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Ohio Utica Shale

Carrizo expects to complete first Utica well, adds Ohio acreage

By Bob Downing Published: November 5, 2013

From Carrizo:

Carrizo Oil & Gas, Inc. Announces Record Oil Production and Adjusted EBITDA for the Third Quarter 2013, Acreage Acquisitions in the Eagle Ford and Utica, and Initial 2014 Oil Production Growth Target of 40%+

HOUSTON, TX -- (MARKET WIRE) -- 11/04/2013 -- Carrizo Oil & Gas, Inc. (NASDAQ: CRZO) today announced the Company's record financial results for the third quarter of 2013 and provided an operational update, which included the following highlights:

 

  • Record Oil Production of 12,228 Bbls/d, 4% above the second quarter of 2013 and 41% above the third quarter of 2012

  • Record Total Production of 30,011 Boe/d, 6% above the second quarter of 2013 and 17% above the third quarter of 2012

  • Record Oil Revenue of $117.8 million, representing 82% of total revenue, and 11% above the second quarter of 2013

  • Net Income from continuing operations of $5.7 million, or $0.14 per diluted share, and Record Adjusted Net Income (as defined below) of $29.6 million, or $0.72 per diluted share

  • Net Income from continuing operations of $5.7 million, or $0.14 per diluted share, and Record Adjusted Net Income (as defined below) of $29.6 million, or $0.72 per diluted share

  • Record Adjusted EBITDA (as defined below) of $114.8 million, 12% above the second quarter of 2013 and 33% above the third quarter of 2012

  • Acquisition of approximately 9,400 net acres in the Utica and Eagle Ford shale plays

  • Initial 2014 crude oil production growth target of 40%+

  • 2013 crude oil production growth target increased to 47% from 45%

Carrizo reported third quarter of 2013 net income from continuing operations of $5.7 million, or $0.14 per basic and diluted share as compared to a net loss from continuing operations of $1.9 million, or $(0.05) per basic and diluted share in the third quarter of 2012. Net income from continuing operations for the third quarter of 2013 includes certain non-cash items typically excluded from published estimates by the investment community. Excluding the impact of these non-cash items, the Company reported third quarter of 2013 adjusted net income of $29.6 million, or $0.73 and $0.72 per basic and diluted share, respectively, compared to $17.9 million, or $0.45 per basic and diluted share in the third quarter of 2012.

For the third quarter of 2013, adjusted earnings before interest, income taxes, depreciation, and depletion and amortization, as described in the consolidated statements of operations included below ("Adjusted EBITDA"), was $114.8 million, an increase of 33% from the prior year quarter.

Production volumes during the third quarter of 2013 were 2,761 MBoe, or 30,011 Boe/d, an increase of 17% from the third quarter of 2012. Oil production during the quarter averaged 12,228 Bbls/d, while natural gas and NGL production averaged 106,685 Mcfe/d. Third quarter of 2013 production exceeded the high end of Company guidance due to continued strong performance across each of the Company's primary areas of activity.

Drilling and completion capital expenditures for the third quarter of 2013 were $126.5 million, below the Company's expectations due largely to the deferral of some planned Marcellus Shale activity. Approximately 77% of the third quarter drilling and completion spending was in the Eagle Ford Shale. Land and seismic expenditures during the quarter were $26.3 million. Carrizo is increasing its full-year 2013 drilling and completion capital expenditure plan by $20 million to $550-$560 million in order to increase completion activity in the Eagle Ford Shale; the Company now plans to complete 41 net Eagle Ford Shale wells in 2013, up from 34 net wells previously. The additional completions are expected to be back-end loaded in the fourth quarter, and as a result, they are not expected to have a significant impact on 2013 production. The Company is increasing its 2013 land and seismic capital expenditure plan from $140 million to $240 million due to more opportunities than expected to add acreage in the Eagle Ford Shale as well as the acquisition of Avista Capital's interest in a portion of the Company's Utica acreage. Acreage acquisitions in the remainder of the year are currently expected to focus on the Eagle Ford Shale and Utica Shale. For 2014, the Company's preliminary capital expenditure plan includes $600-$620 million for drilling and completion and $75 million for land.

Due to continued strong performance from the Company's Eagle Ford Shale and Niobrara Formation assets, Carrizo is increasing its 2013 oil production guidance to a range of 11,450-11,600 Bbls/d from 11,100-11,500 Bbls/d. Using the midpoints of these ranges, the Company's 2013 oil production growth guidance increases to 47% from 45%. For natural gas and NGLs, Carrizo is reducing its 2013 guidance to a range of 94-96 MMcfe/d from 101-108 MMcfe/d to account for the sale of its Barnett Shale assets plus a more conservative outlook for the Marcellus Shale as the midstream operator was unable to secure a permit to add compression at the Dunbar Station. For the fourth quarter 2013, Carrizo expects oil production to be 12,600-13,000 Bbls/d and natural gas and NGL production to be 68-75 MMcfe/d. Additionally, the Company is providing initial 2014 crude oil production growth guidance of at least 40%. A summary of Carrizo's production and cost guidance is provided in the attached tables.

