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Ohio Utica Shale

Carrizo Oil and Gas to drill second Utica well in March

By Bob Downing Published: February 25, 2014

From Carrizo Oil and Gas today:

HOUSTON, Feb. 25, 2014 (GLOBE NEWSWIRE) -- Carrizo Oil & Gas, Inc. (Nasdaq:CRZO)today announced the Company's financial results for the fourth quarter of 2013, proved oil and gas reserves for year-end 2013 and provided an operational update, which included the following highlights:

  • Record Oil Production of 13,033 Bbls/d, 44% above the fourth quarter of 2012
  • Oil Revenue of $110.2 million, representing 85% of total revenue, and 36% above the fourth quarter of 2012
  • Net Loss from continuing operations of $22.2 million, or $0.52 per diluted share, and Adjusted Net Income (as defined below) of $17.0 million, or $0.39 per diluted share
  • Adjusted EBITDA (as defined below) of $101.2 million, 8% above the fourth quarter of 2012
  • Delivered 485% reserve replacement from all sources at a drill-bit F&D cost of $10.93 per Boe
  • Reiterating 2014 crude oil production growth target of 50%

Carrizo reported a fourth quarter of 2013 net loss from continuing operations of $22.2 million, or $0.52 per basic and diluted share as compared to net income from continuing operations of $16.8 million, or $0.42 per basic and diluted share in the fourth quarter of 2012. The net loss from continuing operations for the fourth quarter of 2013 includes certain items typically excluded from published estimates by the investment community. Adjusted net income, which excludes the impact of these items as described in the statements of operations included below, for the fourth quarter of 2013 was $17.0 million, or $0.40 and $0.39 per basic and diluted share, respectively, compared to $21.7 million, or $0.55 and $0.54 per basic and diluted share, respectively, in the fourth quarter of 2012.

For the fourth quarter of 2013, adjusted earnings before interest, income taxes, depreciation, and depletion and amortization, as described in the statements of operations included below ("Adjusted EBITDA"), was $101.2 million, an increase of 8% from the prior year quarter.

Production volumes during the fourth quarter of 2013 were 2,279 MBoe, or 24,772 Boe/d, a decrease of 4% from the fourth quarter of 2012. The decrease in production volumes during the quarter was due to the sale of the Company's remaining oil and gas properties in the Barnett Shale on October 31, 2013. Adjusting for the sale of the Barnett Shale, production increased 31% versus the prior year quarter. Oil production during the quarter averaged 13,033 Bbls/d, while natural gas and NGL production averaged 70,435 Mcfe/d. Thanks to continued strong performance from the Company's Eagle Ford Shale assets, fourth quarter oil production exceeded the high-end of Company guidance despite more than 400 Bbls/d of weather-related downtime in the Niobrara.

Drilling and completion capital expenditures for the fourth quarter of 2013 were $124.1 million. Approximately 68% of the fourth quarter drilling and completion spending was in the Eagle Ford Shale. Land and seismic expenditures during the quarter were $90.7 million, with the majority of the spending used for the acquisition of Avista Capital's interest in a portion of the Company's Utica Shale acreage. For 2014, Carrizo's drilling and completion capital expenditure plan is unchanged at $650.0-$670.0 million. The Company's 2014 land and seismic capital expenditure plan is also unchanged at $75.0 million. Carrizo expects to allocate the vast majority of this capital to acreage acquisitions in the Eagle Ford and Utica shales.

Carrizo is maintaining its 2014 oil production guidance of 17,000-17,800 Bbls/d. Using the midpoint of this range, the Company's 2014 oil production growth guidance equates to 50%. For natural gas and NGLs, Carrizo is also maintaining its 2014 guidance of 67-75 MMcfe/d. For the first quarter of 2014, Carrizo expects oil production to be 14,100-14,500 Bbls/d and natural gas and NGL production to be 60-66 MMcfe/d. 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 results, "This was another outstanding quarter for Carrizo and it caps one of the best years in our history. For the quarter, we once again delivered crude oil production growth that exceeded our forecast despite challenging winter weather. This brought our full-year 2013 crude oil production growth to 48%."

