A five-year period (1967-1971) was used to calculate the relationship of lease acquisiton costs to successful wells costs for Columns (a) and (b) of Sheet 1 of Schedule No. 1. A six-year period (1967-1972) was used to calculate this relationship for all other test periods except the fouryear test period (1969-1972) where a four-year average was utilized. The six-year ratio is 0.6741, the five year-ratio

is 0.6112, and the four-year ratio is 0.6250.

A five-year period (1967-1971) was used to calculate the ratio of other exploratory costs to lease acquisition costs and the ratio of exploratory overhead to the total of dry hole and other exploratory costs for the cost studies shown in Columns (a) and (b). A six-year period (1967-1972) was used for all other studies except for the four-year period (1969-1972). The ratio of other exploratory costs to lease acquisition costs is 0.7686 for 1967-1971, 0.6844 for 1967-1972 and 0.7170 for 1969-1972 and the ratio of exploratory overhead to the total of dry hole and other exploratory costs is

0.1266 for 1967-1971, 0.1281 for 1967-1972, and 0.1269 for 1969-1972.

6.

- 5

Production Operating Expense and Liquid Credits

The production operating expense and the net liquid credit utilized in Revised Appendix B are the same as the figures for those components which were used in the original Appendix B. 7. Return and Investment Rate Base

A 15 percent rate of return was used in all cost computations in this Revised Appendix B.

A nine-year investment life including lag time was utilized in the cost computations shown in Columns (a), (b), (c), and (d) of Schedule No. 1 (Sheet 1) and a 10.5 year investment life including lag time was utilized in all other cost computations.

An average royalty of 16 percent was utilized in all cost computations.

No production taxes are shown since the notice of proposed rulemaking stated that the rates would be determined exclusive of production taxes.

APPENDIX B

Schedule No. 1-A

Summary Description of the Cost

Estimates Shown on Schedule No. 1.

Columns (a) and (b) - Staff's cost estimates attached to the Commission's Notice of Rulemaking in Docket No. R-389-B dated April 11, 1973. Reflects 580 productivity (low estimate) and 525 productivity (high estimate) and an investment life of 9 years including lag time. Includes data available through the year 1971.

Column (c) Update of Staff's low cost estimate shown in Column (a) to include 1972 JAS cost data and a productivity of 559 which is an average of the 11 year, 16 year and 26 year periods ending with 1972. An investment life of 9 years including lag time is employed.

Column (d) Update of Staff's high cost estimate shown in Column (b) to include 1972 JAS cost data and a productivity of 485 which is an average of the 7 year period ending 1972 using AAPG drilling data in contrast to Column (c) which employs World Oil Drilling data for the longer periods. An investment life of 9 years including lag time is employed.

Column (e) Update of Staff's low cost estimate shown in Column (a) to include 1972 JAS cost data, a productivity of 559 and a revision in investment life including lag time to reflect a period of 10.5 years in lieu of 9 years.

Column (f) Update of Staff's high cost estimate shown in Column (b) to include 1972 JAS cost data, a productivity of 485 and a revision in investment life including lag time to reflect a period of 10.5 years in lieu of 9 years.

Column (g) - Estimate of new gas cost using a productivity of 552 which is the average for the 10 year period 1963 - 1972 and including 1972 JAS cost data. An investment life including lag time of 10.5 years is employed.

Column (h) Estimate of new gas cost using a productivity of 336 which is the average for the 4 year period 1969 - 1972 and including 1972 JAS cost data and cost relationships for this period. An investment life including lag time of 10.5 years is employed.

COST COMPUTATIONS (SOURCE)

(REFER TO COLUMN (a) OF SHEET 1)

APPENDIX B
Schedule No. 1
Sheet 2 of 9

Line

No.

1.

2.

3.

2.92

=

4.

5.

6.

7.

8.

9.

10.

11.

12.

0.90

4.77 - $27.64/ft. (1971, JAS): 580 Mcf/ft. (Schedule No. 2) .20 (Opinion No. 662)

4.77 (Line 1) x .6112 (Schedule No. 3)

1.08 - 4.77 (Line 1) x .226 (Opinion No. 598)

8.97 Sum of Lines 1-4

2.95 - $15.83/ft. (1971, JAS) x 1.0 x 1.08 580 Mcf/ft.
(Schedule No. 2)

2.24 2.92 (Line 3 x .7686 (Schedule No. 3)

.66

(2.95 (Line 6) + 2.24 (Line 7)] x .1266 (Schedule No. 3)

5.85 Sum of Lines 6-8

3.10 - (Opinion No. 598)

11.97
No. 3)

[5.85 (Line 9) x 1/8 x 1.336 + 3.10 (Line 10) x 1/8 x 1.689 + 2.92 (Line 3) x 1.57 x .15 (Opinion No. 598)

x.20 (Line 2)7 x 9 x .15 (Opinion