Risk Management in Apache
Risk Management in Apache
Raam Gururajan
2008
Raam Gururajan 1
Risk Management in Apache
Introduction
This is a paper analyzing the key risks of Apache Corporation (an multi mullion dollar Oil exploration and extraction company) and how the financial risk management
techniques (like CFAR) can be applied to this non-financial firm.
The content of this document has been produced in reference with Harvard Business School’s 2001 document - “Risk Management in Apache” by Lisa MeulBroek.
This document has a total of 14 Pages.
Raam Gururajan 2
Risk Management in Apache
Section 1
The Major risks faced by Apache Corporation.
1. Price Volatility Risk:
Apache has exposure to Price Volatility in many different directions. They
include:
a. The value of Apache’s acquisitions in large part depends on the future
prices of oil and gas.
b. If the price of oil was low, production tended to shift away from the US,
due to high cost of producing oil. Apache had 80% of its proved reserves
in the US.
c. Within US, deep-water drilling in the Gulf of Mexico had major interests,
but this had large fixed costs and the risks were considerably high.
d. The oil prices also affected the costs and the availability of drilling rigs.
When prices were low, the oil companies cut their capital...