Shares of Carrizo Oil & Gas Inc (NASDAQ:CRZO) are soaring today, up nearly 13% as of 12:45 p.m. EDT, after an activist investor boosted its stake the company and called for it to pursue asset sales.
Kimmeridge Energy Management, which is a private equity manager focused on the energy sector, recently built a 8.1% stake in Carrizo Oil & Gas, according to an article by The Wall Street Journal. That's up from its previous 4.9% stake in the shale driller. Driving the increase was a desire to put more pressure on Carrizo to make changes given that it has been among the worst performers in the energy sector over the past year, tumbling 40% even with today's rally despite a 25% increase in the price of oil over that time frame.
Among the actions Kimmeridge wants Carrizo to take are to sell its assets in the Eagle Ford Shale play in South Texas to pay down debt, buy back stock, or invest more money into its Permian Basin position in the western part of the state. In addition to that, Kimmeridge wants the company to explore merging with a Permian-focused rival. Driving this call for a shakeup is Kimmeridge's view that Carrizo is too indebted and too small in each area to create value for investors in its current state.
It's a view that a growing number of oil companies have come to realize in the past year. QEP Resources took the first approach by announcing plans to pare its portfolio down to just the Permian. Those asset sales would give QEP Resources the cash to accelerate its development in the Permian, pay down debt, and buy back up to $1.25 billion in shares. RSP Permian, on the other hand, sold itself for a premium price to a Permian rival. Many industry watchers see the RSP Permian deal as a potential catalyst for a wave of merger and acquisition activity in the region. It's a surge that Kimmeridge would like to catch.
Activist investors are starting to agitate for change in the energy sector given how poorly many of these stocks have performed in the past year. While many companies were initially resistant to the proposed changes, a growing number are giving in to the demands. This activism could be just the catalyst that energy stocks need to get moving in the right direction.