...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 Apache’s corporate objectives and strategies. Is it reasonable to expect that the MW properties are more valuable to Apache than to Amoco? What sources of value most plausibly account for the difference between buyer and seller? 2. 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? 3. How would you structure an analysis of MW as a portfolio of assets in place and options? Specifically, which parts of the business should be regarded as assets in place and which as options? What kinds of options are present? Should this approach yield a higher or lower value that the DCF approach? 4. Execute the analysis you structured in Question 3, beginning with assets in place. How risky are the assets that underlie the options; i.e. how would you estimate SD for each? How much is the whole portfolio worth? 5. Assuming a sale goes through, how does Apache exercise each of the various options? When should it do so? BACKGROUND In a case prepared by Barbara Wall at the Harvard Business School, entitled MW Petroleum...
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...Harvard Business School 9 - 2 9 5 -029 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 of Apache's current operations, as well as its reserves of oil and natural gas. By the end of January 1991, Apache's executives and advisors were sufficiently familiar with the properties in MW to begin refining their estimates of operating and financial performance in order to structure a formal offer. Apache's chief financial officer, Mr. Wayne Murdy, knew that financing would be a challenge, given the size of the proposed transaction. In fact, the availability of external financing, bank debt in particular, was likely to impose some practical limits on both the amount and form of consideration that Apache could offer to Amoco. It was essential that Apache carefully evaluate MW, both the whole and its parts, and study the likely patterns of cash flows so that some...
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...MW corp By michael_manly | Studymode.com Draft MW Petroleum Corporation (A) Background: 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 acquisition. If the acquisition will push through, this will be one of the largest acquisition in that period because MW size was two times large compare to Apache’s current operation. Amoco Corporation Amoco Corporation was formerly Standard Oil Company (Indiana) was built in 1889 located at Whiting, Indiana, United States. The company was acquired by American Oil Company which founded in Baltimore in 1910 and incorporated in 1922. In 1998, Amoco merged with BP which one of the biggest oil company in England. The company contributes to the modern industry, their innovation was breaks into two parts, the gasoline tanker truck which used to designed to carry liquefied loads, dry bulk cargo or gases on...
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...REAL OPTION VALUATION: MW PETROLEUM I. Company background and description on each of 4 projects In 1991, Amoco Corporations, a conglomerate of petroleum and chemical corporations, decided to divest some of their smaller properties and when further cuts were needed, they looked to divest the middle section of assets in its marginal curve. As a result, they formed 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. Amoco then prepared to sell MW Petroleum to a mid-size independent petroleum company. Apache Corporation was interested in buying most portions of MW and was the only buyer that appears to be a good fit in the market at that time. Apache, with revenue of $270 million, 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. The asking price from Amoco was $1 billion. Was it a reasonable price? We will discuss this number, and find a conclusion to this question through our document. II. Valuation Methodology Generally, the Discounted Cash Flow method is the most popular valuation methodology for financial analysts. It uses the concept of time value of money; the future cash flows are estimated...
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...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...
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...D. WALL THIMOTHY A. LUEHRMAN PETER TUFANO MW Petroleum Corporation (A) A finales de 1990, ejecutivos, ingenieros y asesores financieros de Amoco Corporation y Apache Corporation comenzaron a negociar la venta a Apache de MW Petroleum Corporation, filial que pertenecía en su totalidad a Amoco Production Company. Amoco había transferido a MW algunos de sus activos no considerados estratégicos. El tamaño, localización y operaciones de MW resultaban atractivos a Apache, que había tenido un crecimiento anual de casi un 30% desde mediados de los años ochenta, en gran medida a través de adquisiciones. Esta transacción con Amoco sería la mayor de Apache hasta la fecha: aumentaría en más del doble el tamaño de sus operaciones corrientes, así como sus reservas de petróleo y gas. A finales de enero de 1991, los ejecutivos y asesores de Apache estaban lo suficientemente familiarizados con las propiedades de MW como para empezar a concretar sus planes operativos y financieros, y así estar en condiciones de realizar una oferta formal. El principal agente de finanzas de Apache, Wayne Murdy, sabía que la financiación constituiría un reto, dado el tamaño de la transacción propuesta. De hecho, la dificultad de obtener financiación externa, en particular un préstamo bancario, probablemente pondría límites prácticos a la cuantía y forma de la oferta que Apache podría hacer a Amoco. Era esencial que Apache evaluara cuidadosamente MW, tanto en su conjunto como cada una de sus facetas...
