Carrizo Oil & Gas Posts Second Quarter 2009 Results


Barnett Shale Play
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Carrizo Oil & Gas has reported the Company's financial results for the second quarter and first half of 2009 (including a revision to the first quarter 2009 ceiling test impairment as further described in the Company's Form 8-K filed August 10, 2009).

Production volumes during the three months ended June 30, 2009 were 7.89 Bcfe, 29 percent higher compared to 6.10 Bcfe during the second quarter of 2008. The increase was largely due to new production contributions from Barnett Shale development. Adjusted revenues from the sale of oil and natural gas production, which includes oil and gas revenues of $25.9 million and realized hedge settlements of $23.0 million, for the three months ended June 30, 2009 were $48.8 million, as compared to $56.0 million during the quarter ended June 30, 2008.

The decrease in adjusted revenues was primarily driven by significantly lower realized oil and natural gas prices, partially offset by increased production. Carrizo's average oil sales price decreased 50 percent to $56.95 per barrel compared to $113.90 per barrel for the second quarter of 2008 and the average natural gas sales price decreased 30 percent to $6.08 per Mcf compared to $8.68 per Mcf for the second quarter of 2008. The above prices include the impact of cash-settled hedges. Results excluding the impact from cash-settled hedges are presented in the table below. For the quarter ended June 30, 2009, the Company reported adjusted net income of $12.9 million, or $0.42 and $0.41 per basic and diluted share, respectively, excluding a net $19.0 million non-cash, after-tax expense, comprised of (1) a marked-to-market unrealized loss of $16.4 million on derivatives due in large part to the open positions that cash settled during the quarter and in part to the increase in commodity spot prices at June 30, 2009 compared to March 31, 2009, (2) stock compensation expense of $1.5 million, (3) non-cash interest expense of $1.0 million associated with the amortization of a portion of the equity premium on the Company's convertible notes and (4) $0.1 million of bad debt expense. The Company reported a net loss of $6.0 million, or $0.19 per basic and diluted share, for the quarter ended June 30, 2009, as compared to a net loss of $12.8 million, or $0.42 per basic and diluted share, for the same quarter during 2008.

EBITDA (earnings before interest, income tax, depreciation, amortization expenses, and certain other items) during the second quarter of 2009 was $35.3 million, or $1.14 and $1.13 per basic and diluted share, respectively, as compared to $35.0 million, or $1.14 and $1.12 per basic and diluted share, respectively, during the second quarter of 2008.

Lease operating expenses (excluding production taxes) were $6.3 million (or $0.79 per Mcfe) during the three months ended June 30, 2009 as compared to $5.8 million (or $0.95 per Mcfe) for the second quarter of 2008. The increase in costs was largely attributable to the 29% increase in production volumes from 6.1 Bcfe in the second quarter of 2008 to 7.9 Bcfe in the second quarter of 2009.

Transportation costs were $3.0 million (or $0.38 per Mcfe) during the three months ended June 30, 2009 as compared to $1.8 million (or $0.30 per Mcfe) during the second quarter of 2008. The increase in transportation costs of $0.08 per Mcfe was largely due to the greater proportion of the Company's total production volume attributable to the Barnett Shale Tarrant County area, which has a higher weighted-average transportation cost per Mcfe.

Production taxes were $0.3 million during the three months ended June 30, 2009 as compared to $1.6 million for the second quarter of 2008. The decline was primarily due to the decline in oil and gas revenues and in part to a $0.2 million severance tax refund from certain non-operated producing properties that qualified for a tight-gas sands tax credit for prior production periods.

Depreciation, depletion and amortization expenses ("DD&A") were $12.2 million during the three months ended June 30, 2009 ($1.55 per Mcfe) as compared to $13.9 million ($2.27 per Mcfe) during the second quarter of 2008. The lower DD&A expense was due primarily to a lower depletion rate resulting from the impairment charges which reduced the depletable full cost pool in the fourth quarter of 2008 and the first quarter of 2009, partially offset by increased production.

General and administrative expenses ("G&A") was $4.0 million during the three months ended June 30, 2009, comparable to the $4.2 million during the second quarter of 2008.

