Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CRZO > SEC Filings for CRZO > Form 10-Q on 7-May-2014All Recent SEC Filings

Show all filings for CARRIZO OIL & GAS INC

Form 10-Q for CARRIZO OIL & GAS INC


7-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is management's discussion and analysis of the significant factors that affected the Company's financial position and results of operations during the periods included in the accompanying unaudited consolidated financial statements. You should read this in conjunction with the discussion under "Item 7A. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013, and the unaudited consolidated financial statements included in this quarterly report. General Overview
For the first quarter of 2014, we recognized record total revenues of $157.2 million and production of 2.4 MMBoe. The key drivers to our success for the three months ended March 31, 2014 included the following:
Drilling. See the table below for details of our operated drilling and completion activity in our primary areas of activity:
                       For the Three Months Ended March 31, 2014                     As of March 31, 2014
                                             Wells Brought on
                            Drilled             Production          Waiting on Completion       Producing        Rig count
Region                  Gross      Net        Gross        Net         Gross        Net      Gross      Net
Eagle Ford                 15     12.3           15       12.2            29       23.5       138     107.8             3
Niobrara                    7      2.0           14        5.5             6        1.7        88      38.1             1
Marcellus                   3      1.2           10        2.7            20        7.5        68      22.2             1
Utica                       -        -            1        0.9             -          -         1       0.9             -
Total                      25     15.5           40       21.3            55       32.7       295     169.0             5

Production. Our first quarter 2014 crude oil production of 1.4 MMBbls, or 15,022 Bbls/d, increased 61% from our first quarter 2013 production of 0.8 MMBbls, or 9,311 Bbls/d, primarily due to production from new wells in the Eagle Ford. Our first quarter 2014 natural gas production of 5.2 Bcf, or 57,978 Mcf/d, decreased 40% from our first quarter 2013 production of 8.7 Bcf, or 96,989 Mcf/d. This was primarily due to the sale of our remaining oil and gas properties in the Barnett to EnerVest Energy Institution Fund XIII-A, L.P., EnerVest Energy Institutional Fund XIII-WIB, L.P., EnerVest Energy Institutional Fund XIII-WIC, L.P., and EV Properties, L.P. (collectively, "EnerVest") in October 2013 partially offset by production from new wells in Marcellus.
Prices. Our average realized crude oil price during the first quarter of 2014 decreased 8% to $96.42 per Bbl from $104.39 per Bbl in the same period in 2013. Our average realized natural gas price during the first quarter of 2014 increased 62% to $4.02 per Mcf from $2.48 per Mcf in the same period in 2013. Commodity prices are affected by changes in market demand, overall economic activity, weather, pipeline capacity constraints, inventory storage levels, basis differentials and other factors. Our financial results are largely dependent on commodity prices, which are beyond our control and have been and are expected to remain volatile.
Results of Operations
Three Months Ended March 31, 2014, Compared to the Three Months Ended March 31, 2013
Revenues for the three months ended March 31, 2014 increased 40% to $157.2 million from $111.9 million for the same period in 2013 primarily due to the significant increase in oil production, partially offset by the decrease in oil prices. Production volumes for the three months ended March 31, 2014 and 2013 were 2.4 MMBoe. The relatively flat production from the first quarter of 2013 to the first quarter of 2014 was due to the EnerVest sale offset by increased production from new wells, primarily in the Eagle Ford and Marcellus. Average realized oil prices decreased 8% to $96.42 per Bbl in the first quarter of 2014 from $104.39 per Bbl in the same period in 2013. Average realized natural gas prices increased 62% to $4.02 per Mcf in the first quarter of 2014 from $2.48 per Mcf in the same period in 2013. Average realized NGL prices increased 31% to $35.47 per Bbl in the first quarter of 2014 from $27.14 per Bbl in the same period in 2013.

