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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.
To provide an advanced simulation modeling exercise within reach of the average MBA student on a topic of great interest. The A case provides this. The B case allows an even more challenging experience for more sophisticated members of the class.