As of December 31, 1990, the company had estimated proved developed reserves totaling 5.1 billion barrels on an oil-equivalent basis The 1980s had been a difficult decade for the oil industry, Amoco included. [Exhibit 1 summarizes historical financial data for Amoco during 1986-90. From a high of over $37 per barrel in 1980, the price of oil on the spot market had fallen to just above $10/bbl in July 1986 and had recovered to only a little over $18/bbl by the end of the decade. Low prices depressed the profitability of oil companies, most of which responded with downsizing programs and other cost- cutting measures aimed at overhead expenses. Many major companies also sought to consolidate and rationalize their productive assets, which often meant divesting marginal properties. Since 1983, Amoco itself had sold more than $750 million worth of small properties which, it felt, could be more economically operated by smaller, low-overhead independent companies In 1988, Amoco conducted an extensive review of its cost structure and profitability. The study concluded that direct operating costs were well-controlled and offered little opportunity for major savings. However, it also showed that in the United States 85% of the company's gross margin was provided by just 11% of its 1150 producing fields and that many of the remaining fields had disproportionately high overhead and repair expenses. Based on these and other findings, Amoco initiated a major restructuring to better focus on its most attractive properties and opportunities. The first step was the sale, in 1989, of more than 400 fields in the"tail"of the margin curve, comprising approximately one third of the field portfolio and 12% of leases. These properties were among Amoco's least profitable, contributing only 3% of the company's direct Next, in January 1990, as part of the overall restructuring of Amoco Production Company, Amoco's board of directors approved a plan to divest up to $1.2 billion worth of additional properties from the middle section of the margin curve. Morgan Stanley was engaged to advise and assist in this process, which began with a review of different divestment alternatives. These included selling the properties in regional packages, spinning off a new public company, forming a joint venture, or retaining the properties until they were depleted but without making further material investment. Among these alternatives, a spin-off was judged most likely to produce the highest value for the properties. However, after further study it became clear that, for various reasons, a spin-off could take two or more years to accomplish, which reduced its attractiveness, not least because the future receptivity of the market was hard to forecast. Consequently, Amoco and Morgan Stanley decided to assemble the properties in a new, free-standing exploration and production entity called MW Petroleum Corporation. MW was to be a fully operational oil and gas company. In setting it up, Amoco faced myriad organizational, managerial, staffing, and other issues beyond the scope of this case. Ultimately, this turnkey operation was to be as large as many independent U.S. oil companies and could be marketed as such to non-U S. bidders seeking to establish operations in the United States During the latter part of 1990, Mw was shown to a number of targeted international petroleum concerns. For various reasons, all of these declined to bid. Toward the end of the year, U. S. buyers also were approached and Amoco considered offers from several different bidders large inde interested in some, but not nearly all of MW; another oil and trading concern was interested in all of MW, but offered too low a price; and a venture capital group expressed interest, but Amoco doubted that it could obtain financing for its bid. The most promising expression of interest had come from Apache CorporationDO NOT COPY 295-029 MW Petroleum Corporation (A) 2 As of December 31, 1990, the company had estimated proved developed reserves totaling 5.1 billion barrels on an oil-equivalent basis. The 1980s had been a difficult decade for the oil industry, Amoco included. [Exhibit 1 summarizes historical financial data for Amoco during 1986-90.] From a high of over $37 per barrel in 1980, the price of oil on the spot market had fallen to just above $10/bbl in July 1986 and had recovered to only a little over $18/bbl by the end of the decade. Low prices depressed the profitability of oil companies, most of which responded with downsizing programs and other cost￾cutting measures aimed at overhead expenses. Many major companies also sought to consolidate and rationalize their productive assets, which often meant divesting marginal properties. Since 1983, Amoco itself had sold more than $750 million worth of small properties which, it felt, could be more economically operated by smaller, low-overhead independent companies. In 1988, Amoco conducted an extensive review of its cost structure and profitability. The study concluded that direct operating costs were well-controlled and offered little opportunity for major savings. However, it also showed that in the United States 85% of the company's gross margin was provided by just 11% of its 1150 producing fields and that many of the remaining fields had disproportionately high overhead and repair expenses. Based on these and other findings, Amoco initiated a major restructuring to better focus on its most attractive properties and opportunities. The first step was the sale, in 1989, of more than 400 fields in the "tail" of the margin curve, comprising approximately one third of the field portfolio and 12% of leases. These properties were among Amoco's least profitable, contributing only 3% of the company's direct margin. Next, in January 1990, as part of the overall restructuring of Amoco Production Company, Amoco's board of directors approved a plan to divest up to $1.2 billion worth of additional properties from the middle section of the margin curve. Morgan Stanley was engaged to advise and assist in this process, which began with a review of different divestment alternatives. These included selling the properties in regional packages, spinning off a new public company, forming a joint venture, or retaining the properties until they were depleted but without making further material investment. Among these alternatives, a spin-off was judged most likely to produce the highest value for the properties. However, after further study it became clear that, for various reasons, a spin-off could take two or more years to accomplish, which reduced its attractiveness, not least because the future receptivity of the market was hard to forecast. Consequently, Amoco and Morgan Stanley decided to assemble the properties in a new, free-standing exploration and production entity called MW Petroleum Corporation. MW was to be a fully operational oil and gas company. In setting it up, Amoco faced myriad organizational, managerial, staffing, and other issues beyond the scope of this case. Ultimately, this turnkey operation was to be as large as many independent U.S. oil companies and could be marketed as such to non-U.S. bidders seeking to establish operations in the United States. During the latter part of 1990, MW was shown to a number of targeted international petroleum concerns. For various reasons, all of these declined to bid. Toward the end of the year, U.S. buyers also were approached and Amoco considered offers from several different bidders. None of these offers was entirely satisfactory, however. One large independent oil company was interested in some, but not nearly all of MW; another oil and trading concern was interested in all of MW, but offered too low a price; and a venture capital group expressed interest, but Amoco doubted that it could obtain financing for its bid. The most promising expression of interest had come from Apache Corporation