Draft
MW Petroleum Corporation (A)
Background:
In late 1990, the group of Amoco Corporation and Apache Corporation had begun talking regarding the possible acquisition of MW Petroleum from Amoco to Apache. MW Petroleum Corporation is a wholly owned subsidiary of Amoco Corporation which has its own reserves, management team and with full ownership in geologic and engineering data. MW Petroleum, a free-standing exploration company that was even as large as some of independent oil companies. It operated exploration and development for well, approximately working interests in 9,500 wells in 300 production areas. The growth of MW was very attractive to the other investors, which company grows 30% per year since mid-1980s, due to large
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The intention of the company to review its assets with an eye toward selling properties or business lines that did not meet its long-term objectives. The demand for company’s products was in slow pace and oil and gas prices low. Apaches objective was to expand and rationalize their properties. Adhering to their strategy of growth was to develop and acquire oil and gas reserves. They are aiming to double their reserves in the future. This investment can lead them increase their asset and investors. Apache’s believed that achieving high profit could be realized by acquiring marginal properties and operating well with expertise. Therefore, the deal was likely to be a win-win situation for both parties, if they could reach a reasonable price to accept.
Between the two companies, the MW Corporation was more valuable to the Apache, because it would give benefit to them to have expand their properties and generate income, unlike if it remains with the Amoco that it would be part of the least profitable properties. The Apache's main source of value was to expand and diverse their asset base while the Amoco's main source of value was to limit their cost, and eliminate the business with a less profitable.
Structure and execute a DCF valuation of all the MW reserves. How much are the reserves worth? Is your estimate more likely to be biased high or low? What are the sources of bias?
DCF valuation was popular method used in valuing a company,
Expected wait time in the system for an application in Region 1 is approximately 37 days, with actual processing time of 14.10 hours. This is where the bottleneck occurs as it takes the evaluation team over 16 days out of the 37 to perform the review of 78 applications.
To organize and prioritize the current and future projects in the pipeline in a way that fits into the PMB budget of $5B, and ensures projects that increase sales, growth, and stockholder value are of top priority, whereas projects that are not beneficial are either put on hold or discarded.
a. A period of rapid international and domestic expansion by chain restaurants during the first half of the 1990’s, which caused DFE manufacturers and suppliers to increase production capacity domestically and build assets in foreign markets.
3. Any travel/accommodation for interstate attendees would need to be arranged. Also the same for the guest speaker (if needed). Transfers to and from the airport would be advisable.
Since the oil market was bullish at the time, the company’s concern was that the properties might be overvalued, since high current market prices would inflate the purchase price for said properties. If prices were to drop in the future, Apache may have over-paid for the resources. For this reason, many other companies chose not to acquire additional properties during times of rising oil prices; Apache instead chose to hedge their acquisitions in order to mitigate the risk of future losses. This strategy worked well for Apache, allowing them to complete multiple acquisitions and increase their rating from a BBB+ to A-.
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All valuations were valued in accordance with NSW Treasury Policy TPP 14-01 “Valuation of Physical Non-Current Assets at Fair Value”, AASB13 “Fair Value Measurement and AASB 116 “Property, Plant and Equipment” with the following specific treatments:
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