Carrizo announced the closing of an unincorporated joint venture with a wholly owned subsidiary of GAIL. Under the joint venture agreement, Carrizo sold 20% of Carrizo's interest in approximately 20,200 net mineral acres leased by the Company in the highly prospective condensate zone of the Eagle Ford Shale for total consideration of $95 million, comprised of $63.65 million in cash and the assumption of an additional $31.35 million of Carrizo's future drilling and development costs ("drilling carry"). The cash proceeds from the transaction were used to reduce the outstanding balance under Carrizo's revolving credit facility. The consideration payable to Carrizo is subject to customary post-closing adjustments and indemnities.
The Eagle Ford Shale assets conveyed to GAIL under the terms of the agreement include approximately 4,040 net acres located primarily in La Salle County, Texas and a 20% interest in eight horizontal wells currently producing approximately 1,700 net barrels of oil per day (340 barrels per day net to GAIL) and 3,800 net Mcf per day of rich gas (760 Mcfpd net to GAIL). Carrizo's internally estimated mid-year 2011 proved reserves allocated to these acres amount to 13.8 million boe (2.76 million boe net to GAIL), of which 2.5 million boe are classified as proved developed (0.5 million boe net to GAIL). A drilling rig is currently in the process of drilling a four well pad on the joint venture property which is expected to be completed and brought on production near the end of this year. Carrizo continues as operator of these properties, and currently expects the $31.35 million drilling carry to be fully realized in less than one year.
Carrizo has recently executed purchase agreements for additional Eagle Ford acreage which will not be included in the joint venture with GAIL. After giving effect for the joint venture and assuming the closing of the expected acquisition of these new Eagle Ford Shale acres, Carrizo's net Eagle Ford Shale lease position would amount to approximately 41,000 net acres.
"We believe that this very attractive transaction with GAIL comes at an opportune time," Carrizo's President and CEO, S. P. "Chip" Johnson, IV, commented. "With the current uncertainty in the global financial markets, we felt it prudent to execute this transaction and take the opportunity to reduce our financial leverage and preserve our liquidity to be better prepared for whatever the future should hold. As we continue to control the pace of substantially all of our development activities, we have the flexibility to adjust our capital requirements as necessary. This joint venture further demonstrates the substantial imbedded value in our portfolio of assets. GAIL and Carrizo have been working towards formation of a joint venture for some time and our two companies have worked diligently together to structure a mutually beneficial agreement which met both our needs. We are pleased to welcome GAIL as our development partner in a portion of our assets in the Eagle Ford Shale."
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