If you've noticed how oil and natural gas prices have trended
the last few years, it's easy to see why an oil and gas producer
might want to increase its stake in the former and lower its
exposure to the latter.
The price of light sweet crude oil has risen by about 28% over
the last four years, even after prices tanked 15% on Sept. 10.
Meanwhile, the price of natural gas has declined about 20%.
So it's no surprise thatCarrizo Oil & Gas (
) has spent much of this decade increasing its stake in oil-rich
areas while selling off some of its assets in natural gas
Carrizo is engaged in the exploration and production of oil
and natural gas in several areas of the U.S., including the Eagle
Ford Shale in South Texas, the Niobrara Formation in Colorado,
the Marcellus Shale in Pennsylvania and the Utica Shale in
The company specializes in 3D seismic controlled horizontal
drilling, also known as hydraulic fracturing, or "fracking."
Whale Of A Shale
The technique is used to extract both crude oil and natural
gas from the ground. Lately, there has been a lot more crude
flowing through Carrizo's pipes. For that, it can thank a 2010
initiative to expand its oil operation in crude-rich areas such
as Eagle Ford and Niobrara.
"Carrizo has since been successfully executing its strategy,
which has resulted in impressive oil growth and improving cash
margins," noted Jeff Grampp, analyst at C.K. Cooper & Co.
That growth is reflected in Carrizo's recent production.
During its second quarter, the company logged record oil
production of 11,747 barrels per day, a 26% increase from the
previous quarter and a 54% gain from the prior year.
Oil revenue during the quarter climbed 55% from the prior year
to about $106 million and accounted for roughly 79% of total
The company has gotten a particular boost from the Eagle Ford
Shale, a sedimentary rock formation that began producing oil and
gas back in 2008.
"Their growth has been driven by a strong performance out of
Eagle Ford," said Leo Mariani, an analyst at RBC Capital Markets.
"Eagle Ford has been a really strong oil play with some of the
best returns in the U.S. Carrizo has benefited from strong
production results there."
While Carrizo has been expanding its operation in the Eagle
Ford, Niobrara and Utica plays, it has moved in the opposite
direction in the Barnett Shale, an onshore natural gas field in
On Sept. 4, Carrizo sold its remaining assets in the Barnett
as well as non-core assets in the East Texas Shale and Marcellus
Shale in Appalachia.
The firm said the deal was worth $268 million, including debt
and contractual commitments assumed by the purchasers. Carrizo
will use proceeds from the sale to pay down debt and finance
expansion efforts, mainly in the Eagle Ford.
In a statement, Carrizo Chief Executive Chip Johnson said the
sale of its Barnett and other assets represents "a natural step"
in the company's ongoing shift toward oil and liquids-rich
"This puts us in a strong position to continue our Eagle Ford
Shale and Niobrara developments, as well as ramp up our Utica
Shale activity in 2014," Johnson added.
The Utica Shale is a natural gas and oil play in the
Appalachian Basin. Carrizo has already drilled and cored through
its first well in the Utica play, says analyst Michael Glick of
"The company is now beginning to drill the horizontal portion
of the well, with an initial production expected in the back half
of the fourth quarter," Glick said.
Carrizo recently lifted its 2013 land and seismic capital
spending plan to $140 million from $124 million as it looks to
add acreage in the Eagle Ford Shale and Utica Shale.
The company also increased its 2013 oil production guidance to
a range of 11,100 to 11,500 barrels a day from previous guidance
of 10,600 to 11,200 barrels a day.
"They've always been good at getting in early and acquiring
land in new and exciting plays," analyst Mariani said.
That skill has helped Carrizo remain solidly profitable
through the years despite the volatile nature of the oil and gas
Over the past year and a half, the company has put together
one of its strongest financial runs, delivering double-digit or
better earnings and revenue growth in five of the last six
It logged second-quarter sales of $134.2 million, up 60% from
the prior year and above consensus Wall Street estimates.
Earnings more than doubled to 61 cents a share, topping views for
Carrizo shares touched a two-year high of 35.85 on Aug. 28 and
are up by about two-thirds since the beginning of the year.
The company is one of the smaller players in IBD's Oil &
Gas-U.S. Exploration & Production industry group, where the
largest names by market capitalization areAnadarko Petroleum (
),EOG Resources (
),Pioneer Natural Resources (
) andDevon Energy (
). The group is ranked No. 50 of 197 that IBD tracks.
Analysts expect Carrizo's full-year earnings to rise 51% to
$2.56 a share. The company's profit for 2014 is seen climbing 26%