MW Petroleum

Apache's cost of capital

Unlevered cost of capital:
Risk free rate (10yr bond)
Unlevered beta
Equity risk premium
Unlevered cost of capital

8.03%
0.82
5.70%
12.70%

From Exhibit 7
Aggregate MW Projections
Production:
Net Crude and Condensates (MB)
Net Gas (MMCF)
Casf Flows (in Millions):
Revenues-Oil
Revenues-Gas
Total Revenues
Direct Production Taxes
Direct Operating Expense
Overhead
Fin. Book DD&A
Net Income Before Taxes
Federal and state income taxes:
Current
Deferred
Total Income Taxes
Profit Contribution
Non-Cash charges
Cash from Operations
Capital Expenditures
Free Cash Flow
Terminal Value
Total
PV
Total PV
Interest tax shields:
Assumed coupon on debt
Assumed initial debt
Year 1 interest
Tax rate
Year 1 tax shield
Assumed cost of debt
Growth rate (= g of op cash flow)
Value of tax shield (perpetuity)
Value of "Additional assets"
Total value of MW

Aggregate MW Production and cash Flow Projections ($ millions except as noted)

1

10.0
50.2

9.8
49.5

8.9
43.7

8.1
37.5

7.1
31.8

6.5
28.1

6.5
26.2

6.6
24.4

6.4
21.6

203.9
100.3
304.2

210.9
106.3
317.2

202.3
104.7
307.0

190.3
97.9
288.2

183.0
90.3
273.3

176.1
85.4
261.5

184.5
84.0
268.5

194.4
80.0
274.4

197.5
77.2
274.7

27.5
81.7
36.6
71.4
87.0

28.5
83.5
38.7
60.0
106.5

27.3
84.1
36.3
49.6
109.7

25.5
85.9
33.6
45.7
97.5

24.1
89.7
31.0
37.0
91.5

23.0
92.2
28.8
30.2
87.3

24.1
93.7
29.2
31.6
89.9

25.0
97.0
29.3
28.9
94.2

25.4
93.3
27.9
23.0
105.1

41.2
(9.3)
31.9
59.6
27.7
87.3
34.1

37.4
(7.0)
30.4
56.9
23.3
80.2
9.4

39.5
(7.9)
31.6
58.3
23.6
81.9
1.9

39.9
(7.1)
32.8
61.4
21.8
83.2
2.6

40.7
(4.9)
35.8
69.3
18.1
87.4
2.0

54.2
57.6
55.3
48.3
(23.8) (19.4) (15.8) (13.2)
30.4
38.2
39.5
35.1
56.6
68.3
70.2
62.4
47.6
40.6
33.8
32.4
104.2 108.9 104.0
94.8
42.6
33.8
41.8
57.5
61.6

75.1

62.2

37.3

53.2

70.8

80.0

80.6

85.4

61.6
54.7
481.9

75.1
59.1

62.2
43.4

37.3
23.1

53.2
29.3

70.8
34.5

80.0
34.6

80.6
31.0

85.4
29.1

14.50%
300.0
43.5
36%
15.7
12.00%
-4.06%
97.5
25.0
604.4

ns except as noted)
10

11

12

13

14

15

5.8
18.3

5.2
15.9

4.6
13.1

4.3
11.8

3.8
10.2

3.4
9.3

190.2
73.4
263.6

182.7
70.0
252.7

173.2
62.8
236.0

167.7
58.1
225.8

161.7
56.1
217.8

151.3
53.5
204.8

24.3
93.2
26.3
19.2
100.6

22.5
82.6
23.2
18.0
106.4

21.5
82.0
21.4
15.7
95.4

20.4
82.0
20.1
13.8
89.5

19.4
81.5
19.1
12.3
85.5

18.4
80.6
17.8
11.0
77.0
29.8
(1.8)
28.0
49.0
9.3
58.3
0.2

39.4
(4.1)
35.3
65.3
15.1
80.4
3.9

40.9
(3.7)
37.2
69.2
14.3
83.5
11.0

38.8
(3.2)
35.6
59.8
12.5
72.3
0.0

34.2
(2.6)
31.6
57.9
11.3
69.2
0.6

32.8
(2.0)
30.8
54.7
10.4
65.1
1.1

76.5

72.5

72.3

68.6

64.0

76.5
23.1

72.5
19.5

72.3
17.2

68.6
14.5

64.0
12.0

58.1
283.1
341.2
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)
Gas (MMCF)

