Quarterly / Earnings Reports | Third Quarter (3Q) Update | Financial Results | Capital Markets

Carrizo Talks Q3 Results as Merger with Callon Approaches

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   |    Monday,November 04,2019

Carrizo Oil & Gas, Inc. reported its Q3 2019 results.

Highlights include:

• Total production of 69,971 Boe/d, 8% above the third quarter of 2018 and 7% above the prior quarter
• Crude oil production of 45,587 Bbls/d, 12% above the third quarter of 2018 and 3% above the prior quarter
• Net income attributable to common shareholders of $103.0 million, or $1.11 per diluted share, and Net cash provided by operating activities of $176.3 million
• Adjusted net income attributable to common shareholders of $63.7 million, or $0.69 per diluted share, and Adjusted EBITDA of $186.8 million

S.P. "Chip" Johnson, IV, Carrizo's President and CEO, commented on the results, "The third quarter was another strong quarter for Carrizo. We increased production by 7% sequentially while reducing our unit operating costs and capital expenditure run rate. Our team continues to deliver efficiency gains, and recently drilled an approximate 10,000-ft. lateral well in the Delaware Basin in under 19 days. These operational results provide us with significant momentum as we approach the potential closing of our merger with Callon.

"We remain excited about our pending merger, which should create a premier, oily mid-cap E&P company, with strong positions in the Permian Basin and Eagle Ford Shale. The combined company should be well positioned to continue to build on the efficiencies that each company has generated on a stand-alone basis, putting it in a strong position to generate free cash flow and create value for shareholders in the current market environment."

Q3 Production & Financials

Production volumes during the third quarter of 2019 were 6,437 MBoe, or 69,971 Boe/d, 8% higher than the third quarter of 2018 and 7% above the prior quarter. Crude oil production during the third quarter of 2019 averaged 45,587 Bbls/d, 12% higher than the third quarter of 2018 and 3% above the prior quarter; natural gas and NGL production were 76,630 Mcf/d and 11,612 Bbls/d, respectively, during the third quarter of 2019.

Drilling, completion, and infrastructure (DC&I) capital expenditures for the third quarter of 2019 were $119.0 million. Approximately 59% of the third 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 approximately $4.0 million.

Carrizo reported third quarter of 2019 net income attributable to common shareholders of $103.0 million, or $1.11 per basic and diluted share, compared to net income attributable to common shareholders of $76.1 million, or $0.88 and $0.85 per basic and diluted share, respectively, in the third quarter of 2018. The net income attributable to common shareholders for the third quarter of 2019 and the third 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 third quarter of 2019 was $63.7 million, or $0.69 per diluted share, compared to $84.1 million, or $0.94 per diluted share, in the third quarter of 2018.

For the third quarter of 2019, Adjusted EBITDA was $186.8 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.

In light of the pending merger with Callon Petroleum Company ("Callon"), Carrizo does not, in general, plan to provide or update guidance 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.

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 Carrizo Special Meeting of Shareholders to vote on the transaction is scheduled for November 14, 2019 at 9:00 AM Central Standard Time. The Carrizo Board of Directors unanimously recommends that common shareholders vote "FOR" the proposal to approve the merger.

Operational Update

In the Eagle Ford Shale, where the Company holds approximately 76,000 net acres, Carrizo drilled 11 gross (9 net) operated wells during the third quarter and completed 15 gross (15 net) operated wells. Production from the play was approximately 42,900 Boe/d for the quarter, up 4% versus the prior quarter; crude oil accounted for 81% of the Company's production from the play. At the end of the quarter, Carrizo had 16 gross (13 net) operated Eagle Ford Shale wells in progress or waiting on completion. The Company is currently operating two rigs in the Eagle Ford Shale.

In the Delaware Basin, where it holds approximately 46,000 net acres, Carrizo drilled 7 gross (6 net) operated wells during the third quarter and completed 7 gross (6 net) wells. Production from the play was approximately 27,000 Boe/d for the quarter, up 11% versus the prior quarter; crude oil accounted for 40% of the Company's production from the play. At the end of the quarter, Carrizo had 10 gross (8 net) operated Delaware Basin wells in progress or waiting on completion. The Company is currently operating two rigs in the Delaware Basin.

Carrizo continued to drive operational efficiencies in both plays during the third quarter. In the Delaware Basin, Carrizo set a Company drilling record at its Griffin State Unit 1922 11H well. The well targeted the Wolfcamp A with an approximate 10,000-ft. lateral and was drilled in under 19 days, equating to more than 1,115 ft./day. Total drilling cost for the well was less than $3.2 million, nearly 20% below the Company's target. Based on the efficiency gains achieved to date, Carrizo currently expects well costs in the Delaware Basin to be $6.7-$7.1 million for a 7,000-ft. effective lateral well, down from $7.8-$8.2 million previously. In the Eagle Ford Shale, the Company currently expects well costs to be $3.6-$3.8 million for a 6,600-ft. effective lateral well, down from $3.9-$4.1 million previously.

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 fourth quarter of 2019, consisting of swaps covering 5,000 Bbls/d of crude oil at an average fixed price of $64.80/Bbl 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 22,000 Bbls/d with an average floor price of $55.34/Bbl, ceiling price of $65.16/Bbl, and sub-floor price of $45.34/Bbl.