Stock Analysis, page-5

Interesting that Peter Strachan gets rolled out every time management need something supportive said about them in the public domain. (Ref last time notes where extended and there was a move on the equity of the company). Ultimately the highly questionable analysis has not been good for shareholders.

The key issue that seems to be missed here is that the leases AZZ hold will expire shortly if there is no drilling and production. Clearly AZZ are not in a position to finance this so the choice for note holders is let AZZ run the process for another year, or force the issue now. The company's track record of closing deals recently has been woeful. Here I have to violently disagree with Peter Strachan's analysis. It is essential to understand why it has not been possible to close a deal despite all the obvious pressures. Is it because there are no buyers with money who are interested at a price that is attractive to management/equity????

If this is the case note holders should be deeply alarmed. They want their capital back and getting a deal done that achieves that at the expense of equity is one point where debt holders and equity holders are not aligned. If a deal has not been consummated in another 12 months - as seems likely based on recent history - they face loosing everything together with equity because the world of buyers for oil and gas leases that are about to expire is small, perhaps non existent.

If I were a note holder I would be forcing the issue now by asking for a sale at the value of the debt. If equity find that unpalatable then they can raise new money to refinance the debt. But the current proposal by the company is that debt takes on equity risks in a precarious situation.