Carrizo O&G Briefs 1Q10 Results

Carrizo O&G reported financial results for the first quarter of 2010, which included the following highlights:

Results for the First Quarter 2010

  • Production of 8.3 Bcfe, or 91,855 Mcfe/d
  • Revenue of $39.0 million or Adjusted Revenue of $43.9 million, including the impact of realized hedges
  • Net Income of $19.7 million, or Adjusted Net Income of $11.2 million before the net non-cash items noted below
  • EBITDA, as defined below, of $32.3 million

Production volumes during the three months ended March 31, 2010 were the same as in the first quarter of 2009 at 8.3 Bcfe and lower by 0.4 Bcfe from fourth quarter 2009 production of 8.7 Bcfe. The change in production was primarily due to new Barnett Shale wells offset by a sale of an interest in a portion of Barnett Shale acreage to Sumitomo Corporation in December of 2009 and by normal production declines. Adjusted revenues from the sale of oil and natural gas production were $43.9 million for the first quarter of 2010, which includes oil and gas revenues of $39.0 million and realized hedge gains of $4.9 million, compared to $49.5 million for the first quarter of 2009, which includes oil and gas revenues of $30.7 million and realized hedge gains of $18.8 million. The decrease in adjusted revenues was primarily driven by lower realized oil and gas prices. Carrizo's average natural gas sales price decreased ten percent to $5.10 per Mcf for the first quarter of 2010 compared to $5.63 per Mcf for the first quarter of 2009 and the average oil sales price decreased 26% to $76.13 per barrel for the first quarter of 2010 compared to $102.42 per barrel for the first quarter of 2009. The above prices include the impact of realized hedges. Results excluding the impact of realized hedges are presented in the table below.

For the quarter ended March 31, 2010, the Company reported adjusted net income of $11.2 million, or $0.36 per basic and diluted share, excluding an aggregate net $8.5 million non-cash, after-tax gain, comprised of (1) an unrealized mark-to-market gain of $11.3 million on derivatives, (2) stock-based compensation expense of $1.4 million, (3) non-cash interest expense of $1.3 million associated with the amortization of the equity premium on the Company's convertible notes, and (4) bad debt expense of $0.1 million. For the quarter ended December 31, 2009, the Company reported adjusted net income of $12.5 million, or $0.41 and $0.40 per basic and diluted share, respectively, excluding an aggregate net $138.0 million non-cash, after-tax charge, comprised of (1) the impairment of oil and natural gas properties of $140.7 million, (2) an unrealized mark-to-market gain of $7.3 million on derivatives, (3) stock-based compensation expense of $2.2 million, (4) an impairment of investment of $1.3 million, (5) non-cash interest expense of $1.0 million associated with the amortization of the equity premium on the Company's convertible notes, and (6) bad debt expense of $0.1 million. The Company reported net income of $19.7 million, or $0.64 and $0.63 per basic and diluted share, respectively, for the quarter ended March 31, 2010, as compared to net loss of $125.5 million, or $4.07 per basic and diluted share, for the same quarter during 2009.

EBITDA (earnings before interest, income tax, depreciation, depletion and amortization expenses, impairment of oil and natural gas properties and certain other items described in the table below) during the first quarter of 2010 was $32.3 million, or $1.04 and $1.03 per basic and diluted share, respectively, as compared to $37.2 million, or $1.21 and $1.19 per basic and diluted share, respectively, during the first quarter of 2009.

Lease operating expenses (excluding production taxes, ad valorem taxes and transportation costs) were $3.7 million (or $0.45 per Mcfe) during the three months ended March 31, 2010 as compared to $5.2 million (or $0.63 per Mcfe) for the first quarter of 2009. The decrease in lease operating expenses was due to a decrease in service costs. The decline in service costs per Mcfe was driven primarily by the increase in production from our Tarrant County Barnett Shale area, which has comparatively less associated salt water production that must be disposed of than production from other areas.

Transportation costs were $1.3 million (or $0.16 per Mcfe) during the first quarter of 2010 as compared to $3.3 million (or $0.40 per Mcfe) during the first quarter of 2009. The decrease in transportation costs per Mcfe was largely due to a change in contracting strategy effective July 1, 2009 whereby natural gas production is now sold at the wellhead.

