MW Petroleum
Apache's cost of capital Unlevered cost of capital:
Risk free rate (10yr bond) 8.03%
Unlevered beta 0.82
Equity risk premium 5.70% Unlevered cost of capital 12.70%
From Exhibit 7 Aggregate MW Production and cash Flow Projections ($ millions except as noted)
Aggregate MW Projections 1 2 3 4 5 6 7 8 9
Production:
Net Crude and Condensates (MB) 10.0 9.8 8.9 8.1 7.1 6.5 6.5 6.6 6.4
Net Gas (MMCF) 50.2 49.5 43.7 37.5 31.8 28.1 26.2 24.4 21.6
Casf Flows (in Millions):
Revenues-Oil 203.9 210.9 202.3 190.3 183.0 176.1 184.5 194.4 197.5
Revenues-Gas 100.3 106.3 104.7 97.9 90.3 85.4 84.0 80.0 77.2
Total Revenues 304.2 317.2 307.0 288.2 273.3 261.5 268.5 274.4 274.7 Direct Production Taxes 27.5 28.5 27.3 25.5 24.1 23.0 24.1 25.0 25.4 Direct Operating Expense 81.7 83.5 84.1 85.9 89.7 92.2 93.7 97.0 93.3
Overhead 36.6 38.7 36.3 33.6 31.0 28.8 29.2 29.3 27.9
Fin. Book DD&A 71.4 60.0 49.6 45.7 37.0 30.2 31.6 28.9 23.0
Net Income Before Taxes 87.0 106.5 109.7 97.5 91.5 87.3 89.9 94.2 105.1 Federal and state income taxes:
Current 54.2 57.6 55.3 48.3 41.2 37.4 39.5 39.9 40.7
Deferred (23.8) (19.4) (15.8) (13.2) (9.3) (7.0) (7.9) (7.1) (4.9)
Total Income Taxes 30.4 38.2 39.5 35.1 31.9 30.4 31.6 32.8 35.8
Profit Contribution 56.6 68.3 70.2 62.4 59.6 56.9 58.3 61.4 69.3
Non-Cash charges 47.6 40.6 33.8 32.4 27.7 23.3 23.6 21.8 18.1
Cash from Operations 104.2 108.9 104.0 94.8 87.3 80.2 81.9 83.2 87.4
Capital Expenditures 42.6 33.8 41.8 57.5 34.1 9.4 1.9 2.6 2.0
Free Cash Flow 61.6 75.1 62.2 37.3 53.2 70.8 80.0 80.6 85.4
Terminal Value
Total 61.6 75.1 62.2 37.3 53.2 70.8 80.0 80.6 85.4
PV 54.7 59.1 43.4 23.1 29.3 34.5 34.6 31.0 29.1
Total PV 481.9
Interest tax shields:
Assumed coupon on debt 14.50%
Assumed initial debt 300.0
Year 1 interest 43.5
Tax rate 36%
Year 1 tax shield 15.7
Assumed cost of debt 12.00%
Growth rate (= g of op cash flow) -4.06% Value of tax shield (perpetuity) 97.5 Value of "Additional assets" 25.0
Aggregate MW Production and cash Flow Projections ($ millions except as noted) 10 11 12 13 14 15 5.8 5.2 4.6 4.3 3.8 3.4 18.3 15.9 13.1 11.8 10.2 9.3 190.2 182.7 173.2 167.7 161.7 151.3 73.4 70.0 62.8 58.1 56.1 53.5 263.6 252.7 236.0 225.8 217.8 204.8 24.3 22.5 21.5 20.4 19.4 18.4 93.2 82.6 82.0 82.0 81.5 80.6 26.3 23.2 21.4 20.1 19.1 17.8 19.2 18.0 15.7 13.8 12.3 11.0 100.6 106.4 95.4 89.5 85.5 77.0 39.4 40.9 38.8 34.2 32.8 29.8 (4.1) (3.7) (3.2) (2.6) (2.0) (1.8) 35.3 37.2 35.6 31.6 30.8 28.0 65.3 69.2 59.8 57.9 54.7 49.0 15.1 14.3 12.5 11.3 10.4 9.3 80.4 83.5 72.3 69.2 65.1 58.3 3.9 11.0 0.0 0.6 1.1 0.2 76.5 72.5 72.3 68.6 64.0 58.1 283.1 76.5 72.5 72.3 68.6 64.0 341.2 23.1 19.5 17.2 14.5 12.0 56.7
