Exhibit (c)(4)
Project Kernel
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Discussion Materials
February 29, 2000
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MORGAN STANLEY DEAN WITTER
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Project Kernel
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Valuation Analysis
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Discounted Cash Flow Analysis
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o A Discounted Cash Flow ("DCF") analysis of Kernel has been undertaken
o Key source data is derived from public sources:
- MSDW research estimates for 2000 and 2001
- forward oil and gas prices and differentials based on historical
Kernel data and MSDW Research estimates
- these assumptions are summarised overleaf, and given in more detail
in Appendix B.
o The DCF valuation is based on cash flows for the period 1999-2010, with a
terminal value calculated using an exit EBITDA multiple of 6.0x to 7.5x
o A discount rate of 9% - 10%, based on the weighted average cost of capital
of comparable companies to Kernel, has been used
o The resulting DCF equity value is in the range $4.1bn to $5.2Bn (Fully
diluted equity value of 100% of Kernel), equivalent to $43 - $54 per
share, a range containing the current share price
o The valuation is particularly sensitive to changes in natural gas prices:
a 10% reduction in gas prices causes a 16% reduction in DCF aggregate
value
o Other key assumptions include:
- Cash costs of $3.40/bbl based on three year historical averages
- Finding and development costs of $6.00
- Success rate of approximately 60%
- Capital opportunities to cash flow in years 2000 to 2007
MORGAN STANLEY DEAN WITTER 2
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Project Kernel
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Valuation Analysis
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Summary Discounted Cash Flow Assumptions
Forecast Operating Statistics -- Production
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o Forecast assumes high reinvestment capital expenditures through 2007
o Production declines as of 2008 due to the reduction in capital reinvested
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Oil Production
MMBbl
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[Vertical bar chart showing forecast oil production for the years 2000-2010, in
MMBbl, displaying the following data:]
00 01 02 03 04 05 06 07 08 09 10
17.1 18.0 19.3 19.5 19.6 20.4 21.3 21.8 22.1 22.0 21.0
Growth (%) 4.1 5.3 7.3 0.7 0.7 4.3 4.4 2.5 1.0 (0.25) (4.6)
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NGLs
MMBbl
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[Vertical bar chart showing forecast NGLs for the years 2000-2010, in MMBbl,
displaying the following data:]
00 01 02 03 04 05 06 07 08 09 10
5.8 5.8 6.3 6.4 6.5 6.8 7.1 7.3 7.4 7.4 7.1
Growth (%) 5.9 0.0 8.3 1.2 1.2 4.8 4.8 2.8 1.2 (0.0) (4.5)
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Gas Production
Bcf
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[Vertical bar chart showing forecast gas production for the years 2000-2010, in
Bcf, displaying the following data:]
00 01 02 03 04 05 06 07 08 09 10
415 438 470 473 477 497 519 527 327 347 341
Growth (%) 10.8 5.5 7.3 0.7 0.7 4.3 4.3 1.6 (38.0) 6.0 (1.6)
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Total Production
MMBbl
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[Vertical bar chart showing forecast total production for the years 2000-2010,
in MMBbl, displaying the following data:]
00 01 02 03 04 05 06 07 08 09 10
92.1 96.8 104.0 104.7 105.5 110.1 114.9 117.0 83.9 87.2 84.9
Growth (%) 6.0 5.1 7.4 0.8 0.7 4.3 4.4 1.8 (28.2) 3.8 (2.6)
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MORGAN STANLEY DEAN WITTER 3
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Project Kernel
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Valuation Analysis
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Summary Discounted Cash Flow Assumptions
Forecast Financial Results
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o Operating results on upward trend through 2007 driven by continued
reinvestment
o 2002 net income spike driven by
- Benefit of SEC29 tax credit
- First year of new reserve production
o 2003 decline driven exclusively by expiration of SEC29 tax credit
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Revenues
$MM
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[Vertical bar chart showing forecast revenues for the years 2000-2010, in $MM,
displaying the following data:]
00 01 02 03 04 05 06 07 08 09 10
1,343 1,343 1,589 1,607 1,641 1,740 1,847 1,914 1,406 1,482 1,466
Growth(%) (29.1) 0.0 18.3 1.1 2.1 6.0 6.2 3.6 (26.6) 5.4 (1.0)
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Net Income
$MM
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[Vertical bar chart showing forecast net income for the years 2000-2010, in $MM,
displaying the following data:]
00 01 02 03 04 05 06 07 08 09 10
267 245 370 230 259 305 355 395 338 370 376
EPS ($) 2.73 2.50 3.78 2.36 2.65 3.12 3.63 4.04 3.46 3.79 3.85
Growth (%) 32.1 (8.2) 51.0 (37.7) 12.3 17.9 16.3 11.4 (14.5) 9.6 1.5
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EBITDAX
$MM
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[Vertical bar chart showing forecast EBITDAX for the years 2000-2010, in $MM,
displaying the following data:]
