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Mw Petroleum Corporation

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Rev. November 21, 1994

MW Petroleum Corporation (A)
In late 1990, executives, engineers, and financial advisors working for Amoco Corporation and Apache Corporation began serious discussions about the sale to Apache of MW Petroleum
Corporation, a wholly-owned subsidiary of Amoco Production Company. Amoco had transferred to
MW certain of its own assets that it regarded as non-strategic. MW 's size, location, and operations were all very attractive to Apache, which had grown nearly 30% per year since the mid-1980s, largely through acquisitions. The transaction being discussed with Amoco would be Apache 's largest to date. It would more than double the size …show more content…

Since 1983,
Amoco itself had sold more than $750 million worth of small properties which, it felt, could be more economically operated by smaller, low-overhead independent companies.
In 1988, Amoco conducted an extensive review of its cost structure and profitability. The study concluded that direct operating costs were well-controlled and offered little opportunity for major savings. However, it also showed that in the United States 85% of the company 's gross margin was provided by just 11% of its 1150 producing fields and that many of the remaining fields had disproportionately high overhead and repair expenses. Based on these and other findings,
Amoco initiated a major restructuring to better focus on its most attractive properties and opportunities. The first step was the sale, in 1989, of more than 400 fields in the "tail" of the margin curve, comprising approximately one third of the field portfolio and 12% of leases. These properties were among Amoco 's least profitable, contributing only 3% of the company 's direct margin. Next, in January 1990, as part of the overall restructuring of Amoco Production Company,
Amoco 's board of directors approved a plan to divest up to $1.2 billion worth of additional properties from the middle section of the margin curve. Morgan Stanley was engaged to advise and assist in this process, which began

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