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Case Studies

Determining Fair Market Value and Assessing Liabilities in a Complex Market

A large Asian bank held the loan for a conglomerate’s holdings in a Canadian exploration and production company. As the debt neared the two-year mark, the bank needed a current fair market value of the E&P company and of certain disposition assets, along with abandonment liabilities. The findings would ultimately inform the bank’s decision on whether to renew the loan.

Project Highlights

  • Combination of technical and commercial analysis required to assess fair market value
  • Required in-country expertise and a trusted valuation
  • Half a billion-dollar investment decision
  • 1-week rapid turnaround

Challenge

  • The foreign bank needed in-country expertise and a trusted valuation
  • They had just one week to gather the information to support a renewal decision

Solution

  • Sproule estimated the abandonment and reclamation obligation of the lendee and compared it to estimates provided by the Alberta Energy Regulator and the company
  • The Sproule team prepared fair market values for the E&P company and for several disposition packages based on comparable market transactions, public trading multiples, and multiples of cash flow
  • Abandonment liabilities were found to be higher than the company’s estimates, indicating a higher financial burden for the lender

Value

  • Sproule’s opinions on the lending base provided essential decision support for the bank in determining whether to renew a loan with the client
Steven Golko, P.Eng.,<br/>Senior Vice President, Consulting Services
Steven Golko, P.Eng.,
Senior Vice President, Consulting Services

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