Script Prep & Reading

Assignment #2B: Script Prep & Reading

        As Paul Getty once stated, the “Formula for success” is to “rise early, work hard, and strike oil.” Dril-Quip in particularly sets the pace for many companies to drill oil by providing the resources they need to accomplish such missions.

So what exactly does Dril-Quip have to offer for Anadarko? Well, Dril-Quip is one of the world’s leading producers that designs and manufactures products to be utilized in deep water and harsh environments for both the oil and gas industries. It has four major product lines, which could be of great future value for Anadarko. They provide subsea well, dry tree, and subsea completion systems as well as offshore rig equipment.

According to Dril-Quip’s historical financial report, I’ve noticed that they have maintained a steady increase in revenue and net income over the past few years. They’ve managed to eliminate their total debt by the end of 2012. Also, they possess over 1.4 million dollars in total assets with over 1.2 million dollars in stockholders’ equity. These numbers show a promising future for increasing shareholder value, which I believe we can benefit from.

On the contrary, their negative cash flows are not appealing. In 2012 they have a change in cash and cash equivalents of a little over $41,000 in loss but gains it all back plus some in 2013 with an ending balance around $127,000. However, last year they received a loss of almost $86,000. Taking a closer look, much of this change is due to alterations in accounts receivable, inventories, and other operating activities. Apparently they were owed money and didn’t receive all of it before the year ended. Also, the economic state that the oil and gas industries often face due to a decrease in oil prices could have been a limiting factor for Dril-Quip.  If prices go down the need for materials and resources decrease as well.

So in this next slide I show a lot of comparison and contrasting between the two companies. As you can see they have a share price of $59.48; whereas, we are currently at $60.06 per share. We have a volume of over 2.5 million; whereas, Dril-Quip only has a volume of about 472,000. So in this case we are dealing with a much smaller company. Furthermore, they have a beta of only 0.31 compared to our beta of 0.79. This means that they are currently coordinated in the same direction as the market. However, its risk is not as influenced by the market compared to ours. Additionally, their quarterly profit margin of 25.21% shows progress in growth compared to our -132.4% quarterly profit margin.

The benefits of acquiring Dril-Quip may include: 1) allow Anadarko to grow and expand thus increasing shareholder value, 2) help reduce portfolio risk, 3) provide an opportunity for us to buy Dril-Quip’s shares at a relatively low price which would save money, and 4) expand our territory and networking system since their major manufacturing facilities are also located in Brazil, Scotland and Singapore.  

Now that I’ve talked about the advantages of acquiring Dril-Quip let me talk about the disadvantages. Not only does it have a small beta, but it would not enhance our portfolio’s diversity. Furthermore, our assumptions may be so underestimated that we experience higher levels of risk that may in turn reduce overall profits. Last, their cash flows portray that they’re bringing in less than going out which we would need to get under control.