Progressive Exploration and Production Company

7 Pages Posted: 5 Nov 2007 Last revised: 11 Sep 2008

See all articles by John D. Martin

John D. Martin

Baylor University - Department of Finance, Insurance & Real Estate

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: November 5, 2007

Abstract

James Kingsley, a financial analyst for Progressive Exploration and Development Company, has been asked to join a team that will analyze the possible acquisition of a sizable oil field in southeastern Oklahoma. To prepare for the task Mr. Kingsley constructs a spreadsheet model of the economic implications of investing in an early stage E&P project.

The case provides the opportunity for the following types of student analysis:

1. Forecast project cash flows for an E&P project including the incorporation of an allowance for depletion expenses and the payment of both ad valorem and severance taxes which you may assume are tax deductible for income tax purposes.

2. Calculate alternative measures of project value creation including net present value and internal rate of return. Use these measures to arrive at a conclusion regarding whether to undertake the investment.

3. Use sensitivity analysis to determine the key value drivers that contribute most to the success or failure of the investment proposal.

4. Use simulation analysis to better understand the potential risks inherent in the investment. Specifically, the fundamental risks associated with the quantity of oil and the price at which it can be sold.

Keywords: Valuation, Real Options, Uncertainty, Simulation

Suggested Citation

Martin, John D. and Titman, Sheridan, Progressive Exploration and Production Company (November 5, 2007). Available at SSRN: https://ssrn.com/abstract=1027742 or http://dx.doi.org/10.2139/ssrn.1027742

John D. Martin (Contact Author)

Baylor University - Department of Finance, Insurance & Real Estate ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-4473 (Phone)
254-710-1092 (Fax)

HOME PAGE: http://hsb.baylor.edu/html/martinj

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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