Valuation of Integrated Oil & Gas Companies Msc Thesis

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:

Jennifer A. Chatman1 Haas School of Business University of California Berkeley, CA 94720-1900 chatman@haas.berkeley.edu And Sandra E. Cha Harvard Business School Soldiers Field, Sherman Hall 102 Harvard

Peng M.W., Pleggenkuhle-Miles E-G. “Current Debates in Global Strategy” International Journal of Management Reviews, 51-69

The companies Foster Wheeler (FWLT), CB&I (CBI) and Fluor Corp. (FLR) are considered heavy-weights in the industrial sector and most of the time bidding against each other in local and global energy and oil and gas projects. The headquarters of these companies, together with the other heavyweights are “neighbors” here in Houston Energy Corridor (and beyond) and it is no secret within the community who is getting what projects as well as who has reach a strategic partnership or alliance with oil majors and downstream refining businesses. Coming out from last year’s big dip in oil price, it will be interesting to compare these three companies against with one another and also how they fare against S&P500.

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

Baye, M.R., Prince, J.T. (2014). Managerial Economics and Business Strategy. New York, NY: McGraw-Hill Irwin

Based on the tornado chart results, it can be seen in figure 4.8 that field A post-tax NPV is affected by the oil price fluctuation. Furthermore, development expenditure (devex) and discount-rate ranked second and third as the variables which affected it. Therefore, oil price is indeed essential factor to consider for investors.

Hitt, M., Ireland, R., Hoskisson, R. (2013) Strategic Management: Competitiveness & Globalisation, 10th edition, Cengage Learning

International Finance MBA 610.63 Westlake Village Center Wednesday 1/5-2/16/05 Len Rushfield (310) 474-5848 (603) 843-9683 (efax) leonard.rushfield@pepperdine.edu/ asiaptner@aol.com Course Objectives MBA 610.63 is intended to provide a foundation of understanding of international finance and the critical options for corporate financial management within the global markets. Intensive reading will establish the basis of information on international financial structure, processes and techniques. Cases will identify important real

This research is being submitted on March 9, 2014, for Dr. Reshowrn Thomas’s BUSI-604 International Business course.

Due to the recent economic crisis, it is time to rethink corporate strategy, especially as it applies to the global environment. In 2009, the value of international trade was expected to decline by as much as 9%. Foreign Direct investment fell 15% in 2008 and another 40% in 2009. This article is predicting a rough decade to come with weak global growth, pressures from overcapacity, persistently high unemployment, volatility in the financial markets, costlier capital, a greatly expanded role from governments, a much larger burden of regulation and taxation for all, and maybe even increased protectionism. (Ghemawat 56) These are exactly the types of things the business world must begin to play closer attention to. This may even mean a

This document is authorized for use only by Albertina Dias at ISG Business School until September 2013. Copying

Crude oil is the largest individual source of the world’s energy needs, it’s used in the production of many other products such as plastics, synthetics, fuels, bitumen etc. and is used as a benchmark for the pricing of other energy sources such as LNG. Oil’s impact on the economic spectrum i.e. from the hip pocket of the “man or woman on the street” to national finances cannot be understated. Oil prices are determined through the interaction of physical and financial markets, therefore making it’s pricing exceedingly complex. In Part A of this report, we endeavour to predict whether the Brent crude oil price will be above or below the current “spot” price of around US$60 per barrel in one and five years time and we consider demand concerns in China, supply issues within the US and OPEC (Saudi Arabia especially) as well as global geopolitical impacts. In Part B, fuel is the largest operating expense for an airline and we will assess the vulnerability of the share prices for Qantas and Virgin Australia to movements in the oil price.

5 John, J. W, & Kenneth. L. W, (2012). International Business: The challenges of Gl

The methods for valuing companies can be classified in six groups: MAIN VALUATION METHODS BALANCE INCOME MIXED CASH FLOW VALUE OPTIONS SHEET STATEMENT (GOODWILL) DISCOUNTING CREATION .Book value . Multiples Classic Equity cash flow EVA Black and .Adjusted .PER Union of Dividends Economic Scholes . Sales Free cash flow Investment value European profit .Liquidation .P/E EBITDA Accounting Capital cash flow Cash value option value .Other Experts APV added Expand .Substantial multiples Abbreviated CFROI the project value income Delay the others investment Alternative uses 2.1 Balance sheets – Based methods (shareholders’Equity) These methods seek to determine the company’s value by estimating the value of its assets. These are traditionally used methods that consider that a company’s value lies basically in its balance sheet. They determine the value from a static viewpoint, which, therefore, does not take into account the company’s possible future evolution or money’s temporary value. Neither do they take into account other factors that also affect the value such as: the industry’s current situation, human resources or organization problems, contracts, etc. that do not appear in the accounting statements. Some of these methods are the following: Book value, adjusted book value,