based on Exhibit 3 Proved Developed Reserves: Production and cash Flow Projections ($ millions except as noted)
Proved Developed Reserves 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Production
Crude and condensates (MB) 9.4 8.1 7.1 6.3 5.3 4.5 3.7 2.9 2.4 2.2 1.9
Gas (MMCF) 45.3 36.8 29.5 25.0 21.7 18.6 16.5 14.9 12.8 11.3 10.3
Cash Flows (in millions):
Revenues-Oil 192.0 180.4 168.2 154.5 139.4 124.5 109.1 94.7 82.7 75.7 72.0
Revenues-Gas 90.5 82.1 73.5 67.8 64.1 59.2 56.7 54.2 50.4 47.6 45.8
Total Revenues 282.5 262.5 241.7 222.3 203.5 183.7 165.8 148.9 133.1 123.3 117.8
Direct Production Taxes 25.5 23.6 21.6 19.9 18.0 16.2 14.4 12.7 11.4 10.5 9.8
Direct Operating Expense 79.9 80.3 79.8 78.9 76.0 71.0 63.8 56.1 49.9 48.2 45.5
Overhead 33.9 32.2 28.6 25.9 23.0 20.4 18.3 16.1 13.9 12.6 10.8
Fin. Book DD&A 58.0 45.2 35.6 29.1 23.8 19.1 19.6 16.6 13.3 10.7 9.0
Net Income Before Taxes 85.2 81.2 76.1 68.5 62.7 57.0 49.7 47.4 44.6 41.3 42.7
Federal and state income taxes:
Current 48.5 44.4 39.3 34.1 29.9 25.9 23.6 21.5 19.3 17.5 17.4
Deffered (19.1) (15.2) (11.8) (9.5) (7.7) (5.9) (6.2) (5.1) (3.9) (3.1) (2.5)
Total income taxes 29.4 29.2 27.5 24.6 22.2 20.0 17.4 16.4 15.4 14.4 14.9
Profit contribution 55.8 52.0 48.6 43.9 40.5 37.0 32.3 31.0 29.2 26.9 27.8
Non-cash charges 38.9 30.1 23.7 19.6 16.1 13.2 13.5 11.5 9.5 7.7 6.4
Cash from operations 94.7 82.1 72.3 63.5 56.6 50.2 45.8 42.5 38.7 34.6 34.2
Capital expenditures 5.4 2.0 2.7 0.5 0.6 0.8 0.8 0.6 1.1 0.4 0.1 Cash flow 89.3 80.1 69.6 63.0 56.0 49.4 45.0 41.9 37.6 34.2 34.1 Terminal value Total 89.3 80.1 69.6 63.0 56.0 49.4 45.0 41.9 37.6 34.2 34.1 PV 79.2 63.1 48.6 39.0 30.8 24.1 19.5 16.1 12.8 10.3 9.2 Total PV 388.7
2002 2003 2004 2005 1.7 1.5 1.4 1.2 8.5 7.6 6.7 6.2 66.7 63.4 59.9 56.6 41.1 38.2 36.9 36.1 107.8 101.6 96.8 92.7 9.1 8.5 8.1 7.7 44.1 44.5 43.7 43.0 9.7 9.0 8.3 7.8 7.5 6.3 5.3 4.5 37.4 33.3 31.4 29.7 15.2 13.4 12.7 12.0 (2.2) (1.8) (1.4) (1.2) 13.0 11.6 11.3 10.8 24.4 21.7 20.1 18.9 5.3 4.5 4.0 3.3 29.7 26.2 24.1 22.2 0.1 0.1 0.5 0.1 29.6 26.1 23.6 22.1 92.1 29.6 26.1 23.6 114.2 7.0 5.5 4.4 19.0
after Exhibit 4 Proved Undeveloped Reserves: Production and cash Flow Projections ($ millions except as noted)
Proved Undeveloped Reserves 1 2 3 4 5 6
Production
Crude and condensates (MB) 0.3 0.6 0.5 0.5 0.5 0.5
Gas (MMCF) 1.7 4.9 5.6 3.3 2.3 2.0
Cash Flows (in millions):
Revenues-Oil 6.0 14.0 12.9 11.8 12.3 13.2
Revenues-Gas 3.4 11.3 14.5 9.1 6.7 6.2