9.4
45.3

8.1
36.8

7.1
29.5

6.3
25.0

5.3
21.7

4.5
18.6

3.7
16.5

2.9
14.9

2.4
12.8

2.2
11.3

1.9
10.3

192.0
90.5
282.5

180.4
82.1
262.5

168.2
73.5
241.7

154.5
67.8
222.3

139.4
64.1
203.5

124.5
59.2
183.7

109.1
56.7
165.8

94.7
54.2
148.9

82.7
50.4
133.1

75.7
47.6
123.3

72.0
45.8
117.8

25.5
79.9
33.9
58.0
85.2

23.6
80.3
32.2
45.2
81.2

21.6
79.8
28.6
35.6
76.1

19.9
78.9
25.9
29.1
68.5

18.0
76.0
23.0
23.8
62.7

16.2
71.0
20.4
19.1
57.0

14.4
63.8
18.3
19.6
49.7

12.7
56.1
16.1
16.6
47.4

11.4
49.9
13.9
13.3
44.6

10.5
48.2
12.6
10.7
41.3

9.8
45.5
10.8
9.0
42.7

48.5
(19.1)
29.4
55.8
38.9
94.7
5.4

44.4
(15.2)
29.2
52.0
30.1
82.1
2.0

39.3
(11.8)
27.5
48.6
23.7
72.3
2.7

34.1
(9.5)
24.6
43.9
19.6
63.5
0.5

29.9
(7.7)
22.2
40.5
16.1
56.6
0.6

25.9
(5.9)
20.0
37.0
13.2
50.2
0.8

23.6
(6.2)
17.4
32.3
13.5
45.8
0.8

21.5
(5.1)
16.4
31.0
11.5
42.5
0.6

19.3
(3.9)
15.4
29.2
9.5
38.7
1.1

17.5
(3.1)
14.4
26.9
7.7
34.6
0.4

17.4
(2.5)
14.9
27.8
6.4
34.2
0.1

89.3

80.1

69.6

63.0

56.0

49.4

45.0

41.9

37.6

34.2

34.1

89.3
79.2
388.7

80.1
63.1

69.6
48.6

63.0
39.0

56.0
30.8

49.4
24.1

45.0
19.5

41.9
16.1

37.6
12.8

34.2
10.3

34.1
9.2

Cash Flows (in millions):

Revenues-Oil
Revenues-Gas
Total Revenues
Direct Production Taxes
Direct Operating Expense
Overhead
Fin. Book DD&A
Net Income Before Taxes
Federal and state income taxes:
Current
Deffered
Total income taxes
Profit contribution
Non-cash charges
Cash from operations
Capital expenditures
Cash flow
Terminal value
Total
PV
Total PV

2002

2003

2004

2005

1.7
8.5

1.5
7.6

1.4
6.7

1.2
6.2

66.7
41.1
107.8

63.4
38.2
101.6

59.9
36.9
96.8

56.6
36.1
92.7

9.1
44.1
9.7
7.5
37.4

8.5
44.5
9.0
6.3
33.3

8.1
43.7
8.3
5.3
31.4

7.7
43.0
7.8
4.5
29.7

15.2
(2.2)
13.0
24.4
5.3
29.7
0.1

13.4
(1.8)
11.6
21.7
4.5
26.2
0.1

12.7
(1.4)
11.3
20.1
4.0
24.1
0.5

12.0
(1.2)
10.8
18.9
3.3
22.2
0.1

29.6

26.1

23.6

29.6
7.0

26.1
5.5

23.6
4.4

22.1
92.1
114.2
19.0

after Exhibit 4

Proved Undeveloped Reserves

Proved Undeveloped Reserves: Production and cash Flow Projections ($ millions except a

Production
Crude and condensates (MB)
Gas (MMCF)

0.3
1.7

0.6
4.9

0.5
5.6

0.5
3.3

0.5
2.3

0.5
2.0

Cash Flows (in millions):

Revenues-Oil
Revenues-Gas
Total Revenues

6.0
3.4
9.4

14.0
11.3
25.3

12.9
14.5
27.4

11.8
9.1
20.9

12.3
6.7
19.0

13.2
6.2
19.4

0.9
1.2
1.1
12.3
(6.1)

2.4
1.5
3.1
12.6
5.7

2.3
2.0
3.2
10.6
9.3

1.8
2.3
2.4
9.3
5.1

1.7
2.8
2.1
8.1
4.3

1.7
3.4
2.2
6.7
5.4

2.1
(4.1)
(2.0)
(4.1)
8.3
4.2
17.5

6.4
(4.2)
2.2
3.5
8.4
11.9
17.7

7.0
(3.5)
3.5
5.8
7.1
12.9
5.3

5.0
(3.0)
2.0
3.1
6.3
9.4
4.1

4.3
(2.6)
1.7
2.6
5.5
8.1
3.5

4.1
(2.1)
2.0
3.4
4.6
8.0
1.3

(13.3)