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...MW Petroleum Corporation Situation Overview: Amoco Corporation conducted an extensive review of its cost structure and profitability, 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 the marginal curve. Thus, 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. In late 1990, the group of Amoco Corporation and Apache Corporation began talking in regards to the possible acquisition of MW Petroleum Corporation from Amoco to Apache. If the acquisition pushes through, it will provide Apache a great opportunity as well as becoming one of the largest acquisitions since MW’s size is two times larger compared to Apache’s current operation. Nonetheless, 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. The following paragraphs will discuss the latter. 1. In the lights of low oil and gas price in the market, big companies, such as Amoco seek to restructure in order to increase profitability. Amoco’s plans are to reduce its capital and exploration that are not generating significant returns or the company not having advantage with the returns. The intention of the company is to review its assets with an eye...
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...In less than five, double-spaced, typewritten pages, plus any exhibits, please answer the following questions about MW Petroleum Corp. This assignment is worth a maximum of 100 points. 1. (10 points.) Apart from any quantitative analysis, are there any reasons to anticipate that Apache Corporation’s acquisition of MW Petroleum might be a positive net present value activity for Apache, for Amoco? Explain. This looks like an attractive deal for both parties. Amoco does many things well, but managing smaller, marginally productive oil and gas fields apparently isn’t one of them. This is a chance to unload some properties that because of their high cost structure, Amoco can’t manage profitably. Apache, on the other hand, has low costs and is an efficient operator of small- to mediumsized properties. The company has grown significantly in recent years by acquiring less wellrun properties and applying its “rationalize and reconfigure” strategy. The MW Petroleum properties appear to offer the opportunity to continue this strategy. If Amoco can strike a price wherein Apache shares some of its operating savings with Amoco, both parties can generate positive net present values from the transaction. Acquisition of MW Petroleum may also reduce the volatility of Apache’s cash flows by making them less dependent on gas. Although this may not benefit shareholders directly, it will likely enable management to sleep better and might increase Apache’s borrowing capacity, thereby benefiting shareholders...