"We began our shift from gas to oil back in 2010, and I'm pleased to say that we've now completed the transition. Crude oil now accounts for more than 60% of our proved reserves, and even though we sold almost 45% of our 2012 U.S. reserve base through our Barnett Shale and other non-core divestitures, we were still able to increase our PV-10 by 44% in 2013. Oil also now accounts for the majority of our production, as we expect it to be approximately 60% of 2014 volumes."

"We are well positioned to deliver continued strong production growth. We have a deep inventory of oily drilling locations in the Eagle Ford Shale, Utica Shale, and Niobrara Formation, and the balance sheet to develop them. At year-end, our net-debt-to-adjusted EBITDA ratio was below 2.0x, and we have significant liquidity with an undrawn revolver and more than $150 million of cash on hand."

"We continue to be very pleased with the performance of our initial Utica Shale well in Guernsey County, Ohio. The well has been producing for approximately 48 days, and continues to flow at a stabilized rate of more than 500 Bbls/d of condensate, which puts it above our type curve. We plan to move a rig into the Utica next month to begin our 2014 drilling program in the play."

2013 Proved Reserves

The Company's proved reserves as of December 31, 2013 were 101.5 million barrels of oil equivalent ("MMBoe"), a 60% increase over year-end 2012 after adjusting for divestitures, including a record 62.0 million barrels ("MMBbls") of crude oil, a 63% increase over year-end 2012 after adjusting for divestitures. The Company's PV-10 value was a record $2.0 billion as of December 31, 2013.

The table below summarizes the Company's year-end 2013 proved reserves and PV-10 by region as determined by the Company's independent reservoir engineers, Ryder Scott Company, L.P. in accordance with Securities and Exchange Commission guidelines, using pricing for the twelve months ended December 31, 2013 based on the West Texas Intermediate benchmark crude oil price of $96.78/Bbl and the Henry Hub benchmark natural gas price of $3.67/MMBtu, before adjustment for differentials.

 

Region Crude Oil
(MMBbl)
NGLs
(MMBbl)
Natural Gas
(Bcf)
Total
(MMBoe)
PV-10
(MM$)
Eagle Ford 57.6 7.9 50.7 73.9 $ 1,736
Niobrara 4.4 0.3 3.3 5.3 130
Marcellus 133.5 22.2 159
Other 0.5 0.1 2
Total 62.0 8.2 188.0 101.5 $ 2,027

The table below summarizes the changes in the Company's proved reserves during 2013 in the U.S. and therefore excludes the proved reserves in the U.K. which were sold during 2013:

 

  Crude Oil
(MMBbl)
NGLs
(MMBbl)
Natural Gas
(Bcf)
Total
(MMBoe)
Proved reserves - December 31, 2012 39.1 5.4 423.7 115.1
Revisions of previous estimates 0.6 0.3 29.8 6.0
Extensions and discoveries 27.3 3.0 73.4 42.5
Sales of reserves in place (0.8) (307.5) (52.1)
Production (4.2) (0.5) (31.4) (10.0)
Proved reserves - December 31, 2013 62.0 8.2 188.0 101.5
Proved developed - December 31, 2013 18.3 2.8 107.0 38.9

The following table summarizes the Company's costs incurred in oil and gas property acquisition, exploration and development activities for the year ended December 31, 2013.

 

  Total
(MM$)
Unproved property acquisition costs $ 254.1
Exploration costs 106.6
Development costs 423.6
Total costs incurred (1) $ 784.3
   
(1) Total costs incurred include capitalized general and administrative expense and asset retirement obligations and excludes capitalized interest.  

2013 highlights include:

  • Total reserve replacement from all sources was 485% at an all sources F&D cost of $16.17 per Boe. Drill-bit F&D cost for the year was $10.93 per Boe.
  • Crude oil reserve replacement from all sources was 664%.
  • Crude oil represents 61% of total proved reserves and 87% of the total PV-10 value at December 31, 2013.
  • Proved developed reserves increased to 38.9 MMBoe at year-end 2013, a 66% increase from the 23.5 MMBoe at year-end 2012 after adjusting for divestitures.
  • 38% of total proved reserves at December 31, 2013 are classified as proved developed, slightly higher than the 37% at year-end 2012 after adjusting for divestitures.
  • Eagle Ford reserves increased to 73.9 MMBoe, a 51% increase from the 49.0 MMBoe at year-end 2012.

