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Energy Finance: Class 10 MW – Petroleum Corporation Case Professor: Erik P. Gilje 1
Agenda •MW Petroleum Case Discussion •Energy Finance in the News •Real Options (as related to MW Case) •Re-visit Baker Hughes Halliburton 2
What happened? •Amoco corporation is a global integrated oil company seeking to sell high-cost non-core assets •Amoco assembles assets in MW Petroleum corporation •Amoco markets MW to a number of buyers, Apache seems to be the only firm interested 3
What happened? •Apache’s expertise is being a low cost operator of small to medium sized properties •Amoco was the operator of most of the assets in MW, which would enable Apache significant flexibility in making decisions regarding the properties after they were acquired •MW’s production was weighted towards oil, which would help diversify Apache away from its reliance on gas 4
Oil and Gas Prices 5
Amoco vs. Apache stock price performance 6
MW Petroleum Case Memo •Case memo questions: 1)One of the reasons given for the acquisition of MW Petroleum is that Apache can more efficiently operate the high cost fields of MW than Amoco can. Provide some reasons why Amoco’s financial performance is better than Apache’s (Exhibit 1 and Exhibit 2) and why its stock performance is also better (Exhibit 9), despite having higher costs operating MW assets. 2)
Assume Apache finances the acquisition with all equity, what would they be willing to pay? 3)
Assume Apache was able to cut MW’s direct operating expenses by 30% and overhead by 15%, what would they be willing to pay in an all equity transaction? 4)What are the real options associated with the MW assets?
MW Post Mortem – Apache’s Edge –Article from 2011: –The Sealy Smith 23 well in the North Monahans Oil Field in Winkler County, Texas •