HOUSTON–(BUSINESS WIRE)–Carrizo Oil & Gas, Inc. (Nasdaq: CRZO) today announced the Company’s financial results for the fourth quarter and year-end 2018 and provided an operational update. Highlights include:
Fourth Quarter 2018 Highlights
- Total production of 68,328 Boe/d, 9% above the fourth quarter of 2017 and 6% above the third quarter of 2018
- Crude oil production of 43,040 Bbls/d, 7% above the fourth quarter of 2017 and 5% above the third quarter of 2018
- Net income attributable to common shareholders of $255.1 million, or $2.75 per diluted share, and Net cash provided by operating activities of $188.3 million
- Adjusted net income attributable to common shareholders of $52.1 million, or $0.56 per diluted share, and Adjusted EBITDA of $170.7 million
Year-end 2018 Highlights
- Proved reserves of 329.4 MMBoe, a 26% increase over year-end 2017
- Standardized measure of discounted future net cash flows of $3.6 billion, and PV-10 of $4.1 billion, a 55% increase over year-end 2017
- 478% reserve replacement from all sources at a finding, development, and acquisition (FD&A) cost of $10.34 per Boe
Guidance and Operational Highlights
- As previously announced, 2019 DC&I capital expenditure plan of $525-$575 million, which is expected to deliver double-digit production growth while achieving positive free cash flow by the third quarter of the year
- Achievement of cost reductions and efficiency gains that have driven materially-lower well costs across the asset portfolio
- Encouraging results from initial two Wolfcamp C tests in the Delaware Basin
Carrizo reported fourth quarter of 2018 net income attributable to common shareholders of $255.1 million, or $2.79 and $2.75 per basic and diluted share, respectively, compared to a net loss attributable to common shareholders of $23.4 million, or $0.29 per basic and diluted share, in the fourth quarter of 2017. The net income attributable to common shareholders for the fourth quarter of 2018 and the net loss attributable to common shareholders for the fourth quarter of 2017 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 fourth quarter of 2018 was $52.1 million, or $0.56 per diluted share, compared to $47.9 million, or $0.58 per diluted share, in the fourth quarter of 2017.
For the fourth quarter of 2018, Adjusted EBITDA was $170.7 million. Adjusted EBITDA and the reconciliation to net income (loss) attributable to common shareholders and net cash provided by operating activities are presented in the non-GAAP reconciliation tables below.
Production volumes during the fourth quarter of 2018 were 6,286 MBoe, or 68,328 Boe/d, an increase of 9% versus the fourth quarter of 2017. The year-over-year growth was driven by the Delaware Basin, where the Company’s production increased by approximately 96%. Crude oil production during the fourth quarter of 2018 averaged 43,040 Bbls/d, an increase of 7% versus the fourth quarter of 2017; natural gas and NGL production were 83,067 Mcf/d and 11,443 Bbls/d, respectively, during the fourth quarter of 2018. Fourth quarter of 2018 production was within the Company’s guidance range of 67,700-68,700 Boe/d.
Drilling, completion, and infrastructure (DC&I) capital expenditures for the fourth quarter of 2018 were $175.4 million. Approximately 78% of the fourth 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 $4.0 million, and were primarily focused in the Delaware Basin.
Carrizo’s 2019 DC&I capital expenditure plan is unchanged from the recently-announced level of $525.0-$575.0 million. The Company currently expects to allocate approximately 60% of the capital to the Eagle Ford Shale, with the balance to the Delaware Basin. The 2019 plan implies a material improvement in capital efficiency relative to 2018. This results from a combination of service cost reductions, efficiency gains, and changes to completion techniques that have already been implemented. Combined, these factors have led to a material reduction in the Company’s well costs in both the Eagle Ford Shale and Delaware Basin.
Carrizo is reiterating its 2019 production guidance of 66,800-67,800 Boe/d. Crude oil production is expected to account for approximately 63% of the Company’s production for the year, while total liquids are expected to account for approximately 80%. This 2019 production guidance range equates to annual growth of approximately 11% at the midpoint. For the first quarter of the year, Carrizo expects production to be 61,100-62,100 Boe/d; crude oil is expected to account for 64% of production, while total liquids are expected to account for 81%. While the Company’s production is expected to decline sequentially in the first quarter due to the limited number of wells it turned to sales while drilling its multipad project wells in late 2018, the Company expects to see a material increase in its production during the second quarter as these wells come online.
