Carrizo Oil & Gas Posts Third Quarter '09 Financial Results
Carrizo Oil & Gas has reported the Company's financial results for the third quarter and nine months ended September 30, 2009 which included the following highlights:
Results for the Nine Months Ended --
- Record Production of 24.4 Bcfe, or 89,231 Mcfe/d
- Revenue of $83.8 million or Adjusted Revenue of $148.1 million, including the impact of cash-settled hedges
- Net Loss of $136.4 million, or Adjusted Net Income of $35.1 million before non-cash net charges noted below
- EBITDA, as defined below, of $109.4 million
Production volumes during the nine months ended September 30, 2009 were a record 24.36 Bcfe, 32 percent higher compared to 18.42 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 $83.8 million and realized hedge settlements of $64.3 million, for the nine months ended September 30, 2009 were $148.1 million, as compared to $164.9 million during the nine months ended September 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 28 percent to $75.68 per barrel compared to $104.66 per barrel for the nine months ended September 30, 2008 and the average natural gas sales price decreased 31 percent to $5.87 per Mcf compared to $8.53 per Mcf for the nine months ended September 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 nine months ended September 30, 2009, the Company reported adjusted net income of $35.1 million, or $1.13 and $1.12 per basic and diluted share, respectively, excluding a net $171.5 million non-cash, after-tax expense, comprised of (a) a non-cash impairment of oil and natural gas properties of $138.0 million (which reflects the impact of a correction for certain computational errors as discussed in the Company's Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2009 and the Company's Form 8-K filed with the SEC on August 10, 2009), (b) a marked-to-market unrealized loss of $24.6 million on derivatives (which is due in large part to the roll off of the September year-to-date hedges and to rising futures prices), (c) stock compensation expense of $5.4 million, (d) non-cash interest expense of $2.7 million primarily associated with the amortization of a portion of the equity premium on the Company's convertible notes, (e) general and administrative non-cash contribution expense of $0.6 million to UTA and (f) $0.2 million of bad debt expense. The Company reported a net loss of $136.4 million, or $4.40 per basic and diluted share, for the nine months ended September 30, 2009, as compared to a net income of $47.6 million, or $1.59 and $1.56 per basic and diluted share, respectively 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 nine months ended September 30, 2009 was $109.4 million, or $3.53 and $3.49 per basic and diluted share, respectively, as compared to $122.2 million, or $4.07 and $4.01 per basic and diluted share, respectively, during the same period of 2008.
Lease operating expenses (excluding production taxes and transportation costs) were $17.6 million (or $0.72 per Mcfe) during the nine months ended September 30, 2009 as compared to $16.9 million (or $0.92 per Mcfe) for the same period of 2008. The increased costs are largely attributable to the 32% increase in production from 18.4 Bcfe for the nine months ended September 30, 2008 to 24.4 Bcfe for the nine months ended September 30, 2009.
Transportation costs were $9.3 million (or $0.38 per Mcfe) during the nine months ended September 30, 2009 as compared to $6.4 million (or $0.35 per Mcfe) during the same period in 2008. The increase in transportation costs of $0.03 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 $0.4 million during the nine months ended September 30, 2009 as compared to $4.7 million for the same period in 2008. The decrease is 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 and due to the decline in oil and gas revenues.
DD&A was $40.0 million during the nine months ended September 30, 2009 ($1.64 per Mcfe) as compared to $41.9 million ($2.27 per Mcfe) during the same period 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 $12.2 million during the nine months ended September 30, 2009 from $13.5 million during the same period in 2008 primarily due to lower employee-related costs, decreased insurance costs and lower legal and professional fees.
During the third quarter of 2009, we made the first $100,000 cash payment of a $1.0 million pledge to establish a Carrizo Oil & Gas, Inc. endowed scholarship fund at the University of Texas at Arlington, a university which is located within the area of our significant operations in the Barnett Shale play. The Company has the option of paying the remaining portion of this pledge in shares of common stock.
Non-cash, stock-based compensation expense was $8.5 million ($5.4 million after tax) for the nine months ended September 30, 2009 as compared to $4.5 million ($3.0 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 ($138.0 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. Please read the Company's Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2009 and the Company's Form 8-K filed with the SEC on August 10, 2009) for a more detailed explanation of this correction.
A $25.8 million net gain on derivatives was recorded for the nine months ended September 30, 2009 comprised of (a) a $38.5 million ($24.6 million after tax) unrealized marked-to-market, non-cash loss on oil and natural gas derivatives and (b) a $64.3 million ($41.0 million after tax) gain for cash settled oil and natural gas derivatives.
Cash interest expense, net of amounts capitalized, was $9.3 million for the nine months ended September 30, 2009 compared to $5.5 million for the nine months ended September 30, 2008. The increase was largely attributable to the higher debt levels on the revolver facility.
Interest expense (non-cash) increased to $4.3 million for the nine months ended September 30, 2009 from $1.0 million for the nine months ended September 30, 2008 primarily due to the partial amortization of the equity premium associated with the Company's convertible notes in accordance with the adoption on January 1, 2009 of new accounting guidelines related to convertible debt instruments that may be settled in cash (including partial cash payment) upon conversion.
S.P. "Chip" Johnson IV, Carrizo's President and Chief Executive Officer, commented, "The key event for Carrizo since our last earnings release was the closing of the sale of our Barnett gas gathering system to Delphi Partners. The $34.7 million proceeds from the sale will further increase our financial flexibility. Our Barnett drilling and completion activities were conducted according to schedule and the 15 wells we brought on production performed as expected. During the course of the quarter, we periodically constrained some of our production due to low prices, so our announced production results somewhat understate our actual deliverability during the quarter. We feel that natural gas futures prices in 2010 have risen to the level where we will begin completing our backlog of 32 net Barnett Shale wells, mostly in SE Tarrant County and Denton County, Texas. We are excited to have begun the evaluation drilling phase of our Marcellus Shale operations. We have logged the Stang #1 and Loomis #1 wells drilled with Stone Energy in Susquehanna County, Pennsylvania (Carrizo has a 12 percent working interest). The log results meet our predrill expectations and these wells will be completed and production tested at a later date. The first horizontal Marcellus well Carrizo will participate in will be the Loomis 4H which is currently in the design phase but should spud by year end. In West Virginia, we currently have two wells drilling; the Carrizo Geary #1 is nearing total depth and the Carrizo Lee #1 is drilling ahead. The locations have been selected and the well pads are being prepared for our next three wells in the area, all of which we expect to spud before year end."
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