Mw Petroleum Essay

2473 Words10 Pages
EXECUTIVE SUMMARY Q1: The value of the MW Acquisition (APV) With an APV calculation of the MW’s value, I separate the base-case present value of the firm’s cash flows and terminal value, and then add on the present value of financing side effects, which in this case are the present value of interest tax shields. I have excluded the value of other opportunities ($25m), because it should already be reflected in the aggregated forecasts. With these components, I was able to determine the value of the company, if it were to take on a loan of $300 million and decrease it evenly over the next fifteen years. I have calculated the APV of the entire firm to be $546 million, which is then also the value of the MW Acquisition for Apache. All the calculations and underlying assumptions are presented in more detail in the Appendix 1. The amount of debt to be taken on is $300 million. The maximum loan-to-value ratio permitted by banks against oil and gas reserves was 50% of the value of proved reserves. This means that MW needs to have at least $600 million in present value of proved developed and undeveloped reserves to be able to take on the loan. I found that the present value of the proved developed and undeveloped reserves is worth $482 million, which isn’t a sufficient amount to attain the loan from the bank as it is less than $600 million. More precisely, it is 62% of proved reserved. Overall, this amount of debt financing is not consistent with the discussion at the end of the case material. Q2: The value of the MW Acquisition (Real option approach) In this case, I treated proved developed reserves as the company’s assets and other reserves (undeveloped, probable and possible) as real options. In addition, I have also added the value of other opportunities $25m to the valuation, since it was not taken into consideration in the separate projections. I

More about Mw Petroleum Essay

Open Document