Total Revenues 9.4 25.3 27.4 20.9 19.0 19.4
Direct Production Taxes 0.9 2.4 2.3 1.8 1.7 1.7
Direct Operating Expense 1.2 1.5 2.0 2.3 2.8 3.4
Overhead 1.1 3.1 3.2 2.4 2.1 2.2
Fin. Book DD&A 12.3 12.6 10.6 9.3 8.1 6.7
Net Income Before Taxes (6.1) 5.7 9.3 5.1 4.3 5.4
Federal and state income taxes:
Current 2.1 6.4 7.0 5.0 4.3 4.1
Deferred (4.1) (4.2) (3.5) (3.0) (2.6) (2.1)
Total income taxes (2.0) 2.2 3.5 2.0 1.7 2.0
Profit contribution (4.1) 3.5 5.8 3.1 2.6 3.4
Non-cash charges 8.3 8.4 7.1 6.3 5.5 4.6
Cash from operations 4.2 11.9 12.9 9.4 8.1 8.0
Capital expenditures 17.5 17.7 5.3 4.1 3.5 1.3 Cash flow (13.3) (5.8) 7.6 5.3 4.6 6.7 Terminal value Total (13.3) (5.8) 7.6 5.3 4.6 6.7 PV (11.8) (4.6) 5.3 3.3 2.5 3.3 Total PV (standard NPV) 42.5 Development capex 17.5 17.7
PV @ risk free rate 16.2 15.2
Total PV 31.4
Cash flow net of dev cost 4.2 11.9 7.6 5.3 4.6 6.7
Terminal value
Total 4.2 11.9 7.6 5.3 4.6 6.7
PV @ cost of capital 3.7 9.4 5.3 3.3 2.5 3.3
Total PV 71.9
Option valuation
Time to expiration (yrs) 5 6 7
Risk free rate 8.03% 8.03% 8.03%
Volatility 50% 50% 50%
d1 1.660621 1.683559 1.713865
N(d1) 0.951605 0.953867 0.956723
d2 0.542587 0.458814 0.390989
Proved Undeveloped Reserves: Production and cash Flow Projections ($ millions except as noted) 7 8 9 10 11 12 13 14 15 0.5 0.7 0.8 0.7 0.7 0.7 0.7 0.7 0.6 2.0 2.2 2.3 1.9 1.6 1.3 1.3 1.0 0.9 16.1 21.0 27.1 25.2 25.3 26.8 28.7 30.9 29.3 6.6 7.1 8.2 7.2 6.6 5.5 5.2 5.2 4.5 22.7 28.1 35.3 32.4 31.9 32.3 33.9 36.1 33.8 2.0 2.5 3.1 2.8 2.8 3.0 3.1 2.9 3.0 3.3 3.3 4.5 3.4 3.7 4.2 4.5 4.7 4.8 2.5 3.0 3.7 3.3 2.9 2.9 3.0 3.1 2.8 6.8 5.8 4.6 3.7 4.3 3.6 3.0 2.5 2.1 8.1 13.5 19.4 19.2 18.2 18.6 20.3 22.9 21.1 5.1 6.5 8.0 7.7 7.6 7.5 7.9 8.8 8.1 (2.1) (1.8) (1.3) (1.1) (1.2) (1.0) (0.9) (0.7) (0.6) 3.0 4.7 6.7 6.6 6.4 6.5 7.0 8.1 7.5 5.1 8.8 12.7 12.6 11.8 12.1 13.3 14.8 13.6 4.7 4.0 3.2 2.6 3.1 2.5 2.2 1.9 1.6 9.8 12.8 15.9 15.2 14.9 14.6 15.5 16.7 15.2 0.1 0.3 0.0 0.1 8.1 0.0 0.2 0.0 0.0 9.7 12.5 15.9 15.1 6.8 14.6 15.3 16.7 15.2 67.8 9.7 12.5 15.9 15.1 6.8 14.6 15.3 16.7 83.0 4.2 4.8 5.4 4.6 1.8 3.5 3.2 3.1 13.8 9.7 12.5 15.9 15.1 6.8 14.6 15.3 16.7 15.2 67.8 9.7 12.5 15.9 15.1 6.8 14.6 15.3 16.7 83.0 4.2 4.8 5.4 4.6 1.8 3.5 3.2 3.1 13.8
after Exhibit 5 Probable Reserves: Production and cash Flow Projections ($ millions except as noted)
Probable Reserves 1 2 3 4 5 6 7
Production
Crude and Condensates (MB) 0.2 0.3 0.4 0.4 0.5 0.5 0.7
Gas (MMCF) 2.8 4.2 4.9 5.3 4.2 3.8 4.5
Casf Flows (in Millions):
Revenues-Oil 3.7 6.3 8.0 9.6 13.3 14.3 17.0
