In a bid to divest its non-core holdings to delever its balance sheet further, upstream oil company, Carrizo Oil & Gas, Inc.CRZO is set to offload a portion of its Eagle Ford portfolio to an undisclosed buyer in an all-cash transaction worth $245 million.
The divested assets include around 25,000 acres or nearly a quarter of the land it owns in the Eagle Ford shale play. These assets - located in the not-so promising down-dip area of the volatile oil window - produced approximately 3,400 barrels of oil equivalent per day in the third quarter of 2017. Production from the assets contributed to less than 10% of Carrizo's total output from the Eagle Ford shale.
Subject to satisfactory closing conditions and necessary regulatory approvals, the deal is set for completion by the end of January 2018. Following the closure, Carrizo will hold nearly 78,500 acres in the Eagle Ford play, with majority of the inventory located in the up-dip area of the volatile oil window.
The divestment is in line with the company's strategy, announced earlier this year, to sell its non-core assets. In the past few months, Carrizo has made various non-core divestitures in Marcellus, Utica, DJ Basin and Eagle Ford. These divestments will help the company generate proceeds of $530 million, helping it to improve its leverage metrics. It is to be noted that as of Sep 30, 2017, the company had long-term debt of $1,701 million with debt/capitalization ratio of 81.5%.
This year, various energy firms including Devon Energy Corporation DVN and Sanchez Energy Corporation SN among others have offloaded their non-core assets in Eagle Ford to shore up their financials and focus on promising regions.
Per Carrizo, sale of the non-core assets will enable high-return production growth. Further, the divestiture program of these assets has left Carrizo with core oil and gas resources that include 78,500 net acres in Eagle Ford Shale along with 43,600 net acres in the Delaware Basin. Streamlining of the portfolio is in sync with the company's aim to increase its focus on core areas. In this regard, Carrizo acquired Delaware Basin assets for $648 million this year to increase its core position in one of the highest-return plays in North America.
Headquartered in Houston, Carrizo is an independent oil and natural gas explorer engaged in exploration and production of oil and natural gas properties, predominantly in the Eagle Ford Shale of South Texas and Permian Basin of West Texas.
Carrizo's strong growth profile on the back of its exposure to these highly attractive basins bode well for the company. However, the massive debt burden of the company remains a concern. Further, the share performance of the company has been unimpressive in both absolute and relative terms. Year to date, shares of Carrizo have lost more than 47% compared with the industry 's decline of 22%.
The company currently carries a Zacks Rank #3(Hold).
A better-ranked player in the same industry is Northern Oil and Gas Inc. NOG , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Northern Oil and Gas delivered an average positive earnings surprise of 175% in the trailing four quarters.
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