Non-cash, stock-based compensation expense was $2.3 million ($1.5 million after tax) for the three months ended June 30, 2009 compared to $1.5 million ($1.0 million after tax) for the same period in 2008. The increase was due primarily to additional deferred compensation awards and in part to the payment of quarterly bonuses with common stock, in lieu of cash.

A $2.3 million net loss on derivatives was recorded for the second quarter 2009 comprised of (1) a $25.3 million ($16.4 million after tax) unrealized marked-to-market, non-cash loss on natural gas derivatives and (2) a $23.0 million ($14.9 million after tax) gain for cash-settled natural gas derivatives.

Cash interest expense, net of amounts capitalized, was $3.1 million for the three months ended June 30, 2009 compared to $1.3 million for the three months ended June 30, 2008. The increase was primarily attributable to interest expense associated with the higher debt levels on the revolver facility.

Interest expense (non-cash), net of amounts capitalized increased to $1.4 million from $0.3 million primarily due to the amortization of the equity premium (in accordance with APB 14-1) associated with the Company's convertible notes.

Results for the Six Months Ended --
· Record Production of 16.2 Bcfe, or 89,237 Mcfe/d
· Revenue of $56.5 million or Adjusted Revenue of $102.1 million, including the impact of cash-settled hedges
· Net Loss of $130.2 million, or Adjusted Net Income of $27.7 million before non-cash net charges noted below
· EBITDA, as defined below, of $76.3 million

Production volumes during the six months ended June 30, 2009 were a record 16.15 Bcfe, 30 percent higher compared to 12.43 Bcfe during the same period in 2008. The increase was largely due to new production contributions from Barnett Shale development. Adjusted revenues from the sale of oil and natural gas production, which includes oil and gas revenues of $56.5 million and realized hedge settlements of $45.6 million, for the six months ended June 30, 2009 were $102.1 million, as compared to $108.1 million during the six months ended June 30, 2008. The decrease in adjusted revenues was primarily driven by significantly lower realized oil and natural gas prices, partially offset by increased production. Carrizo's average oil sales price decreased 20 percent to $80.52 per barrel compared to $100.57 per barrel for the first half of 2008 and the average natural gas sales price decreased 26 percent to $6.10 per Mcf compared to $8.27 per Mcf for the six months ended June 30, 2008. The above prices include the impact from cash-settled hedges. Results excluding the impact from cash-settled hedges are presented in the table below.

For the six months ended June 30, 2009, the Company reported adjusted net income of $27.7 million, or $0.90 and $0.89 per basic and diluted share, respectively, excluding a net $157.9 million non-cash, after-tax expense, comprised of (1) a non-cash impairment of oil and natural gas properties of $140.6 million (which reflects the impact of a correction for certain computational errors as discussed in the Company's Form 8-K filed on August 10, 2009), (2) a marked-to-market unrealized loss of $11.6 million on derivatives due in large part to the open positions that cash settled during the six months ended June 30, 2009 and partially offset by the decrease in commodity spot prices at June 30, 2009 compared to December 31, 2008, (3) stock compensation expense of $3.7 million, (4) non-cash interest expense of $1.8 million primarily associated with the amortization of a portion of the equity premium on the Company's convertible notes and (5) $0.2 million of bad debt expense. The Company reported a net loss of $130.2 million, or $4.21 per basic and diluted share, for the six months ended June 30, 2009, as compared to a net loss of $18.1 million, or $0.61 per basic and diluted share, for the same period during 2008.

EBITDA (earnings before interest, income tax, depreciation, amortization expenses, impairment of oil and natural gas properties and certain other items) during the first half of 2009 was $76.3 million, or $2.47 and $2.44 per basic and diluted share, respectively, as compared to $80.0 million, or $2.69 and $2.67 per basic and diluted share, respectively, during the first half of 2008.

