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Table 1

Cost of Equity Capital for Oil and Gas Companies

1999

Equity

---------------- Cost of Equity Capital (Percent) -------------

Levered

Market

No. of

Beta

Risk

CAPM

CAPM

Discounted Cash Flow

Source

Industry

SIC

Firms

Coefficient

Premium

Adj. OLS

+ sm. prem.

1-Stage

3-Stage

Average

(a)

Oil and Gas Extraction

13

130

0.92

7.50

13.25

14.38

17.30

7.10

13.01

Crude Petroleum and

Natural Gas

131

101

0.83

7.50

11.91

13.51

16.19

13.30

13.73

(b)

Petroleum (Integrated)

41

0.90

5.50

10.22

10.22

Petroleum (Producing)

104

0.90

5.50

10.27

10.27

Low

High

(c)

Petroleum Pipelines

4

13.11

14.58

13.85

(d)

Petroleum Pipelines

6

12.74

14.85

13.80

(a)

All mid-sized companies

582

7.50

13.43

13.92

16.85

13.10

14.33

Sources:

(a)

Ibbotson Associates, Cost of Capital Quarterly, 1999 Yearbook; industry composite for SIC 13; median for SIC 131

CAPM Adj. OLS is adjusted ordinary least squares method; CAPM + sm. premium includes premium added for small and medium-sized companies.

Risk-free asset is long-term government bond; yield for March 31, 1999 (5.91%)

(b)

NYU Stern Business School, Cost of Capital by Industry, December 31, 1998

(c)

J. Peter Williamson, Laurence F. Whittemore Professor of Finance, Emeritus, Amos Tuck School of Business Administration

Two-stage DCF model which reflects FERC policy on equity capital: dividend yields for each firm are adjusted for compounding;

adjusted yields and the weighted growth factor are then added to calculate a cost of equity for each firm); dividend yields are for April to September, 1999.

(d)

FERC range of equity returns approved in SFPP rate proceeding (Docket No. OR92-8, et. al.); reflects equal weighting of short and long-term growth rather than 2/3 short.

1/

Companies from all industries with equity capitalization > $0.9 billion and < $4.2 billion.

Swanson Energy Group, Inc.