00 01 02 03 04 05 06 07 08 09 10
1,029 1,014 1,236 1,251 1,282 1,365 1,457 1,517 1,120 1,186 1,178
Growth (%) 10.4 (1.5) 21.9 1.2 2.5 6.5 6.7 4.1 (26.2) 5.9 (0.7)
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Cash Flow
$MM
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[Vertical bar chart showing forecast cash flow for the years 2000-2010, in $MM,
displaying the following data:]
00 01 02 03 04 05 06 07 08 09 10
993 991 1,165 1,086 1,105 1,168 1,239 1,282 909 961 951
CFPS ($) 10.17 10.14 11.92 11.11 11.31 11.96 12.68 13.12 9.31 9.84 9.73
Growth (%) 18.8 (0.2) 17.5 (6.8) 1.8 5.8 6.0 3.5 (29.1) 5.7 (1.1)
Capex ($MM) 850 869 872 788 720 660 606 548 131 119 108
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MORGAN STANLEY DEAN WITTER 4
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Project Kernel
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Valuation Analysis
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Summary Discounted Cash Flow Assumptions
Forecast Commodity Prices(1)
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Oil
$/Bbl
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[Line chart indicating the forecast commodity price of oil, in $/Bbl, for each
of the years 2000 through 2010, displaying the following data:]
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
$/Bbl 21.00 19.50 19.31 18.97 18.99 19.12 19.24 19.37 19.49 19.62 19.74
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Gas
$/MMcf
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[Line chart showing the forecast commodity price of gas, in $/MMcf, for each of
the years 2000 through 2010, and displaying the following data:]
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
$/Bbl 2.38 2.30 2.63 2.66 2.71 2.76 2.81 2.87 2.92 2.98 3.04
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Note
1. MSDW Research through 2001 and forward strip thereafter. Prices are gross
and do not reflect realization differentials
MORGAN STANLEY DEAN WITTER 5
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Project Kernel
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Valuation Analysis
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DCF Valuation Analysis
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Terminal EBITDA Multiple
Current -------------------------------------------
Price Discount Rate 6.0x 6.5x 7.0x 7.5x
- ---------- ----------------- ------ ------ ------ -------
(28/02/00)
9.0% $47.29 $49.50 $51.71 $53.93
$51.25 % Premium to DCF 8.4% 3.5% -0.9% -5.0%
9.3% $45.82 $47.96 $50.10 $52.24
$51.25 % Premium to DCF 11.8% 6.9% 2.3% -1.9%
9.7% $44.40 $46.47 $48.54 $50.61
$51.25 % Premium to DCF 15.4% 10.3% 5.6% 1.3%
10.0% $43.03 $45.03 $47.03 $49.03
$51.25 % Premium to DCF 19.1% 13.8% 9.0% 4.5%
MORGAN STANLEY DEAN WITTER 6
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Project Kernel
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Pro Forma Impact on Maize
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Illustrative Accretion/Dilution Analysis (1)
Assumed Squeeze-Out at 20% Premium (i.e. $61.50 per Kernel share)
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o Excluding opportunity cost of cash, synergies required to break even for
Kernel of $97MM and $87MM in 2000 and 2001 respectively
o Including opportunity cost of cash, synergies required to break even for
Kernel of $165MM and $156MM in 2000 and 2001 respectively,
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2000 EPS Impact
$
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[Vertical bar chart showing the impact of each of the following items on 2000
EPS:]
2.61 (0.14) (0.16) (0.02) 0.05 2.34
Maize Wheat + Alaskan Kernel Share Buy Pro Forma
Standalone Synergies Disposals Back
EPS Accr/Dil (5.5)% (6.1)% (0.6)% 1.8% (10.5)%
CEPS($) 2.61 0.16 (0.16) 0.03 0.05 2.68
CEPS Accr/Dil 6.1% (6.1)% 1.2% 1.8% 2.6%
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2000 CFPS Impact
$
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[Vertical bar chart showing the impact of each of the following items on 2000
CFPS:]
4.30 0.47 (0.28) 0.05 0.09 4.62
Maize Wheat + Alaskan Kernel Share Buy Pro Forma
Standalone Synergies Disposals Back
CFPS Accr/Dil 10.8% (6.5)% 1.2% 2.1% 7.5%
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2001 EPS Impact
$
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[Vertical bar chart showing the impact of each of the following items on 2001
EPS:]
2.77 (0.16) (0.15) (0.02) 0.05 2.50
Maize Wheat + Alaskan Kernel Share Buy Pro Forma
Standalone Synergies Disposals Back
EPS Accr/Dil (5.6)% (5.3) (0.5)% 1.8% (9.7)%
CEPS($) 2.77 0.15 (0.15)% 0.03 0.05 2.84
CEPS Accr/Dil 5.3% (5.3)% 1.1% 1.8% 2.6%
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2001 CFPS Impact
$
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[Vertical bar graph showing the impact of each of the following items on 2001
CFPS:]
4.55 0.50 (0.28) 0.05 0.10 4.92
Maize Wheat + Alaskan Kernel Share Buy Pro Forma
Standalone Synergies Disposals Back
CFPS Accr/Dil 10.9% (6.2)% 1.1% 2.2% 8.0%
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Notes
1. Assumes $1Bn tax basis on Alaska assets and 38% tax rate (35% federal and
3% State of Alaska). Assumes $1.0Bn of NOL's associated with UTH
properties. Assumes loss of $200MM pre-tax synergies on Alaska. Assumes
Alaska sale price of $6,500MM. Assumes share repurchase with proceeds.
