As the global economy stabilizes and economic activity gathers steam throughout the world, the global oil and gas sector is experiencing a huge upsurge in worldwide demand -- which takes me to Carrizo Oil & Gas (NASDAQ:CRZO), a small yet promising player in the American oil space. Being a value investor to the core, I am drawn to this Houston-based energy company for its sheer operational superiority, strong asset base, and strategic advantages.

Snapshot of the financials
The year 2012 saw the company celebrate a successful stint post its transition from a dedicated natural gas player to an oil-focused company. The past fiscal year saw the company's oil production grow by an impressive 257% from a year ago along with an astounding 85% upswing in EBITDA. High production combined with stable oil sales prices have together worked in the company's favor.

The success story has continued with the most recent quarterwhich was nothing short of spectacular as the company delivered stellar performances with respect to all the key metrics viz. production, revenue, and EBITDA. While the company achieved a 41% increase in production compared to the third quarter of 2012, reaching the 12,228 barrels of oil per day mark, revenue increased by an impressive 37% to $145 million alongside a 33% growth in EBITDA on a year-over-year basis.

The following figures bring out the significant gains in revenue and EBITDA that the company has achieved following its strategy shift.

 

Source: Company presentations 


Key strengths
With assets located in the three leading oil shale plays, namely the Eagle Ford, the Utica, and the Niobrara, the company looks set to go steady on its oil-centric strategy considering the Eagle Ford forms a 12-year drilling inventory with all locations already identified and lined up.
 
Along with its focus on developing resources to drive future growth, the company's focus on strengthening its balance sheet has paid well considering the debt/EBITDA ratio has gone down from 4.2 times a year and a half ago, to 1.7 times in the current fiscal year. In addition to that, the company recently acquired an additional 1,500 net acres in the Eagle Ford and 1,000 net acres in the Utica shale, further strengthening its strategic advantage in the field and solidifying its production potential.

Competitive landscape
Carrizo faces significant competition from Abraxas Petroleum (NASDAQ:AXAS) and Chesapeake Energy (NYSE:CHK) in the American E&P segment.

The most recent quarter saw Abraxas Petroleum deliver solid results as the company recorded EPS of $0.09, beating the consensus analyst estimate of $0.05 on the back of strong growth in oil volume (a year-over-year growth of 54%), and phenomenal growth in production of natural gas and oil barrels per day (the third quarter saw the company hit oil production to the tune of 4,800 barrels a day, highest in a decade, and at the same time maintaining a clean and strong balance sheet).

The company's long-term strategic plan with a focus on its highest return basins, principally the Bakken and the Eagle Ford, together with its well-planned exit from the non-core low return assets has certainly worked in favor of the company.

Moving forward, I believe the company has a lot of potential and looks poised for a long haul in the American E&P sector.

As the second largest producer of natural gas and the most active driller of onshore wells in the United States, Chesapeake Energy is one of the more prominent faces in the American E&P circuit. The results for the most recent quarter saw the company posting a profit of $156 million, as against the $2.1 billion loss posted for the same period a year ago, as a result of writedowns of the value of certain natural gas assets owned by the company.

Despite facing a decline of about 2% in production of oil and natural gas in the quarter as a result of asset sales, daily oil output rose as much as 23% from the same period a year ago.

Moving forward, the company in a bid to improve upon its financial leverage and strengthen its balance sheet will continue with its opportunistic asset sales all the way up to the first half of 2014.

Finally, the company's production rates in oil and natural gas liquids have gone up substantially and the asset sales have in a way helped the company with the twin benefits of declining maintenance costs and improvements in its overall liquidity position.

A Foolish take
With the American economy showing signs of development and the world economy coming out of a recession, demand for energy is only set to grow. 

 

 

Rohit Singh 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.