Socal

Gulf Socal

Exploration Cost ($ millions) Reserve Data (millions of composite barrels) Exploration Cost ($ millions) Reserve Data (millions of composite barrels)
Prod’
Year Exp’d + Cap’d = Total Begin + Add’ns - n = End Exp’d + Cap’d = Total Begin + Add’ns - Prod’n = End

1976 $343 $645 $988 3,672 280 365 3,257a $256 $518 $774 3,263 115 260 3,118
1977 457 1,175 1,632 3,257 326 338 3,333b 250 640 890 3,118 180 255 3,043
1978 367 905 1,273 3,333 392 334 3,392 371 792 1,163 3,043 129 252 2,920
1979 389 1,223 1,612 3,392 127 367 3,152 409 1,194 1,603 2,920 345 261 3,004
1980 561 1,524 2,085 3,152 198 342 3,008 629 1,601 2,230 3,004 246 262 2,988
1981 688 2,008 2,696 3,008 266 323 2,951 862 2,700 3,562 3,988 162 259 2,891
1982 727 1,919 2,646 2,951 314 296 2,969 939 1,851 2,790 2,891 198 257 2,832
1983 $594 $1,595 $2,189 2,969 359 290 3,038c $758 $1,332 $2,090 2,832 240 261 2,811

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, which reduces the recoverable reserves to 2,313 million barrels.
Exhibit 3 Selected Market Prices

Standard & Price per Composite Consumer Price Average Stock

Year Poor’s 500 Barrela Index Price (7 majors)b
1976 $107.46 $5.76 $170.5 $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 $298.4 $53.03

Gulf Socal
Dividend per
Year Closing Price Dividend per Share Closing Price Share
1976 $29 $1.73 $21 $1.08
1977 27 1.83 19 1.18
1978 24 1.90 23 1.28
1979 35 2.06 28 1.45
1980 44 2.37 50 1.80
1981 35 2.65 43 2.20
1982 30 2.80 32 2.40
1983 $43 $2.85 $35 $2.40

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.
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 liabilities 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
Exhibit 5 Financial Performance: Gulf Compared with Industry

Productiona ROE ROA

Year Oil Gas EPS b
Gulf Industry Gulf Industry
1972 5.3% 4.4% 49% 10% 14% 4.8% 6.0%
1973 5.0 4.0 56 13 15 8.0 8.5
1974 4.8 3.7 56 14 16 8.5 9.0
1975 4.6 3.6 52 10 12 5.6 6.5
1976 4.4 3.4 54 12 14 6.1 7.0
1977 4.3 3.5 48 11 14 5.3 6.0
1978 4.0 3.6 49 11 14 5.3 6.0
1979 3.9 3.5 44 16 21 7.7 9.0
1980 3.6 3.3 39 15 24 7.5 9.0
1981 3.2 3.1 38 13 20 6.0 8.0
1982 3.0% 2.8% 40% 9% 11% 4.4% 5.5%

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.
Exhibit 6 Results of Proxy Vote on Reincorporation Proposal

Voting by Shares (millions)

For Against Abstaina Subtotal
Individuals 71.1 9.2 12.0 92.3
Gulf Investors Group — 21.7 — 21.7
Institutions 16.0 23.2 12.1 51.3
Total 87.1 54.1 24.1 165.3
(52.7%) (32.7%) (14.6%) (100%)

Voting by Category (percent)

For Against Abstaina 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.
Exhibit 7 Trading Prices and Volumes, Gulf and Socal

Gulf Socal
Date Price Volume a
Price Volumea

1983 $35%
8/5 37⅜ 16,633 21,473
8/12 39 23,955
8/19 42⅝ 49,186
8/26 41½ 13,737
9/2 41½ 8,942 37¼ 11,452
9/9 41½ 23,020
9/16 41½ 26,515
9/23 44⅓ 31,475
9/30 42⅛ 14,590
10/7 44⅛ 39,708 35⅜ 17,384
10/14 47 71,629
10/21 46½ 91,278
10/28 47½ 19,415
11/4 44½ 39,761 35⅜ 18,269
11/11 45⅛ 26,660
11/18 42¼ 56,685
11/25 43¾ 43,358
12/2 45⅛ 65,168 34⅛ 14,356
12/9 43 15,568
12/16 42¾ 13,879
12/23 42⅝ 5,210
12/30 43⅛ 10,301

1984
1/6 46⅝ 34,790 34⅞ 9,959
1/13 49¼ 51,756 35⅝ 15,098
1/20 47 23,003 35⅞ 16,351
1/27 53⅛ 39,693 35½ 15,687
2/3 53½ 62,309 36½ 16,680
2/10 57 48,409 33⅞ 19,866
2/17 54 70,678 35⅞ 13,798
2/24 62⅝ 96,862 36⅝ 12,775
3/2 69½ 75,126 35¾ 20,691
3/9 $65⅛ 53,597 $34½ 23,149

Total volume for week. All dates shown are Fridays. Volume is shown in 100-share lots. For the
a

week ending 8/5/83, Gulf volume is 1.66 million shares.