Operational Update

In the Eagle Ford Shale, Carrizo drilled 14 gross (11.0 net) operated wells during the fourth quarter, and completed 17 gross (12.1 net) wells. Crude oil production from the play rose to more than 11,200 Bbls/d for the quarter, an increase of 9% versus the prior quarter. At the end of the year, Carrizo had 29 gross (23 net) operated Eagle Ford Shale wells waiting on completion, equating to net crude oil production potential of approximately 8,600 Bbls/d. Carrizo is operating three rigs in the Eagle Ford Shale and currently expects to drill approximately 62 gross (47 net) operated wells in the play during 2014.

Carrizo is currently drilling its initial 330 ft. downspacing tests in the Eagle Ford Shale. Carrizo holds a 75% working interest in these wells, which are located in its Irvin Ranch area. The Company expects to complete the wells in the second quarter, with results available in the second half of the year. If successful, Carrizo believes 330 ft. downspacing could add more than 200 net locations to its year-end inventory of 576 net locations. At current activity levels, this would equate to an Eagle Ford Shale inventory of approximately 16 years.

Carrizo continued to add bolt-on acres to its position in the Eagle Ford Shale during the quarter, with the added acreage located within the volatile oil window in LaSalle County. The Company's position in the trend now stands at approximately 62,200 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 14 gross (5.5 net) operated wells during the fourth quarter, and completed 9 gross (3.8 net) wells. Crude oil production from the Niobrara was roughly flat during the fourth quarter at approximately 1,800 Bbls/d as adverse weather conditions reduced the Company's production by more than 400 Bbls/d. Carrizo is operating one rig in the Niobrara and currently expects to drill 32 gross (11 net) operated wells during 2014.

Carrizo continues to participate in a number of tests to determine the optimal development spacing in the Niobrara. In its operated program, the company is currently testing 60-acre and 40-acre downspacing, and has drilled its first A Bench well. Additionally, Carrizo has elected to participate in downspacing tests operated by Noble Energy in its Rohn area and Whiting Petroleum in its Razor area. These are 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 the Rohn project and an approximate 4% working interest in the Razor project. 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 (1.4 net) operated wells during the fourth quarter, and completed 5 gross (1.2 net) wells. Natural gas production from the Marcellus was 39.0 MMcf/d in the fourth quarter, up from 36.4 MMcf/d in the third quarter. The Company's production from the play continues to be impacted by midstream delays and voluntary curtailments due to depressed local market pricing. Carrizo's planned 2014 activity in the play will focus on completing its inventory of drilled wells. For the year, Carrizo plans to drill a total of 3 gross (1 net) operated wells and complete 24 gross (7 net) wells.

Carrizo is currently testing downspacing concepts on its northeast Pennsylvania acreage. In Wyoming County, the Company has drilled an Upper Marcellus infill test and a Lower Marcellus infill test at its Plushanski pad. Carrizo is the operator of, and expects to hold an average working interest of approximately 21% in these wells. The Company also plans to drill an Upper Marcellus infill test at its Bonnice pad in Susquehanna County. Carrizo is the operator of, and expects to hold an average working interest of approximately 40% in this well. The Company expects to complete all the wells by the end of the second quarter. If successful, Carrizo believes downspacing has the potential to add approximately 50 gross locations to its Marcellus inventory.

In the Utica Shale, Carrizo's first well, the Rector 1H in Guernsey County, Ohio, continues to perform well on its long-term stabilized test. Over the first approximately 48 days of production, the well has averaged 553 Bbls/d of condensate. The well continues to flow at a stabilized rate of more than 500 Bbls/d of condensate and 2.0 MMcf/d of rich natural gas on a 15/64 in. choke. Carrizo has a 95% working interest in the Rector 1H well.

Carrizo expects to spud its next Utica Shale well, the Brown 1H in northern Guernsey County, in March. Carrizo will be the operator of, and expects to have a 50% working interest in the Brown 1H well. Carrizo currently expects to drill 9 gross (7 net) operated Utica Shale wells during 2014.

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