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Operating Results

Operating Results: 2004 2005 2006


Operating Revenues 201,425 249,246 248,518
Plus: Other Income 1,239 2,817 3,524
Total Revenue & Other Income 202,664 252,062 252,042
Less: Crude Oil & Product Purchases 94,672 125,949 124,131
Less: Production & Manufacturing 15,793 18,237 20,079
Less: Selling, General & Administrative 9,417 9,793 9,706
Less: Depreciation & Depletion 6,642 6,972 7,763
Less: Exploration Expense 747 656 803
Less: Sales Based Taxes 18,539 20,905 20,659
Less: Other Taxes & Duties 27,849 28,257 26,658
Operating Income 29,005 41,294 42,243
Less: Interest Expense 10,568 8,028 11,081
Less: Other Non-Operating Expenses 528 543 715
Income Before Taxes 17,910 32,723 30,447
Less: Taxes 7,414 12,830 11,747 0.41 0.39 0.39
Net Income 10,496 19,893 18,701
40% tax average
MIDLAND ENERGY RESOURCES Balance Sheet

Project: MIDLAND ENERGY RESOURCES


Analysis: Balance Sheet
Draft: N
Footer: Harvard Business Publishing
Harvard Business Publishing
MIDLAND ENERGY RESOURCES Balance Sheet

Assets: 2005 2006


Cash & Cash equivalents 16,707 19,206
Restricted Cash 3,131 3,131
Notes Receivable 18,689 19,681
Inventory 6,338 7,286
Prepaid Expenses 2,218 2,226
Total Current Assets 47,083 51,528

Investments & Advances 30,140 34,205


Net Property, Plant & Equipment 156,630 167,350
Other Assets 10,818 9,294
Total Assets 244,671 262,378

Liabilities & Owners' Equity:


Accounts Payable & Accrued Liabilities 24,562 26,576
Current Portion of Long Term Debt 26,534 20,767
Taxes Payable 5,723 5,462
Total Current Liabilities 56,819 52,805

Long Term Debt 82,414 81,078


Post Retirement Benefit Obligations 6,950 9,473 1
Accrued Liabilities 4,375 4,839
Deferred Taxes 14,197 14,179
Other Long Term Liabilities 2,423 2,725

Total Shareholders' Equity 77,493 97,280


Total Liabilities & Owners' Equity 244,671 262,378
Harvard Business Publishing
MIDLAND ENERGY RESOURCES Business Segments

Project: MIDLAND ENERGY RESOURCES


Analysis: Business Segments
Draft: N
Footer: Harvard Business Publishing
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MIDLAND ENERGY RESOURCES Business Segments

Exploration & Production: 2004 2005 2006


Operating Revenue 15,931 20,870 22,357
After-Tax Earnings 6,781 13,349 12,556

Capital Expenditures 6,000 7,180 7,940


Depreciation 4,444 4,790 5,525
Total Assets 76,866 125,042 140,100 0.534 Weights of assets
0.358
0.108

Refining & Marketing: 2004 2005 2006


Operating Revenue 166,280 206,719 202,971
After-Tax Earnings 2,320 4,382 4,047

Capital Expenditures 1,455 1,550 1,683


Depreciation 1,620 1,591 1,596
Total Assets 60,688 91,629 93,829 0.358 93,829

Petrochemicals: 2004 2005 2006


Operating Revenue 19,215 21,657 23,189
After-Tax Earnings 1,394 2,162 2,097
262,378
Capital Expenditures 305 330 436
Depreciation 578 591 642
Total Assets 19,943 28,000 28,450 0.108
Harvard Business Publishing
MIDLAND ENERGY RESOURCES Stock & Dividend Data

Project: MIDLAND ENERGY RESOURCES


Analysis: Stock & Dividend Data
Draft: N
Footer: Harvard Business Publishing
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MIDLAND ENERGY RESOURCES Stock & Dividend Data

Stock Prices: 2001 2002 2003 2004 2005 2006


Fourth Quarter $27.16 $31.29 $32.59 $34.37 $38.32 $44.11
Third Quarter $27.90 $30.41 $29.42 $35.78 $40.29 $39.75
Second Quarter $28.33 $27.80 $32.45 $36.98 $37.52 $46.32
First Quarter $24.13 $26.85 $31.57 $31.28 $34.58 $38.81

Dividends Per Share:


