Quarterly / Earnings Reports | Second Quarter (2Q) Update

Carrizo Oil & Gas Details Q2 2019 Results

Email    |    Print    |    Bookmark

You Need to login first

   |    Friday,August 09,2019

Carrizo Oil & Gas, Inc. reported financial results for the second quarter of 2019 and provided an operational update.

Highlights include:

• Total production of 65,643 Boe/d, 15% above the second quarter of 2018 and 6% above the prior quarter
• Crude oil production of 44,413 Bbls/d, 17% above the second quarter of 2018 and 9% above the prior quarter
• Net income attributable to common shareholders of $102.2 million, or $1.10 per diluted share, and Net cash provided by operating activities of $176.7 million
• Adjusted net income attributable to common shareholders of $65.9 million, or $0.71 per diluted share, and Adjusted EBITDA of $188.4 million

Operational Highlights

• Production from new multipads in the Eagle Ford Shale deliver strong results
• Delaware Basin well costs averaged less than $7.5 million during the second quarter, below guidance of $7.8-$8.2 million
• Reducing 2019 DC&I capital expenditure guidance by approximately 5% while reiterating 2019 production guidance
• Entered into a definitive merger agreement pursuant to which Callon Petroleum Company will acquire Carrizo in an all-stock transaction valued at approximately $3.2 billion as of the date of public announcement of the merger agreement, inclusive of Carrizo's net debt

Carrizo reported second quarter of 2019 net income attributable to common shareholders of $102.2 million, or $1.10 per basic and diluted share, compared to net income attributable to common shareholders of $30.1 million, or $0.37 and $0.36 per basic and diluted share, respectively, in the second quarter of 2018. The net income attributable to common shareholders for the second quarter of 2019 and the second quarter of 2018 include certain items typically excluded from published estimates by the investment community. Adjusted net income attributable to common shareholders, which excludes the impact of these items as described in the non-GAAP reconciliation tables below, for the second quarter of 2019 was $65.9 million, or $0.71 per diluted share, compared to $66.6 million, or $0.79 per diluted share, in the second quarter of 2018.

For the second quarter of 2019, Adjusted EBITDA was $188.4 million. Adjusted EBITDA and the reconciliation to net income attributable to common shareholders and net cash provided by operating activities are presented in the non-GAAP reconciliation tables below.

Production volumes during the second quarter of 2019 were 5,974 MBoe, or 65,643 Boe/d, 15% higher than the second quarter of 2018 and 6% above the prior quarter. As previously disclosed in the "Second Quarter Update" portion of the Company's July 15, 2019 press release, total production was slightly below the Company's original guidance range of 66,500-67,500 Boe/d due to unexpected downtime at third-party midstream facilities, which negatively impacted second quarter production by more than 4,000 Boe/d. Adjusting for this impact, total production for the quarter would have exceeded the high end of the Company's guidance range. The year-over-year growth was driven by strong production from both of the Company's core plays. Crude oil production during the second quarter of 2019 averaged 44,413 Bbls/d, 17% higher than the second quarter of 2018 and 3% above the high end of the Company's guidance range; natural gas and NGL production were 64,805 Mcf/d and 10,429 Bbls/d, respectively, during the second quarter of 2019.

Drilling, completion, and infrastructure (DC&I) capital expenditures for the second quarter of 2019 were $131.1 million, at the low end of the Company's original guidance range of $130-$150 million. Approximately 66% of the second quarter DC&I spending was in the Eagle Ford Shale, with the balance in the Delaware Basin. Land and seismic capital expenditures during the quarter were $3.6 million, and were primarily focused in the Delaware Basin.

Based on efficiencies achieved year to date, Carrizo is reducing its 2019 DC&I capital expenditure guidance to $500-$550 million from $525-$575 million. The Company's 2019 development plan continues to call for it to run an average of 3-4 rigs during the year between its assets in the Eagle Ford Shale and Delaware Basin. Based on this level of activity, Carrizo is reiterating its 2019 production guidance. In light of the pending merger with Callon, Carrizo does not, in general, plan to provide or update guidance on commodity price realizations or expenses during the pendency of the merger. In addition, investors are cautioned not to rely on any prior forward-looking statements regarding these items, as they spoke only as of the date provided and were subject to the specific risks and uncertainties that accompanied such statements.

S.P. "Chip" Johnson, IV, Carrizo's President and CEO, commented on the results, "The second quarter was another strong quarter for Carrizo. Despite the impact of a material amount of weather-related downtime at a third-party midstream facility in June, we still delivered crude oil production that exceeded the high end of our guidance range. Our shift to large-scale multipad developments continues to pay dividends as these projects have delivered strong production and further efficiency gains. This can be seen in our capital spending so far this year, which has come in below our budgeted expectations. As a result, we are reducing our 2019 capex guidance range by approximately 5% while maintaining our production guidance for the year.

"We are excited about our pending merger with Callon, which should create a premier, oily mid-cap E&P company, with strong positions in the Permian Basin and Eagle Ford Shale. The added scale of the combined company should allow us to take the efficiencies we have already generated through large-scale multipad developments to the next level. I want to thank our management team and employees for all of their hard work and dedication over the years. We have accomplished a great deal at Carrizo, and it wouldn't have been possible without you."

