(Bloomberg) -- Carrizo Oil & Gas Inc. is weighing a tie-up with U.S. energy explorer SM Energy Co., according to people familiar with the matter.
Carrizo has held early-stage discussions with SM about a potential combination, the people said, asking not to not be identified because the information is private. There’s no certainty the deliberations will lead to a transaction, the people said.
Shares of SM, based in Denver, climbed about 2.5 percent to $16.09 in at 10:20 a.m. in New York, giving it a market value of more than $1.8 billion. Carrizo rose 4.9 percent to $12.19 for a market valuation of $1.1 billion.
The talks come as volatile oil prices put pressure on small and midsize energy explorers to pair up to cut costs, particularly in areas such as the Permian Basin of Texas and New Mexico, which is dense with competition.
A spokeswoman for SM declined to comment, while a representative for Carrizo didn’t immediately respond to a request for comment.
SM traces its roots back to 1908. The company has operations in a swathe of the Permian known as the Midland Basin, where it has been spending more to ramp up production, according to a February investor presentation. Carrizo operates in a different, fast-growing patch of the Permian known as the Delaware Basin, where it has drilling rights on about 46,000 net acres, according to an investor presentation this month.
The two companies also have drilling acreage in the Eagle Ford Shale of south Texas.
SM and CRZO talk
Re: SM and CRZO talk
SM Energy is the larger company, despite that fact that I have it in our Small-Cap Growth Portfolio.
I put Carrizo Oil & Gas (CRZO) back into the Sweet 16 on 1/1/2019 because based on my valuation it is trading at 1/3rd its break-up value. If CRZO is truly "in play" you can be sure that a lot more companies are taking a hard look at the company.
Carrizo's estimated Net Asset Value is:
$4,091 million PV10 of its proved reserves (P1)
+0,674 million of unproved properties not being amortized
+0,150 million of current asset at 12/31/2018
-2,030 million of total debt at 12/31/2018
= $2,885 million or $31.35/share (~92 million shares outstanding today)
So, the Carrizo board s/b only interested in a deal that is close to the number above.
My SWAG (and I mean a PURE wild ass guess) is that SM & CRZO are talking about a stock-for-stock deal to merge the two companies. SM will probably end up being the surviving entity just because it is a large company. There are definitely some synergies that can be highlighted to the Wall Street Gang by a merger of near peers like this.
I put Carrizo Oil & Gas (CRZO) back into the Sweet 16 on 1/1/2019 because based on my valuation it is trading at 1/3rd its break-up value. If CRZO is truly "in play" you can be sure that a lot more companies are taking a hard look at the company.
Carrizo's estimated Net Asset Value is:
$4,091 million PV10 of its proved reserves (P1)
+0,674 million of unproved properties not being amortized
+0,150 million of current asset at 12/31/2018
-2,030 million of total debt at 12/31/2018
= $2,885 million or $31.35/share (~92 million shares outstanding today)
So, the Carrizo board s/b only interested in a deal that is close to the number above.
My SWAG (and I mean a PURE wild ass guess) is that SM & CRZO are talking about a stock-for-stock deal to merge the two companies. SM will probably end up being the surviving entity just because it is a large company. There are definitely some synergies that can be highlighted to the Wall Street Gang by a merger of near peers like this.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM and CRZO talk
Our updated profiles and forecast models for both of these companies can be downloaded from the EPG website.
This is an outstanding trading opportunity, but I urge you to do your homework first. Read the profiles carefully before you decide how to "play it".
This is an outstanding trading opportunity, but I urge you to do your homework first. Read the profiles carefully before you decide how to "play it".
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM and CRZO talk
Agree. Think if it happens, will be stock for stock deal.
If for instance, one shells out a bunch of cash for the other, think the market would crucify the acquirer thinking they would soon go to market for a secondary.
Think the market wants increasing positive cash flow from companies NOW, and not in the future from consolidations promising to cut expenses in the future.
If for instance, one shells out a bunch of cash for the other, think the market would crucify the acquirer thinking they would soon go to market for a secondary.
Think the market wants increasing positive cash flow from companies NOW, and not in the future from consolidations promising to cut expenses in the future.