Company Name: MW Petroleum Amoco Corporation was the fifth largest oil company in United States with 28 billion in operating revenues and 1.9 billion in net income. The low oil prices in the 1980s depressed the profitability of many oil companies and most of which responded with downsizing and other cost cutting measures aimed at overhead expenses. Amoco had already sold more than 750 million worth of small properties, which it felt could be more economically operated by companies with low overhead costs. Amoco conducted an extensive study on capital structure and profitability in 1988 and found that 85% of its margin in United States was provided by 11% of its producing fields and rest had disproportionately high overhead costs and repair costs. Based on this a strategy was formed to divest up to 1.2 billion worth of additional properties. As the spinoff could take almost two years it was decided to assemble the properties in a new free standing E&P company called MW Petroleum. In the 1990s MW was up for sale and Apache expressed interest in the deal. Apache, a Denver based operator of small- medium sized properties was an efficient and cost effective company and the business strategy was to “rationalize and reconfigure”. The strategy involved acquiring and controlling producing properties, and quickly turn around the efficiency.
Apache was specifically interested in MW as it was a large company that would more than double Apache’s reserves and was comprised of properties well suited for its operating capabilities. More over adding MW would reconfigure Apache’s Oil-Gas ratio from 20-80 to 40-60, which was highly desirable for Apache, due to volatile gas prices. Also MWs properties would further diversify Apache’s operation geographically. Hence MW properties were more valuable to Apache than Amoco. Apache’s expertise in controlling overhead costs could