S&P Raises Carrizo Oil & Gas (CRZO) to 'B+'; Follows Revision of Growth Rate Assumptions

Standard & Poor's Ratings Services said that it raised its corporate credit rating on Houston-based Carrizo Oil & Gas, Inc. (Nasdaq: CRZO) to 'B+' from 'B'. The outlook is stable. At the same time, we raised our issue level rating on the company's senior unsecured debt to 'B' from 'B-'. Our '5' recovery rating on this debt remains unchanged, reflecting our expectation of modest (10% to 30%) recovery in the event of payment default.

The rating action reflects our revision of growth rate assumptions in Carrizo's oil production and reserves in 2015 following the company's continued drilling success in the Eagle Ford Shale. In the first six months of 2014, Carrizo's oil and liquids production increased to 18,800 barrels of oil equivalent (boe) per day on average from 11,700 boe per day in the same period last year. The company expects to achieve oil production growth of 57% in 2014 compared with an initial guidance of slightly more than 40%.

"The stable outlook reflects our view that Carrizo will continue to increase oil reserves and production while maintaining FFO to debt of about 45% and debt to EBITDA of about 2x or below," said Standard & Poor's credit analyst Christine Besset.

The positive outlook reflects the likelihood of an upgrade if Carrizo increases the size of its reserves in line with 'BB-' rated peers, while maintaining leverage below 3x on average.

We would consider a downgrade if production and reserves decreased significantly, the company materially increased debt funding such that leverage exceeded 3x on a sustained basis, or liquidity became less than adequate.

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