How would you structure this case?

Bain BCG Mck
New answer on Feb 28, 2020
3 Answers
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Alex asked on Feb 17, 2020

Rock Energy, an Oil & Gas company, is evaluating the purchase of one of three oil fields in Latin America. After purchasing the rights to extract oil from one of these fields, Rock Energy will outsource the drilling activity. You have been brought in to identify the best investment for Rock Energy.

 How would you evaluate the three oil fields, and which oil field should Rock Energy purchase?

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Sidi
Expert
replied on Feb 17, 2020
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 300+ candidates secure MBB offers

Hi Alex!

1. Clarify the objective of the client (it's mostly earning money, so I'll assume profits)

2. Clarify how the client would earn money from an oil field (probably the money they get for the crude oil minus the cost of getting it off the ground, net of any initial investment cost)

3. Compare the cash flows for all three options

  • Investment needed (purchasing price, operational investment needed despite outsourcing? ...)
  • Cost of operation (outsourcing fee? logistic costs to transport the crude? any additional operational costs?)
  • Revenue: how many barrels of oil can be extracted for each field in which time line? market price per barrel? any additional revenue streams (e.g., gas is usually extracted alongside oil)
  • Calculate operational profits (Revenues - operational costs), and then calculate break even point (how long will it take to outweigh initial investment cost?) --> the option with the earliest break even is the preferable option from a financial perspective
  • Don't forget to check whether required capabilites or risks differ among options. This might change the viability of options.

Cheers, Sidi

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Luca
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Content Creator
replied on Feb 28, 2020
BCG |NASA |20+ interviews with 100% success rate| 120+ students coached |GMAT expert 780/800 score

Hello,

First of all I would identify what are all the factors and characteristics that you have to consider in order to understand the quantity of oild that you can obtain, the timing and the costs. Then I would compare the three oil fields considering these KPIs and the price.

Best,
Luca

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Clara
Expert
Content Creator
replied on Feb 17, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

On top of the layed-out approaches, given that is stated that there are 3 different oil fields, I would include a part of "oppportunity cost" of pursuing that specific one and not the others, on top some "exploration of the others".

Same applies to outsource vs. doing it in house.

Even if it´s not stated directly in the case, going the extra mile in terms of structure is alwways a plus.

Hope it helps!

Cheers,

Clara

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Sidi gave the best answer

Sidi

McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 300+ candidates secure MBB offers
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