Proposed Merger with Callon Petroleum

As previously announced on July 15, 2019, Carrizo and Callon entered into a definitive merger agreement, pursuant to which Callon will acquire Carrizo in an all-stock transaction valued at approximately $3.2 billion inclusive of Carrizo's net debt (based on Callon's stock price at the time of announcement). Shareholders of Carrizo will receive 2.05 shares of Callon common stock in exchange for each share of Carrizo common stock, and will own approximately 46% of the combined company, on a fully-diluted basis, immediately following the close of the merger. The transaction is expected to close in the fourth quarter of 2019, subject to the approval of both Carrizo and Callon shareholders, the satisfaction of certain regulatory approvals, and other customary closing conditions.

Operational Update

In the Eagle Ford Shale, where the Company holds approximately 77,000 net acres, Carrizo drilled 11 gross (10 net) operated wells during the second quarter and completed 30 gross (27 net) operated wells. Production from the play was more than 41,300 Boe/d for the quarter, up 5% versus the prior quarter as production from the Company's multipads continued to drive strong growth; crude oil accounted for 81% of the Company's production from the play. At the end of the quarter, Carrizo had 23 gross (21 net) operated Eagle Ford Shale wells in progress or waiting on completion. The Company is currently operating one rig in the Eagle Ford Shale.

Carrizo continues to be pleased with the performance of its large-scale multipads in the Eagle Ford Shale. During June, the Company brought on production from a 13-well multipad in its Brown Trust project area; to date, the project has achieved a peak 30-day rate of approximately 11,100 Boe/d (85% oil) from restricted chokes. During July, the Company brought on production from a 14-well multipad in its Irvin project area; to date, the project has achieved a peak 7-day rate of more than 8,000 Boe/d (93% oil) from restricted chokes. The average lateral length of the wells was approximately 6,100 ft. and 6,700 ft. for Brown Trust and Irvin, respectively.

In the Delaware Basin, where it holds approximately 45,000 net acres, Carrizo drilled 6 gross (5 net) operated wells during the second quarter and completed 3 gross (3 net) wells. Production from the play was approximately 24,300 Boe/d for the quarter, up 8% versus the prior quarter due to the strong performance of the Company's initial multilayer cube test in the play. Production during the quarter was negatively impacted by an extended period of downtime at a third-party gas processing plant due to significant damage associated with heavy thunderstorms; while Carrizo was able to lessen the impact by offloading production to a separate facility, this still caused the Company to materially curtail volumes during June. The impact of the plant downtime reduced Carrizo's second quarter production by more than 3,000 Boe/d (40% oil). The plant issues were remedied in early July and the Company's production has returned to normal. Crude oil production during the second quarter was approximately 10,900 Bbls/d, accounting for 45% of the Company's production from the play. At the end of the quarter, Carrizo had 10 gross (9 net) operated Delaware Basin wells in progress or waiting on completion. The Company is currently operating two rigs in the Delaware Basin.

Following up on the strong results from The Six, Carrizo's initial large-scale, co-development test of the Wolfcamp A, B, and C, the Company began drilling its next large-scale, co-development, or cube, test, the Dorothy-Sansom project. This project is a 7-well, 5-layer co-development test of the Wolfcamp A, B, and C, as well as the 3rd Bone Spring. Carrizo is currently drilling its fourth well in the project.

As Carrizo continues to prosecute on its full-scale, multi-well pad development program, the Company has been able to deliver continued efficiency gains and cost reductions. Since the beginning of the year, when Carrizo shifted to full-scale, multi-well pad development, it has drilled wells in approximately 20-25 days, well below the 30-35 days it targeted when setting the 2019 budget. The Company's shift to larger pads has also allowed it to achieve further completion efficiencies. During the second quarter, Carrizo's D&C cost for its operated Delaware Basin wells equated to less than $7.5 million for a 7,000-ft. effective lateral well, below its guidance range of $7.8-$8.2 million.

Hedging Activity

Hedging continues to be an important element of Carrizo's strategy to protect its balance sheet and provide predictable cash flows. As part of this strategy, the Company maintains an active hedging program while retaining the flexibility to benefit from commodity price increases. Carrizo currently has hedges in place covering 32,000 Bbls/d of crude oil production for the remainder of 2019, consisting of swaps covering 5,000 Bbls/d of crude oil at an average fixed price of $64.80 and three-way collars covering 27,000 Bbls/d of crude oil with an average floor price of $50.96/Bbl, ceiling price of $74.23/Bbl, and sub-floor price of $41.67/Bbl.

For 2020, the Company currently has swaps covering 3,000 Bbls/d of crude oil at an average fixed price of $55.06/Bbl and three-way collars covering 12,000 Bbls/d with an average floor price of $55.63/Bbl, ceiling price of $66.04/Bbl, and sub-floor price of $45.63/Bbl.

Please refer to the attached tables for full details of the Company's commodity derivative contracts.