PEtroleum Corporation(A) 295029 Apache Corporation Apache Corporation was an independent oil and gas company based in Denver, Colorado and engaged in exploration, development, and production of oil and natural gas, primarily in the United States. It had earnings of $40 million in 1990 on revenues of $270 million and a market equivalent basis and were concentrated in the Gulf Coast region, in the Rocky Mountains, and in the Anadarko Basin of Oklahoma. Daily production in 1990 had been 259.1 million cubic feet (MMCF) of gas and 9.2 toeeded its oil production by about 4-to-1. Historical financial data for Apache are Isand barrels(MB)of oil. At these levels, on an oil-equivalent basis, Apache 's gas prod ummarized in exhibit 2 labe perti. ache had low costs and was considered an efficient operator of small-to medium-sized To exploit these strengths, Apache chairman Raymond Plank developed a strategy he labeled"rationalize and reconfigure "The strategy involved acquiring producing properties whose operations Apache could control and quickly make more efficient. In the 1980s, Apache's tactics frequently entailed significant borrowing to finance the purchase of a portfolio of properties, the best of which would be retained and operated, while the remainder was sold to help pay down debt. A total of more than $1. 4 billion in assets were acquired in this fashion in the 1980s, with the two largest purchases each exceeding $400 million. compa,. The properties in MW held several attractions for Apache. First, MW was a large company that would more than double Apache's reserves, and it was comprised mostly of properties well-suited to Apache's operating capabilities. Further, Amoco itself, on behalf of Mw, operated fields accounting for nearly 80% of MW's production. This was considered a high operating percentage among U.S. producers and it promised Apache significant cost-saving opportunities(the remaining 20% of MW,s production consisted of interests in fields operated by other companies) Adding MW to its portfolio also would shift Apache's oil-gas ratio from 20-80 to about 40-60. Such a shift was desirable because gas prices had been extremely volatile recently: during 1990 they had allen nearly 50% from a four-year high at the beginning of the year. The resulting instability in Apache's revenue stream made high leverage more dangerous and the company's acquisition-driven growth strategy more difficult. Finally, MWs properties would further diversify Apache geographically. This would add further stability, enhance the company's standing among U.S independents, and could lead to other future acquisition opportunities MW Petroleum Corporation MW had been set up as a free-standing, wholly-owned subsidiary of Amoco, complete with its own reserves, management team, and with full ownership of or access to extensive geologic and engineering data from studies performed or purchased by Amoco on MW fields. MWs holdings included working interests in more than 9, 500 wells in more than 300 producing fields situated on nearly 350,000 net acres in the Gulf Coast, Rocky Mountain, and Mid-continent regions and in the Permian Basin of Texas and New Mexico. The company's proved, probable, and possible reserves, as estimated by independent petroleum engineering consultants, totaled 264 million barrels on an oil- equivalent basis. I Of this, about 60% was oil and 40% gas. Table a gives a further breakdown of MWs reserves according to their engineering, development, and production status To obtain a total for oil and gas reserves, 6 billion cubic feet(BCF)of gas are converted to one million barrels of oll-equivalent (MMBOEDO NOT COPY MW Petroleum Corporation (A) 295-029 3 Apache Corporation Apache Corporation was an independent oil and gas company based in Denver, Colorado and engaged in exploration, development, and production of oil and natural gas, primarily in the United States. It had earnings of $40 million in 1990 on revenues of $270 million and a market capitalization of $850 million. Apache's proven reserves totaled 106.1 million barrels on an oil￾equivalent basis and were concentrated in the Gulf Coast region, in the Rocky Mountains, and in the Anadarko Basin of Oklahoma. Daily production in 1990 had been 259.1 million cubic feet (MMCF) of gas and 9.2 thousand barrels (MB) of oil. At these levels, on an oil-equivalent basis, Apache's gas production exceeded its oil production by about 4-to-1. Historical financial data for Apache are summarized in Exhibit 2. Apache had low costs and was considered an efficient operator of small- to medium-sized properties. To exploit these strengths, Apache chairman Raymond Plank developed a strategy he labeled "rationalize and reconfigure." The strategy involved acquiring producing properties whose operations Apache could control and quickly make more efficient. In the 1980s, Apache's tactics frequently entailed significant borrowing to finance the purchase of a portfolio of properties, the best of which would be retained and operated, while the remainder was sold to help pay down debt. A total of more than $1.4 billion in assets were acquired in this fashion in the 1980s, with the two largest purchases each exceeding $400 million. The properties in MW held several attractions for Apache. First, MW was a large company that would more than double Apache's reserves, and it was comprised mostly of properties well-suited to Apache's operating capabilities. Further, Amoco itself, on behalf of MW, operated fields accounting for nearly 80% of MW's production. This was considered a high operating percentage among U.S. producers and it promised Apache significant cost-saving opportunities (the remaining 20% of MW's production consisted of interests in fields operated by other companies). Adding MW to its portfolio also would shift Apache's oil-gas ratio from 20-80 to about 40-60. Such a shift was desirable because gas prices had been extremely volatile recently: during 1990 they had fallen nearly 50% from a four-year high at the beginning of the year. The resulting instability in Apache's revenue stream made high leverage more dangerous and the company's acquisition-driven growth strategy more difficult. Finally, MW’s properties would further diversify Apache geographically. This would add further stability, enhance the company's standing among U.S. independents, and could lead to other future acquisition opportunities. MW Petroleum Corporation MW had been set up as a free-standing, wholly-owned subsidiary of Amoco, complete with its own reserves, management team, and with full ownership of or access to extensive geologic and engineering data from studies performed or purchased by Amoco on MW fields. MW's holdings included working interests in more than 9,500 wells in more than 300 producing fields situated on nearly 350,000 net acres in the Gulf Coast, Rocky Mountain, and Mid-continent regions and in the Permian Basin of Texas and New Mexico. The company's proved, probable, and possible reserves, as estimated by independent petroleum engineering consultants, totaled 264 million barrels on an oil￾equivalent basis.1 Of this, about 60% was oil and 40% gas. Table A gives a further breakdown of MW's reserves according to their engineering, development, and production status. 1To obtain a total for oil and gas reserves, 6 billion cubic feet (BCF) of gas are converted to one million barrels of oil-equivalent (MMBOE)