Mw Petroleum Essay

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Valuation is the estimation of an asset’s value, whether real or financial, based on variables perceived to be related to future investment returns, on comparison with similar assets, or, when relevant, on estimates of immediate liquidation proceeds (Pinto, Henry, Robinson, Stowe; 2010). Correct valuation of real assets can present challenges to financial analysts. Different models can be used to arrive at the closest estimate of value and yet certain issues will always arise. This case attempts to tackle two approaches in real asset valuation: Discounted Cash Flow (DCF) analysis and the issues surrounding such, as well as the Black-Scholes Model for Real Options. Questions to be addressed in the study are: 1. Evaluate Amoco’s and…show more content…
Profitability of oil companies declined due to low prices; and most of these firms responded with cost-cutting measures. Many top companies divested their marginal properties, seeking to consolidate and rationalize their productive assets- one of which was Amoco Corporation. Amoco Corporation conducted an extensive review of its cost structure and profitability (p.2), leading to major restructurings to better focus on its core businesses. The result of this was a divestment of the middle section of its assets along marginal curve. Morgan Stanley advised and assisted in the process, creating MW Petroleum Corporation – a new, free-standing exploration and production oil and gas company. MW was offered to a number of targeted international petroleum concerns, but the most attractive offer came from Apache Corporation. Apache Corporation was an independent oil and gas company based in Denver, Colorado engaged in exploration, development, and production of oil and natural gas. Their strategy, “rationalize and reconfigure” involves acquiring producing properties whose operations Apache could quickly control and make more efficient, producing significant cost-saving opportunities for the company. The sale of MW Petroleum provides such an opportunity for them. However, Apache must first carefully evaluate MW’s value to come up with a proposal that would be attractive for Amoco and profitable for Apache as well. CRITICAL ANALYSIS 1. Evaluate Amoco’s and Apache’s corporate

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