Midland Case Calculations

MIDLAND ENERGY RESOURCES

Project: Analysis: Draft: Footer:

MIDLAND ENERGY RESOURCES Income Statement N Harvard Business Publishing

Income Statement

Harvard Business Publishing


Income Statement

Operating Results Operating Results: Operating Revenues Plus: Other Income Total Revenue & Other Income Less: Cr Crude Oil & Product Purchases Less: Pr Production & Manufacturing Less: Se S elling, General & Administrative Less: Depreciation & Depletion Less: Exploration Expense Less: Sales Based Taxes Less: Other Taxes & Duties Operating Income Less: Interest Expense Less: Other Non-Operating Expenses Income Before Taxes Less: Taxes Net Income

2004 201,425 1,239 202,664 94,672 15,793 9,417 6,642 74 7 18,539 27,849 29,005 10,568 52 8 17,910 7,414 10,496

2005 249,246 2,817 252,062 1 2 5 ,9 4 9 1 8 ,2 3 7 9,793 6,972 656 20,905 2 8 ,2 5 7 41,294 8,028 543 32,723 1 2 ,8 3 0 19,893

2006 248,518 3 ,5 2 4 252,042 124,131 20,079 9,706 7 ,7 6 3 8 03 2 0 ,6 5 9 26,658 42,243 1 1 ,0 8 1 7 15 30,447 1 1 ,7 4 7 18,701

0.41

0 .3 9

0.39 40%




MIDLAND ENERGY RESOURCES Balance Sheet N Harvard Business Publishing

Balance

Harvard Business Pub


Assets: Cash & Cash equivalents Restricted Cash Notes Receivable Inventory Prepaid Expenses Total Current Assets

2005 16,707 3,131 18,689 6,338 2,218 47,083

2006 19,206 3,131 19,681 7,286 2,226 51,528

30,140 156,630 10,818 244,671

34,205 167,350 9,294 262,378

Liabilities & Owners' Equity: Accounts Payable & Accrued Liabilities Current Portion of Long Term Debt Taxes Payable Total Current Liabilities

24,562 26,534 5,723 56,819

26,576 20,767 5,462 52,805

Long Term Debt Post Retirement Benefit Obligations Accrued Liabilities Deferred Taxes Other Long Term Liabilities

82,414 6,950 4,375 14,197 2,423

81,078 9,473 4,839 14,179 2,725

Total Shareholders' Equity Total Liabilities & Owners' Equity

77,493 244,671

97,280 262,378

Investments & Advances Net Property, Plant & Equipment Other Assets Total Assets

Balance

1


Sheet

lishing

Sheet

lishing



MIDLAND ENERGY RESOURCES Business Segments N Harvard Business Publishing

Business Segments



Business Segments

Exploration & Production: Operating Revenue After-Tax Earnings

2004 15,931 6,781

2005 20,870 13,349

2006 22,357 12,556

Capital Expenditures Depreciation Total Assets

6,000 4,444 76,866

7,180 4,790 125,042

7,940 5,525 140,100

2004 166,280 2,320

2005 206,719 4,382

2006 202,971 4,047


1,455 1,620 60,688

1,550 1,591 91,629

1,683 1,596 93,829

Petrochemicals: Operating Revenue After-Tax Earnings

2004 19,215 1,394

2005 21,657 2,162

2006 23,189 2,097


305 578 19,943

330 591 28,000

436 642 28,450

Refining & Marketing: Operating Revenue After-Tax Earnings

0.534 0.358 0.108

0.358

93,829

262,378

0.108




MIDLAND ENERGY RESOURCES Stock & Dividend Data N Harvard Business Publishing

Stock & Dividend Data


MIDLAND ENERGY RESOURCES Stock Prices: Fourth Quarter Third Quarter Second Quarter First Quarter Dividends Per Share: Fourth Quarter Third Quarter Second Quarter First Quarter Annual Dividend Selected Financial Data: Net Income Shares Outstanding EPS Payout Ratio DPS

Stock & Dividend Data

2001

2002

2003

2004

2005

2006

$27.16 $27.90 $28.33 $24.13

$31.29 $30.41 $27.80 $26.85

$32.59 $29.42 $32.45 $31.57

$34.37 $35.78 $36.98 $31.28

$38.32 $40.29 $37.52 $34.58

$44.11 $39.75 $46.32 $38.81

$0.28 $0.28 $0.28 $0.28 $1.11

$0.29 $0.29 $0.29 $0.29 $1.14

$0.30 $0.29 $0.29 $0.29 $1.17

$0.31 $0.31 $0.31 $0.31 $1.24

$0.34 $0.34 $0.34 $0.34 $1.35

$0.36 $0.36 $0.36 $0.36 $1.46

15,303 2,049 7.47 14.8% 1.11

11,448 2,025 5.65 20.2% 1.14

11,848 2,035 5.82 19.9% 1.16

10,496 2,055 5.11 24.2% 1.24

19,893 2,945 6.75 20.0% 1.35

18,701 2,951 6.34 23.0% 1.46

Note: Results have not been adjusted for a divestiture at the end of 2001 and an acquisition at the beginning of 2005.




