Exxon Valdez: Valuation with Contingencies
Pascal Schirato
July 13, 1995
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1. FOREWORD 1
2. INTRODUCTION 2
3. THE COMPANY 3
4. THE EXXON VALUATION AS REPORTED 5
5. THE VALDEZ PROVISION AS A FORM OF FINANCING 5
6. CONCLUSION 6
1. Foreword
The present essay was originally an attempt to explore the significance of unexpected environmental liabilities on company valuation. Specifically, the idea was to evaluate the financial significance for Royal Dutch/Shell after it gave up its attempt to sink the Brent Spar oil tank into the North Sea on June 21, 1995. To this end we needed the initial cost and the operating costs of the Brent Spar, as well as the quantity of oil that flew through during its useful life. Unfortunately we have not received sufficient material from Shell(UK) to perform that study.
The Exxon Valdez presented also an interesting case of sudden environmental liability. Again, we have not been able to collect enough data to build a consistent image of Exxon since the late ‘80s. In the end too much time was spent attempting to distentangle the two Annual Reports on which the present report focuses, leaving the analysis superficial and not anywhere near the degree of involvement anticipated. What looked at first as a mind-jogging exercise turned into a straining chase for evidence, resulting in frustrating few results.
Nevertheless, we have attempted to sketch the point that unexpected environmental liabilities such as the Valdez provision should not be accounted for as operating costs, but t ...