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...Dt WĞƚƌŽůĞƵŵ ŽƌƉ͘ ; Ϳ ;ϲ ƋƵĞƐƚŝŽŶƐͿ ^ƵŐŐĞƐƚĞĚ YƵĞƐƚŝŽŶƐ ϭ͘Ͳ ǀĂůƵĂƚĞ ŵŽĐŽ͛Ɛ ĂŶĚ ƉĂĐŚĞ͛Ɛ ĐŽƌƉŽƌĂƚĞ ŽďũĞĐƚŝǀĞƐ ĂŶĚ ƐƚƌĂƚĞŐŝĞƐ͘ /Ɛ ŝƚ ƌĞĂƐŽŶĂďůĞ ƚŽ ĞdžƉĞĐƚ ƚŚĂƚ ƚŚĞ Dt ƉƌŽƉĞƌƚŝĞƐ ĂƌĞ ŵŽƌĞ ǀĂůƵĂďůĞ ƚŽ ƉĂĐŚĞ ƚŚĂŶ ƚŽ ŵŽĐŽ͍ tŚĂƚ ƐŽƵƌĐĞƐ ŽĨ ǀĂůƵĞ ŵŽƐƚ ƉůĂƵƐŝďůĞ ĂĐĐŽƵŶƚ ĨŽƌ ƚŚĞ ĚŝĨĨĞƌĞŶĐĞ ďĞƚǁĞĞŶ ďƵLJĞƌ ĂŶĚ ƐĞůůĞƌ͍ Ϯ͘Ͳ ŽĞƐ ƚŚŝƐ ĚĞĂů ŵĂŬĞ ƐĞŶƐĞ͍ tŚLJ͍ ZĞĂƐŽŶƐ ƚŽ ƉĞƌĨŽƌŵ ǀĂůƵĂƚŝŽŶ ϯ͘Ͳ ^ƚƌƵĐƚƵƌĞ ĂŶĚ ĞdžĞĐƵƚĞ Ă ĚŝƐĐŽƵŶƚĞĚ ĐĂƐŚ ĨůŽǁ ǀĂůƵĂƚŝŽŶ ŽĨ Ăůů ƚŚĞ Dt ƌĞƐĞƌǀĞƐ ƵƐŝŶŐ Ws͘ ,Žǁ ŵƵĐŚ ĂƌĞ ƚŚĞ ƌĞƐĞƌǀĞƐ ǁŽƌƚŚ͍ /Ɛ LJŽƵƌ ĞƐƚŝŵĂƚĞ ŵŽƌĞ ůŝŬĞůLJ ƚŽ ďĞ ďŝĂƐĞĚ ŚŝŐŚ Žƌ ůŽǁ͍ tŚĂƚ ĂƌĞ ƚŚĞ ƐŽƵƌĐĞƐ ŽĨ ďŝĂƐ͍ /Ŷ ŽƌĚĞƌ ƚŽ ƐŽůǀĞ ƚŚŝƐ ƋƵĞƐƚŝŽŶ ƉůĞĂƐĞ ĐŽŶƐŝĚĞƌ͗ ĂͿ hƐĞ ĂŐŐƌĞŐĂƚĞ ƉƌŽũĞĐƚŝŽŶƐ ; džŚŝďŝƚ ϳͿ ĂŶĚ ĂŶLJ ŽƚŚĞƌ ƵƐĞĨƵů ŝŶĨŽƌŵĂƚŝŽŶ ďͿ ŚĞĐŬ ĂƐƐƵŵƉƚŝŽŶƐ ŝŶ ĐĂƐŚ ĨůŽǁ͗ ǁŚŽƐĞ ƉƌŽũĞĐƚŝŽŶƐ͍ ĐͿ ŽŵƉƵƚĞ ĚŝƐĐŽƵŶƚ ƌĂƚĞ ;ƌĞͿ ĚͿ ŽŵƉƵƚĞ ǀĂůƵĞ ŽĨ ƚŚĞ ĂůůͲĞƋƵŝƚLJ Ĩŝƌŵ ĞͿ ^ŝĚĞ ĞĨĨĞĐƚƐ͗ /d^ ;ŝŶƚĞƌĞƐƚ ƚĂdž ƐŚŝĞůĚͿ͘ ŽŶƐŝĚĞƌ ƐƚĂƌƚŝŶŐ ĚĞďƚ ĐĂƉĂĐŝƚLJ ĂŶĚ ĚĞĐĂLJ ƌĂƚĞ ŽĨ ĚĞďƚ ĐĂƉĂĐŝƚLJ ;ŶĞŐĂƚŝǀĞ ŐͿ ĨͿ WƌĞƐĞŶƚ ǀĂůƵĞ ŽĨ ƚĂdž ƐŚŝĞůĚƐ ŐͿ KƚŚĞƌ ;ĞdžƉůŽƌĂƚŝŽŶ ŽƉƉŽƌƚƵŶŝƚŝĞƐͿ͘ KŶůLJ ĨŽƌ ƚŚĞŽƌĞƚŝĐĂů ĚŝƐĐƵƐƐŝŽŶ ϰ͘Ͳ ,Žǁ ǁŽƵůĚ LJŽƵ ƐƚƌƵĐƚƵƌĞ ĂŶ ĂŶĂůLJƐŝƐ ŽĨ Dt ĂƐ Ă ƉŽƌƚĨŽůŝŽ ŽĨ ĂƐƐĞƚƐͲŝŶͲƉůĂĐĞ ĂŶĚ ŽƉƚŝŽŶƐ͍ ^ƉĞĐŝĨŝĐĂůůLJ͕ ǁŚŝĐŚ ƉĂƌƚƐ ŽĨ ƚŚĞ ďƵƐŝŶĞƐƐ ƐŚŽƵůĚ ďĞ ƌĞŐĂƌĚĞĚ ĂƐ ĂƐƐĞƚƐͲŝŶͲƉůĂĐĞ ĂŶĚ ǁŚŝĐŚ ĂƐ ŽƉƚŝŽŶƐ͍ ^ƉĞĐŝĨŝĐĂůůLJ͕ ǁŚŝĐŚ ƉĂƌƚƐ ŽĨ ƚŚĞ ďƵƐŝŶĞƐƐ ƐŚŽƵůĚ ďĞ ƌĞŐĂƌĚĞĚ ĂƐ ĂƐƐĞƚƐͲŝŶͲƉůĂĐĞ ĂŶĚ ǁŚŝĐŚ ĂƐ ŽƉƚŝŽŶƐ͍ tŚĂƚ ŬŝŶĚ ŽĨ ŽƉƚŝŽŶƐ ĂƌĞ ƉƌĞƐĞŶƚ͍ ^ŚŽƵůĚ ƚŚŝƐ ĂƉƉƌŽĂĐŚ LJŝĞůĚ Ă ŚŝŐŚĞƌ Žƌ ůŽǁĞƌ ǀĂůƵĞ ƚŚĂŶ ƚŚĞ ĂůůͲ Ws ĂƉƉƌŽĂĐŚ LJŽƵ ĞŵƉůŽLJĞĚ ĂďŽǀĞ͍ ...
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...1. Introduction 2. Pakistan’s Energy Sector 2.1 Energy Supply 2.2 Energy Consumption 3. Sources of Energy in Pakistan 3.1 Non-renewable resources (Fossil fuels) a). Petroleum products b). Natural Gas c). Coal 3.2 Renewable Resources a). Hydro power v Current Hydropower stations v Potential Hydropower stations 3.3 Alternative Energy Sources a). Wind b). Solar c). Agricultural biomass /biodiesel d). Tidal 3.4 Nuclear 4. Causes of Energy Crisis 4.1 Growing Energy Demand 4.2 Lack of proactive and