Tilley, yes, in my opinion, you hit the nail on the head, the less AZZ do the better in this case.
A farm out with a major like Petrohawk would generally result in less up front costs (no capex in this case), and a partner with deep pockets, tons of resources, proven skills and experience in the play that any small O&G company would only dream of. Both are expected to share capex at a certain point however, but hopefully the deal is structured in a smart enough way to get them to the point of self funding future development post farm-in.
I guess AZZ thought they could do it with San Isidro, it was a higher risk, higher reward strategy.
AUT is valued at high amounts not just because of the farm in but because the shale is some of the best producing in the Eagle Ford, they have a quality cashed up partner in Hilcorp. Their acreage is much more proven and de-risked with a dozen wells. AZZ had a few dud wells, but a great one with Petrohawk. Should that success continue they will be re-rated with each successive well towards the same $30-40K figure for that term assignment, in my opinion.
AZZ have a lot of catching up to do to AUT and TXN, the balance is in AZZ's favour with no risk on future Eagle Ford drilling - it's a waiting game for the Petrohawk results and confirmation of working interest %.
JC has brought the company a long way from a few cents and on the brink 18-24 months ago to a company with 150M cash in bank and a free carry Eagle Ford interest in 110 wells. If he can do that with peanuts in the bank let's see what he can do with $150M in the bank.
------ always DYOR
AZZ Price at posting:
47.5¢ Sentiment: Hold Disclosure: Held
