Carrizo Oil & Gas, Inc. (Nasdaq:CRZO) today
announced that it has agreed to acquire Delaware Basin properties
from ExL Petroleum Management, LLC (ExL), a portfolio company of
Quantum Energy Partners, for $648 million in cash, subject to
customary closing adjustments. Additionally, Carrizo is providing
an update to its second quarter and full-year 2017 production
guidance.
Acquisition Highlights
- 23,656 gross (16,488 net) acres located in the core of the
Delaware Basin in Reeves and Ward counties, Texas with offset
operators including Anadarko, Centennial, Devon, Noble, and
PDC
- Highly contiguous acreage position that is conducive for
long-lateral development
- High degree of operational control with 95% of net acreage
operated
- 70% average working interest across the acreage
- Rapidly growing production base with four operated rigs
currently running and current net production of approximately 8,000
Boe/d (48% oil, 67% liquids)
- Acreage contains multiple stacked pay zones across the Bone
Spring and Wolfcamp formations, with four of six target Wolfcamp
formations having been successfully tested with horizontal
wells
- More than 350 net potential locations identified across the
Wolfcamp A and B formations, with significant upside potential from
additional zones and future downspacing
- Projected average per-well EURs of 1,300-1,500 MBoe and IRRs
that stack up well with Carrizo’s existing inventory
- Acquisition is expected to be accretive on earnings, cash flow,
and net asset value metrics
- Effective date of May 1 with an anticipated closing in
mid-August
On June 28, 2017, Carrizo signed a purchase and
sale agreement to acquire properties from ExL for $648 million in
cash, subject to customary closing adjustments. Additionally,
Carrizo has agreed to make a contingent payment to ExL of $50
million per year if WTI averages more than $50/Bbl in any calendar
year during 2018-2021, up to a maximum of $125 million. The
transaction is currently expected to close in mid-August 2017, and
increases the Company’s acreage position in the Delaware Basin to
more than 42,500 net acres on a pro forma basis.
The assets are comprised of 23,656 gross (16,488
net) acres located in the core of the Delaware Basin in Reeves and
Ward counties, Texas. Current net production from the assets is
approximately 8,000 Boe/d (48% oil) from 11 gross producing
horizontal wells. Additionally, seven wells are currently in
process of drilling, completion, or flowback. ExL is currently
running four rigs on the properties in order to manage near-term
leasehold obligations. Beyond 2017, Carrizo believes that two rigs
can manage the leasehold obligations on the acreage. Carrizo’s
preliminary development plan assumes three rigs on the asset.
Recent successful horizontal wells on the target
properties have significantly de-risked three target zones: the
Wolfcamp A, Upper Wolfcamp B, and Lower Wolfcamp B. Assuming a
development spacing pattern of 660 ft. between horizontal laterals
(8 wells per section), Carrizo estimates the acreage contains more
than 350 potential net locations in these zones. Based on
geochemical data and operator activity on and around the ExL
assets, Carrizo also sees upside development potential in the
Avalon, 1st Bone Spring, 2nd Bone Spring, 3rd Bone Spring, Wolfcamp
X/Y, Wolfcamp C, and Wolfcamp D zones.
The acquired acreage is highly contiguous,
making it ideal for an efficient development program. Carrizo
currently estimates that the average lateral length for future
wells on the acreage will be approximately 7,300 ft., with more
than 40% of the acreage supporting 10,000 ft. lateral wells.
The company has posted a presentation to its
website at http://www.carrizo.com that provides maps and additional
details on the properties to be acquired. The presentation can be
found by clicking on “Investor Relations” and then
“Presentations.”
S.P. “Chip” Johnson, IV, Carrizo’s President and
CEO, commented on the acquisition, “We are extremely excited to be
announcing this acquisition. Over the past couple of years, we have
evaluated numerous deals in the Delaware Basin, and these
properties rank amongst the best we have evaluated, meeting all of
our acquisition criteria. The assets are located in the core of the
Delaware Basin, offering the potential for decades of high-return
drilling locations across multiple horizontal zones. Additionally,
the properties have a significant amount of well control, not just
across the acreage, but also within the various target zones,
dramatically reducing the future operational risk.