A full summary of Carrizo’s guidance is provided in the attached tables.
S.P. “Chip” Johnson, IV, Carrizo’s President and CEO, commented on the results, “The fourth quarter capped off another strong operational year for Carrizo, and helped set the stage for us to achieve our goal of long-term growth within cash flow. Thanks to our team’s dedication and focus on driving efficiency gains and cost reductions throughout our operations, we have been able to announce a 2019 capital plan that equates to an approximate 35% reduction in spending, yet still delivers double-digit production growth versus 2018. Importantly, our 2019 plan also provides us with a clear path to a free-cash-flow-positive inflection point, which we currently expect to achieve in the third quarter of the year, and should provide us with positive operational momentum into 2020.
“Operationally, one of our key corporate initiatives has been increasing capital efficiency through the optimization of all phases of our drilling and completion programs. This includes a wide range of modifications to our Eagle Ford Shale completion design and well spacing, as well as a shift to larger-scale development projects in both the Eagle Ford Shale and Delaware Basin. These changes should drive improved project-level economics, and thus, improved corporate returns. In the Eagle Ford Shale, our recent activity has been focused on two large-scale multipad projects, comprising 36 wells. One of the multipad projects recently began production, while the other is expected to begin next quarter; these two projects should drive significant production growth during the year. In the Delaware Basin, we are currently completing what we believe to be the first six-well, four-layer co-development test of the Wolfcamp A, B, and C. Results from this project will provide us with significant information that will be used to optimize the future development of our acreage.
“In late 2018, we began testing additional targets within our pay stack in the Delaware Basin. In the Phantom area, we have completed two Wolfcamp C wells, with very encouraging results. In the Ford West area, we have begun testing the Wolfcamp B, with our initial well being part of a multi-layer co-development test. We are also quite pleased with the early results from this well. To date, we have not included any credit for the Wolfcamp B in the Ford West area or the Wolfcamp C in the Phantom area in our estimate of de-risked drilling inventory.
“During 2018, we continued to build upon our track record of strong reserve growth. For the year, our proved reserves increased by 26% to 329 MMBoe. This was driven by an increase of 98% in the Delaware Basin, which currently accounts for 55% of our proved reserves. Our reserve growth has also led to a material increase in our PV-10, which is currently estimated at $4.1 billion, up 55% versus year-end 2017.”
2018 Proved Reserves
The Company’s proved reserves as of December 31, 2018 were 329.4 MMBoe, including crude oil reserves of 179.7 MMBbls. The Company’s PV-10 was $4.1 billion as of December 31, 2018. PV-10 and the reconciliation to the standardized measure of discounted future net cash flows are presented in the non-GAAP reconciliation tables below.
The table below summarizes the Company’s year-end 2018 proved reserves and PV-10 by region as determined by the Company’s independent reservoir engineers, Ryder Scott Company, L.P., in accordance with Securities and Exchange Commission guidelines, using pricing for the twelve months ended December 31, 2018 based on the West Texas Intermediate benchmark crude oil price of $65.56/Bbl and the Henry Hub benchmark natural gas price of $3.10/MMBtu, before adjustment for differentials.
|Crude Oil||NGLs||Natural Gas||Total||PV-10|
|Eagle Ford Shale||110.9||19.2||114.1||149.1||$||2,691.8|
The table below summarizes the changes in the Company’s proved reserves during 2018.
|Crude Oil||NGLs||Natural Gas||Total|
|Proved reserves – December 31, 2017||167.4||42.6||310.5||261.7|
|Extensions and discoveries||65.3||30.2||212.8||131.0|
|Removed due to changes in development plan||(16.2||)||(2.8||)||(16.8||)||(21.8||)|
|Revisions of previous estimates||(15.1||)||4.7||10.8||(8.5||)|
|Purchases of reserves in place||2.2||1.0||7.9||4.5|
|Divestitures of reserves in place||(9.7||)||(2.9||)||(17.5||)||(15.5||)|
|Proved reserves – December 31, 2018||179.7||69.1||483.1||329.4|
|Proved developed – December 31, 2018||75.3||25.8||178.9||130.9|
The following table summarizes the Company’s costs incurred in oil and gas property acquisition, exploration, and development activities for the year ended December 31, 2018.
|Property acquisition costs|
|Total property acquisition costs||229.6|
|Total costs incurred (1)||$1,087.8|
|(1)||Total costs incurred includes capitalized general and administrative expense and asset retirement obligations and excludes capitalized interest.|
2018 highlights include:
- Total reserve replacement was 478% at an all-sources FD&A cost of $10.34 per Boe
- Drill-bit reserve replacement was 458% at a drill-bit F&D cost of $8.52 per Boe
- Total proved reserves increased to 329.4 MMBoe, a 26% increase versus year-end 2017
- Delaware Basin reserves increased to 180.3 MMBoe, a 98% increase versus year-end 2017
- Proved developed reserves increased to 130.9 MMBoe, a 20% increase versus year-end 2017
- PV-10 increased to $4.1 billion, a 55% increase versus year-end 2017
- Crude oil represents 55% of total proved reserves and 79% of PV-10 at December 31, 2018
In the Eagle Ford Shale, where the Company holds approximately 76,500 net acres, Carrizo drilled 38 gross (37 net) operated wells during the fourth quarter and completed 18 gross (16 net) operated wells. Production was approximately 38,600 Boe/d for the quarter, roughly flat with the prior quarter. Crude oil production during the fourth quarter was more than 30,600 Bbls/d, an increase of 2% versus the prior quarter; crude oil accounted for 79% of the Company’s production from the play. At the end of the quarter, Carrizo had 39 gross (39 net) operated Eagle Ford Shale wells waiting on completion. Carrizo currently expects to drill 50-55 gross (45-50 net) operated wells and complete 75-80 gross (70-75 net) operated wells in the play during 2019.
As the Company seeks to maximize capital efficiency and generate free cash flow in a mid-$50’s crude oil price environment, it has implemented a wide range of operational and strategic changes to its Eagle Ford Shale development plan. The operational modifications are primarily focused on completion design, and include discontinuing the use of diverter, optimizing sand concentration and frac stage length, utilizing locally-sourced frac sand, and returning to a hybrid frac design. As a result, Carrizo has recently been able to improve its completion pace to more than 9 stages per day versus 6-7 stages per day on average in 2018. Strategically, the Company believes that multipad development is the most profitable way to develop its remaining locations in the play, and plans to utilize this technique on the balance of its inventory. While the Company expects the impact of the completion changes combined with multipad development to be neutral to per-well EURs on a go-forward basis, the changes have helped reduce well costs by approximately 5% to $4.3 million for a 6,600-ft. lateral well and significantly reduced the impact of completions on offsetting parent wells. As a result, these changes should have a positive impact on Carrizo’s field-wide profitability and corporate-level returns.
Carrizo has also benefited from operational process improvements in the play. This, combined with refinements to data tracking and analysis, has allowed the Company to compress cycle times within development projects as lessons learned are transferred more quickly to the next well. During the fourth quarter, the Company drilled two of its longest laterals to date in the Eagle Ford Shale. With an average effective lateral of approximately 13,600 feet, these wells were drilled an average of four to six days faster than its prior longest well; and this was achieved despite the new wells having a 5%-10% longer lateral than the prior record well.
Based on the performance from its initial multipad project in the play, Carrizo began development of two additional multipad projects in the second half of 2018; a 15-well project in the Pena area and a 21-well project in the RPG area. The Pena project wells were completed in the middle of the first quarter and recently began flowback. Completion of the RPG project wells is underway and the wells are expected to begin coming online during the second quarter. These two projects should drive significant production growth during 2019.
In the Delaware Basin, where it holds more than 46,000 net acres, Carrizo drilled 5 gross (4 net) operated wells during the fourth quarter. Production was approximately 29,700 Boe/d for the quarter, up 16% versus the prior quarter. Crude oil production during the fourth quarter was approximately 12,400 Bbls/d, accounting for 42% of the Company’s production from the play. At the end of the quarter, Carrizo had 11 gross (9 net) operated Delaware Basin wells waiting on completion. Carrizo currently expects to drill 25-30 gross (20-25 net) operated wells and complete 20-25 gross (15-20 net) operated wells in the play during 2019.