MIDLAND ENERGY RESOURCES Comparable Companies N Harvard Business Publishing

Comparable Com



Exploration & Production: Jackson Energy, Inc. Wide Palin Petroleum Corsicana Energy Corp. Worthington Petroleum Average

Equity Market Value 57,931 46,089 42,263 27,591

Comparable Com Net Debt 6,480 39,375 6,442 13,098

D/E 11.2% 85.4% 15.2% 47.5% 39.8%

Equity Beta 0.89 1.21 1.11 1.39 1.15

LTM Revenue 18,512 17,827 14,505 12,820

LTM Earnings 4,981 8,495 4,467 3,506

0.27 0.48 0.31 0.27

Unlevered beta 0.834 0.800 1.017 1.082 0.933

Refining & Marketing: Bexar Energy, Inc. Kirk Corp. White Point Energy Petrarch Fuel Services Arkana Petroleum Corp. Beaumont Energy, Inc. Dameron Fuel Services Average

60,356 15,567 9,204 2,460 18,363 32,662 48,796

6,200 3,017 1,925 (296) 5,931 6,743 24,525

10.3% 19.4% 20.9% -12.0% 32.3% 20.6% 50.3% 20.3%

1.70 0.94 1.78 0.24 1.25 1.04 1.42 1.20

160,708 67,751 31,682 18,874 49,117 59,989 58,750

9,560 1,713 1,402 112 3,353 1,467 4,646

79,508

59.3%

1.25

251,003

18,888

1.601 0.842 1.582 0.259 1.047 0.925 1.091 1.05

Midland Energy Resources

134,114

D/E


anies

lishing

anies

lishing

Table 1 Credit

Debt/

Spread to

Rating

Value

Treasury

Consolidated

A+

42.2%

1.62%

Exploration & Production

A+

46.0%

1.60%

Refining & Marketing

BBB

31.0%

1.80%

Petrochemicals

AA-

40.0%

1.35%

Business Segment:

D/V 42.2% 46.0% 31.0% 40.0%

Note: Debt/Value is based on market values.

Table 2 Maturity:

Rate:

1-Year

4.54%

10-Year

4.66%

30-Year

4.98%

In 2006 Midland used an equity market risk premium of 5.0%, EMRP

6.00%

E/V D/E 57.8% 73.01% 54.0% 85.19% 69.0% 44.93% 60.0% 66.67%

Values derived from Ta

Inputs Tax rate 10 year treasury bond Spread to treasury Consolidated E&P R&M Petro chemicals Beta (Equity) Risk premium for market Equity Debt

Beta Rate (Rd) (Asset) Midla 6.28% 0.921 E&P 6.26% 0.933 40% Average value taken R&M 6.46% 1.050 4.66% 10 year treasury bond taken as Rf Petro 6.01% 0.436 1.62% 1.60% 1.80% 1.35% 1.25 times 5% 134114 79508

Target Debt to Equity New Beta ratio (Equity) 0.73 1.32 0.85 1.41 0.45 1.33 0.67 0.61

Beta (firm) = Beta (Asset) [ 1+(D/ Qn1: To estimate the asset appraisals, mergers & ac Estimates based on individual divisions perfor Qn2: Midland's cost of capit

8.11%

Qn3: Individual division's performance is better for e Qn4: Exploration & production Coc Refining & Manufacturing

8.05% 9.01%

Qn5: Based on the share of assets & using the comp Petrochemicals Division CoC 6.07%

ble 1 in 'others' sheet

Debt 79508.00 79508.00 79508.00 79508.00

Rate Equity (equity) WACC 108899.58 11.28% 8.11% 93335.48 11.71% 8.05% 176969.42 11.32% 9.01% 119262.00 7.71% 6.07%

) (1-T)]

uisistion proposal,stock repurchases ance is better

stimates.

ted betas

Midland Case Calculations

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