Hello there,

I need help on the final group project-mini case problem 8-13 - "Valuing Conoco Phillips' Acquisition of Burlington Resources" on pages 306-311 as you can find from the attachments. Please follow the direction as it state and also the guidelines provided as well.

Thanks,

4/5/2016 Group Assignments FIN 630 9040 Investment Valuation (2162) Group Assignments Here are some explanations about your group assignments. Your first step is to form a group. Within the first weeks of class please create your groups of four people. I suggest creating multifunctional groups, so that teammates could complement each other in terms of their Excel skills, data search skills and writing skills. Good alignment of your personality traits is also important for your projects' success. Please take the task of forming your group seriously! We will have two group projects in this course, worth 10% of the course grade each. Objective of these assignments is to give you opportunity to apply your newly acquired skills and knowledge to reallife situations, providing a link between the text content of the course and the environment in which organizations operate. This is consistent with the applied nature of our programs. Therefore, I expect you to use additional reallife materials related to these projects. Please make sure that information is consistent with the timing of your report you can't use information that was not available by the time of the report, but you should use all information publicly available by that time. The paper portion of your work should demonstrate your ability to communicate. This includes proper writing style, organization, grammar, and spelling, as well as integration of courserelated material. At the conclusion of the project, I will ask for your confidential feedback on teammates. This feedback is required and I will adjust individual grades accordingly. All project submissions will become available for all classmates and I will ask each student to respond to a survey about projects. Survey responses are anonymous and voluntary, but if the response rate is high enough, projects voted best will be awarded additional points. The due dates for submission of the completed case analyses are indicated in the course schedule. Project 1 The first case uses some information from problem 312, Conoco Phillips Gas Acquisition Project, starting on page 89 of your text. However, you should use this description only as a starting point, complementing information given in the problem by real data, because this is a real case. Some possible sources of real data which you might find useful for your project are the website about volatility of gas pricing (www.wtrg.com) and U.S. Energy Information Administration website about natural gas current prices and future outlook h(ttp://www.eia.govaturalgas/). You can (and probably should) also look for relevant information on other financial websites (see Sources of Financial Data). While generally it is OK to use production volume and costs data from the case, many successful teams in the past relied on more updated information, which they found on Texas RRC website and the Society of Petroleum Engineers website About format: Please write your report as Chris Simpkins' memo to the NG&GP's director. The memo should address questions in Problem 312. You should also attach an Excel file to support Chris' findings. This project analyzes future cash flows and I expect you to demonstrate your knowledge of sensitivity analysis tools studied in this class, including simulation software like Crystal Ball. https://learn.umuc.edu/d2l/le/content/124556/viewContent/4725096/View 1/4 4/5/2016 Group Assignments FIN 630 9040 Investment Valuation (2162) Like every business memo, it should address the problem and recommend solution at the very beginning. Imagine that its reader is a very busy executive, who has to make a decision based on your recommendation. As a busy person, the decision maker probably will read only first couple of paragraphs. What should you tell this person in these paragraphs? What do you actually recommend and why? The remaining part of the memo should provide justification of your