Carrizo agreed to sell substantially all of its D-J Basin assets for up to $155 million when including contingency payments tied to oil prices. (Source: Hart Energy)
Carrizo Oil & Gas Inc. (NASDAQ: CRZO) said Nov. 27 it agreed to sell its Denver-Julesburg (D-J) Basin assets for up to $155 million, knocking out the third and final target of the Houston-based company’s divestiture program.
Following the conclusion of the divestitures, which also included its Appalachia asset sales, analysts said Carrizo will be “well-positioned” to execute in its core positions in the Eagle Ford Shale and Delaware Basin.
As part of an agreement entered Nov. 20, Carrizo will sell substantially all of its assets in the D-J Basin for $140 million cash plus up to $15 million in contingency payments dependent on oil prices during a three-year period. Net production from the assets during the third quarter was 2,427 barrels of oil equivalent per day (boe/d), 69% oil and 84% liquids, the company press release said.
Carrizo did not disclose the buyer or acreage size of the transaction. In its November investor presentation, the company held roughly 30,650 net acres primarily in Weld County, Colo., with development potential in the Niobrara A, B and C benches.
Gabriele Sorbara, an analyst with The Williams Capital Group, said the sales price for Carrizo’s D-J Basin assets were below the firm’s estimate of around $200 million. Ascribing a value of $30,000 per flowing boe of production, Carrizo received $57,684 per flowing boe and roughly $4,400 per undeveloped acre, according to estimates made by Sorbara in a Nov. 27 report.
“While the D-J Basin valuation falls short of our expectations, we believe the execution of its divestiture program should be viewed positive overall, as the company has streamlined the portfolio to two core assets [in the Eagle Ford Shale and Delaware Basin],” Sorbara said. “This should allow shares to garner greater investor interest driving multiple expansion.”
The $140 million in proceeds should cover an estimated outspend of $136 million in 2018 before the company becomes cash flow positive in 2019, Brian Velie, an analyst at Capital One Securities, said in a Nov. 27 report.
Carrizo set out in August to purge its portfolio in order to focus on its core assets in the Delaware Basin and Eagle Ford. At the time, the company said it expected to receive more than $300 million from the divestiture of its assets in the Marcellus, Utica and D-J Basin.
In total, Carrizo is expected to raise about $286 million in gross proceeds from its divestiture program or about 5% less in proceeds than its goal. However, potential contingency payments could bring the value of its divested assets up to $323.5 million depending on the price of oil over the next several years.
Pro forma the D-J divestiture, Carrizo’s portfolio consists of about 103,000 net acres in the Eagle Ford and roughly 43,600 net acres in the Delaware Basin. The company closed on the sale of its Marcellus and Utica assets earlier in November.
“The sale of the D-J Basin assets is another step towards achieving our leverage reduction goals and positioning Carrizo to be able to deliver strong, high-return production growth within cash flow,” S.P. “Chip” Johnson IV, Carrizo’s president and CEO, said in a statement.
As of third-quarter 2017 and pro forma for transactions to date, Sorbara estimates Carrizo has total debt of about $1.5 billion and total liquidity of $892.7 million. He noted that Carrizo has also previously discussed the possibility of selling non-strategic assets in the Eagle Ford and Delaware Basin with proceeds going towards reducing debt.
“We believe the company is well positioned to execute with a streamlined portfolio concentrated on two core assets,” he said.
Carrizo said it expects to close the D-J Basin sale in January. The effective date of the transaction is Sept. 1.
Emily Patsy can be reached at epatsy@hartenergy.com.
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