“With this acquisition, we believe we have
assembled core positions with a deep inventory of future drilling
locations in two of the highest-return plays in North America, the
Eagle Ford Shale and Delaware Basin. Our plan going forward is to
focus our efforts on these two regions and, as a result, we have
elected to begin a monetization process for our non-core assets and
expect to use the proceeds from these dispositions for debt
reduction.”
Citigroup served as financial advisor to Carrizo
for this acquisition, while Baker Botts LLP served as legal
advisor. RBC Capital Markets acted as exclusive financial advisor
to ExL.
Transaction Financing
Carrizo plans to finance the acquisition through
potential capital markets transactions, which may include equity or
debt offerings, and the Preferred Stock offering described below.
The Company anticipates that the combination of the acquisition and
financing sources, as well as the proceeds from non-core asset
sales, will have a positive impact on its forward-looking leverage
profile.
Redeemable Preferred Stock.
Carrizo has agreed to issue $250 million of newly-created
Redeemable Preferred Stock to funds managed by GSO Capital Partners
LP (GSO). The Preferred Stock will pay quarterly dividends at a
rate of 8.875% per annum. Carrizo has the option, beginning in
September, to pay in shares of its common stock up to 100% of the
dividends in the first year, 75% of the dividends in the second
year, and 50% of the dividends in the third year. After the third
anniversary of closing, the Company may redeem the Preferred Stock
for cash at 104.4375% of liquidation value, declining ratably to
liquidation value over the subsequent two anniversaries.
Additionally, the Company has granted GSO warrants to purchase
2,750,000 shares of common stock at an exercise price of $16.08 per
share; the warrants are exercisable only on a cashless “net
exercise” basis and have a term of 10 years.
Asset Sale Program. The Company
currently plans to expand its announced asset monetization program
of its Appalachia assets to include other non-core assets in its
portfolio. Carrizo is currently targeting proceeds from the planned
non-core divestitures of at least $300 million.
Updated Guidance
Based primarily on continued strong performance
from its Eagle Ford Shale assets, Carrizo expects second quarter
production to exceed the high-end of its previously-provided
guidance range. As a result, the Company is increasing its crude
oil production guidance for the second quarter of 2017 to
33,600-33,700 Bbls/d from 31,800-32,200 Bbls/d previously. For
natural gas and NGLs, Carrizo is adjusting its second quarter
guidance range to 71-73 MMcf/d and 4,700-4,800 Bbls/d.
The Company currently expects the ExL
acquisition to close in mid-August 2017. Based on the level of
activity required to manage the near-term leasehold obligations on
the ExL properties, Carrizo currently plans to move one of its
Eagle Ford Shale rigs to the Delaware Basin following the closing
of the acquisition. Based on this timing and development plan,
Carrizo is increasing its 2017 crude oil production guidance to
35,700-36,000 Bbls/d from 32,400-32,700 Bbls/d. Using the midpoint
of the range, the Company’s new crude oil production growth
guidance increases to 39%. Carrizo is also increasing its 2017
total production guidance to 54,933-56,100 Boe/d from 49,533-50,700
Boe/d previously. The following table highlights the Company’s
updated 2017 development plan based on a mid-August closing date
for the ExL acquisition, and excludes any impact from the Company’s
planned divestiture program.
UPDATED 2017 DEVELOPMENT PLAN AND GUIDANCE
SUMMARY |
|
|
|
|
|
|
|
|
|
Previous |
|
Pro Forma |
Operated Drilling Activity - |
|
|
|
|
|
Eagle Ford Shale |
|
91 net
wells |
|
75 net wells |
|
Delaware Basin |
|
6 net
wells |
|
17 net wells |
|
|
|
|
|
|
Operated Completion Activity - |
|
|
|
|
|
Eagle Ford Shale |
|
85 net
wells |
|
84 net wells |
|
Delaware Basin |
|
5 net
wells |
|
17 net wells |
|
|
|
|
|
|
Daily Production Volumes - |
|
|
|
|
|
Crude oil (Bbls/d) |
|
32,400
- 32,700 |
|
35,700 - 36,000 |
|
NGLs (Bbls/d) |
|
5,300
- 5,500 |
|
5,900 - 6,100 |
|
Natural gas
(Mcf/d) |
|
71,000
- 75,000 |
|
80,000 - 84,000 |
|
Total (Boe/d) |
|
49,533
- 50,700 |
|
54,933 - 56,100 |
|
|
|
|
|
|
Capitalized Items - |
|
|
|
|
|
DC&I Capital
Expenditure Plan (millions) |
|
$530.0
- $550.0 |
|
$620.0 - $640.0 |
|
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|
The guidance above supersedes our prior guidance
for Carrizo on a stand-alone basis, and such prior guidance should
no longer be relied upon.
