VALUATION FOR AN ACQUISITION OF AN OIL & GAS SERVICE COMPANY IN INDONESIA

• Main Author: Iqbal, Muhammad
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/42662
• Institution: Institut Teknologi Bandung

When global crude oil prices experienced a significant downturn from 2015 - 2017, many oil and gas service companies were struggling to survive. This condition is an excellent opportunity for more prominent oil & gas service companies to consolidate the market by having horizontal acquisitions, taking over the smaller oil & gas service companies, which may lead to a more profitable market with fewer competitors. This horizontal acquisition is one of the strategies that is being incorporated by National Petroleum Services as their growth plan. National Petroleum Services Group (NPS) is the largest regionally-owned oil, gas, and petrochemical service provider in the Middle East delivering customized well services, drilling and support to customers in the Middle East, North Africa (MENA) and Far East Asia. As part of its plan for expansion in the Far East Asia market, NPS has established a business entity in Indonesia which is registered under PT. NPS Energy Indonesia in 2016. To develop its footprint and service offerings in the Indonesian market, NPS is planning to acquire a well-cementing service company that has been operating in Indonesia. Due to the confidentiality of its status, this company will be called Company X. This acquisition will provide NPS with an existing infrastructure to enter the market directly, also gives access to the local customer base as well as local experience and technical expertise which will help to extend its track record in the oil & gas services industry in Indonesia. One of the challenges of a firm acquisition process is having the right business valuation to estimate the fair market value of the target firm, which is accepted by both parties. If it is not assessed correctly, it is very common that the process would fail during the negotiation. There have been several discussions between NPS and Company X on this acquisition plan, but it seems there has not been any agreement that was made on the expected transaction value. This research is trying to provide a recommendation to resolve the concern from both parties using the discounted cash flow method (DCF), the most common method used for business valuation, to seek the fair market value on this horizontal acquisition. This recommendation will provide both companies with a new perspective to consider, which hopefully able to help in reaching an agreement on this acquisition process. The fair market value calculated from the DCF method is USD 1,95M. This calculation is taking an assumption of growing market demand during the five years forecasting period. For comparison, the asset-based valuation approach gives a result of USD 3.51M, assuming the replacement cost for all assets with brand new equipment. While for the replacement cost with used or refurbished equipment and also with a similar usage period would be USD 1.29M. The NBV for the existing assets stated in Company X’s balance sheet is around USD 1.5M. Thus, the recommended value for this acquisition transaction is between USD 1.5M to USD 1.95M by taking into account the intangible value and going concerns of Company X.