-19-

The following table summarizes total production volumes, daily production volumes, average realized prices and revenues for the three months ended March 31, 2014 and 2013:

                                                    Three Months Ended                 2014 Period
                                                        March 31,                Compared to 2013 Period
                                                                                Increase       % Increase
                                                    2014            2013       (Decrease)      (Decrease)
Total production volumes -
  Crude oil (MBbls)                                1,352              838           514            61  %
  NGLs (MBbls)                                       166              101            65            64  %
  Natural gas (MMcf)                               5,218            8,729        (3,511 )         (40 %)
    Total Natural gas and NGLs (MMcfe)             6,214            9,335        (3,121 )         (33 %)
Total barrels of oil equivalent (MBoe)             2,388            2,394            (6 )           -  %

Daily production volumes by product -
  Crude oil (Bbls/d)                              15,022            9,311         5,711            61  %
  NGLs (Bbls/d)                                    1,844            1,122           722            64  %
  Natural gas (Mcf/d)                             57,978           96,989       (39,011 )         (40 %)
    Total Natural gas and NGLs (Mcfe/d)           69,044          103,722       (34,678 )         (33 %)
Total barrels of oil equivalent (Boe/d)           26,533           26,600           (67 )           -  %

Daily production volumes by region (Boe/d) -
  Eagle Ford                                      16,049           10,312         5,737            56  %
  Niobrara                                         2,152              950         1,202           127  %
  Barnett                                              -            8,666        (8,666 )        (100 %)
  Marcellus                                        7,422            6,335         1,087            17  %
  Utica and other                                    910              337           573           170  %
Total barrels of oil equivalent (Boe/d)           26,533           26,600           (67 )           -  %

Average realized prices -
  Crude oil ($ per Bbl)                                 $96.42      $104.39        ($7.97)         (8 %)
  NGLs ($ per Bbl)                                 35.47            27.14          8.33            31  %
  Natural gas ($ per Mcf)                           4.02             2.48          1.54            62  %
    Total Natural gas and NGLs average
realized price ($ per Mcfe)                              $4.32        $2.62          $1.70         65  %
Total average realized price ($ per Boe)                $65.83       $46.74         $19.09         41  %

Revenues (In thousands) -
  Crude oil                                           $130,362      $87,482        $42,880         49  %
  NGLs                                             5,888            2,741         3,147           115  %
  Natural gas                                     20,962           21,678          (716 )          (3 %)
Total revenues                                        $157,212     $111,901        $45,311         40  %

Lease operating expenses for the three months ended March 31, 2014 increased to $12.6 million ($5.28 per Boe) from $10.2 million ($4.26 per Boe) for the same period in 2013. The increase in lease operating expenses is primarily due to increased operating costs associated with increased production from new wells in the Eagle Ford partially offset by the sale of Barnett to EnerVest. The increase in lease operating expense per Boe is primarily due to increased production from new wells in the Eagle Ford and the sale of Barnett to EnerVest. Production taxes increased to $6.1 million (3.9% of revenues) for the three months ended March 31, 2014 from $4.5 million (4.0% of revenues) for the same period in 2013 as a result of increased oil production. The decrease in production taxes as a percentage of revenues was primarily due to increased revenues in the Marcellus, which was not subject to a state production tax. Ad valorem taxes decreased to $1.4 million for the three months ended March 31, 2014 as compared to $1.9 million for the same period in 2013. The decrease in ad valorem taxes is primarily due to lower actual ad valorem taxes than previously estimated for the year ended December 31, 2013.

-20-

Depreciation, depletion and amortization ("DD&A") expense for the first quarter of 2014 increased to $64.6 million ($27.05 per Boe) from $45.7 million ($19.09 per Boe) in the first quarter of 2013. The increase in DD&A is attributable to the increase in the DD&A rate per Boe largely due to the impact of the significant decrease in natural gas reserves in the Barnett as a result of the EnerVest sale as well as the increase in crude oil reserves, primarily in the Eagle Ford, which have a higher finding cost per Boe than our natural gas reserves. The components of our DD&A expense were as follows:

                                                     Three Months Ended
                                                          March 31,
                                                     2014          2013
                                                       (In thousands)
DD&A of oil and gas properties                        $63,713       $45,042
Depreciation and amortization of other property
and equipment                                           743           548
Accretion of asset retirement obligations               138           107
Total DD&A                                            $64,594       $45,697