Carrizo’s primary operational focus in the Delaware Basin during the first half of 2019 is testing multi-layer, co-development concepts in the Phantom area. The Company is currently completing the area’s first large-scale co-development test of the Wolfcamp A, B, and C, which consists of six wells testing four landing zones coupled with an extensive microseismic and production-tracer monitoring program. The frac sequencing for the program is designed to help assess created frac height, length, and barriers, as well as the impact of offset-frac stress shadowing for various configurations. This project, along with ongoing field study efforts, will help Carrizo evaluate potential improvements from co-development as well as optimize completion design, well spacing, and landing zone selection within each Wolfcamp layer.
During late 2018, Carrizo began its evaluation of the Wolfcamp C on its Phantom acreage. To date, the Company has drilled four Wolfcamp C wells and completed two in the area; initial production results have been very encouraging. The Woodson 36 Allocation B 20H began production during the fourth quarter and recently recorded a peak 90-day rate of more than 1,500 Boe/d (45% oil, 73% liquids) from a lateral of approximately 9,800 ft. The Company’s second Wolfcamp C well, the Zeman 40 Allocation F 42H, came online at the end of January and has thus far achieved a peak 24-hour rate in excess of 1,900 Boe/d (60% oil, 80% liquids) from a lateral of 7,750 ft.
In the Ford West area, Carrizo drilled and completed its initial multi-layer, co-development test during 2018. The three-well Liberator pad tested a staggered co-development of the Wolfcamp A and B, with the outside wells targeting the A and the middle well targeting the B; production began late last year. The Liberator State Unit 21H, which targeted the Wolfcamp B, recorded a peak 60-day rate of approximately 2,100 Boe/d (32% oil, 67% liquids) from a lateral of 11,850 ft., while the Liberator State Unit 20H and 22H, which both targeted the Wolfcamp A, recorded average peak 60-day rates of approximately 1,400 Boe/d (43% oil, 72% liquids) from an average lateral of approximately 8,100 ft. The Company has additional co-development tests planned for 2019 and expects to provide updates on these once it has sufficient production history.
Consistent with its goal of maximizing returns, Carrizo remains focused on driving down costs in its Delaware Basin operations. As it has in every other resource play in which it has operated, the Company has been able to achieve significant drilling efficiencies in its first 18 months of operations. Reduction in drilling days, logistical improvements, procurement of locally-sourced frac sand, and design optimizations have combined to yield a 10%-15% reduction in drilling cost per foot and completion cost per stage. As a result of these efforts, Carrizo has reduced its projected Delaware Basin well cost by approximately $1.0 million to approximately $8.5 million for a 7,000-ft. lateral.
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 for over 60% of estimated crude oil production for 2019 (based on the midpoint of guidance). For the year, the Company has 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.
Carrizo recently began to add 2020 crude oil hedges to its portfolio. 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 6,000 Bbls/d with an average floor price of $55.00/Bbl, ceiling price of $64.69/Bbl, and sub-floor price of $45.00/Bbl.
Please refer to the attached tables for full details of the Company’s commodity derivative contracts.
Conference Call Details
The Company will hold a conference call to discuss fourth quarter and year-end 2018 financial results on Tuesday, February 26, 2019 at 10:00 AM Central Standard Time. To participate in the call, please dial (800) 698-0460 (U.S. & Canada) or +1 (303) 223-4374 (Intl.) ten minutes before the call is scheduled to begin. A replay of the call will be available through Tuesday, March 5, 2019 at 12:00 PM Central Standard Time at (800) 633-8284 (U.S. & Canada) or +1 (402) 977-9140 (Intl.). The reservation number for the replay is 21915115 for U.S., Canadian, and International callers.
A simultaneous webcast of the call may be accessed over the internet by visiting the Carrizo website at http://www.carrizo.com, clicking on “Upcoming Events”, and then clicking on “2018 Fourth Quarter and Year-end Conference Call Webcast”. To listen, please go to the website in time to register and install any necessary software. The webcast will be archived for replay on the Carrizo website for 7 days.
