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Case
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Reference no. UVA-QA-0579
Published by: Darden Business Publishing
Originally published in: 2001
Version: 30 March 2011
Revision date: 03-Nov-2011
Length: 8 pages
Data source: Published sources

Abstract

Birch Resources has been offered a 'farm-out' deal to drill a well in Terrebonne Parish, Louisiana. It also has the option, if the well is successful, to drill a second well two years later. The A case focuses on the decision of whether or not to accept the deal, which requires the company to value the embedded option. The B case allows Birch the additional option of waiting an extra two years to decide whether or not to drill the second well. Valuing the deal now requires a far more complex and interesting model.
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Abstract

Birch Resources has been offered a 'farm-out' deal to drill a well in Terrebonne Parish, Louisiana. It also has the option, if the well is successful, to drill a second well two years later. The A case focuses on the decision of whether or not to accept the deal, which requires the company to value the embedded option. The B case allows Birch the additional option of waiting an extra two years to decide whether or not to drill the second well. Valuing the deal now requires a far more complex and interesting model.

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