(5.8)

7.6

5.3

4.6

6.7

(13.3)
(11.8)
42.5

(5.8)
(4.6)

7.6
5.3

5.3
3.3

4.6
2.5

6.7
3.3

17.5
16.2
31.4

17.7
15.2

4.2

11.9

7.6

5.3

4.6

6.7

4.2
3.7
71.9

11.9
9.4

7.6
5.3

5.3
3.3

4.6
2.5

6.7
3.3

Direct Production Taxes

Direct Operating Expense
Overhead
Fin. Book DD&A
Net Income Before Taxes
Federal and state income taxes:
Current
Deferred
Total income taxes
Profit contribution
Non-cash charges
Cash from operations
Capital expenditures
Cash flow
Terminal value
Total
PV
Total PV (standard NPV)
Development capex
PV @ risk free rate
Total PV
Cash flow net of dev cost
Terminal value
Total
PV @ cost of capital
Total PV
Option valuation
Time to expiration (yrs)
Risk free rate
Volatility
d1
N(d1)
d2
N(d2)

5
8.03%
50%
1.660621
0.951605
0.542587
0.706293

6
8.03%
50%
1.683559
0.953867
0.458814
0.676816

7
8.03%
50%
1.713865
0.956723
0.390989
0.652097

Call value

53.63

55.51

57.17

Flow Projections ($ millions except as noted)

10

11

12

13

14

15

0.5
2.0

0.7
2.2

0.8
2.3

0.7
1.9

0.7
1.6

0.7
1.3

0.7
1.3

0.7
1.0

0.6
0.9

16.1
6.6
22.7

21.0
7.1
28.1

27.1
8.2
35.3

25.2
7.2
32.4

25.3
6.6
31.9

26.8
5.5
32.3

28.7
5.2
33.9

30.9
5.2
36.1

29.3
4.5
33.8

2.0
3.3
2.5
6.8
8.1

2.5
3.3
3.0
5.8
13.5

3.1
4.5
3.7
4.6
19.4

2.8
3.4
3.3
3.7
19.2

2.8
3.7
2.9
4.3
18.2

3.0
4.2
2.9
3.6
18.6

3.1
4.5
3.0
3.0
20.3

2.9
4.7
3.1
2.5
22.9

3.0
4.8
2.8
2.1
21.1

5.1
(2.1)
3.0
5.1
4.7
9.8
0.1

6.5
(1.8)
4.7
8.8
4.0
12.8
0.3

8.0
(1.3)
6.7
12.7
3.2
15.9
0.0

7.7
(1.1)
6.6
12.6
2.6
15.2
0.1

7.6
(1.2)
6.4
11.8
3.1
14.9
8.1

7.5
(1.0)
6.5
12.1
2.5
14.6
0.0

7.9
(0.9)
7.0
13.3
2.2
15.5
0.2

8.8
(0.7)
8.1
14.8
1.9
16.7
0.0

8.1
(0.6)
7.5
13.6
1.6
15.2
0.0

9.7

12.5

15.9

15.1

6.8

14.6

15.3

16.7

9.7
4.2

12.5
4.8

15.9
5.4

15.1
4.6

6.8
1.8

14.6
3.5

15.3
3.2

16.7
3.1

15.2
67.8
83.0
13.8

9.7

12.5

15.9

15.1

6.8

14.6

15.3

16.7

9.7
4.2

12.5
4.8

15.9
5.4

15.1
4.6

6.8
1.8

14.6
3.5

15.3
3.2

16.7
3.1

15.2
67.8
83.0
13.8

after Exhibit 5

Probable Reserves

Probable Reserves: Production and cash Flow Projections ($ millions except as noted)

Production
Crude and Condensates (MB)
Gas (MMCF)

0.2
2.8

0.3
4.2

0.4
4.9

0.4
5.3

0.5
4.2

0.5
3.8

0.7
4.5

Casf Flows (in Millions):