Fourth Quarter $0.28 $0.29 $0.30 $0.31 $0.34 $0.36
Third Quarter $0.28 $0.29 $0.29 $0.31 $0.34 $0.36
Second Quarter $0.28 $0.29 $0.29 $0.31 $0.34 $0.36
First Quarter $0.28 $0.29 $0.29 $0.31 $0.34 $0.36
Annual Dividend $1.11 $1.14 $1.17 $1.24 $1.35 $1.46

Selected Financial Data:


Net Income 15,303 11,448 11,848 10,496 19,893 18,701
Shares Outstanding 2,049 2,025 2,035 2,055 2,945 2,951
EPS 7.47 5.65 5.82 5.11 6.75 6.34
Payout Ratio 14.8% 20.2% 19.9% 24.2% 20.0% 23.0%
DPS 1.11 1.14 1.16 1.24 1.35 1.46

Note: Results have not been adjusted for a divestiture at the end of 2001 and an acquisition at the beginning of 2005.
Harvard Business Publishing
Equity Net Equity LTM LTM Unlevered Asset Beta
Exploration & Production: Market Value Debt D/E Beta Revenue Earnings beta
Jackson Energy, Inc. 57,931 6,480 11.2% 0.89 18,512 4,981 0.27 0.834
Wide Palin Petroleum 46,089 39,375 85.4% 1.21 17,827 8,495 0.48 0.800
Corsicana Energy Corp. 42,263 6,442 15.2% 1.11 14,505 4,467 0.31 1.017
Worthington Petroleum 27,591 13,098 47.5% 1.39 12,820 3,506 0.27 1.082
Average 39.8% 1.15
0.933
Refining & Marketing:
Bexar Energy, Inc. 60,356 6,200 10.3% 1.70 160,708 9,560 1.601
Kirk Corp. 15,567 3,017 19.4% 0.94 67,751 1,713 0.842
White Point Energy 9,204 1,925 20.9% 1.78 31,682 1,402 1.582
Petrarch Fuel Services 2,460 (296) -12.0% 0.24 18,874 112 0.259
Arkana Petroleum Corp. 18,363 5,931 32.3% 1.25 49,117 3,353 1.047
Beaumont Energy, Inc. 32,662 6,743 20.6% 1.04 59,989 1,467 0.925
Dameron Fuel Services 48,796 24,525 50.3% 1.42 58,750 4,646 1.091
Average 20.3% 1.20
1.05
Midland Energy Resources 134,114 79,508 59.3% 1.25 251,003 18,888

#REF!
Table 1
Credit Debt/ Spread to
Business Segment: Rating Value Treasury D/V E/V D/E

Consolidated A+ 42.2% 1.62% 42.2% 57.8% 73.01%


Exploration & Production A+ 46.0% 1.60% 46.0% 54.0% 85.19%
Refining & Marketing BBB 31.0% 1.80% 31.0% 69.0% 44.93%

Petrochemicals AA- 40.0% 1.35% 40.0% 60.0% 66.67%

Note: Debt/Value is based on market values.

Table 2
Maturity: Rate:

1-Year 4.54%

10-Year 4.66%

30-Year 4.98%

In 2006 Midland used an equity market risk premium of 5.0%,


EMRP 6.00%
Beta Target Debt to
Rate (Rd) Debt
(Asset) Equity ratio
Midland (consolidated) 6.28% 0.921 0.73 79,508
E&P 6.26% 0.933 0.85 79,508
R&M 6.46% 1.050 0.45 79,508
Petro 6.01% 0.436 0.67 79,508

Inputs From Exhibit 3


Tax rate 40% Exhibit 1 Assets weight
10 year treasury bond 4.66% Table 2, Rf E&P
Spread to treasury R&M
Consolidated 1.62% Table 1 Petro chemicals
E&P 1.60% Table 1
R&M 1.80% Table 1
Petro chemicals 1.35% Table 1
Beta (Equity) 1.25 Page 6
Risk premium for market 5% Page 6
Equity 134,114 Exhibit 5
Debt 79,508 Exhibit 5
Beta (firm) = Beta (Asset) [ 1+(D/E) (1-T)]
New Beta Rate
Equity Value WACC
(Equity) (equity)
108,900 188,408 1.33 11.29% 8.12%
93,336 172,844 1.41 11.72% 8.07%
176,970 256,479 1.33 11.33% 9.02%
119,263 198,771 0.61 7.72% 6.08%

0.5340
0.3576
0.1084