General and administrative expense increased to $28.3 million for the three months ended March 31, 2014 from $16.2 million for the corresponding period in 2013. The increase was primarily due to the award of annual bonuses to employees and executives occurring during the first quarter of 2014, whereas the award of annual bonuses to employees and executives occurred during the second quarter of 2013. The increase was also attributable to increased stock-based compensation expense associated with cash settled stock appreciation rights as a result of a larger increase in stock price during the three months ended March 31, 2014 as compared to the corresponding period in 2013.
The loss on derivative instruments, net for the three months ended March 31, 2014 amounted to $20.7 million primarily due to the upward shift in the futures curve of forecasted commodity prices for crude oil and natural gas from January 1, 2014 to March 31, 2014. The loss on derivative instruments, net for the three months ended March 31, 2013 amounted to $14.6 million primarily due to the upward shift in the futures curve of forecasted commodity prices for natural gas from January 1, 2013 to March 31, 2013.
Interest expense, net for the three months ended March 31, 2014 was $12.4 million as compared to $15.0 million for the same period in 2013. The decrease in interest expense, net was primarily due to the repurchase of the 4.375% convertible senior notes during the second quarter of 2013 as well as an increase in the amount of interest that was capitalized due to a higher average balance of unproved properties.
The effective income tax rate for the first quarter of 2014 and 2013 was 37.3% and 36.5%, respectively. These rates are higher than the U.S. federal statutory corporate income tax rate of 35% primarily due to the impact of state income taxes.
Liquidity and Capital Resources
2014 Capital Expenditure Plan and Funding Strategy. Our 2014 drilling and completion capital expenditure plan is $665.0 million to $685.0 million. Our 2014 leasehold and seismic capital expenditure plan is $90.0 million. We expect to allocate the majority of the land and seismic capital to acreage acquisitions in the Eagle Ford and Utica shales. We currently intend to finance the remainder of our 2014 capital expenditure plan primarily from the sources described below under "-Sources and Uses of Cash." Our capital program could vary depending upon various factors, including the availability and cost of drilling rigs, land and industry partner issues, our available cash flow and financing, success of drilling programs, weather delays, commodity prices, market conditions, the acquisition of leases with drilling commitments and other factors. Below is a summary of capital expenditures for the three months ended March 31, 2014:

                                 For the Three Months Ended
                                       March 31, 2014
                                       (In thousands)
Drilling and completion
Eagle Ford                                          $128,870
Niobrara                                             24,204
Utica                                                 2,238
Marcellus                                            13,736
Other                                                 1,649
   Total drilling and completion                    170,697
Leasehold and seismic                                27,268
Total                                               $197,965

-21-

Our capital expenditure plan and the capital expenditures included above exclude capitalized general and administrative expense, capitalized interest and asset retirement obligations.
Sources and Uses of Cash. Our primary use of cash is capital expenditures related to our drilling and completion programs and, to a lesser extent, our lease and seismic data acquisition programs. For the three months ended March 31, 2014, we funded our capital expenditures with cash provided by operations and cash on hand. Potential sources of future liquidity include the following:
Cash provided by operations and cash on hand. Cash flows from operations are highly dependent on commodity prices. As such, we hedge a portion of our forecasted production to mitigate the risk of a decline in oil and gas prices.

Borrowings under our revolving credit facility. At April 30, 2014, we had no borrowings outstanding and $0.9 million in letters of credit outstanding under the revolving credit facility, which reduce the amounts available under our revolving credit facility. The amount we are able to borrow with respect to the borrowing base of the revolving credit facility, which borrowing base is $570.0 million as of April 10, 2014, is subject to compliance with the financial covenants and other provisions of the credit agreement governing our revolving credit facility.

Asset sales. In order to fund our capital expenditure plan, we may consider the sale of certain properties or assets that are not part of our core business or are no longer deemed essential to our future growth, provided we are able to sell such assets on terms that are acceptable to us.

Securities offerings. As situations or conditions arise, we may choose to issue debt, equity or other instruments to supplement our cash flows. However, we may not be able to obtain such financing on terms that are acceptable to us, or at all.

Joint ventures. Joint ventures with third parties through which such third parties fund a portion of our exploration activities to earn an interest in our exploration acreage or purchase a portion of interests, or both.

Lease purchase option arrangements. Lease option agreements and land banking arrangements, such as those we have previously entered into in other plays.

Other sources. We may consider sale/leaseback transactions of certain capital assets, such as our remaining pipelines and compressors, which are not part of our core oil and gas exploration and production business.