Production taxes were $0.9 million during the first quarter of 2010 as compared to a net benefit of $1.3 million during the first quarter of 2009. The increase is largely attributable to a $1.9 million severance tax refund in the first quarter of 2009 on certain wells that qualified for a tight-gas sands tax credit for prior production periods.

Depreciation, depletion and amortization expenses ("DD&A") were $9.8 million during the first quarter of 2010 ($1.19 per Mcfe) as compared to $15.3 million ($1.85 per Mcfe) during the first quarter of 2009. The lower DD&A expenses were due primarily to a lower depletion rate resulting from the impairment charges in the first and fourth quarters 2009, and due to lower overall finding costs of new reserves added in the fourth quarter of 2009.

Low oil and gas prices during 2009 caused the discounted present value (discounted at 10 percent) of future net cash flows from proved oil and gas reserves to fall below the net book basis of the proved oil and gas properties. This resulted in a pre-tax non-cash ceiling test write-down of $216.4 million at the end of the first quarter of 2009. There was no such write-down at the end of the first quarter of 2010.

General and administrative expenses ("G&A") were $4.4 million during the three months ended March 31, 2010 as compared to $4.3 million during the three months ended March 31, 2009.

Non-cash, stock-based compensation expense was $2.2 million for the three months ended March 31, 2010 compared to $3.4 million for the same period in 2009. The decrease was primarily due to additional deferred compensation awards that vested in the first quarter of 2009 related to the payment of 2008 discretionary stock-based bonuses to non-executive employees.

A $22.5 million net gain on derivatives was recorded for the first quarter of 2010 compared to a net gain of $30.1 million for the first quarter of 2009. The first quarter 2010 gain consisted of (1) the unrealized mark-to-market gain on natural gas derivatives of $17.6 million and (2) the realized gain on natural gas derivatives of $4.9 million. The first quarter 2009 gain consisted of (1) the unrealized mark-to-market gain on natural gas derivatives of $11.3 million, and (2) the realized gain on natural gas derivatives of $18.8 million.

Cash interest expense, net of amounts capitalized, was $3.2 million for the first quarter of 2010 compared to $2.5 million for the first quarter of 2009. The increase was primarily attributable to lower levels of capitalized interest and increased interest expense associated with the higher debt levels on the revolving credit facility.

Interest expense (non-cash), net of amounts capitalized increased to $2.1 million for the first quarter of 2010 from $1.6 million for the first quarter of 2009, due to lower levels of capitalized interest.

Effective May 5, 2010, the Company's banking syndicate, led by Wells Fargo as administrative agent, agreed to increase the borrowing base under the Company's senior credit facility to $375 million from $350 million, representing an increase of $25 million. As of April 30, 2010, the outstanding balance under the senior credit facility was approximately $163 million (or 43% of the $375 million borrowing base), representing available liquidity of $212 million.

Carrizo President and CEO S.P. "Chip" Johnson IV commented, "Our Barnett Shale development continues to proceed according to plan, with new wells performing at or above our expectations. Our fracing and completion program at our project on the University of Texas at Arlington campus is ahead of schedule. Though we had to shut in the six producing wells for varying periods during the frac process, they are currently all back on line. Eight of the sixteen new wells on the pad were completed in April, recently began flowback, and are now selling gas at expected rates and flowing pressures while cleaning up. The remaining eight new wells will be completed beginning in late May.

"We are moving forward in the execution of our new strategy to increase our liquids production. We recently closed on the acquisition of the previously disclosed Niobrara acreage block, with the final lease position amounting to over 45,800 net acres, all in Weld County, CO. We expect to have a Niobrara rig contracted to begin drilling in the third quarter. We have acquired more than 9,000 net acres in the Eagleford Shale and have secured a rig to drill our initial well in LaSalle County, TX later this summer. We continue to add to our leasehold in both plays. In the Marcellus Shale, we are preparing to fracture stimulate our wells drilled in West Virginia and are acquiring 3-D seismic data over our leases in Susquehanna, PA. We plan to commence full scale horizontal development drilling in this area in the fall."

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