Carrizo Oil & Gas (CRZO) to Acquire Sanchez Energy (SN) Eagle Ford Shale Assets for $181M

October 24, 2016 4:14 PM EDT

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Carrizo Oil & Gas, Inc. (Nasdaq: CRZO) today announced that it has agreed to acquire Eagle Ford Shale properties from an affiliate of Sanchez Energy Corporation (NYSE: SN) for $181 million in cash, subject to customary closing adjustments. Additionally, Carrizo is providing estimated third quarter production.

Acquisition Highlights

  • Approximately 15,000 net bolt-on acres located primarily in the core volatile oil window of the Eagle Ford Shale in LaSalle, Frio, and McMullen counties, TX
  • Estimated net production during September of approximately 3,100 Boe/d (61% oil) from 112 gross (93 net) wells
  • Net proved reserves, based on the Company’s internal estimates, of 14.5 MMBoe (71% oil, 56% developed)
  • Approximately 80 net de-risked drilling locations based on a single layer development in the Lower Eagle Ford Shale, with additional upside potential from stagger-stack development, infill drilling, and additional zones
  • Acreage is 100% operated with no additional drilling requirements

On October 24, 2016, Carrizo signed a purchase and sale agreement to acquire approximately 15,000 net acres located primarily in the volatile oil window of the Eagle Ford Shale. Following the closing of the transaction, Carrizo will hold over 100,000 net acres in the Eagle Ford Shale, concentrated in LaSalle, McMullen, and Atascosa counties. Based on the Company’s current development spacing assumptions, which include only a single layer within the Lower Eagle Ford Shale, the acquisition increases Carrizo’s drilling inventory in the play to approximately 1,100 net locations.

The transaction has an effective date of June 1, 2016, and is currently expected to close by mid-December, 2016. Carrizo plans to fund the acquisition with the proceeds from a separately-announced equity financing.

S.P. “Chip” Johnson, IV, Carrizo’s President and CEO, commented, “We are pleased to announce this bolt-on acquisition in the Eagle Ford Shale, as it increases our acreage position in the play by more than 15% and expands our Core inventory in it by approximately 10%, with additional upside possible from a combination of infill drilling and multi-zone development. A number of the acquired properties are also contiguous with our Core acreage position, which should allow us to capitalize on efficiencies such as the ability to drill longer lateral wells from our existing leasehold. In addition to the increased inventory and potential operational efficiencies, we also believe the transaction is accretive on a variety of financial metrics, including cash flow and earnings per share.”

Third Quarter 2016 Update

Estimated production volumes during the third quarter of 2016 were 3,750 MBoe, or 40,762 Boe/d, an increase of 13% versus the third quarter of 2015. The year-over-year production growth was driven by strong results from the Company’s Eagle Ford Shale and Delaware Basin assets, as well as a lower level of voluntary curtailments in its Marcellus Shale assets. Oil production during the third quarter of 2016 averaged 24,488 Bbls/d, while natural gas and NGL production averaged 69,262 Mcf/d and 4,730 Bbls/d, respectively. Estimated third quarter of 2016 production exceeded the high end of Company guidance due primarily to stronger-than-expected performance from the Company’s Eagle Ford Shale and Delaware Basin assets as well as lower-than-planned levels of voluntary curtailments in its Marcellus Shale assets.

Hedging Update

Since June 30, 2016, Carrizo has added crude oil hedges for the second half of 2017. For the third and fourth quarters of 2017, the Company added swaps covering 6,000 Bbls/d and 3,000 Bbls/d of crude oil at average fixed prices of $54.15/Bbl and $55.01/Bbl, respectively. For 2017, Carrizo now has swaps covering an average of approximately 8,200 Bbls/d of crude oil at an average fixed price of $51.30/Bbl.

Additionally, the Company recently added natural gas hedges for 2017. For the full year of 2017, Carrizo added swaps covering 20,000 MMBtu/d of natural gas at an average fixed price of $3.30/MMBtu.

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