Overview of Cash Flow Activities. Net cash provided by operating activities from continuing operations was $102.8 million and $91.2 million for the three months ended March 31, 2014 and 2013, respectively. The increase was primarily due to increased crude oil revenues, partially offset by an increase in cash operating and general and administrative expenses, net cash paid for derivative settlements and a net decrease in working capital related to operating activities.
Net cash used in investing activities from continuing operations were $195.1 million and $192.0 million for the three months ended March 31, 2014 and 2013, respectively and relate primarily to oil and gas capital expenditures associated with our capital expenditure plan.
Net cash provided by and net cash used in financing activities from continuing operations was not significant for the three months ended March 31, 2014 and 2013, respectively.
Liquidity and Cash Flow Outlook
Economic downturns may adversely affect our ability to access capital markets in the future. We currently believe that cash on hand, cash provided by operating activities and borrowings under our revolving credit facility will be sufficient to fund our immediate cash flow requirements. Cash provided by operating activities is primarily driven by production and commodity prices. To manage our exposure to commodity price risk and to provide a level of certainty in the cash flows to support our drilling and completion capital expenditure program, we hedge a portion of our forecasted production and, as of March 31, 2014, we had hedged 50,000 MMBtu/d of natural gas and 12,350 Bbls/d of crude oil for the remainder of 2014. At April 30, 2014, our borrowing base under our revolving credit facility is $570.0 million with no borrowings outstanding. Additionally, as described under "-Sources and Uses of Cash" above, the amount we are able to borrow with respect to the borrowing base is subject to compliance with the financial covenants and other provisions of the credit agreement governing the revolving credit facility. The borrowing base under our revolving credit facility is affected by our lenders' assumptions with respect to future oil and gas prices. Our borrowing base may decrease if our lenders reduce their expectations with respect to future oil and gas prices from those assumptions used to determine our existing borrowing base. The next borrowing base redetermination is expected to occur in the Fall of 2014.
If cash provided by operating activities from continuing operations, cash on hand and borrowings under our revolving credit facility and the other sources of cash described under "-Sources and Uses of Cash" are insufficient to fund the remainder of our 2014 capital expenditure plan, we may need to reduce our capital expenditure plan or seek other financing alternatives. We may not be able to obtain financing needed in the future on terms that would be acceptable to us, or at all. If we cannot obtain adequate

-22-

financing, we may be required to limit or defer a portion of our planned 2014 capital expenditure plan, thereby adversely affecting the recoverability and ultimate value of our oil and gas properties. Subject in each case to then existing market conditions and to our then expected liquidity needs, among other factors, we may use a portion of our internally generated cash flows, cash on hand, proceeds from asset sales or borrowings to reduce debt prior to scheduled maturities through debt repurchases, either in the open market or in privately negotiated transactions, through debt redemptions or tender offers, or through repayments of bank borrowings.
Contractual Obligations
The following table sets forth estimates of our contractual obligations as of March 31, 2014 (in thousands):

                                                                                                       2019 and
                             April-December 2014      2015        2016        2017         2018       Thereafter       Total
Long-term debt (1)                            -           -           -           -       $604,425       $300,000       $904,425
Interest on long-term debt
(2)                                      63,194      74,444      74,444      74,444       74,347         45,000        405,873
Operating leases                          1,243       1,792       1,770       1,770        1,770          6,194         14,539
Drilling and completion
services (3)                             21,017       9,892       1,165           -            -              -         32,074
 Pipeline volume
commitments (3)                             938       1,400       3,563       2,911        2,857          9,684         21,353
Asset retirement
obligations and other (4)                 7,566      10,672       5,890       2,351          936          7,192         34,607
Total Contractual
Obligations                               $93,958     $98,200     $86,832     $81,476     $684,335       $368,070     $1,412,871

(1) Long-term debt consists of the principal amounts of the 8.625% Senior Notes due 2018, the 7.50% Senior Notes due 2020 and other long-term debt due 2018.

(2) Cash payments for interest on the 8.625% Senior Notes due 2018, the 7.50% Senior Notes due 2020 and other long-term debt due 2018 are estimated assuming no principal repayments until the due dates of the instruments. No cash interest payments are assumed on the credit facility as there were no borrowings outstanding as of March 31, 2014.

