MW corp Essay

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MW Petroleum Corporation (A)

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 …show more content…

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,

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