Carrizo Oil & Gas, Inc. is a Houston-based energy company actively engaged in the exploration, development, and production of oil and gas from resource plays located in the United States. Our current operations are principally focused in proven, producing oil and gas plays primarily in the Eagle Ford Shale in South Texas and the Permian Basin in West Texas.
Statements in this release that are not historical facts, including but not limited to those related to capital requirements, expectations or projections, cost reductions, drilling, fracking and capital efficiencies, cycle times, growth within cash flow and timing of free cash flow generation, activity among basins, goals, leverage metrics, capital expenditure, infrastructure program, resource potential, guidance, results of tests, rig program, production, average well returns, estimated production results and financial performance, effects of transactions, targeted ratios and other metrics, timing, levels of and potential production, expectations regarding growth, oil and gas prices, drilling and completion activities and optimization, benefits of certain well completion designs, well spacing, landing zone optimization, drilling techniques, including multi-pad and multi-zone drilling, completion and development techniques, drilling inventory, including timing thereof, well costs, break-even prices, production mix, development plans, hedging activity, the Company’s or management’s intentions, beliefs, expectations, hopes, projections, assessment of risks, estimations, plans or predictions for the future, results of the Company’s strategies and other statements that are not historical facts are forward-looking statements that are based on current expectations. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that these expectations will prove correct. Important factors that could cause actual results to differ materially from those in the forward-looking statements include assumptions regarding well costs, Delaware Basin constraints, estimated recoveries, pricing and other factors affecting average well returns, results of wells and testing, failure of actual production to meet expectations, results of infrastructure program, failure to reach significant growth, performance of rig operators, spacing test results, availability of gathering systems, pipeline and other transportation issues, costs and availability of oilfield services, actions by governmental authorities, joint venture partners, industry partners, lenders and other third parties, actions by purchasers or sellers of properties, risks and effects of acquisitions and dispositions, market and other conditions, risks regarding financing, capital needs, availability of well connects, capital needs and uses, commodity price changes, effects of the global economy on exploration activity, results of and dependence on exploratory drilling activities, operating risks, right-of-way and other land issues, availability of capital and equipment, weather, and other risks described in the Company’s Form 10-K for the year ended December 31, 2017 and its other filings with the U.S. Securities and Exchange Commission. There can be no assurance any transaction described in this press release will occur on the terms or timing described, or at all.
(Financial Highlights to Follow)
|CARRIZO OIL & GAS, INC.|
|CONSOLIDATED BALANCE SHEETS|
|(In thousands, except share and per share amounts)|
|Cash and cash equivalents||$2,282||$9,540|
|Accounts receivable, net||99,723||107,441|
|Other current assets||8,460||5,897|
|Total current assets||150,369||122,878|
|Property and equipment|
|Oil and gas properties, full cost method|
|Proved properties, net||2,333,470||1,965,347|
|Unproved properties, not being amortized||673,833||660,287|
|Other property and equipment, net||11,221||10,176|
|Total property and equipment, net||3,018,524||2,635,810|
|Other long-term assets||16,207||19,616|
|Liabilities and Shareholders’ Equity|
|Revenues and royalties payable||49,003||52,154|
|Accrued capital expenditures||60,004||119,452|
|Other current liabilities||40,609||41,175|
|Total current liabilities||322,009||372,822|
|Asset retirement obligations||18,360||23,497|
|Deferred income taxes||8,017||3,635|
|Other long-term liabilities||6,980||51,650|
|Commitments and contingencies|
|Preferred stock, $0.01 par value, 10,000,000 shares authorized; 200,000 issued and outstanding as of December 31, 2018 and 250,000 issued and outstanding as of December 31, 2017||174,422||214,262|
|Common stock, $0.01 par value, 180,000,000 shares authorized; 91,627,738 issued and outstanding as of December 31, 2018 and 81,454,621 issued and outstanding as of December 31, 2017||916||815|
|Additional paid-in capital||2,131,535||1,926,056|
|Total shareholders’ equity||980,904||370,897|
|Total Liabilities and Shareholders’ Equity||$3,185,100||$2,778,304|
Carrizo Oil & Gas, Inc.
Jeffrey P. Hayden, CFA
VP – Investor Relations
Manager – Investor Relations