integrated planning for production of energy 4.3 Imbalanced energy mix 4.4 Non-utilization of enormous indigenous energy resources a). Thar Coal b). Hydal power generation 5. Consequences of Energy Crisis 5.1 Economic Factors 5.2 Agriculture Sector 5.3 Industrial Sector 5.4 Unemployment 5.5 Social Issues 5.6 Poverty 6. Conclusion 7. Recommendation/Solutions of Energy Crisis 7.1 Judicious energy use/saving unnecessary energy usage v electricity saving devices v Awareness campaign for energy saving v Reduction in unnecessary transportations v Installation of effective equipment/energy efficient in industries v Decreasing line/transmission losses 7.2 Developing new energy resources v Tapping indigenous resources v Using renewable resources (water) by constructing new dams and hydro power plants v Import of natural gas v Utilizing alternative energy resources § Wind power § Biodiesel /Biomass § Solar...
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...Chapter 14 Energy Energy is considered to be the lifeline of economic development. For a developing economy with a high population growth rate, it is important to keep a balance between energy supply and emerging needs. If corrective measures are not effectively anticipated significant constraints start emerging for development activities. The rise in global energy demand has raised questions regarding energy security and increased the focus on diversification, generation and efficient allocation. The answer lies in the attainment of optimal energy mix through fuel substitution by promoting energy efficiency and renewable energy and interregional co-operation. However, oil and natural gas will continue to be the world’s top two energy sources through 2040; accounting for about 60 percent of global demand. Gas being the fastest growing major fuel source over this period is expected to grow at 1.6 percent per year from 2010 to 2040 as estimated by “The Outlook for Energy: A View to 2040” is given in Figure-14.1. Figure 14.1: Global energy demand by fuel type (Quadrillion BTUs) 250 Quadrillions British Thermal Units 2010 200 150 100 2040 2040 2010 From its peak in 2025, coal will decline by more than 10 percent of total Hydro/Geo 2010 2040 Latin America and China are the biggest users of hydro power, which makes up over 80 percent of total Hydro/Geo supplies 2040 50 0 2010 2010 2040 2010 2040 2010 2040 Source: The Outlook for Energy: Aview...
