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interest in Belle Fourche, contrary to the findings of the
initial Lax report.
c. Gustavson Report and Respondent’s Position
Mr. Gustavson applied the discounted cash-flow (DCF) method
to value pipeline assets owned by Belle Fourche as of June 4,
1994; he did not value the company as a whole. Under this
method, Mr. Gustavson multiplied projected future throughput by
estimated net revenue per barrel to develop annual net cash-
flows, which he then discounted to account for the time value of
money.
The Gustavson report projected discounted cash-flows for 15
years, assuming half a year’s throughput in years 1 and 16. He
estimated 1994 throughput based on one-half of actual 1993
throughput, or 18 million barrels. Mr. Gustavson incorporated an
annual decline rate for throughput (7 percent) that mirrored the
forecasted rate of decline in oil production for the State of
Wyoming. Mr. Gustavson noted that his analysis of local
production data yielded a 2-percent decline rate; however, he
chose the higher statewide rate to be more conservative. Mr.
Gustavson stated that he examined Belle Fourche’s throughput data
(derived from filings with regulatory agencies) going back 23
years, and that he found the flow to be fairly uniform.
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