Hi @IFNO, I've been thinking about your other post about the...

Hi @IFNO,

I've been thinking about your other post about the shareprice being more or less limited to the cashbacking while JC continues.

It's interesting, agree that the share price has factored in a very low probably of AZZ adding value to their assets at times, on the other hand the leases were not valued at 0 even leading up to the announcement with the looming convertible notes redemption date.

Assuming the deals go ahead your point is important because, if you're treating AZZ as a risky AUD oil price exposure medium term, but if JC is not credited by the market for being able to add value to the assets he has (or even as you point out with being able to break even!), then it might be a long wait to the next asset sale to realise the value again.

I would've thought there are enough punters on the oil-bull side to keep oil assets fairly priced as long as there is negligible debt. If these deals go ahead, that will verify this point for me. In terms of JC's credibility, surely getting these deals over the line will improve that? Value has been created on these leases, hasn't it? I know long term holders are scarred, but markets on average have shorter term memories..

The question is: what assets do they buy (what is the perceived production cost of the developed leases in an average outcome situation), are they fairly priced for the current oil price and say 60% chance of $80 USD oil in 2 years? If you're an oil bear you wouldn't still be holding anyway would you?

You might say that if Macquarie then backed them to use the $200m, then the assets must look okay on paper. The thing is I suspect they would not need the facility for now, and even if you think this is the bottom of the oil cycle, why would you put pressure on now - they should have $120m to invest in assets, pay off notes, keep cash in the bank. If the oil price recovers then it makes sense to use debt to finance expansion or further development. They also have BBEP shares that should rebound to some extent, although some value is permanently gone there for sure.

Long story short: IF the deals go through and if JC's plans are cautious and don't involve debt for the moment, I'll stick with it and take the risk you are right. If buying property reduces tax and we end up with Net Assets of $1.0+, I'll only sell some if it goes clearly past this. However, I suspect we will probably see a share price drop off ofter the traders lose interest which will make my decision to hold a bit easier.

Any thoughts on the above?

(not related to chance of deal going through, thanks, that's been well covered I think )

Cheers
pb