Risk Management at Apache
Harvard Business School Case No. 9-201-113
Posted: 7 Sep 2001
Date Written: August 27, 2001
The purpose of this case is to explore the question of whether a non-financial firm, specifically Apache, should actively manage risk. The case requires students to determine the important risks facing the firm, and the specific sources of value that risk management might bring. Apache is a large independent oil company that explores, develops, and produces oil and gas both domestically and internationally. At the time of the case, Apache had completed a year of aggressively expanding, buying more than $1 billion in oil and gas properties. Apache had made a limited entry into hedging these acquisitions using derivatives, specifically collars (sell a call option, buy a put option). The primary issue is whether Apache should expand its hedging to encompass all of its operations (not just the new acquisitions), continue as is, or curtail the hedging program. This analysis includes identifying the major risks Apache faces, how they are currently managing risk (in an integrated sense), what the value of risk management might be, what the potential hazards are, and the potential ways for Apache to use an integrated risk management approach.
Keywords: Risk Management, Derivatives, Capital Structure
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