SeEEs Harvard Business School 9-295-029 Rev. November 21. 199 MW Petroleum Corporation(A) In late 1990, executives, engineers, and financial advisors working for Amoco Corporation and Apache Corporation began serious discussions about the sale to Apache of MW Petroleum Corporation, a wholly-owned subsidiary of Amoco Production Company. Amoco had transferred to MW certain of its own assets that it regarded as non-strategic. MW,s size, location, and operations were all very attractive to Apache, which had grown nearly 30% per year since the mid-1980s, largely through acquisitions. The transaction being discussed with Amoco would be Apache's largest to date. It would more than double the size of Apache's current operations, as well as its reserves of oil and natural gas By the end of January 1991, Apache's executives and advisors were sufficiently familiar with the properties in MW to begin refining their estimates of operating and financial performance in order to structure a formal offer. Apache's chief financial officer, Mr. Wayne Murdy, knew that financing would be a challenge, given the size of the proposed transaction. In fact, the availability of external financing, bank debt in particular, was likely to impose some practical limits on both he amount and form of consideration that Apache could offer to Amoco. It was essential that Apache carefully evaluate MW, both the whole and its parts, and study the likely patterns of cash flows so that some creative financing alternatives could be developed Amoco Corporation Amoco Corporation was an integrated petroleum and chemical company based in Chicago, Illinois. With $28 billion in operating revenues and $1. 9 billion in net income in 1990, Amoco was the fifth largest oil company in the United States. Its three primary businesses were oil and gas Company), and chemical production(Amoco Chemical Company). L idog 98n8(Amoco Oil exploration and production(Amoco Production Company), refining and marke 980s, Amoco had been an active acquiror of oil and gas properties, particularly the latter. Its 1988 purchase of Dome Petroleum of Canada made Amoco North America's largest private holder of natural gas reserve and the second largest producer of natural gas. In 1990, Amoco produced 3. 5 billion cubic feet per da (BCFd)of natural gas and 782 thousand barrels per day(MBd)of crude oil and natural gas liquids y f Professors Timothy A. Luehrman and Peter Tufano as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation Copyright e 1994 by the President and Fellows of Harvard College. To order copies or request permission reproduce materials, call(800)545-7685 or write the Harvard Business School Publishing, Boston, MA 02163 in any form or by any means-electronic, mechanical, photocopying, recording, or otherwise--wit hout the permission of rard Business schoolDO NOT COPY Harvard Business School 9-295-029 Rev. November 21, 1994 Research Associate Barbara D. Wall prepared this case under the supervision of Professors Timothy A. Luehrman and Peter Tufano as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1994 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call (800) 545-7685 or write the Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1 MW Petroleum Corporation (A) In late 1990, executives, engineers, and financial advisors working for Amoco Corporation and Apache Corporation began serious discussions about the sale to Apache of MW Petroleum Corporation, a wholly-owned subsidiary of Amoco Production Company. Amoco had transferred to MW certain of its own assets that it regarded as non-strategic. MW's size, location, and operations were all very attractive to Apache, which had grown nearly 30% per year since the mid-1980s, largely through acquisitions. The transaction being discussed with Amoco would be Apache's largest to date. It would more than double the size of Apache's current operations, as well as its reserves of oil and natural gas. By the end of January 1991, Apache's executives and advisors were sufficiently familiar with the properties in MW to begin refining their estimates of operating and financial performance in order to structure a formal offer. Apache's chief financial officer, Mr. Wayne Murdy, knew that financing would be a challenge, given the size of the proposed transaction. In fact, the availability of external financing, bank debt in particular, was likely to impose some practical limits on both the amount and form of consideration that Apache could offer to Amoco. It was essential that Apache carefully evaluate MW, both the whole and its parts, and study the likely patterns of cash flows so that some creative financing alternatives could be developed. Amoco Corporation Amoco Corporation was an integrated petroleum and chemical company based in Chicago, Illinois. With $28 billion in operating revenues and $1.9 billion in net income in 1990, Amoco was the fifth largest oil company in the United States. Its three primary businesses were oil and gas exploration and production (Amoco Production Company), refining and marketing (Amoco Oil Company), and chemical production (Amoco Chemical Company). During the 1980s, Amoco had been an active acquiror of oil and gas properties, particularly the latter. Its 1988 purchase of Dome Petroleum of Canada made Amoco North America's largest private holder of natural gas reserves and the second largest producer of natural gas. In 1990, Amoco produced 3.5 billion cubic feet per day (BCFd) of natural gas and 782 thousand barrels per day (MBd) of crude oil and natural gas liquids