Carrizo to acquire Delaware basin properties for $648 million

Carrizo Oil & Gas Inc., Houston, has agreed to buy 16,488 net acres in Reeves and Ward counties of West Texas from Midland-based ExL Petroleum Management LLC, a portfolio company of Houston private equity firm Quantum Energy Partners, for $648 million in cash.

Current net production from the acreage is 8,000 boe/d, of which 48% is oil, from 11 gross producing horizontal wells, with seven more wells currently in the drilling, completion, or flow back phases.

Of the total net acreage, 95% is operated and the average working interest is 70%. ExL is running four rigs on the properties to manage near-term leasehold obligations. Carrizo’s preliminary development plan assumes three rigs.

Recent horizontal wells on the acreage have derisked the Wolfcamp A, Upper Wolfcamp B, and Lower Wolfcamp B zones, Carrizo says. Assuming a development spacing pattern of 660 ft between horizontal laterals with 8 wells/section, Carrizo estimates the acreage contains more than 350 potential net locations in the zones.

Based on geochemical data and operator activity on and around the assets, Carrizo also sees development potential in the Avalon, 1st Bone Spring, 2nd Bone Spring, 3rd Bone Spring, Wolfcamp X/Y, Wolfcamp C, and Wolfcamp D zones. The firm projects an average estimated ultimate recovery of 1.3-1.5 million boe/well.

Carrizo describes the acreage as highly contiguous. The firm estimates the average lateral length for future wells will be 7,300 ft, with more than 40% of the acreage supporting 10,000-ft lateral wells.

Also part of the agreement, Carrizo will make a contingent payment to ExL of $50 million/year if West Texas Intermediate crude oil prices average more than $50/bbl in any calendar year during 2018-21, up to a maximum of $125 million.

Carrizo targeting Delaware, Eagle Ford

The deal, effective May 1 and expected to close in mid-August, will increase Carrizo's Delaware basin position to more than 42,500 net acres.

"With this acquisition, we believe we have assembled core positions with a deep inventory of future drilling locations in two of the highest-return plays in North America—the Eagle Ford shale and Delaware basin,” commented S.P. Johnson IV, Carrizo president and chief executive officer. The firm has 101,600 net acres in the Eagle Ford (OGJ Online, Oct. 25, 2016).

“Our plan going forward is to focus our efforts on these two regions and, as a result, we have elected to begin a monetization process for our noncore assets and expect to use the proceeds from these dispositions for debt reduction,” he said.

The firm plans to expand its Appalachia asset monetization program to include other noncore assets in its portfolio. It hopes to draw at least $300 million through the divestitures.

Based primarily on the performance of its Eagle Ford assets, Carrizo is increasing its second-quarter crude production guidance to 33,600-33,700 b/d from 31,800-32,200 b/d. For natural gas and NGLs, the firm is adjusting its second-quarter guidance to 71-73 MMcfd and 4,700-4,800 b/d, respectively.

The firm is increasing its full-year crude production guidance to 35,700-36,000 b/d from 32,400-32,700 b/d. Using the midpoint of the range, Carrizo’s new crude production growth guidance increases to 39%. The firm also is increasing its full-year total production guidance to 54,933-56,100 boe/d from 49,533-50,700 boe/d.

Contact Matt Zborowski at matthewz@ogjonline.com.

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