Way Oversold, page-99

LOTM

the BBEP follows the oil price ....assuming this can "cover" the AZZG liabilities .....then ...AZZ is a "call option" over the oil price b/c

1. their 20k ac has a certain recoverable volume
2. the IRR of "new investment" will be low (say 8-12%) FOR OIL PRICE UNDER say 60us$/bbl
3. given the capital constraints - AZZwill need to do a deal with someone to develop the dirt
4. new investee will want a return on their $$$$ .....so would need >15% IRR (and allowing for "risk" in variability of each well production) .....

in short - the dirt would have minimal value at present (perhaps 5m) .....but if/when oil prices risk to say 65 ....then the dirt will have a greater delta to OP .......almost like "a butterfly spread" .......

all management can do is "wait" and try to find a deal to farm-out (ie someone drills wells adjacenet to their dirt and "nearology applies).......and pray oil prices recover ....the other option is "merge" with a stronger entity ...(less likely imho)

still an expensive option in my view

rgds
V_H