recommendations. It should be assertive, convincing and show that you master the topic. About timing of your memo: you can choose the date of your memo yourself (it's not necessary to date it with the current date). Please make sure that this date is consistent with your analysis and data. It is important! How this project will be graded. The project will be graded using the rubrics described in the Table at the bottom. In particular, I will look at the style of your memo and whether your recommendation is clear and supported by welldeveloped arguments. Obviously, the numerical calculations and sensitivity analysis, including simulation, should be correct and their results will be given proper interpretation. I will check whether the sources of information used were indeed available at the time of your memo, and numbers used are consistent with official numbers and forecasts. I will also look at your analysis of various risk factors, including less obvious ones. Special credit will be given to the quality of forecast data which would include statistical properties, trends and analysts' reports. Use of advanced valuation techniques is encouraged. Project 2 The second case is based on problem 813, Valuing Conoco Phillips' Acquisition of Burlington Resources, beginning on page 306. Additional data: Acquisition took place in December 2005. You can (and should) use any relevant information that was publicly available by that time, i.e., textbook's information is not enough! For example, companies' financial statements are usually become available 12 months after the end of fiscal period, so the third quarter statements were publicly available by that time. EDGAR (SEC financial database) contains these statements and filing their dates. Other financial websites you can find in Sources of Financial Data in Course Content). I want to bring your attention to Mergent database (available via UMUC Library), which contains historical stock price data for companies which are not publicly traded anymore. About format: Please write it as WSVC analyst's report to investors' community. Your paper should be structured as a report, not as a set of answers to questions of problem 813. Nevertheless, it should address these questions. You also should attach or embed an Excel file supporting your report data. It is a good idea to put your recommendations in the very first paragraph or executive summary of the report. Also, feel free to educate your readers you don't know how much they know about relative valuation and about the industry. About timing of your analysis and report: Assume that your report is prepared in early January 2006 and use all information publicly available by that time. Please keep in mind that while stock prices become available immediately, financial statements are published with some delay (EDGAR contains the filing dates). How this project will be graded. The project will be graded using the rubrics described in the Table at the bottom. I will look at the style of your report (not memo!) and whether your recommendation is clear and supported by welldeveloped arguments. Obviously, the numerical calculations should be correct and proper justification should be given to valuation method(s) used and peer companies chosen. I will check whether the sources of information used were indeed available by January 2006. Special credit will be given for in depth analysis of additional factors, considered at the time of measure, e.g., trends, strategic factors. Use of analysts' https://learn.umuc.edu/d2l/le/content/124556/viewContent/4725096/View 2/4 4/5/2016 Group Assignments FIN 630 9040 Investment Valuation (2162) reports, industry publications, and advanced valuation techniques are strongly encouraged. (Continued on the next page) Note: For Group project 2, you may want to crosscheck that you are using right items and compare numbers with Exhibit P813.1, which contains typos on the balance sheet for BR. The actual numbers should be as follows: Cash 2,179,000 PPE 11,033,000 Goodwill 1,054,000 This way the numbers do add up to 15,744,000 Accounts Payable 1,182,000 Other current liabilities 415,000 Grading Rubric for Team Assignments Critical Thinking Criteria Weight Conceptualization Observes and describes given information (data, ideas, or concepts) in relation to the context of question or assignment. 