Carrizo's Ambitious Plan to Grow Oil Production by 50%

Transforming from a gassy shale driller to an oily one, Carrizo has really turned itself around in the past three years. But this mid-cap company continues to make ambitious plans. This year, management expects to grow production by an impressive 50%.

Apr 2, 2014 at 3:17PM

You really have to hand it to Carrizo Oil & Gas (NASDAQ:CRZO). In 2010, management was honest enough to admit that its domestic, dry-gas focused shale strategy wasn't working. Since then Carrizo has been on a quest to transform itself into a shale oil play. It most certainly has done so. Carrizo sold off most of its core shale gas assets in North Texas, and has actively acquired assets in liquids-rich shales such as the Niobrara, the Utica, and most of all the Eagle Ford. 

Crzo Production Composition

CRZO Investor Relations

Since 2012 Carrizo has really grown its oil production, with the Eagle Ford driving the trend. This is important because oil currently carries higher returns and margins than does dry gas.

Last year Carrizo wowed investors by increasing its oil production target from 30% to 45%, and finished the year with oil production 48% higher than in 2012. 

Three or four years ago, many believed that shale oil production would begin decelerating by now. But if Carrizo's guidance is any indication, that deceleration has not come yet. Management has set an ambitious goal of 50% oil production growth in 2014. Here is how management plans on achieving this.

Eagle Ford focus
Quite a few of today's fast-growing E&P names got their start in the Eagle Ford shale. Take EOG Resources (NYSE:EOG), for example, which continues to grow its production in the high 20% range this year. Like EOG, much of Carrizo's operations are in the Eagle Ford.

Crzo Capex Pie

Source: Carrizo investor presentation

As we can see here, a majority of Carrizo's capital spending in 2014 will be funneled to one of the premier, mostly explored shale plays in the US; the Eagle Ford.

This year Carrizo will dedicate three rigs to the Eagle Ford, but management has commented that it could commit up to six rigs and drill straight through until 2019. As of now, Carrizo has drilled only 96 wells but has a probable inventory of 576 more wells which it can drill. 

The Utica
Carrizo's liquids-rich positioning in the Utica has thus far made this play a success, with early well economics comparable to those in the Eagle Ford. For example, at $85 oil, Carrizo's Utica wells are yielding a very nice 62% return. In 2014, Carrizo will drill and complete nine wells in the Utica.

Efficiencies and downspacing
When shale drilling began last decade, operations and equipment were more geared toward basin drilling, and hence were very inefficient in the shale. Many questioned how long shale drilling could go on in such a manner.

For their part, Carrizo's shale operations are unmistakably improving. Two new generations of rigs have resulted in cost reduction and increased footage drilled. More lateral stages are being pumped per day, and doing so costs less than it did just a couple years ago.

Crzo Potential Downspacer

Source: Carrizo Investor Presentation

Well downspacing also looks to add another 300 wells to Carrizo's probable inventory. I believe that additional upside could be realized as the Utica is developed. 

Bottom line
Carrizo's production growth is driven by the Eagle Ford. However, the Utica is also providing some good economics and later potential for additional production growth. Finally, efficiencies are improving profitability and continuing to add potential inventory. Although Carrizo's stock price has run up from 2012 levels, I believe the market is undervaluing the company's probable reserves. Therefore, Carrizo is still a good buy right here. 

It's not too late to profit from America's energy bonanza
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

 

Casey Hoerth has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers