Carrizo Oil & Gas, Inc. (ticker: CRZO) is a Houston-based energy company actively engaged in the exploration, development, and production of oil and gas from resource plays located in the United States. Its current operations are principally focused in proven, producing oil and gas shales primarily in the Eagle Ford Shale in South Texas, the Niobrara Formation in Colorado, the Marcellus Shale in Pennsylvania and the Utica Shale in Ohio.
Carrizo recently presented at EnerCom’s The Oil and Gas Conference®. Click here to listen to the webcast.
Carrizo Oil & Gas, Inc. announced the sale of non-core assets on September 4, 2013 for $268MM cash, or net after proceeds of $250.4MM. Assets include substantially its entire Barnett shale play, the Camp Hill Field in East Texas and certain undeveloped acreage in the Marcellus Shale, and are subject to customary closing conditions and purchase price adjustments. The Company intends to use the net proceeds from these sale transactions to repay borrowings under its revolving credit facility as well as to fund a portion of the remainder of its 2013 capital expenditures program, largely in the Eagle Ford Shale.
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The Barnett Shale divestiture includes approximately 9,000 net acres primarily in Southeast Tarrant County with year-end 2012 proved reserves of 303.5 Bcf. Current net production from the assets is approximately 44 MMcf per day. The Camp Hill divestiture includes year-end 2012 proved reserves of approximately 1.0 MM barrels and current net production of about 160 BOPD of oil. It also has an effective date of July 1, 2013 and is expected to close shortly. The Marcellus Shale divestiture primarily includes 2,850 net undeveloped acres in non-core areas of the play and is expected to close in the fourth quarter.
CRZO previously stressed intentions to shift its focus to oil production, rather than production of gas and NGLs, according to its Q2’13 release. S.P. “Chip” Johnson IV, Carrizo’s President and CEO, was encouraged by the company’s results in its oil plays. “In the near term, we are very excited about our downspacing tests in the Eagle Ford Shale and Niobrara Formation, and our first operated Utica Shale well,” he said. “Positive results from these tests has the potential to significantly expand our drilling inventory.”
Carrizo’s Current Operations
Eagle Ford Shale
In the Eagle Ford Shale, CRZO drilled 15 gross (10.9 net) operated wells during the second quarter, and completed 12 gross (9.8 net) wells. Crude oil production from the play rose to more than 9,900 BOPD for the quarter, an increase of 19% versus the prior quarter. Currently 24 gross (17.5 net) wells are waiting on completion, equating to net crude oil production potential of approximately 6,600 BOPD. CRZO is operating three rigs in the region and currently expects to drill approximately 53 gross (43 net) operated wells in the play during 2013.
The company recently completed its first two 500 foot downspacing tests, and estimates that downspacing from its current development plan of 750 feet would, if successful, add approximately 135 net locations to its current drilling inventory of 417 potential locations in the play.
Carrizo holds approximately 54,500 total net acres in the Eagle Ford Shale, after the addition of approximately 1,500 net bolt-on acres during the quarter. CRZO continues to actively lease 500 to 1,000 acres in the region’s core volatile oil window, according to its Q2’13 earnings call transcript.
Remaining Assets
The first test of the Pearsall Shale showed encouraging initial results. The peak 24-hour rate from the well was 105 BOPD of oil and 1,685 Mcf/d of natural gas flowing at 5,200 psi on a 12/64th inch choke. Connection to a gas line is currently in progress. The well’s performance will determine the pursuit of additional tests in the Pearsall.
In the Niobrara Formation, CRZO drilled 13 gross (4.3 net) operated wells during the second quarter, and completed 10 gross (3.3 net) wells. Crude oil production from the region more than doubled in the second quarter, to more than 1,600 BOPD from approximately 800 BOPD in the first quarter. CRZO is operating two rigs in the Niobrara and currently expects to drill 44 gross (17 net) operated wells during the year. Two wells in the region were brought online in July and reached peak 24-hour gross production rates of 1,018 BOPD of oil with 576 Mcf/d of gas (1,114 BOEPD), and 840 BOPD of oil with 254 Mcf/d of gas (882 BOEPD), respectively. The Niobrara acreage is being developed on 80-acre spacing, and 60-acre downspacing tests are in progress.
In the Marcellus Shale, net production capacity is estimated to be more than 60 MMcf/d. Carrizo is often electing to limit its production in the region due to weak local gas prices in Appalachia. One horizontal rig is expected to remain active in for the remainder of the year, which should allow a total of 32 gross (10 net) wells to be drilled during 2013. Prior to year end, CRZO plans to spud two Upper Marcellus Shale infill tests at its Plushanski pad in Wyoming County, PA, with completion of the wells expected in early 2014.
In the Utica Shale, Carrizo recently spudded its first operated well. Once completed, it will be rested for approximately 60 days before commencing flowback operations.
Analyst Commentary
David Tameron, managing director at Wells Fargo Securities, reiterated his “Outperform” rating on CRZO in his September 4, 2013 note. He said: “We view this transaction as a positive as it closes the funding gap for 2013 and 2014, as well as improves the balance sheet with EV/EBITDAX now below 2.5x.”
Carrizo Commentary
S.P. “Chip” Johnson, IV, Carrizo’s President and CEO, said, “This is a bittersweet day for Carrizo as the Barnett Shale started the company’s transformation into an unconventional resource player back in 2003. While we’ve had a great run in the play, and worked with some great partners, we believe the sale of these assets is a natural step in our continued shift towards premier oil and liquids-rich plays. The cash proceeds from the divestitures will also further improve our balance sheet metrics and should more than cover our remaining spending gap for the year. This puts us in a strong position to continue our Eagle Ford Shale and Niobrara developments, as well as ramp up our Utica Shale activity in 2014.”
Paul Boling, Carrizo’s Chief Financial Officer, says the Eagle Ford Focus is an attractive move. “It’s quite a lucrative play for us – oil prices are quite robust right now,” he said in an interview with Fuel Fix. “It’s a strategy we believe the street will embrace.”
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