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Canaccord Genuity Morning Coffee on Carrizo Oil & Gas (CRZO): Sold!

March 19, 2012 10:54 AM EDT Send to a Friend
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Price: $64.18 -1.4%

Rating Summary:
    16 Buy, 8 Hold, 0 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 21 | Down: 35 | New: 7
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Canaccord Genuity Morning Coffee on Carrizo Oil & Gas (Nasdaq: CRZO): Sold!

Carrizo Oil & Gas announced the sale of 36 Mmcfepd and 312 Bcfe of proved reserves in the Barnett Shale for $190 million in cash. Transaction metrics of 5.3x production and $0.61/Mcfe were slightly better than Canaccord Genuity Energy Analyst John Gerdes’ expectation of 5.0x while the deal size was ~20% larger than he had anticipated. Gerdes sees the transaction as having a neutral impact on his valuation (most divestitures have a slightly negative impact). His current target price is based on a five-year cash flow and applies a 15% discount rate. From a liquidity standpoint, Gerdes says the transaction essentially covers this year’s cash flow shortfall. Looking forward, he estimates the company will be ~50% drawn on a $300-million revolver ($340 million current capacity) at year-end 2013 versus his prior expectation for a ~90% draw. This compares with the industry 2013E revolver draw and is an essentially comfortable liquidity position in his view. Carrizo represents one of his top small-cap picks given its organic transformation and valuation. With the Barnett sale now complete, Gerdes estimates oil will comprise 51% of 2013 production, versus a mere 11% of 2011 output. This is easily the most significant liquids transition in his coverage. He remains bullish on the name as Carrizo offers 2x the organic CFPS growth (2012E-2014E) of its peers although it trades at a mere 10% premium (2012E EBITDA).

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