S.P. "Chip" Johnson, IV, Carrizo's President and CEO, commented on the quarter's results, "This was another outstanding quarter for Carrizo as we delivered production growth that once again exceeded our forecast despite lower than planned capital expenditures."

"Our strategy of shifting the focus to oil production, rather than production of gas and NGLs, while delevering with asset sales, continues to pay off. During the quarter, we achieved a record adjusted EBITDA, and kept our net debt-to-adjusted EBITDA ratio under 2.5x. And with the proceeds we have received from the sale of our Barnett Shale assets and other non-core properties, our net debt-to-adjusted EBITDA ratio is currently down to about 2.2x, even with the additional acreage acquisitions we are announcing in the Utica and Eagle Ford shales."

"While we intend to keep a close eye on the balance sheet, the continued strength in oil prices plus the predictability of our Eagle Ford well results makes us comfortable accelerating our frac activity this year to reduce our backlog of wells that have been drilled but are waiting on completion. This should give us a running start for next year and help us achieve another year of very strong crude oil production growth in 2014."

"We are pleased with the results from our initial downspacing tests in the Eagle Ford Shale, and have adjusted our development program to incorporate 500 ft. spacing going forward. The tighter spacing adds another three years to our drilling inventory in the Eagle Ford Shale, bringing it to about 12 years based on current activity levels. In the near term, we remain very excited about our downspacing tests in the Niobrara Formation and our first operated Utica Shale well, which should be finishing up a 31-stage frac this week."

Utica Shale Acquisition

On October 31, 2013, Carrizo acquired approximately 5,900 net acres in the Utica Shale primarily in Guernsey and northern Noble counties, Ohio from affiliates of Avista Capital, LP for approximately $73.2 million, increasing Carrizo's position in the play to approximately 21,700 net acres. The properties acquired were subject to our Utica Joint Venture with Avista. The transaction generally covers the eastern portion of the Company's acreage position in Guernsey and northern Noble counties, which we believe has been substantially de-risked by offset industry activity. Carrizo now holds an average working interest of nearly 100% in its eastern acreage in the core condensate window of the Utica Shale play and an average 50% working interest in its remaining Utica acreage, subject to adjustment as units are formed.

Operations Review

In the Eagle Ford Shale, Carrizo drilled 19 gross (14.7 net) operated wells during the third quarter, and completed 11 gross (8.6 net) wells. Crude oil production from the play rose to nearly 10,300 Bbls/d for the quarter, an increase of 3% versus the prior quarter. At the end of the third quarter, Carrizo had 32 gross (24.1 net) Eagle Ford Shale wells waiting on completion, equating to net crude oil production potential of approximately 8,900 Bbls/d. Carrizo is operating three rigs in the Eagle Ford Shale and currently expects to drill approximately 60 gross (46 net) operated wells in the play during 2013.

During the third quarter, Carrizo tested its initial 500 ft. downspacing wells in the Eagle Ford Shale, the Irvin A 150H and Irvin B 151H. Carrizo holds a 75% working interest in these wells. The wells have been online since late August, and performance appears consistent with the average of the other nine producing wells in the Irvin Ranch area (which were drilled on 750 ft. spacing). As a result of these well results, combined with an analysis of industry downspacing results, Carrizo has adjusted its development plan to include 500 ft. spacing vs. 750 ft. previously. This adds approximately 145 net locations to the Company's drilling inventory, bringing it to 552 net potential Eagle Ford locations (as of September 30, 2013).

Carrizo added approximately 3,500 net bolt-on acres to its position in the Eagle Ford Shale during the third quarter. The new acreage is located in La Salle County and was acquired at a cost of roughly $5,000 per acre. This brings the Company's position in the play to approximately 58,000 net acres. Carrizo continues to actively lease acreage in the core volatile oil window of the Eagle Ford Shale.

In the Niobrara Formation, Carrizo drilled 15 gross (4.7 net) operated wells during the third quarter, and completed 14 gross (4.7 net) wells. Crude oil production from the Niobrara increased to more than 1,800 Bbls/d during the third quarter from approximately 1,600 Bbls/d in the second quarter. Carrizo is operating two rigs in the Niobrara and currently expects to drill 56 gross (18 net) operated wells during the year.