Revenues-Gas 5.8 9.4 11.6 14.1 12.3 12.3 13.0
Total Revenues 9.5 15.7 19.6 23.7 25.6 26.6 30.0
Direct Production Taxes 0.8 1.3 1.7 2.0 2.2 2.3 2.7
Direct Operating Expense 0.4 0.7 0.8 2.6 4.4 4.7 5.3
Overhead 1.3 1.9 2.3 2.8 3.0 2.9 3.1
Fin. Book DD&A 0.4 0.8 1.2 2.5 1.6 1.3 1.5
Net Income Before Taxes 6.6 11.0 13.6 13.8 14.4 15.4 17.4
Federal and state income taxes:
Current 2.9 3.7 4.8 4.8 3.8 4.2 5.5
Deffered (0.2) 0.0 (0.2) (0.2) 0.3 0.3 0.1
Total Income Taxes 2.7 3.7 4.6 4.6 4.1 4.5 5.6
Profit Contribution 3.9 7.3 9.0 9.2 10.3 10.9 11.8
Non-Cash charges 0.2 0.8 1.1 2.2 1.9 1.6 1.6
Cash from Operations 4.1 8.1 10.1 11.4 12.2 12.5 13.4
Capital Expenditures 10.0 4.3 11.4 14.0 2.6 0.5 0.3 Cash Flow (5.9) 3.8 (1.3) (2.6) 9.6 12.0 13.1 Terminal Value Total (5.9) 3.8 (1.3) (2.6) 9.6 12.0 13.1 PV (5.2) 3.0 (0.9) (1.6) 5.3 5.9 5.7 Total PV 42.5 Development capex 10.0 4.3 11.4 14.0
PV @ risk free rate 9.3 3.7 9.0 10.3
Total PV 32.3
Cash flow net of dev cost 4.1 8.1 10.1 11.4 9.6 12.0 13.1
Terminal value
Total 4.1 8.1 10.1 11.4 9.6 12.0 13.1
PV @ cost of capital 3.6 6.4 7.1 7.1 5.3 5.9 5.7
Total PV 71.4
Option valuation
Time to expiration (yrs) 5 6 7
Risk free rate 8.03% 8.03% 8.03%
Volatility 50% 50% 50%
d1 1.628969 1.654666 1.687115
N(d1) 0.94834 0.951004 0.954209
d2 0.510935 0.429921 0.364239
Probable Reserves: Production and cash Flow Projections ($ millions except as noted) 8 9 10 11 12 13 14 15 0.9 0.8 0.7 0.6 0.5 0.4 0.4 0.3 4.2 3.3 2.4 2.1 2.0 1.5 1.3 1.1 19.6 20.3 19.8 18.6 17.1 15.8 14.5 13.4 11.6 10.7 9.3 9.5 10.1 8.8 8.1 7.3 31.2 31.0 29.1 28.1 27.2 24.6 22.6 20.7 2.9 3.1 3.0 2.8 2.7 2.5 2.3 2.1 5.7 6.0 6.4 7.0 7.4 7.4 7.3 7.2 3.3 3.0 2.8 2.6 2.5 2.2 2.0 1.9 2.0 1.5 1.4 1.4 1.4 1.4 1.3 1.3 17.3 17.4 15.5 14.3 13.2 11.1 9.7 8.2 5.8 5.5 5.4 5.0 4.7 4.0 3.5 3.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.8 5.5 5.4 5.0 4.7 4.0 3.5 3.0 11.5 11.9 10.1 9.3 8.5 7.1 6.2 5.2 1.9 1.6 1.4 1.4 1.4 1.4 1.4 1.3 13.4 13.5 11.5 10.7 9.9 8.5 7.6 6.5 0.6 0.3 0.5 0.5 0.0 0.2 0.5 0.0 12.8 13.2 11.0 10.2 9.9 8.3 7.1 6.5 51.0 12.8 13.2 11.0 10.2 9.9 8.3 7.1 57.5 4.9 4.5 3.3 2.7 2.4 1.8 1.3 9.6 12.8 13.2 11.0 10.2 9.9 8.3 7.1 6.5 51.0 12.8 13.2 11.0 10.2 9.9 8.3 7.1 57.5 4.9 4.5 3.3 2.7 2.4 1.8 1.3 9.6
after Exhibit 6 Possible Reserves: Production and cash Flow Projections ($ millions except as noted)
Possible Reserves 1 2 3 4 5 6 7
Production
Crude and Condensates (MB) 0.1 0.8 0.9 0.8 0.8 1.0 1.6
Gas (MMCF) 0.5 3.5 3.8 3.9 3.6 3.7 3.2
Casf Flows (in Millions):
Revenues-Oil 2.1 10.1 13.2 14.4 18.0 24.1 42.3
Revenues-Gas 0.6 3.6 5.1 6.9 7.2 7.7 7.7