10 Data Collection and Analysis Collects reallife data relevant to the project. Examines given information in a logical and organized manner to determine how ideas are developed and interconnected. 50 Identifies embedded hypotheses, biases, causalities, and conclusions. Synthesis Incorporates analyses with information or evidence drawn from other resources to connect key concepts in a coherent manner as a base for further application and perspective. 15 Conclusion https://learn.umuc.edu/d2l/le/content/124556/viewContent/4725096/View 3/4 4/5/2016 Group Assignments FIN 630 9040 Investment Valuation (2162) Integrates analysis and synthesis to formulate a new perspective or position that is appropriate to the conceptualization of the question or assignment. 15 Implications Based upon the positions, perspectives or conclusions determine practices or processes and/or the need for further study. https://learn.umuc.edu/d2l/le/content/124556/viewContent/4725096/View 4/4 From Companies' Financials Income Statement and Balance Sheet values are in Thousands XTO Energy Chesapeake Energy Ticker PERIOD ENDING (Date) Income Statement ($000) Total Revenue Cost of revenue Gross Profit Operating Expenses Selling, general, and administrative Depreciation, depletion, and amortization Others Operating income or loss Income from Continuing Operations Total other income/expenses (net) Earnings before interest and taxes Interest expense Income before tax Income tax expense Net income from continuing operations Nonrecurring Events Effect of accounting changes Net income Preferred stock and other adjustments Net income applicable to common shares Balance Sheet ($000) Assets Current Assets Cash and cash equivalents Short-term investments Net receivables Inventory Other current assets Total current assets Long-term investments Property, plant, and equipment Goodwill Other assets Deferred long-term asset charges Total assets Liabilities Current Liabilities Accounts payable Short/Current long-term debt Other current liabilities Total current liabilities Long-term debt Other liabilities Deferred long-term liability charges Total Liabilities Stockholders' Equity Preferred stock Common stock Retained earnings Treasury stock Capital surplus Other stockholders' equity Total stockholders' equity Total liabilities and stockholders' equity Other Financial Data Exploration expenses (thousands) Shares Outstanding (millions) Year-end Closing Price Market Capitalization (millions) Devon Energy Apache Burlington Resources DVN APA BR XTO CHK XTO Enterprise Value Calculations CHK DVN APA Interest-bearing debt (ST<) Common equity (price x shares outstanding) Less: Cash and equivalents Equals: Enterprise value Average Multiple for Acceptable Peers Burlington Resources EBITDA EBITDAX EV/EBITDA Multiple EV/EBITDAX Multiple P/E Multiple Enterprise Value based on EBITDA for BR using peers' comparables Burlington Resources Plus: BR Cash Less: BR Interest-bearing debt Equity value based on EBITDA for BR BR Shares Outstanding Equity value per share EV based on EBITDAX for BR using peers' comparables Burlington Resources Plus: Cash Less: Interest-bearing debt Equity Value based on EBITDAX for BR using peers' comparables Equity Value per share Equity value per share based on P/E multiple Total Equity value for BR based on P/E multiple Problem 8-13, Valuation of Conoco Phillips - Acquisition of Burlington Resources Given Information Income Statement and Balance Sheet (values are in thousands) XTO Energy Ticker PERIOD ENDING Chesapeake Energy Devon Energy Apache Burlington Resources XTO 31-Dec-04 CHK 31-Dec-04 DVN 31-Dec-04 APA 31-Dec-04 BR 31-Dec-04 1,947,601 436,998 1,510,603 2,709,268 204,821 2,504,447 9,189,000 1,535,000 7,654,000 5,332,577 946,639 4,385,938 5,618,000 1,040,000 4,578,000 Operating Expenses --Selling, general, and administrative --Depreciation, depleletion, and amortization --Other expenses Operating income or loss 165,092 414,400 11,830 919,281 896,290 615,822 992,335 1,616,000 2,334,000 3,704,000 173,194 1,270,683 162,493 