Aztec Oil & Gas Acquires Stake in Z2, LLC

Aztec Oil & Gas has recently acquired a 31.283% interest in Z2, LLC., as disclosed in the company's 8-K filing with the S.E.C. on September 17, 2004. Z2 owns 100% of the working interest in over seven thousand (7,000) producing acres in the prolific Big Foot oil field in Frio County, Texas.

This transaction provides Aztec with a significant interest in a long-producing oil field with an estimated 5.6 million barrels of proven oil production remaining in the Z2-owned areas of the field. The field was first discovered by Shell Oil in 1949, developed in the 1950's and has yielded an abundance of oil (over 22 million barrels) over the past five decades.

According to Maverick Energy, operator of the Z2 leases, there are up to 400 proven, underdeveloped well sites to be drilled in the property. Aztec Oil & Gas intends to facilitate the drilling of a significant number of these new drill sites, which is expected to increase its oil production from the current 8,000 to 10,000 barrels per month level. The company also plans to seek out other promising producing oil and gas properties with proven reserves.

Aztec's growth strategy is partially based on participation, as it intends to team up with outside investors that will take care of the costs associated with the drilling of additional wells in exchange for a part of the revenues derived from the wells they finance. Investors will receive 75% of the revenues from 'their' wells until the hard costs are recovered, with the other 25% going to Aztec and other lease interest holders. Once the hard costs are repaid to the investors, the revenues will be split 50-50. This allows Aztec to essentially eliminate, or at least drastically reduce, the financial risks involved in drilling new wells, while receiving income from present field production in addition to income from any new drilling.

Aztec has disclosed that, in the future, it may also choose to utilize its own capital resources (profits from existing wells or an existing line of bank credit) to fund newly drilled wells, thereby keeping a larger percentage of the revenues generated by those wells. Z2, LLC has already secured a $15 million line of credit from Texas Capital Bank for workover and re-entry of existing wells.
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