Valuation in Turbulent Times: With the Oil and Gas Industry at a Critical Junction What Will Become of Welltec?

Natalia Kirilenko

Studenteropgave: Kandidatafhandlinger


I set out to write this thesis with the principal purpose of estimating Welltec’s fair market value as of 31 December 2016, in case of an M&A interest from one of OFS majors. To fulfil this task, I performed financial and strategic analysis to create a basis for forecast, which is the foundation for the valuation. Currently, Welltec’s finances are in a bad shape. Nevertheless, Welltec has a genuine chance of rebounding once oil prices recover. Whether or not it will be able to capitalize on this opportunity is another question. The strategic analysis foresees a growing demand for equipment designed to work in unconventional wells and rising oil prices, which is good news for Welltec. The flipside of the coin is that alternative energy sources’ infiltration of the energy market is gaining traction. The forecast prepared reflects prevailing professional concerns over these developments. According to the forcast, on 31 of December 2016, the company market value of equity is estimated to be $109.464 thousand. Estimated market value of equity is equal to 63% of book value. This value estimate is compared to an EVA model valuation and a multiple valuation (however, only a single company was deemed to be comparable to Welltec), in order to check the reliability of the result obtained from the DCF model. In addition, the valuation was accompanied by a sensitivity analysis that revealed that the value estimate is sensitive to changes in some of the key value drivers, especially to changes in EBITDA-margin. In conclusion, the estimated Welltec value is the result of the author’s interpretation of the information generated by the strategic and profitability analysis. Turbulent times added uncertainty to a valuation. The only thing that is certain these days is that for the oil and gas industry business is not as usual, and no company can afford let go of the controls and switch to autopilot mode. Turbulent times open up for new opportunities as well as new threats. It is also important to highlight that for the purpose of M&A the estimated value could be used as a starting point in defining the price of acquisition. The forecast, which was the basis for the valuation, was prepared using very moderate figures/assumptions. At the same time, the analysis revealed that there existed good opportunities for bolstering the company’s value if internal policies and processes were improved. Armed with such a plan for improvement, the potential buyer would stand a good chance of profiting from his purchase. More so, if potential benefits from synergies and economies of scale are factored into his computations.

UddannelserCand.merc.asc Accounting, Strategy and Control, (Kandidatuddannelse) Afsluttende afhandling
Antal sider158
VejledereOle Vagn Sørensen