Carrizo Oil & Gas Inc. (NASDAQ: CRZO) inched toward the halfway mark of its $300 million divestiture goal on Oct. 5 with an agreement to sell Marcellus Shale assets to help pay for an August Delaware Basin transaction.

The buyer, Kalnin Ventures LLC, said it purchased Carrizo’s assets, as well as those of a Reliance Industries Ltd. subsidiary, in separate deals totaling $210 million. With the deals, Kalnin is poised to become a major northeast gas producer.

Carrizo operates all of the assets and has been in a joint venture with Reliance Marcellus II LLC for seven years, according to Reliance Industries—the largest private-sector company in India.

Houston’s Carrizo said on Oct. 6 that its assets would be sold for $84 million cash and with additional contingency payments of $7.5 million based on price thresholds for natural gas during the next three years.

Carrizo’s Marcellus divestiture averaged more than 40 million cubic feet per day (MMcf/d) of natural gas in the first nine months of 2017. The transaction is expected to close by the end of November with an effective date of April 1, the company said.

Kalnin, which is backed by Banpu Pcl—a Thailand-based coal mining and power generation company, said the Carrizo and Reliance transactions add interests in 112 wells, including:

  • 98 producing wells
  • 11 drilled, uncompeleted (DUC) wells; and
  • Three temporarily abounded wells.

It’s unclear how much acreage Carrizo sold, with analyst reports reporting different figures.

At the end of December, Carrizo said it held 12,425 net acres in the Marcellus play, according to its annual report filed with the Securities and Exchange Commission. In April, the company reported in a presentation that its Northeast Pennsylvania Marcellus acreage consisted of 4,300 net acres.

Carrizo did not immediately respond to a message left asking about the acreage.

Brad Heffern, an analyst at RBC Capital Markets, said the Marcellus position consists of about 12,500 net acres with estimated third-quarter 2017 production averaging about 44 MMcf/d.

“We estimate the assets were sold for PDP value and in line with our NAV estimate which ascribe no upside valuation at $3 natural gas,” he said.

Brian Velie, an analyst at Capital One Securities, said Carrizo sold a 19,000 net acre position that, with production, represents 13% of the company’s total production and 2% of its EBITDA. The deal would reduce its leverage to 4x from 4.2x by the end of the year.

Carrizo’s goal is to raise about $300 million from divestitures to offset the August acquisition of Quantum Energy Partners-backed ExL Petroleum, in which the company agreed to pay $648 million for 16,588 net acres in Reeves and Ward counties, Texas. The Delaware deal could require Carrizo to pay an additional $125 million depending on the price of oil.

In early September, Carrizo said it would sell a portion of its Utica Shale assets, which include 25,900 net acres, for $62 million and additional, potential payments of $15 million for a total of $77 million. The company is still shopping its 31,200 net acre Niobrara position in the Denver-Julesburg (D-J) Basin, with an inventory of more than 640 net undrilled locations.

“Carrizo has now executed on two out of three noncore asset sales that were targeted by year-end,” Velie said. “Proceeds for the trifecta were originally expected to total about $300 million, which means that the remaining Niobrara needs to garner about $150 million to get there. For perspective, we carry $197 million of Niobrara value in our model. Management commented that interest in the package is strong and that they hope for a sale by year-end.”

S.P. “Chip” Johnson IV, Carrizo’s president and CEO, said in a news release that the company continues to execute on the divestiture program it outlined in August.

“We expect to close the sale of both of our Appalachian packages during the fourth quarter and remain on track to reach our divestiture program goals,” Johnson said. “Our D-J Basin package is currently being marketed and interest has been strong. We hope to be able to announce a sale of this asset later this quarter.”

Kalnin’s acquisitions—the company counts five in two years—have now reached a total investment of $417 million.

For Kalnin, the steady deal flow in the past two years—five transactions valued at $417 million—have positioned the company to become one of the top 20 natural gas producers in Pennsylvania. The company said in a news release it has an eye toward continued future growth.

Upon completion of this transaction, Kalnin will own interests in 355 active wells and net natural gas production of 160 MMcf/d.

Christopher Kalnin, managing director and co-founder of Kalnin Ventures, said the latest deal differs from its previous four by providing the opportunity to naturally expand into an operator position while also acquiring additional midstream assets.

“However, it is similar to prior deals in that we are acquiring profitable assets and enhancing them with technology and big data,” Kalnin said. “Our experience as a nonoperator, and now operator, coupled with our high-quality asset base and proprietary technology, has put us in a compelling position to expand further in the super core of the Marcellus.”

Kalnin’s October acquisition comprised largely within Wyoming and Susquehanna counties, Pa., and will immediately generate cash flows, Kalnin said.

Reliance Industries said it also sold Marcellus assets in Susquehanna, Wyoming and Clearfield counties, Pa., to BKV Chelsea LLC, an affiliate of Kalnin, for $126 million. Reliance could receive contingency payments of up to $11.25 million during the next three years.

Reliance retains nonoperated investments in the Marcellus Shale with Chevron Corp. (NYSE: CVX) and in the Eagle Ford with Pioneer Natural Resources (NYSE: PXD).

Willkie Farr & Gallagher LLP acted as legal adviser to Kalnin and its associates on the transactions.

Citigroup Global Markets Inc. acted as Reliance’s financial adviser. Haynes and Boone served as its legal counsel.

Darren Barbee can be reached at dbarbee@hartenergy.com.

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