Recent highlights from the Niobrara include strong wells in the Hemberger and Bringelson areas. In the Hemberger area, the Schneider 2-14-8-60 reached a peak 24 hour gross production rate of 1,086 Boe/d (936 Bbls/d of oil and 897 Mcf/d of gas). The well was drilled with an effective lateral of 4,134 ft. and completed with 14 frac stages. Carrizo is the operator of, and holds a 9% working interest in, the Schneider well. In the Bringelson area, the Castor 3-36-9-59 reached a peak 24 hour gross production rate of 858 Boe/d (774 Bbls/d of oil and 507 Mcf/d of gas). The well was drilled with an effective lateral of 3,531 ft. and completed with 12 frac stages. Carrizo is the operator of, and holds a 30% working interest in, the Castor well.

Carrizo is currently participating in a number of tests to determine the optimal development spacing in the Niobrara. During the third quarter, Carrizo drilled its initial 60-acre downspacing tests in the play, which were located in the Company's Bob White and Hemberger areas. The Bob White wells were recently completed while the Hemberger wells are expected to be completed by year-end. Carrizo is the operator of, and currently holds a 60% working interest in, the Bob White area wells and a 57% working interest in the Hemberger area wells. In the State 36 area, Carrizo recently drilled another 60-acre downspacing test, and has begun drilling its initial 40-acre downspacing test in the play. Carrizo is the operator of, and currently holds a 37% working interest in, the State 36 area wells. Additionally, Carrizo has elected to participate in a downspacing test operated by Noble Energy in its Rohn area (within East Pony), which is expected to test downspacing as tight as 40-acres as well as potential in the A, B and C benches. Carrizo holds less than a 1% working interest in this project. The Company is also participating in a downspacing test operated by Whiting Petroleum in its Razor area (within Redtail), which is expected to test downspacing as tight as 40-acres as well as potential in the A and B benches. Carrizo's working interest in these wells ranges from 4% to 24%. As Carrizo is currently assuming 80-acre spacing in only the B bench for its development plan, successful results from these downspacing pilots has the potential to materially increase its Niobrara inventory.

In the Marcellus Shale, Carrizo drilled 6 gross (1.8 net) wells during the third quarter, and completed and brought on production 5 gross (1.7 net) wells. Natural gas production from the Marcellus was 36.4 MMcf/d in the third quarter, up from 33.9 MMcf/d in the second quarter. Due to the continued weak local gas prices in Appalachia, Carrizo has been electing to limit its production until regional prices improve. The Company estimates its net production capacity from wells currently drilled and completed in the Marcellus Shale to be more than 60 MMcf/d. Carrizo expects to keep one horizontal rig active in the Marcellus Shale for the remainder of the year, which should allow it to drill a total of 28 gross (8 net) wells during 2013.

Current plans call for Carrizo to drill two Upper Marcellus Shale tests at its Plushanski pad in Wyoming County, Pennsylvania, by year-end, with completion of the wells expected by mid-year 2014. Carrizo is the operator of, and expects to hold an average working interest of approximately 30% in these wells.

In the Utica Shale, Carrizo expects to complete its first operated well, the Rector 1H in Guernsey County, Ohio, this week. The well was drilled with an effective lateral of 7,890 ft. and is being completed with 31 stages. Carrizo plans to rest the well for approximately 60 days before commencing flowback operations. Carrizo is the operator of, and has a 95% working interest in, the Rector 1H well. Carrizo plans to run a 1-rig development program in the Utica Shale beginning in 2014.

 

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Utica and Marcellus shale web sites

Ohio Department of Natural Resources' Division of Oil and Gas Resources Management State agency Web site.

ODNR Division of Oil and Gas Resources Management. State drilling permits. List is updated weekly.

ODNR Division of Geological Survey.

Ohio Environmental Protection Agency.

Ohio State University Extension.

Ohio Farm Bureau.

Ohio Oil and Gas Association, a Granville-based group that represents 1,500 Ohio energy-related companies.

Ohio Oil & Gas Energy Education Program.

Energy In Depth, a trade group.

Marcellus and Utica Shale Resource Center by Ohio law firm Bricker & Eckler.

Utica Shale, a compilation of Utica shale activities.

Landman Report Card, a site that looks at companies involved in gas and oil leases.FracFocus, a compilation of chemicals used in fracking individual wells as reported voluntarily by some drillers.

Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.

Rig Count Interactive Map by Baker Hughes, an energy services company.

Shale Sheet Fracking, a Youngstown Vindicator blog.

National Geographic's The Great Shale Rush.

The Ohio Environmental Council, a statewide eco-group based in Columbus.

Buckeye Forest Council.

Earthjustice, a national eco-group.

Stop Fracking Ohio.

People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.

Concerned Citizens of Medina County, a grass-roots group.

No Frack Ohio, a Columbus-based grass-roots group.

Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.

Penn State Marcellus Center.

Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.

Allegheny Front, environmental public radio for Western Pennsylvania.