Revenues-Oil
Revenues-Gas
Total Revenues

3.7
5.8
9.5

6.3
9.4
15.7

8.0
11.6
19.6

9.6
14.1
23.7

13.3
12.3
25.6

14.3
12.3
26.6

17.0
13.0
30.0

0.8
0.4
1.3
0.4
6.6

1.3
0.7
1.9
0.8
11.0

1.7
0.8
2.3
1.2
13.6

2.0
2.6
2.8
2.5
13.8

2.2
4.4
3.0
1.6
14.4

2.3
4.7
2.9
1.3
15.4

2.7
5.3
3.1
1.5
17.4

2.9
(0.2)
2.7
3.9
0.2
4.1
10.0

3.7
0.0
3.7
7.3
0.8
8.1
4.3

4.8
(0.2)
4.6
9.0
1.1
10.1
11.4

4.8
(0.2)
4.6
9.2
2.2
11.4
14.0

3.8
0.3
4.1
10.3
1.9
12.2
2.6

4.2
0.3
4.5
10.9
1.6
12.5
0.5

5.5
0.1
5.6
11.8
1.6
13.4
0.3

Direct Production Taxes

Direct Operating Expense
Overhead
Fin. Book DD&A
Net Income Before Taxes
Federal and state income taxes:
Current
Deffered
Total Income Taxes
Profit Contribution
Non-Cash charges
Cash from Operations
Capital Expenditures
Cash Flow
Terminal Value
Total
PV
Total PV

(5.9)

3.8

(1.3)

(2.6)

9.6

12.0

13.1

(5.9)
(5.2)
42.5

3.8
3.0

(1.3)
(0.9)

(2.6)
(1.6)

9.6
5.3

12.0
5.9

13.1
5.7

Development capex
PV @ risk free rate
Total PV

10.0
9.3
32.3

4.3
3.7

11.4
9.0

14.0
10.3

4.1

8.1

10.1

11.4

9.6

12.0

13.1

4.1
3.6
71.4

8.1
6.4

10.1
7.1

11.4
7.1

9.6
5.3

12.0
5.9

13.1
5.7

Cash flow net of dev cost

Terminal value
Total
PV @ cost of capital
Total PV
Option valuation
Time to expiration (yrs)
Risk free rate
Volatility
d1
N(d1)
d2
N(d2)

5
8.03%
50%
1.628969
0.94834
0.510935
0.695302

6
7
8.03%
8.03%
50%
50%
1.654666 1.687115
0.951004 0.954209
0.429921 0.364239
0.666373 0.64216

Call value

52.72

54.65

56.34

lions except as noted)

10

11

12

13

14

15

0.9
4.2

0.8
3.3

0.7
2.4

0.6
2.1

0.5
2.0

0.4
1.5

0.4
1.3

0.3
1.1

19.6
11.6
31.2

20.3
10.7
31.0

19.8
9.3
29.1

18.6
9.5
28.1

17.1
10.1
27.2

15.8
8.8
24.6

14.5
8.1
22.6

13.4
7.3
20.7

2.9
5.7
3.3
2.0
17.3

3.1
6.0
3.0
1.5
17.4

3.0
6.4
2.8
1.4
15.5

2.8
7.0
2.6
1.4
14.3

2.7
7.4
2.5
1.4
13.2

2.5
7.4
2.2
1.4
11.1

2.3
7.3
2.0
1.3
9.7

2.1
7.2
1.9
1.3
8.2

5.8
0.0
5.8
11.5
1.9
13.4
0.6

5.5
0.0
5.5
11.9
1.6
13.5
0.3

5.4
0.0
5.4
10.1
1.4
11.5
0.5

5.0
0.0
5.0
9.3
1.4
10.7
0.5

4.7
0.0
4.7
8.5
1.4
9.9
0.0

4.0
0.0
4.0
7.1
1.4
8.5
0.2

3.5
0.0
3.5
6.2
1.4
7.6
0.5

3.0
0.0
3.0
5.2
1.3
6.5
0.0

12.8

13.2

11.0

10.2

9.9

8.3

7.1

12.8
4.9

13.2
4.5

11.0
3.3

10.2
2.7

9.9
2.4

8.3
1.8

7.1
1.3

6.5
51.0
57.5
9.6

12.8

13.2

11.0

10.2

9.9

8.3

7.1

12.8
4.9

13.2
4.5

11.0
3.3

10.2
2.7

9.9
2.4

8.3
1.8

7.1
1.3

6.5
51.0
57.5
9.6

after Exhibit 6

Possible Reserves

Possible Reserves: Production and cash Flow Projections ($ millions except as noted)

Production
Crude and Condensates (MB)
Gas (MMCF)

0.1
0.5

0.8
3.5

0.9
3.8

0.8
3.9

0.8
3.6

1.0
3.7

1.6
3.2

Casf Flows (in Millions):

