I really like this deal. In addition to getting a big cash payment, CRZO is going to be carried on several Eagle Ford wells.
> $95 million / 4040 net acres = $23,500 per acre
The gain on this sale will reduce CRZO's Full Cost Pool and lower DD&A expense going forward.
I'm sure their bankers like it.
HOUSTON, TX--(Marketwire -09/28/11)- Carrizo Oil & Gas, Inc. (NASDAQ: CRZO - News) today announced the closing of an unincorporated joint venture with a wholly owned subsidiary of GAIL (INDIA) LIMITED ("GAIL"). Under the joint venture agreement, Carrizo sold 20% of Carrizo's interest in approximately 20,200 net mineral acres leased by the Company in the highly prospective condensate zone of the Eagle Ford Shale for total consideration of $95 million, comprised of $63.65 million in cash and the assumption of an additional $31.35 million of Carrizo's future drilling and development costs ("drilling carry"). The cash proceeds from the transaction were used to reduce the outstanding balance under Carrizo's revolving credit facility. The consideration payable to Carrizo is subject to customary post-closing adjustments and indemnities.
The Eagle Ford Shale assets conveyed to GAIL under the terms of the agreement include approximately 4,040 net acres located primarily in La Salle County, Texas and a 20% interest in eight horizontal wells currently producing approximately 1,700 net barrels of oil per day (340 barrels per day net to GAIL) and 3,800 net Mcf per day of rich gas (760 Mcfpd net to GAIL). Carrizo's internally estimated mid-year 2011 proved reserves allocated to these acres amount to 13.8 million boe (2.76 million boe net to GAIL), of which 2.5 million boe are classified as proved developed (0.5 million boe net to GAIL). A drilling rig is currently in the process of drilling a four well pad on the joint venture property which is expected to be completed and brought on production near the end of this year. Carrizo continues as operator of these properties, and currently expects the $31.35 million drilling carry to be fully realized in less than one year.
Carrizo has recently executed purchase agreements for additional Eagle Ford acreage which will not be included in the joint venture with GAIL. After giving effect for the joint venture and assuming the closing of the expected acquisition of these new Eagle Ford Shale acres, Carrizo's net Eagle Ford Shale lease position would amount to approximately 41,000 net acres.
"We believe that this very attractive transaction with GAIL comes at an opportune time," Carrizo's President and CEO, S. P. "Chip" Johnson, IV, commented. "With the current uncertainty in the global financial markets, we felt it prudent to execute this transaction and take the opportunity to reduce our financial leverage and preserve our liquidity to be better prepared for whatever the future should hold. As we continue to control the pace of substantially all of our development activities, we have the flexibility to adjust our capital requirements as necessary. This joint venture further demonstrates the substantial imbedded value in our portfolio of assets. GAIL and Carrizo have been working towards formation of a joint venture for some time and our two companies have worked diligently together to structure a mutually beneficial agreement which met both our needs. We are pleased to welcome GAIL as our development partner in a portion of our assets in the Eagle Ford Shale."
CRZO
Re: CRZO
Comments from Global Hunter Securities:
Carrizo Oil & Gas Inc. (NASDAQ: CRZO; $21.25; Buy; $50.00 PT) Carrizo Oil and Gas announces Eagle Ford joint venture with GAIL.
· Carrizo Oil and Gas has announced a $95MM joint venture with GAIL, an integrated gas company based in India, for a 20% WI in approximately 20,200 net acres located in LaSalle County, TX targeting the Eagle Ford.
· Terms of the deal included $63.7MM in cash which is expected to be used to pay down outstanding debt under the company’s credit facility which totaled approximately $141MM at the close of 2Q11. The remaining $31.4MM is expected to be provided through a drilling carry expected to be exhausted in less than a year.
· Through the deal, GAIL receives approximately 4,040 acres at a cost of approximately $23,514 per acre and 2.76 Mmboe of proved reserves at a cost of $34.42 per Boe. Production from a four well pad that is currently being drilled within the joint venture acreage is expected to come online before year-end 2011. The acreage is currently producing 2,350 Boepd (470 Boepd net to GAIL) from 8 producing wells with 139 drilling locations remaining. In total, GAIL is purchasing acreage interests in some 30 net locations or roughly 12 Mmboe of net reserve potential. Looking at the transaction from this perspective, GAIL is paying nearly $8 per Boe for reserves with future development costs of about $20 per Boe based on our back of the envelope calculations.
· Carrizo has added an additional 21,000 net acres that is not included in the joint venture agreement. Carrizo now holds interest in approximately 41,000 net acres targeting the Eagle Ford prior to the sell down of 4,040 acres through this joint venture.
· Takeaway: A very nice deal for Carrizo as the company has been able to monetize some of its producing assets at an attractive price that allows the company to pay down debt and continue to expand its acreage ownership position on a net basis. Further, it creates another partnership that could allow CRZO to expand its shale expertise in other regions and even outside of the U.S. We expect the capital to be used to pay down the company’s outstanding credit facility, acquire additional Eagle Ford acreage, or acquire Utica acreage.
Carrizo Oil & Gas Inc. (NASDAQ: CRZO; $21.25; Buy; $50.00 PT) Carrizo Oil and Gas announces Eagle Ford joint venture with GAIL.
· Carrizo Oil and Gas has announced a $95MM joint venture with GAIL, an integrated gas company based in India, for a 20% WI in approximately 20,200 net acres located in LaSalle County, TX targeting the Eagle Ford.
· Terms of the deal included $63.7MM in cash which is expected to be used to pay down outstanding debt under the company’s credit facility which totaled approximately $141MM at the close of 2Q11. The remaining $31.4MM is expected to be provided through a drilling carry expected to be exhausted in less than a year.
· Through the deal, GAIL receives approximately 4,040 acres at a cost of approximately $23,514 per acre and 2.76 Mmboe of proved reserves at a cost of $34.42 per Boe. Production from a four well pad that is currently being drilled within the joint venture acreage is expected to come online before year-end 2011. The acreage is currently producing 2,350 Boepd (470 Boepd net to GAIL) from 8 producing wells with 139 drilling locations remaining. In total, GAIL is purchasing acreage interests in some 30 net locations or roughly 12 Mmboe of net reserve potential. Looking at the transaction from this perspective, GAIL is paying nearly $8 per Boe for reserves with future development costs of about $20 per Boe based on our back of the envelope calculations.
· Carrizo has added an additional 21,000 net acres that is not included in the joint venture agreement. Carrizo now holds interest in approximately 41,000 net acres targeting the Eagle Ford prior to the sell down of 4,040 acres through this joint venture.
· Takeaway: A very nice deal for Carrizo as the company has been able to monetize some of its producing assets at an attractive price that allows the company to pay down debt and continue to expand its acreage ownership position on a net basis. Further, it creates another partnership that could allow CRZO to expand its shale expertise in other regions and even outside of the U.S. We expect the capital to be used to pay down the company’s outstanding credit facility, acquire additional Eagle Ford acreage, or acquire Utica acreage.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group