Carrizo Oil & Gas, Inc. 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. Our current operations are principally focused in
proven, producing oil and gas plays primarily in the Eagle Ford
Shale in South Texas, the Delaware Basin in West Texas, the
Niobrara Formation in Colorado, the Utica Shale in Ohio, and the
Marcellus Shale in Pennsylvania.
A more detailed description of the
definitive agreements related to the ExL Acquisition and
proposed Preferred Stock private placement have been filed by
Carrizo on a Form 8-K with the Securities and Exchange Commission
and will be available on the SEC’s website at www.sec.gov.
The securities offered in the private placement
have not been registered under the Securities Act of 1933, as
amended (the “Securities Act”), or any state securities laws and
may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements of the
Securities Act and applicable state laws.
This news release shall not constitute an offer
to sell or the solicitation of an offer to buy any securities nor
shall there be any sale of any securities in any state or
jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such state or jurisdiction.
Statements in this release that are not
historical facts, including but not limited to those related to the
ExL acquisition (including timing, purchase price, consummation,
financing benefits and effects thereof), the estimated production
results of the ExL properties, asset sales and the results,
benefits and timing thereof, capital requirements, capital
expenditure and other spending plans, guidance, the estimated
production results and financial performance of properties, effects
of transactions, targeted ratios and other metrics, the timing,
levels of and potential production, downspacing, oil and gas
prices, drilling and completion activities, drilling inventory,
including timing thereof, development plans, growth, use of
proceeds, the company’s or management’s intentions, beliefs,
expectations, hopes, projections, assessment of risks, estimations,
plans or predictions for the future, results of the company’s
strategies and other statements that are not historical facts are
forward-looking statements that are based on current expectations.
Although the company believes that its expectations are based on
reasonable assumptions, it can give no assurance that these
expectations will prove correct. Important factors that could cause
actual results to differ materially from those in the
forward-looking statements include assumptions regarding purchase
price adjustments, satisfaction of closing conditions to the
purchase and sale agreement for the ExL acquisition, failure of the
ExL acquisition to close, integration and other risks of
acquisitions, actions by ExL in the ExL acquisition, other factors
affecting our ability to reach agreements and or complete
acquisitions or dispositions, actions by sellers and buyers,
expectations of buyers of assets, failure to enter into any
agreements for asset sales or to consummate such transactions,
market conditions, risks regarding financing, capital needs,
evaluations by lenders under our revolving credit facility, other
actions by lenders, title issues, well costs, estimated recoveries,
pricing and other factors affecting average well returns, the need
to obtain board approval of expenditures in the three-year plan,
results of wells and production testing, failure of actual
production to meet expectations, the uncertainty of reserve
information and future net revenue estimates, performance of rig
operators and uses, changes in commodity prices, spacing test
results, availability of gathering systems, costs of oilfield
services, actions by governmental authorities, joint venture
partners, industry partners, lenders and other third parties,
availability of well connects, capital needs and uses, commodity
price changes, effects of the global economy on exploration
activity, results of and dependence on exploratory drilling
activities, operating risks, right-of-way and other land issues,
availability of capital and equipment, weather, and other risks
described in the company’s Form 10-K for the year ended December
31, 2016 and its other filings with the U.S. Securities and
Exchange Commission. There can be no assurance any transaction
described in this press release will occur on the terms or timing
described, or at all.
Source: Carrizo Oil & Gas, Inc
Contact:
Jeffrey P. Hayden, CFA, VP - Investor Relations
(713) 328-1044
Kim Pinyopusarerk, Manager - Investor Relations
(713) 358-6430
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