Revenues-Oil
Revenues-Gas
Total Revenues

2.1
0.6
2.7

10.1
3.6
13.7

13.2
5.1
18.3

14.4
6.9
21.3

18.0
7.2
25.2

24.1
7.7
31.8

42.3
7.7
50.0

0.3
0.2
0.4
0.7
1.1

1.2
1.0
1.6
1.4
8.5

1.6
1.5
2.1
2.2
10.9

1.8
2.1
2.5
4.9
10.0

2.2
6.5
2.9
3.5
10.1

2.8
13.1
3.4
3.1
9.4

5.0
21.2
5.2
3.6
15.0

0.8
(0.4)
0.4
0.7
0.3
1.0
9.7

3.1
0.0
3.1
5.4
1.4
6.8
9.8

4.2
(0.3)
3.9
7.0
1.9
8.9
22.4

4.4
(0.5)
3.9
6.1
4.4
10.5
38.9

3.2
0.7
3.9
6.2
4.2
10.4
27.4

3.2
0.7
3.9
5.5
3.8
9.3
6.8

5.4
0.2
5.6
9.4
3.8
13.2
0.7

Cash Flow
Terminal Value
Total
PV
Total PV

(8.7)

(3.0)

(13.5)

(28.4)

(17.0)

2.5

12.5

(8.7)
(7.7)
8.6

(3.0)
(2.4)

(13.5)
(9.4)

(28.4)
(17.6)

(17.0)
(9.3)

2.5
1.2

12.5
5.4

Development capex
PV @ risk free rate
Total PV

9.7
9.0
86.6

9.8
8.4

22.4
17.8

38.9
28.6

27.4
18.6

6.8
4.3

1.0

6.8

8.9

10.5

10.4

9.3

12.5

1.0
0.9
83.1

6.8
5.4

8.9
6.2

10.5
6.5

10.4
5.7

9.3
4.5

12.5
5.4

Direct Production Taxes

Direct Operating Expense
Overhead
Fin. Book DD&A
Net Income Before Taxes
Federal and state income taxes:
Current
Deffered
Total Income Taxes
Profit Contribution
Non-Cash charges
Cash from Operations
Capital Expenditures

Cash flow net of dev cost

Terminal value
Total
PV @ cost of capital
Total PV
Option valuation
Time to expiration (yrs)
Risk free rate
Volatility
d1
N(d1)
d2
N(d2)

5
8.03%
50%
0.880888
0.810811
-0.23715
0.406272

6
7
8.03%
8.03%
50%
50%
0.971764 1.05487
0.834416 0.854258
-0.25298 -0.26801
0.400141 0.394348

Call value

43.81

47.91

51.50

ions except as noted)

10

11

12

13

14

15

2.1
3.0

2.4
3.2

2.3
2.8

2.0
1.9

1.7
1.3

1.6
1.4

1.4
1.2

1.2
1.0

59.1
7.0
66.1

67.4
7.8
75.2

69.4
9.3
78.7

66.8
8.1
74.9

62.7
6.1
68.8

59.7
5.9
65.6

56.4
5.9
62.3

52.0
5.7
57.7

6.8
31.9
6.9
4.5
16.0

7.9
33.0
7.3
3.5
23.5

8.0
35.1
7.6
3.3
24.7

7.1
26.4
6.9
3.3
31.2

6.7
26.3
6.3
3.2
26.3

6.4
25.7
5.9
3.2
24.4

6.1
25.8
5.7
3.1
21.6

5.6
25.6
5.3
3.1
18.1

6.1
(0.2)
5.9
10.1
4.4
14.5
1.0

7.8
0.2
8.0
15.5
3.7
19.2
0.7

8.9
0.0
8.9
15.8
3.3
19.1
3.0

10.9
0.0
10.9
20.3
3.3
23.6
2.3

9.4
0.0
9.4
16.9
3.3
20.2
0.0

8.8
0.0
8.8
15.6
3.2
18.8
0.1

7.9
0.0
7.9
13.7
3.2
16.9
0.0

6.7
0.0
6.7
11.4
3.1
14.5
0.0

13.5

18.5

16.1

21.3

20.2

18.7

16.9

13.5
5.2

18.5
6.3

16.1
4.9

21.3
5.7

20.2
4.8

18.7
4.0

16.9
3.2

14.5
72.3
86.8
14.4

13.5

18.5

16.1

21.3

20.2

18.7

16.9

13.5
5.2

18.5
6.3

16.1
4.9

21.3
5.7

20.2
4.8

18.7
4.0

16.9
3.2

14.5
72.3
86.8
14.4

MW Petroleum
Summary of Valuation
Ignoring Value of Financing and Exta Assets

Proved Developed Reserves

Proved Undeveloped Reserves
Risk Weighted Probable Reserves
Risk Weighted Possible Reserves

$
$
$
$

Total Value

DCF
Option (6-yr)
388.72 $
388.72
42.48 $
55.51
42.53 $
54.65
8.61 $
47.91
482.33

546.79