Quarterly / Earnings Reports | Second Quarter (2Q) Update | Downspacing | Production Rates | Financial Results | Capital Markets

Carrizo Enters the Delaware Basin; Hits Record Production in 2Q

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Carrizo Oil & Gas, Inc. has reported financial results for the second quarter of 2014 and provided an operational update.

Highlights:

• Record Oil Production of 18,440 Bbls/d, 57% above the second quarter of 2013 
• Record Total Production of 33,319 Boe/d, 18% above the second quarter of 2013 
• Record Oil Revenue of $166.0 million, representing 86% of total revenue, and 57% above the second quarter of 2013 
• Record Total Revenue of $193.5 million, 44% above the second quarter of 2013 
• Income From Continuing Operations of $3.2 million, or $0.07 per diluted share, and Adjusted Net Income of $32.4 million, or $0.70 per diluted share
• Record Adjusted EBITDA of $144.2 million, 40% above the second quarter of 2013 
• Confirms 330 ft. downspacing in the Eagle Ford Shale
• Raising 2014 crude oil production growth target to 57%

S.P. "Chip" Johnson, IV, Carrizo's President and CEO, commented on the results, "This was another record quarter for Carrizo as we once again delivered crude oil production growth that exceeded our forecast. And impressively, we have now more than offset the gas-weighted Barnett Shale volumes we sold late last year, which accounted for more than 25% of our third quarter 2013 production, with oil-weighted production. Additionally, once we complete our remaining inventory of Marcellus Shale wells, the increase in our natural gas productive capacity alone should more than offset the impact of the Barnett divestiture."

"We continue to expand our Eagle Ford Shale inventory through additional acreage acquisitions and tighter spacing. Since the last update, we have added approximately 4,000 net bolt-on acres to our Eagle Ford position, bringing us to about 9,500 net acres for the year. On the downspacing front, we are pleased with the results from our initial 330 ft. tests, and have adjusted our development plan to include this spacing going forward. As a result, we've added another four years to our drilling inventory in the Eagle Ford Shale, bringing it to more than 15 years based on current activity levels."

"During the second quarter, we established a foothold in the condensate window of the Delaware Basin Wolfcamp trend. We have been studying the play for over two years and think that recent improvements in industry completion techniques have materially enhanced returns. We are looking for ways to expand our position and expect to drill or participate in at least one well in the next six months. We hope that this can become another growth driver for the Company."

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Operational Update

Carrizo Optimizes Eagle Ford Drilling Strategy; Ups Inventory

Carrizo Using Larger Rig in the Utica; Wraps Marcellus Ops for the Year

Carrizo Exceeds Type Curves in the Niobrara Shale

Delaware Basin Acquisitions

During the second quarter, Carrizo began to build a leasehold position in the Delaware Basin. To date, the Company has acquired more than 17,000 net undeveloped acres in Culberson and Reeves counties, Texas, that are prospective for the Wolfcamp Shale.

Financial & Operational Results

Carrizo reported second quarter of 2014 income from continuing operations of $3.2 million, or $0.07 per basic and diluted share as compared to income from continuing operations of $35.8 million, or $0.89 and $0.88 per basic and diluted share, respectively, in the second quarter of 2013. The income from continuing operations for the second quarter of 2014 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 income included below, for the second quarter of 2014 was $32.4 million, or $0.72 and $0.70 per basic and diluted share, respectively, compared to $24.0 million, or $0.60 and $0.59 per basic and diluted share, respectively, in the second quarter of 2013.

For the second quarter of 2014, adjusted earnings before interest, income taxes, depreciation, and depletion and amortization, as described in the statements of income included below, was $144.2 million, an increase of 40% from the prior year quarter.

Production volumes during the second quarter of 2014 were 3,032 MBoe, or 33,319 Boe/d, an increase of 18% versus the second quarter of 2013 and 27% versus the prior quarter. The year-over-year production growth was driven by strong results in each of the Company's operating regions, which more than offset the sale of the Company's remaining natural-gas-weighted Barnett Shale properties during the fourth quarter of 2013. Oil production during the second quarter of 2014 averaged 18,440 Bbls/d, while natural gas and NGL production averaged 89,308 Mcfe/d. Second quarter of 2014 production exceeded the high end of Company guidance due to strong performance from the Company's Eagle Ford Shale, Niobrara, and Marcellus Shale assets.

Drilling and completion capital expenditures for the second quarter of 2014 were $198.1 million. Approximately 78% of the second quarter drilling and completion spending was in the Eagle Ford Shale. Drilling and completion capital expenditures are expected to be lower in the third and fourth quarters as the Company is only running one frac crew in the Eagle Ford Shale for the remainder of the year, compared with two frac crews for much of the second quarter. Land and seismic expenditures during the quarter were $73.4 million. Carrizo is increasing its full-year 2014 drilling and completion capital expenditure guidance range by $25.0 million to $690.0-$710.0 million. The additional capital is expected to fund increased drilling and completion activity, as well as increased spending on facilities, in the Eagle Ford Shale. Carrizo is revising its 2014 land and seismic capital expenditure guidance to $130.0 million from $90.0 million. The incremental capital is expected to fund continued bolt-on acreage acquisitions in the Eagle Ford Shale and Utica Shale. Additionally, the Company began to build an acreage position in the Delaware Basin during the second quarter.

Due primarily to the continued strong performance from the Company's Eagle Ford Shale assets, Carrizo is increasing its 2014 oil production guidance to a range of 18,100-18,300 Bbls/d from 17,500-18,200 Bbls/d. Using the midpoints of these ranges, the Company's 2014 oil production growth guidance increases to 57% from 54%. For natural gas and NGLs, Carrizo is maintaining its 2014 guidance of 67-75 MMcfe/d. For the third quarter of 2014, Carrizo expects oil production to be 19,100-19,500 Bbls/d and natural gas and NGL production to be 55-65 MMcfe/d. The decrease in expected natural gas and NGL production for the third quarter is due to a significant amount of forecast voluntary production curtailments in response to the depressed local market prices in Appalachia.

Financial Position and Liquidity

As of June 30, 2014, Carrizo had total debt outstanding of $1,025.4 million and cash and cash equivalents of $8.6 million. Net Debt-to-Adjusted EBITDA (based on the trailing four quarters) was 2.1x for the second quarter. The borrowing base on the Company's senior credit facility is currently $570 million, and as of July 31, 2014, Carrizo had $103 million drawn on the facility.

Hedging Activity

Carrizo currently has hedges in place for over 75% of estimated crude oil production for the remainder of 2014 (based on the midpoint of guidance). For the balance of the year, the Company has hedged approximately 15,000 Bbls/d of crude oil at a weighted average floor price of $92.22/Bbl (comprised of 11,500 Bbls/d of swaps at an average price of $93.55/Bbl and 3,500 Bbls/d of collars at an average floor price of $87.85/Bbl).

Carrizo also has hedges in place for over 90% of estimated natural gas and NGL production for the remainder of 2014 (based on the midpoint of guidance). For the balance of the year, the Company has swaps on approximately 58,690 MMBtu/d at a weighted average price of $4.20/MMBtu.