Midland Energy

Published: 2021-09-10 16:45:09
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Category: Business

Type of paper: Essay

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CASE 3 REPORT                                            —Midland Energy ResourcesGROUP MEMBERNAMEENGLISH NAMEIDMAO, Xun Alison1155098036FANG,ChenyangCathrine1155096647CHEN,XiRonia1155100618HUANG,AilinHelly1155100610CHEN,WeiyiEsther11550961111 Business OverviewMidland Energy Resources, Inc. , a global energy company, has three divisions, that is exploration& production (E&P), refining& marketing (R&M) and petrochemicals. This corporation estimated its annual cost of capital for the corporation and each division from the early 1980s with specific assumptions and inputs. On a consolidated basis, this firm is in a good financial situation. Net Income increased rapidly in 2005, although a slight decrease in 2006.In 2007, Midland planned for its annual financial strategy to focus on four pillars, which are 1) Overseas Growth; 2) Value-creating Investments; 3) Optimal Capital Structure; 4) Stock Repurchases. Because of the focus on Financial and investment events, we need to adjust the historical estimated cost of capital to fit the forthcoming risks.DepartmentExploration& ProductionRefining& MarketingPetrochemicalsRev.(2006,$m)22,357202,97123,189g% of Rev.7.13%-1.81%7.07%EAT(2006,$m)12,5564,0472,097g% of EAT-5.94%-7.64%-3.01%Profit margin56.16%1.99%9.04%Position- Most profitable business- Net income was highest among industry- Largest revenue business- Small margin consistent with the long-term trend in industry- Small division- A substantial businessRevenue drivers- Rising demand due to continued global population and economic growth- Production from non-traditional recourses is increasing- Shifting geographic composition of output- Advanced technology and vertical integration combined will make Midland a market leader- Stiffer competition/Cost drivers- Continued heavy investment in acquisitions- High prices hinder investments in sophisticated extraction methods- Little investment for difficulty of obtaining the myriad approvals- A long-term global shortage of refining capacity- Growing expense on replacement for old facilities- Most investment will be JV outside US.2 Uses of WACC

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