edf40wrjww2CF_PaperMaster:Desc
It is reasonable to assume to that MW Petroleum is more valuable to Apache than it is for Amoco for several reasons: Assuming the gas to oil ratio of proved reserves is 40:60 and knowing Apache is only interested in 121.4 MMBOE of MW’s proved developed resources, we can find out the total value of proved resources: Knowing this, we can estimate that the maximum allowable debt will be $950.85 million. Additionally we make the following assumptions: To structure it as an attractive proposal, we assumed a capital structure of 39% debt-to-equity as it was very difficult to pull off a highly levered deal at that time. This gives us a debt value of $250 million for this deal. Using cash flow projections from exhibit 7, we find the NPV of the project as: Note the terminal value is found to be negligible using the current discount factor. Proved undeveloped reserves Probable reserves Possible reserves Exploration of new reserves Process optimization through recompletion, plug-back, well-deepening, or repair; secondary and tertiary recovery methods Properties from Michigan and the Gulf of Mexico (if Apache acquired these, then they would be sold and not kept within the portfolio) 4) For each of the options, the estimates for the different variables are: Apache should exercise the proved undeveloped reserves right away since they are in the money i.e. the net ...