MW (A) Case_Adeniji.docx - MW PETROLEUM 2020 CASE ADESOYE...

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MW PETROLEUM 2020 CASE ADESOYE ADENIJI (MBA) Questions: 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? Evaluate Amoco's and Apache's corporate objectives and strategies Divestment : Amoco adopt major restructuring to better focus on its most attractive properties and opportunities, including selling asset regarded as non-strategic. Apache, on the other hand, has low costs and is an efficient operator of small to medium-sized properties. The company has grown significantly in recent years by acquiring less well-run properties through its “ rationalize and reconfigure ” strategy. Is it reasonable to expect that the MW properties are more valuable to Apache than to Amoco? Yes. The MW Corporation is more valuable for Apache, because it would bring benefit for them by expanding their properties and generating income through the stabilization of a better oil-gas ratio, a diversified geographic location, and an increase in the number of oil and gas reserves. Yet, if MW remains with Amoco then it would be part of the least profitable properties. Apache's main source of value is to expand and diversify their asset base while the Amoco's main source of value is to limit their cost, and eliminate the business with a less profitable. In essence, acquiring MW would be the most beneficial for Apache because not only will it be good for production, but also with enlarging the ability of Apache to take on more debt. What sources of value most plausibly account for the difference between buyer and seller? Souces of value Buyer (Apache) Seller (Amoco) 1. It sees the acquisition as an opportunity for growth and geographic diversification, to add further stability to the company, and to increase its reserves. It is merely interested in selling MW for a profit 2. Economy of scale Low cost structure It cannot manage properties with high cost profitably 3. Corporate objective and management an efficient operator of small to medium-sized properties. Amoco does many things well, but managing smaller, marginally productive oil and gas fields apparently
isn’t one of them. 2. Structure and execute a discounted cash flow valuation of all the MW reserves using APV. How much are the reserves worth? Is your estimate more likely to be biased high or low? What are the sources of bias? Assumptions: i. Apache will borrow up to the 50% ceiling mentioned on page 7 of the case to finance any acquisition of MW Petroleum.

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