Assumes ADR's repurchased at market price with 0% premium
MORGAN STANLEY DEAN WITTER 7
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Project Kernel
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Pro Forma Impact on Maize
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Illustrative Accretion/Dilution Analysis (1)
Assumed Squeeze-Out at 20% Premium (i.e. $61.50 per Kernel share)
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2000 EPS Impact With Financing Adjustment
$
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[Vertical bar chart showing the impact, with financing adjustment, of each of
the following items on 2000 EPS:]
2.61 (0.14) (0.16) 0.05 (0.02) (0.01) 0.05 (0.04) 2.34
(10.5)%
Maize Wheat + Alaskan Interest on Kernel Kernel Int. Share Buy SBB Int. Exp. Pro Forma
Standalone Synergies Disposals Sale Exp. Back
Proceeds
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2000 CFPS Impact With Financing Adjustment
$
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[Vertical bar chart showing the impact, with financing adjustments, of each of
the following items on 2000 CFPS:]
4.30 0.47 (0.28) 0.05 0.05 (0.01) 0.09 (0.04) 4.62
7.5%
Maize Wheat + Alaskan Interest on Kernel Kernel Int. Share Buy SBB int. Exp. Pro Forma
Standalone Synergies Disposals Sale Expense Back
Proceeds
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Notes
1. Assumes $1Bn tax basis on Alaska assets and 38% tax rate (35% federal and
3% State of Alaska). Assumes $1.0Bn of NOL's associated with UTH
properties. Assumes loss of $200MM pre-tax synergies on Alaska. Assumes
share repurchase with proceeds. Assumes ADR's repurchased at market price
with 0% premium
MORGAN STANLEY DEAN WITTER 8
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Project Kernel
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Pro Forma Impact on Maize
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Illustrative Accretion/Dilution Analysis (1)
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Excl. Opportunity Cost of Cash
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EPS CFPS
Acquisition ------------------------- -----------------------------
Premium 2000E 2001E 2000E 2001E
- --------------- ---------- ---------- --------- ---------
$2.47 (2) $2.61 (2) $4.77 (2) $5.05 (2)
0% $2.45 $2.60 $4.81 $5.10
$51.25 Accretion / (Dilution) (0.5%) (0.4%) 1.0% 1.0%
Cash Earnings Acc/(Dil) 0.5% 0.6%
Synergies required for Break-Even (MM) $76.0 $66.4 NA NA
5% $2.45 $2.60 $4.81 $5.10
$53.81 Accretion / (Dilution) (0.6%) (0.5%) 1.0% 1.0%
Cash Earnings Acc/(Dil) 0.6% 0.6%
Synergies required for Break-Even (MM) $81.3 $71.6 NA NA
10% $2.45 $2.60 $4.81 $5.10
$56.38 Accretion / (Dilution) (0.6%) (0.5%) 1.0% 1.0%
Cash Earnings Acc/(Dil) 0.6% 0.6%
Synergies required for Break-Even (MM) $86.6 $76.9 NA NA
15% $2.45 $2.60 $4.81 $5.10
$58.94 Accretion / (Dilution) (0.6%) (0.5%) 1.0% 1.0%
Cash Earnings Acc/(Dil) 0.6% 0.6%