2,779,568 215,000 1,137,000 640,000 2,586,000 Income from Continuing Operations Total other income/expenses (net) EBIT Interest expense Income before tax Income tax expense Net income from continuing operations - 919,281 93,661 825,620 317,738 507,882 (20,081) 972,254 167,328 804,926 289,771 515,155 64,000 3,768,000 475,000 3,293,000 1,107,000 2,186,000 857 2,780,425 117,342 2,663,083 993,012 1,670,071 2,586,000 282,000 2,304,000 777,000 1,527,000 Nonrecurring Events Effect of accounting changes Net income Preferred stock and other adjustments Net income applicable to common shares 507,882 507,882 ### 515,155 ### 515,155 2,186,000 (10,000) 2,176,000 (1,317) 1,668,754 (5,680) 1,663,074 1,527,000 1,527,000 Devon Energy Apache Income Statement ($000-thousands) Total Revenue Cost of revenue Gross Profit Balance Sheet ($000-thousands) Assets XTO Energy Current Assets Cash and cash equivalents Short-term investments Net receivables Inventory Other current assets Total current assets Long-term investments Property, plant, and equipment Goodwill Other assets Deferred long-term asset charges Total assets Chesapeake Energy Burlington Resources 9,700 14,713 364,836 47,716 436,965 5,624,378 49,029 6,110,372 6,896 51,061 477,436 32,147 567,540 136,912 7,444,384 ### 95,673 ### 8,244,509 1,152,000 968,000 1,320,000 - 143,000 3,583,000 753,000 19,346,000 5,637,000 417,000 - 29,736,000 111,093 1,022,625 157,293 57,771 1,348,782 13,860,359 189,252 104,087 15,502,480 2,179,000 994,000 124,000 158,000 3,455,000 11,033,000 1,054,000 202,000 15,744,000 425,173 75,534 259 500,966 2,053,911 199,753 756,369 3,510,999 872,539 91,414 963,953 3,076,405 107,395 933,873 5,081,626 1,722,000 1,378,000 3,100,000 7,796,000 366,000 4,800,000 16,062,000 1,158,131 21,273 103,487 1,282,891 2,619,807 1,022,880 2,372,481 7,298,059 1,182,000 2,000 415,000 1,599,000 3,887,000 851,000 2,396,000 8,733,000 XTO 31-Dec-04 CHK 31-Dec-04 DVN 31-Dec-04 APA 31-Dec-04 BR 31-Dec-04 3,484 1,239,553 (24,917) 1,410,135 (28,882) 2,599,373 6,110,372 490,906 3,169 262,987 (22,091) 2,440,105 (12,193) 3,162,883 8,244,509 1,000 48,000 3,693,000 9,087,000 845,000 13,674,000 29,736,000 98,387 209,320 4,017,339 (97,325) 4,106,182 (129,482) 4,098,239 11,396,298 5,000 4,163,000 (2,208,000) 3,973,000 1,078,000 7,011,000 15,744,000 Liabilities Current Liabilities Accounts payable Short/Current long-term debt Other current liabilities Total current liabilities Long-term debt Other liabilities Deferred long-term liability charges Total Liabilities Ticker PERIOD ENDING Stockholders' Equity Preferred stock Common stock Retained earnings Treasury stock Capital surplus Other stockholders' equity Total stockholders' equity Total liabilities and stockholders' equity Other Financial Data Exploration expenses (millions) Shares Outstanding (millions) Year-end 2004 Closing Price Market Capitalization (millions) $ $ 599.50 332.90 35.38 $ 11,778.00 $ 184.30 279.00 2,300.00 253.20 482.00 327.50 16.50 $ 38.92 $ 50.57 $ 4,177.80 $ 18,759.44 $ 16,561.68 $ 258.00 392.00 40.00 Est 15,680.00 Your task is to answer the following basic question: "Is Burlington Resources worth the $35.6 billion offered by ConocoPhillips"? Althought you are new to the exploration and production (E&P) industry, you have quickly learned that the method of multiples, or market based comparables, and specifically the ratio of enterprise value (EV) to EBITDAX are typically used as benchmarks to value E&P companies. In this context, EBITDAX stands for "earnings before interest, taxes, depreciation, and amortization, and exploration expenses". EBITDAX differs from EBITDA in that it adds back exploration expenses in addition to depreciation and amortization - hence the term EBITDAX a. Using the method of multiples based on enterprise value EBITDAX, the P/E ratio, and the enterprise value to EBITDA ratio, what should the acquisition price be for Burlington Resources shares? Use the following companies as comparables for your analysis: Chesapeake Energy, XTO Energy, Devon Energy, and Apache. Year-end 2004 balance sheets and income statement summary information as well as market capitalization data are provided in Exhibit P-13.1, (pgs 307-310) for