Total Revenues 2.7 13.7 18.3 21.3 25.2 31.8 50.0
Direct Production Taxes 0.3 1.2 1.6 1.8 2.2 2.8 5.0
Direct Operating Expense 0.2 1.0 1.5 2.1 6.5 13.1 21.2
Overhead 0.4 1.6 2.1 2.5 2.9 3.4 5.2
Fin. Book DD&A 0.7 1.4 2.2 4.9 3.5 3.1 3.6
Net Income Before Taxes 1.1 8.5 10.9 10.0 10.1 9.4 15.0
Federal and state income taxes:
Current 0.8 3.1 4.2 4.4 3.2 3.2 5.4
Deffered (0.4) 0.0 (0.3) (0.5) 0.7 0.7 0.2
Total Income Taxes 0.4 3.1 3.9 3.9 3.9 3.9 5.6
Profit Contribution 0.7 5.4 7.0 6.1 6.2 5.5 9.4
Non-Cash charges 0.3 1.4 1.9 4.4 4.2 3.8 3.8
Cash from Operations 1.0 6.8 8.9 10.5 10.4 9.3 13.2
Capital Expenditures 9.7 9.8 22.4 38.9 27.4 6.8 0.7 Cash Flow (8.7) (3.0) (13.5) (28.4) (17.0) 2.5 12.5 Terminal Value Total (8.7) (3.0) (13.5) (28.4) (17.0) 2.5 12.5 PV (7.7) (2.4) (9.4) (17.6) (9.3) 1.2 5.4 Total PV 8.6 Development capex 9.7 9.8 22.4 38.9 27.4 6.8
PV @ risk free rate 9.0 8.4 17.8 28.6 18.6 4.3
Total PV 86.6
Cash flow net of dev cost 1.0 6.8 8.9 10.5 10.4 9.3 12.5
Terminal value
Total 1.0 6.8 8.9 10.5 10.4 9.3 12.5
PV @ cost of capital 0.9 5.4 6.2 6.5 5.7 4.5 5.4
Total PV 83.1
Option valuation
Time to expiration (yrs) 5 6 7
Risk free rate 8.03% 8.03% 8.03%
Volatility 50% 50% 50%
d1 0.880888 0.971764 1.05487
N(d1) 0.810811 0.834416 0.854258
d2 -0.23715 -0.25298 -0.26801
Possible Reserves: Production and cash Flow Projections ($ millions except as noted) 8 9 10 11 12 13 14 15 2.1 2.4 2.3 2.0 1.7 1.6 1.4 1.2 3.0 3.2 2.8 1.9 1.3 1.4 1.2 1.0 59.1 67.4 69.4 66.8 62.7 59.7 56.4 52.0 7.0 7.8 9.3 8.1 6.1 5.9 5.9 5.7 66.1 75.2 78.7 74.9 68.8 65.6 62.3 57.7 6.8 7.9 8.0 7.1 6.7 6.4 6.1 5.6 31.9 33.0 35.1 26.4 26.3 25.7 25.8 25.6 6.9 7.3 7.6 6.9 6.3 5.9 5.7 5.3 4.5 3.5 3.3 3.3 3.2 3.2 3.1 3.1 16.0 23.5 24.7 31.2 26.3 24.4 21.6 18.1 6.1 7.8 8.9 10.9 9.4 8.8 7.9 6.7 (0.2) 0.2 0.0 0.0 0.0 0.0 0.0 0.0 5.9 8.0 8.9 10.9 9.4 8.8 7.9 6.7 10.1 15.5 15.8 20.3 16.9 15.6 13.7 11.4 4.4 3.7 3.3 3.3 3.3 3.2 3.2 3.1 14.5 19.2 19.1 23.6 20.2 18.8 16.9 14.5 1.0 0.7 3.0 2.3 0.0 0.1 0.0 0.0 13.5 18.5 16.1 21.3 20.2 18.7 16.9 14.5 72.3 13.5 18.5 16.1 21.3 20.2 18.7 16.9 86.8 5.2 6.3 4.9 5.7 4.8 4.0 3.2 14.4 13.5 18.5 16.1 21.3 20.2 18.7 16.9 14.5 72.3 13.5 18.5 16.1 21.3 20.2 18.7 16.9 86.8 5.2 6.3 4.9 5.7 4.8 4.0 3.2 14.4
MW Petroleum Summary of Valuation
Ignoring Value of Financing and Exta Assets
DCF Option (6-yr) Proved Developed Reserves $ 388.72 $ 388.72 Proved Undeveloped Reserves $ 42.48 $ 55.51 Risk Weighted Probable Reserves $ 42.53 $ 54.65 Risk Weighted Possible Reserves $ 8.61 $ 47.91 Total Value $ 482.33 $ 546.79