Lease operating expenses (excluding production taxes and transportation costs) were $12.3 million (or $0.76 per Mcfe) during the six months ended June 30, 2009 as compared to $10.8 million (or $0.87 per Mcfe) for the same period of 2008. The increased costs are largely attributable to the 30% increase in production from 12.4 Bcfe for the six months ended June 30, 2008 to 16.2 Bcfe for the six months ended June 30, 2009.

Transportation costs were $6.3 million (or $0.39 per Mcfe) during the six months ended June 30, 2009 as compared to $4.1 million (or $0.33 per Mcfe) during the same period in 2008. The increase in transportation costs of $0.06 per Mcfe was largely due to the greater proportion of the Company's total production volume attributable to the Barnett Shale Tarrant County area, which has a higher weighted-average transportation cost per Mcfe.

Production taxes were a net benefit of $1.0 million during the six months ended June 30, 2009 due to a $1.9 million severance tax refund from certain wells that qualified for a tight-gas sands tax credit for prior production periods.

DD&A was $27.5 million during the six months ended June 30, 2009 ($1.70 per Mcfe) as compared to $28.0 million ($2.25 per Mcfe) during the second quarter of 2008. The decrease in DD&A expense was due primarily to the impairment charges in the fourth quarter of 2008 and the first quarter of 2009 which reduced the depletable full cost pool, partially offset by increased production.

G&A decreased to $8.2 million during the six months ended June 30, 2009 from $9.3 million during the same period in 2008 primarily due to lower employee-related costs, decreased insurance costs and lower legal and professional fees.

Non-cash, stock-based compensation expense was $5.7 million ($3.7 million after tax) for the six months ended June 30, 2009 as compared to $3.0 million ($1.9 million after tax) for the same period in 2008. The increase was due primarily to the issuance of common stock, in lieu of cash, to pay 2008 discretionary bonuses and quarterly bonuses to non-executive employees.

The significant decline in oil and natural gas prices during 2009 caused the discounted present value (discounted at 10 percent) of future net cash flows from proved oil and natural gas reserves to fall below the net book basis of the Company's proved oil and gas properties. This resulted in a non-cash, ceiling test write-down at the end of the first quarter of 2009 of $216.4 million ($140.6 million after tax), which includes the impact of a $35.8 million credit adjustment to correct for certain computational errors in the Company's originally reported first quarter 2009 impairment of $252.2 million. Refer to the Company's Form 8-K filed on August 10, 2009 for a more detailed explanation of this correction. Also refer to the Summary of Adjustment Impact to First Quarter 2009 Statement of Operations on the last page of this earnings release.

A $27.8 million net gain on derivatives was recorded for the first half of 2009 comprised of (1) a $17.8 million ($11.6 million after tax) unrealized marked-to-market, non-cash loss on oil and natural gas derivatives and (2) a $45.6 million ($29.6 million after tax) gain for cash settled oil and natural gas derivatives.

Cash interest expense, net of amounts capitalized, was $5.9 million for the six months ended June 30, 2009 compared to $4.0 million for the six months ended June 30, 2008. The increase was largely attributable to the higher debt levels on the revolver facility.

Interest expense (non-cash) increased to $2.8 million for the six months ended June 30, 2009 from $0.3 million for the six months ended June 30, 2008 primarily due to the partial amortization of the equity premium associated with the Company's convertible notes in accordance with the adoption of APB 14-1 on January 1, 2009.

S.P. "Chip" Johnson IV, Carrizo's President and Chief Executive Officer, commented, "We were pleased to achieve production for the quarter near the top of the range of our prior guidance. We had above average initial performance from some of the Barnett wells we put on production and our Gulf Coast production benefitted from a recompletion in South Louisiana. Our plans for the rest of the year remain unchanged as we continue to maintain tight controls on our spending levels in light of the current low price of natural gas. Our Barnett drilling remains on a pace to operate three rigs drilling mainly in the core area. Due to the large difference between current and forecasted 2010 gas prices, we continue to hold a large backlog of uncompleted Barnett Shale wells, representing an estimated net 87 Mmcfe per day of initial rate. We fracture stimulated and completed our first vertical Marcellus shale well, the Cowfer #1, in Centre County, PA., after the quarter's end and it has started flowing back frac water and natural gas.
 

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