Burlington Resources and each of the comparable firms. Solution a. (In thousands) Enterprise Value (EV) EBITDA EBITDAX EV/EBITDA Multiple EV/EBITDAX Multiple P/E Multiple EV based on EBITDA for BR using comps Plus: Cash Less: Interest-bearing debt Equity value Equity value (per share) EV based on EBITDAX for BR using comps Plus: Cash Less: Interest-bearing debt Equity value Equity value (per share) Equity value per share based on P/E multiple Interest-bearing debt (total) Common equity (price x # shares outstanding) Less: Cash and equivalents Equals: Enterprise value XTO Energy 13,897,747 1,333,681 1,933,181 10.42 7.19 23.19 38,795,868 2,179,000 3,889,000 37,085,868 $ 94.61 28,619,633 2,179,000 3,889,000 26,909,633 $ 68.65 $ 90.34 Chesapeake Devon Energy Energy Apache 7,338,723 26,781,440 19,091,662 1,608,157 6,038,000 4,050,251 1,792,457 6,317,000 6,350,251 4.56 4.44 4.71 4.09 4.24 3.01 8.11 8.62 9.96 16,989,676 16,513,299 17,549,099 2,179,000 2,179,000 2,179,000 3,889,000 3,889,000 3,889,000 15,279,676 14,803,299 15,839,099 $ 38.98 $ 37.76 $ 40.41 16,299,111 16,877,776 11,968,646 2,179,000 2,179,000 2,179,000 3,889,000 3,889,000 3,889,000 14,589,111 15,167,776 10,258,646 $ 37.22 $ 38.69 $ 26.17 $ 31.59 $ 33.58 $ 38.79 Burlington Resources (BR) - Actual 17,390,000 3,723,000 3,981,000 4.67 4.37 10.27 22,461,986 2,179,000 3,889,000 20,751,986 $ 52.94 18,441,292 2,179,000 3,889,000 16,731,292 $ 42.68 $ 48.58 XTO 2,129,445 11,778,002 9,700 13,897,747 Enterprise Value Calculations CHK DVN APA 3,167,819 9,174,000 2,641,080 4,177,800 18,759,440 16,561,675 6,896 1,152,000 111,093 7,338,723 26,781,440 19,091,662 BR 3,889,000 15,680,000 2,179,000 17,390,000 Average for Comparison 16,777,393 3,257,522 4,098,222 6.03 4.63 12.47 b. Which of the four firms used as comparables do you think is the best comparison firm for Burlington Resources? Why? Of the four firms used as comparables, Apache is probably the best comparison for Burlington. It has similar levels of the key variables including total revenues, EBITDA, EBITDAX, and P/E multiple. c. Based on your analysis of comparables, did ConocoPhillips pay too much or find a bargain? Explain your answer. It appears Conoco has paid too much for Burlington. Paying $35.6 billion for 392.0 million shares of Burlington would mean Conoco is paying $90.82/share. That price is much higher than the share price based on the average multiples (column F), approximately in the range of $42-$52. d. What additional information would help you with the analysis? Additional information that would help with the analysis includes projected 2005 EBIT, EBITDA, and EBITDAX. The year end 2004 share price for Burlington require an estimate when doing valuation. Your task is to answer the following basic question: "Is Burlington Resources worth the $35.6 billion offered by ConocoPhillips"? Although you are new to the exploration and production (E&P) industry, you have quickly learned tha the method of multiples, or market-based comparables, and specifically the ratio of enterprise value (EV) to EBITDAX are typically used as benchmarks to value E&P companies. In this context, EBITDAX stands for "earnings before interest, taxes, depreciation, and amortization, and exploration expenses". EBITDAX differs from EBITDA in that it adds back exploration expenses in addition to depreciation and amortization -hence the term EBITDAX. a. Using the method of multiples based on enterprise value EBITDAX, the P/E ratio, and the enterprise value to EBITDA ratio, what should the acquisition price be for Burlington Resources shares? Use the following companies as comparables for your analysis: Chesapeake Energy, XTO Energy, Devon Energy, and Apache. Year-end 2004 balance sheets and income statement summary information as well as market capitalization data are provided in Exhibit P-13.1; (pgs 307-310) for Burlington Resources and each of the comparable firms. b. Which of the four firms used as comparables do you think is the best comparison firm for Burlington Resources? Why? c. Based on your analysis of comparables, did ConocoPhillips pay too much or find a bargain? Explain your answer. d. What additional information would help you with the analysis