(3) Drilling and completion services and pipeline volume commitments represent gross contractual obligations and accordingly, other joint owners in the properties operated by the Company will generally be billed for their working interest share of such costs.
(4) Asset retirement obligations and other are based on estimates and assumptions that affect the reported amounts as of March 31, 2014. Certain of such estimates and assumptions are inherently unpredictable and will differ from actuals results. See "Note 2. Summary of Significant Accounting Policies - Use of Estimates" for further discussion of estimates and assumptions that may affect the reported amounts.

Financing Arrangements
Senior Secured Revolving Credit Facility We are party to a senior secured revolving credit facility with Wells Fargo Bank, National Association as the administrative agent. The revolving credit facility is secured by substantially all of our U.S. assets and is guaranteed by all of our existing Material Domestic Subsidiaries (as defined in the credit agreement governing the revolving credit facility). Any subsidiary of ours that does not currently guarantee our obligations under our revolving credit facility that subsequently becomes a Material Domestic Subsidiary will be required to guarantee our obligations under our revolving credit facility.
As of March 31, 2014, the borrowing base was $470.0 million. As a result of the Spring 2014 borrowing base redetermination, effective April 10, 2014, the borrowing base was increased to $570.0 million. The borrowing base will be redetermined by the lenders at least semi-annually on each May 1 and November 1, with the next redetermination expected in Fall 2014. The amount we are able to borrow with respect to the borrowing base is subject to compliance with the financial covenants and other provisions of the credit agreement governing the revolving credit facility.
We are subject to certain covenants under the terms of the revolving credit facility, as amended, which include, but are not limited to, the maintenance of the following financial covenants: (1) a ratio Total Debt to EBITDA of not more than 4.00 to 1.00 and (2) a Current Ratio of not less than 1.00 to 1.00 (each of the capitalized terms used in the foregoing clauses (1) and (2) being as defined in the credit agreement governing the revolving credit facility). At March 31, 2014, the ratio of Total Debt to EBITDA was 2.03 to 1.00 and the Current Ratio was 2.10 to 1.00. As defined in the credit agreement governing the revolving credit facility, Total Debt is net of cash and cash equivalents and the Current Ratio includes an add back of the available borrowing capacity.
Our revolving credit facility also places restrictions on us and certain of our subsidiaries with respect to additional indebtedness, liens, dividends and other payments to shareholders, repurchases or redemptions of our common stock, redemptions of senior notes, investments, acquisitions, mergers, asset dispositions, transactions with affiliates, hedging transactions and other matters.
Our revolving credit facility is subject to customary events of default, including a change in control (as defined in the credit agreement governing our revolving credit facility). If an event of default occurs and is continuing, the Majority Lenders (as defined

-23-

in the credit agreement governing our revolving credit facility) may accelerate amounts due under the revolving credit facility (except for a bankruptcy event of default, in which case such amounts will automatically become due and payable).
At March 31, 2014, we had no borrowings outstanding under the revolving credit facility and had $0.9 million in letters of credit outstanding which reduced the amounts available under the revolving credit facility. Future availability under the $570.0 million borrowing base is subject to the terms and covenants of the revolving credit facility. The revolving credit facility is generally used to fund ongoing working capital needs and the remainder of our capital expenditure plan to the extent such amounts exceed the cash flow from operations, cash on hand proceeds from the sale of oil and gas properties and securities offerings. Critical Accounting Policies
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods reported. Certain of such estimates are inherently unpredictable and will differ from actual results. We have identified the following critical accounting policies and estimates used in the preparation of our financial statements: use of estimates, oil and gas properties, oil and gas reserve estimates, derivative instruments, income taxes and commitments and contingencies. These policies and estimates are described in our Annual Report on Form 10-K for the year ended December 31, 2013. We evaluate subsequent events through the date the financial statements are issued.
The table below presents results of the full cost ceiling test as of March 31, 2014 along with various pricing scenarios to demonstrate the sensitivity of our cost center ceiling to changes in 12 month average benchmark oil and gas prices underlying our average realized prices. This sensitivity analysis is as of March 31, 2014, and, accordingly, does not consider drilling results, production and prices subsequent to March 31, 2014 that may require revisions to our proved reserve estimates.

. . .
  Add CRZO to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CRZO - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.