Item 1.01
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Entry into a Material Definitive Agreement.
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Carrizo Oil & Gas, Inc. (the
Company, Carrizo, we or us) is hereby providing the following operational updates.
Pending Acquisition
On
June 28, 2017, the Company and the Companys wholly-owned subsidiary Carrizo (Permian) LLC entered into a purchase and sale agreement (the ExL Purchase Agreement) with ExL Petroleum Management, LLC and ExL Petroleum Operating Inc.
(together, ExL) to acquire approximately 16,488 net acres located in the Delaware Basin in Reeves and Ward Counties, Texas (the ExL Properties), for aggregate consideration of approximately $648.0 million in cash, subject to
title adjustments and other customary purchase price adjustments (the Pending Acquisition). ExL Petroleum Management, LLC and ExL Petroleum Operating Inc. are portfolio companies of Quantum Energy Partners. We currently expect the
Pending Acquisition to close in mid-August 2017, subject to satisfaction of specified closing conditions. The effective date for the Pending Acquisition is May 1, 2017, and the purchase price will be subject to customary adjustments, including
adjustments for certain net revenue retained by and expenses paid by ExL that are attributable to the ExL Properties on or after such effective date. We currently expect that these adjustments will increase the purchase price that will be paid at
closing. Upon execution of the ExL Purchase Agreement, the Company paid $75.0 million as a performance deposit for its obligations under that agreement (the Performance Deposit) and a balance of $573.0 million remains payable, subject to
adjustments discussed above.
We currently estimate that the ExL Properties may contain over 350 drilling locations in the Wolfcamp A and
the Wolfcamp B zones of the Wolfcamp formation and upside development potential in other zones in the Wolfcamp Formation, the Bone Springs Formation and the Avalon Formation. A significant portion of the acreage is contiguous. Based on information
provided by the seller, we estimate that net production from the ExL Properties was approximately 4,460 Boe/d (42% oil and 70% liquids) from 8 gross (4.8 net) wells for the month ended March 31, 2017, but has risen to approximately 8,000 Boe/d
(48% oil and 67% liquids) from 11 gross (6.5 net) wells as of June 23, 2017. ExL is the operator with respect to 95% of the acreage associated with the ExL Properties. Following the closing of the Pending Acquisition, ExL will retain a portion of
its current working interest in the leases that make up the ExL Properties. Pursuant to the ExL Purchase Agreement we and ExL would enter into an industry standard joint operating agreement appointing us as operator of the ExL Properties, and under
the joint operating agreement we and ExL would establish an area of mutual interest with respect to the ExL Properties and the immediately surrounding area.
We have also agreed to pay an additional $50.0 million per year if the average daily closing spot price of a barrel of West Texas Intermediate
crude oil as measured by the U.S. Energy Information Administration (the EIA WTI average price) is above $50.00 for any the years of 2018, 2019, 2020 and 2021, with such payments due on January 29, 2019, January 28, 2020, January 28,
2021 and January 28, 2022, respectively. This payment (the Contingent ExL Payment) will be zero for the respective year if such EIA WTI average price of a barrel of oil is below $50.00 for any of such years, and the Contingent ExL
Payment is capped at and will not exceed $125.0 million.
The completion of the Pending Acquisition is subject to specified closing
conditions and to the right of one or both of the parties to terminate the transaction, including in the event that more than specified adjustments in the purchase price are required. If one or more of the closing conditions are not satisfied, or if
the transaction is otherwise terminated, the Pending Acquisition may not be completed. The Company has paid the Performance Deposit to the seller, which is refundable only in specified circumstances if the transaction is not consummated.
The definitive agreement contains customary representations, warranties and covenants and also includes indemnification provisions under which
the parties thereto have agreed to indemnify each other against certain liabilities. There can be no assurance that the Company will acquire the ExL Properties on the terms described or at all. Even if the Company consummates the Pending
Acquisition, it may not be able to achieve the expected benefits of the Pending Acquisition. There can be no assurance that the Pending Acquisition will be beneficial to the Company. The Company may not be able to integrate the ExL Properties
without increases in costs, losses in revenues or other difficulties.
Our assessment of ExL Properties to date has been limited, and even
by the time of closing, it will not reveal all existing or potential problems, nor will it permit us to become familiar enough with the properties to assess fully their capabilities and deficiencies. We may not have recourse for liabilities and
other problems associated with the Pending Acquisition that we do not discover prior to the expiration date related to such matters under the ExL Purchase Agreement.
We intend to finance the purchase price for the Pending Acquisition that is due at closing,
subject to market conditions and other factors, with net proceeds from debt and equity financings and temporary borrowings under the revolving credit facility pending receipt of the proceeds of such financings. The Pending Acquisition, however, is
not conditioned upon our receipt of any financing and there can be no assurance that we will obtain the funds necessary to complete the Pending Acquisition on acceptable terms or at all.
A copy of the ExL Purchase Agreement is filed as Exhibit 2.1 to report and is incorporated herein by reference.
Amendment to Revolving Credit Agreement
On June 28, 2017, we entered into a tenth amendment to the credit agreement governing our revolving credit facility (the Amendment)
to, among other things (i) amend the calculation of certain financial covenants to provide that EBITDA will be calculated on an annualized basis commencing with the fiscal quarter ending September 30, 2017, (ii) amend the restricted
payments covenant to, among other things, provide for additional capacity to pay dividends with respect to, and make redemptions of, our equity interests, including the ability, subject to certain conditions, to pay dividends on or make redemptions
of the 250,000 shares of 8.875% Redeemable Preferred Stock, par value $0.01 per share (the Preferred Stock), issued and sold in a private placement pursuant to a Preferred Stock Purchase Agreement dated June 28, 2017 using proceeds of
certain equity issuances or asset sales, (iii) amend the definition of Disqualified Capital Stock to provide, among other things, that the Preferred Stock does not constitute Disqualified Capital Stock for purposes of
the revolving credit facility, (iv) provide that any Additional Consideration (as defined in the revolving credit facility) payable pursuant to the ExL Purchase Agreement does not constitute Debt (as defined in the revolving credit facility)
for purposes of the revolving credit facility until such time as the amount of such obligation is determined, and (v) amend certain other covenants, in each case as set forth therein.
The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of
the Amendment, which is attached as Exhibit 10.1 to this report and incorporated by reference herein.