Synergies required for Break-Even (MM) $91.8 $82.2 NA NA
20% $2.45 $2.60 $4.81 $5.10
$61.50 Accretion / (Dilution) (0.7%) (0.6%) 1.0% 1.0%
Cash Earnings Acc/(Dil) 0.6% 0.7%
Synergies required for Break-Even (MM) $97.1 $87.4 NA NA
25% $2.45 $2.60 $4.81 $5.10
$64.06 Accretion / (Dilution) (0.7%) (0.6%) 1.0% 1.0%
Cash Earnings Acc/(Dil) 0.6% 0.7%
Synergies required for Break-Even (MM) $102.4 $92.7 NA NA
30% $2.45 $2.60 $4.81 $5.10
$66.63 Accretion / (Dilution) (0.8%) (0.6%) 1.0% 1.0%
Cash Earnings Acc/(Dil) 0.6% 0.7%
Synergies required for Break-Even (MM) $107.6 $98.0 NA NA
35% $2.45 $2.60 $4.81 $5.10
$69.19 Accretion / (Dilution) (0.8%) (0.7%) 1.0% 1.0%
Cash Earnings Acc/(Dil) 0.6% 0.7%
Synergies required for Break-Even (MM) $112.9 $103.2 NA NA
40% $2.45 $2.60 $4.81 $5.10
$71.75 Accretion / (Dilution) (0.8%) (0.7%) 1.0% 1.0%
Cash Earnings Acc/(Dil) 0.6% 0.7%
Synergies required for Break-Even (MM) $118.2 $108.5 NA NA
Incl. Opportunity Cost of Cash
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EPS CFPS
Acquisition ------------------------- -----------------------------
Premium 2000E 2001E 2000E 2001E
- --------------- ---------- ---------- --------- ---------
$2.47 (2) $2.61 (2) $4.77 (2) $5.05 (2)
0% $2.44 $2.59 $4.80 $5.09
$51.25 Accretion / (Dilution) (0.9%) (0.8%) 0.8% 0.8%
Cash Earnings Acc/(Dil) 0.2% 0.3%
Synergies required for Break-Even (MM) $132.8 $123.2 NA NA
5% $2.44 $2.59 $4.80 $5.09
$53.81 Accretion / (Dilution) (1.0%) (0.9%) 0.8% 0.8%
Cash Earnings Acc/(Dil) 0.2% 0.2%
Synergies required for Break-Even (MM) $140.9 $131.3 NA NA
10% $2.44 $2.59 $4.80 $5.08
$56.38 Accretion / (Dilution) (1.0%) (0.9%) 0.8% 0.8%
Cash Earnings Acc/(Dil) 0.2% 0.2%
Synergies required for Break-Even (MM) $149.0 $139.4 NA NA
15% $2.44 $2.59 $4.80 $5.08
$58.94 Accretion / (Dilution) (1.1%) (1.0%) 0.7% 0.7%
Cash Earnings Acc/(Dil) 0.2% 0.2%
Synergies required for Break-Even (MM) $157.1 $147.5 NA NA
20% $2.44 $2.59 $4.80 $5.08
$61.50 Accretion / (Dilution) (1.2%) (1.0%) 0.7% 0.7%
Cash Earnings Acc/(Dil) 0.2% 0.2%
Synergies required for Break-Even (MM) $165.3 $155.6 NA NA
25% $2.44 $2.59 $4.80 $5.08
$64.06 Accretion / (Dilution) (1.2%) (1.1%) 0.7% 0.7%
Cash Earnings Acc/(Dil) 0.2% 0.2%
Synergies required for Break-Even (MM) $173.4 $163.7 NA NA
30% $2.43 $2.58 $4.80 $5.08
$66.63 Accretion / (Dilution) (1.3%) (1.1%) 0.7% 0.7%
Cash Earnings Acc/(Dil) 0.2% 0.2%
Synergies required for Break-Even (MM) $181.5 $171.8 NA NA
35% $2.43 $2.58 $4.80 $5.08
$69.19 Accretion / (Dilution) (1.3%) (1.2%) 0.7% 0.7%
Cash Earnings Acc/(Dil) 0.2% 0.2%
Synergies required for Break-Even (MM) $189.6 $179.9 NA NA
40% $2.43 $2.58 $4.80 $5.08
$71.75 Accretion / (Dilution) (1.4%) (1.2%) 0.7% 0.7%
Cash Earnings Acc/(Dil) 0.1% 0.2%
Synergies required for Break-Even (MM) $197.7 $188.0 NA NA
Notes
1. Pro Forma for combination of Maize/Wheat. Excludes impact of Alaska
disposal and share repurchase
2. First Call estimates
MORGAN STANLEY DEAN WITTER 9