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...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 of Apache's current operations, as well as its reserves of oil and natural gas. By the end of January 1991, Apache's executives and advisors were sufficiently familiar with the properties in MW to begin refining their estimates of operating and financial performance in order to structure a formal offer. Apache's chief financial officer, Mr. Wayne Murdy, knew that financing would be a challenge, given the size of the proposed transaction. In fact, the availability of external financing, bank debt in particular, was likely to impose some practical limits on both the amount and form of consideration that Apache could offer to Amoco. It was essential that Apache carefully evaluate MW, both the whole and its parts, and study the likely patterns of cash flows so that some creative financing alternatives could be developed. Amoco Corporation Amoco Corporation was an integrated petroleum and chemical company based in Chicago, Illinois. With $28 billion in operating...
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...Despite the improvement, which took place in the power sector in India, during the 11th Plan (2007-2012), the deficit in power supply in terms of peak availability and total energy availability existed at 7.9% and around 10.6% respectively in year 2011-12.Despite the improvement, which took place in the power sector in India, during the 11th Plan (2007-2012), the deficit in power supply in terms of peak availability and total energy availability existed at 7.9% and around 10.6% respectively in year 2011-12. As on April 30, 2012, the installed capacity in the country was 2,01,637.03 MW and some of the achievements in the power sector pertaining to the 11th Plan were, the addition of 50,000MW, reduction in energy deficits, induction of super critical technologies and commissioning of first 1200kV test line centre at Bina, Madhya Pradesh. The Planning Commission has now projected an investment of over Rs.45 Lac Cr. (about US$ 1 Trillion) during the 12th Plan (2012-2017). In this context, it is assumed that at least 50% of this investment shall come from the private sector as against 36% anticipated in the 11th Plan and the public sector investment will need to increase to over Rs.22.5 Lac Cr. as against an expenditure of Rs.13.1 Lac Cr. during the 11th Plan. Thus, financing energy sector for securing energy demands is a big challenge in the coming years and will require some innovative ideas and new models of financing. The energy sector is slowly becoming very complex with...
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...energy and solar energy etc. Why Energy is needed ? • Think about how you use energy every day. You wake up to an alarm clock. You take a shower with water warmed by a hot water heater. You listen to music on the radio as you dress , u eat breakfast….. And so on……. • Food items, medicines, groceries, the accessories which we use, Cosmetics, electronic appliances, lighting, heating cooling, • Everything needs energy in direct or indirect way Why Energy is needed ? Various sectors of economy- Industry, residential, commercial, transport • Industry- Petroleum Refining , steel, cement, chemical, metal, paper, pharmaceuticals, mining etc • Transportation,-automobile, commercial transport,-bus , truck, train, airplane , mass transits • Residential and commercial buildings use energy in for heating and cooling, lighting, heating water, and operating appliances. Non-Renewable Energy Sources • Conventional – Petroleum – Natural Gas – Coal – Nuclear • Unconventional (examples) – Oil Shale – Natural gas hydrates in marine sediment 6 Renewable...
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...Energy, Infrastructure and Communications I n tandem with the pick-up in overall industrial growth, core industries and infrastructure services have also evinced signs of recovery with easing of supply bottlenecks in certain sectors and demand recovery in others. The robust growth momentum in telecommunications, particularly the wireless segment, continues with monthly additions exceeding 17.6 million connections. In the midst of the worstever slowdown in the history of world civil aviation, even the modest levels of growth in India are indicative of resilience. Core industries like power, coal and other infrastructure like ports and roads are also reviving. Available evidence points to a steady revival of flows of investible resources. However, the levels of broadband penetration, capacity creation in some crucial infrastructure sectors and the state of development of markets for longterm finance remain causes for concern. There is need to develop infrastructure to complement and sustain the economic growth momentum. Efforts—legislative, administrative and executive—are on to minimize the infrastructure deficit, ameliorate bottlenecks in completion of projects and nurture core industrial intermediates and infrastructure services. 10 CHAPTER 10.2 The stimulus measures announced by the national authorities worldwide to combat the economic slowdown contained infrastructure buildup plans. In line with the rest of the world, the Union Budget for 2009-10 substantially stepped...
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