EX-99.2 3 h44771exv99w2.htm PRESS RELEASE DATED MARCH 20, 2007 exv99w2
 

Exhibit 99.2
         
PRESS RELEASE
  Contact:   Carrizo Oil & Gas, Inc.
 
      B. Allen Connell, Director of Investor Relations
 
      Paul F. Boling, Chief Financial Officer
(713) 328-1000
CARRIZO OIL & GAS, INC. ANNOUNCES FOURTH QUARTER AND ANNUAL 2006 FINANCIAL RESULTS.
HOUSTON, March 20, 2007 — Carrizo Oil & Gas, Inc. (Nasdaq: CRZO) today reported the Company’s financial results for the fourth quarter of 2006, which included the following highlights:
Results for the Fourth Quarter 2006 —
•   Record Production of 3.66 Bcfe, or 39,740 Mcfe/d.
 
•   Revenue of $24.2 million.
 
•   Net Income of $4.3 million.
 
•   EBITDA, as defined below, of $19.5 million.
Production volumes during the three months ended December 31, 2006 were 3.66 Bcfe, 34 percent higher compared to 2.73 Bcfe during the fourth quarter of 2005. The increase was largely due to new production contributions from the Galloway Gas Unit II, well #1 and increased production from the Barnett Shale play. Revenues for the three months ended December 31, 2006 were $24.2 million, as compared to $28.1 million during the quarter ended December 31, 2005. The decrease in revenues was primarily driven by lower realized natural gas prices partially offset by higher production. Carrizo’s average oil sales price increased five percent to $59.09 per barrel compared to $56.43 per barrel during the fourth quarter of 2005, while the average natural gas sales price decreased 41 percent to $6.17 per Mcf compared to $10.40 per Mcf in the fourth quarter of 2005. The above prices exclude the cash effect of hedging activities. Prices that include the cash effect of hedges are presented in the table below.
The Company reported net income of $4.3 million, or $0.17 and $0.16 per basic and diluted share, respectively, for the three months ended December 31, 2006, as compared to $13.5 million, or $0.56 and $0.54 per basic and diluted share for the same quarter during 2005. Excluding $0.5 million of non-cash, after-tax expenses, comprised of the mark-to-market unrealized gain of $1.0 million on derivatives, the stock compensation expense of $0.6 million and the bad debt expense of $0.9 million, net income for the quarter ended December 31, 2006 was $4.8 million, or $0.19 and $0.18 per basic and diluted share, respectively.
EBITDA (earnings before interest, income tax, depreciation and amortization expenses, and certain other non-cash items) during the fourth quarter of 2006 was $19.5 million, or $0.76 and $0.74 per basic and diluted share, respectively, as compared to $20.4 million, or $0.84 and $0.82 per basic and diluted share, respectively, during the fourth quarter of 2005.

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Lease operating expenses (excluding production taxes) increased to $4.8 million during the three months ended December 31, 2006 as compared to $2.2 million for the fourth quarter of 2005, largely due to the increased well count of Barnett Shale wells, increased production from other wells drilled in 2006, higher workover expense, increased ad valorem taxes and the rising costs of oilfield services.
Depreciation, depletion and amortization expenses (“DD&A”) were $9.5 million during the three months ended December 31, 2006 ($2.60 per Mcfe) as compared to $7.0 million ($2.55 per Mcfe) during the fourth quarter of 2005. The increase in DD&A expense was due primarily to increased production.
General and administrative expenses (“G&A”) decreased to $2.1 million during the three months ended December 31, 2006 from $2.6 million during the same quarter of 2005 due largely to the decrease in contract labor costs that were associated with our integrated software migration project which is now largely complete.
During the fourth quarter of 2006, the Company recorded $1.4 million in bad debt expense largely attributable to an outside operator who filed for Chapter 11 bankruptcy in fourth quarter 2006. Accordingly, the Company has reserved a majority of its receivable due from the operator for October production and for certain cash advances on near-term drilling projects.
Non-cash stock-based compensation expense was $0.9 million ($0.6 million after tax) for the three months ended December 31, 2006.
The net gain on derivatives was $4.4 million during the three months ended December 31, 2006, comprised of (1) $1.5 million ($1.0 million after tax) for the unrealized mark-to-market, non-cash gain on derivatives ($2.4 million gain on oil and gas derivatives and $0.9 million loss on interest rate swaps) and (2) $2.9 million gain for cash settled derivatives ($2.0 million gain on oil and gas derivatives, $0.3 million gain on interest rate swaps and $0.6 million gain on the sell down of the interest rate swaps as a result of the amendment to the Company’s second lien credit facility in December 2006).
Interest expense, net of amounts capitalized, was $2.6 million for the three months ended December 31, 2006 compared to $2.2 million for the three months ended December 31, 2005. The increase is primarily attributable to the borrowings under the Company’s senior secured credit facility beginning in May 2006.
Results for the Year Ended 2006 —
•   Record production of 11.7 Bcfe.
 
•   Record revenue of $82.9 million.
 
•   Record Net Income of $18.2 million.

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•   EBITDA, as defined below, of $63.4 million.
Production volumes for the year ended December 31, 2006 were a record 11.7 Bcfe, 22 percent higher compared to 9.6 Bcfe during the same period of 2005. Revenues for the year ended December 31, 2006 were $82.9 million, an increase of 6.1 percent from 2005 revenues of $78.2 million. The increase in revenues was primarily driven by higher production. Carrizo’s average natural gas sales price for 2006 decreased 17 percent to $6.56 compared to $7.91 per Mcf in 2005, and the average oil sales price for 2006 increased 13 percent to $63.62 per barrel from $56.36 per barrel in 2005. The above prices exclude the cash effect of hedging activities. Prices that include cash effect of hedges are presented in the table below.
The Company reported net income of $18.2 million, or $0.74 and $0.71 per basic and diluted share, respectively, for the year ended December 31, 2006, as compared to $10.6 million, or $0.45 and $0.44 per basic and diluted share for the same period during 2005. Excluding a $3 million non-cash, after-tax benefit, comprised of the mark-to-market unrealized gain of $6.0 million on derivatives, the stock compensation expense of $1.9 million, the loss on early extinguishment of debt of $0.2 million, and the bad debt expense of $0.9 million, net income for the year ended December 31, 2006 was $15.2 million, or $0.61 and $0.60, respectively, per basic and diluted share.
EBITDA (earnings before interest, income tax, depreciation and amortization expenses, and certain other non-cash items) for 2006 was $63.4 million, or $2.55 and $2.48 per basic and diluted share, respectively, as compared to $56.2 million, or $2.39 and $2.31 per basic and diluted share, respectively, during 2005.
Lease operating expenses (excluding production taxes) increased to $13.0 million during the year ended 2006 as compared to $6.3 million for the same period of 2005 largely due to the increased well count of Barnett Shale wells, increased production, higher workover expenses, rising costs of oilfield services and higher ad valorem taxes.
Depreciation, depletion and amortization expenses (“DD&A”) were $31.1 million for 2006 ($2.66 per Mcfe) as compared to $21.4 million ($2.22 per Mcfe) during the same period of 2005. The increase in DD&A expense was due to increased production and an increase in the DD&A rate primarily due to additions to the proved property cost base.
General and administrative expenses (“G&A”) increased to $10.6 million during 2006 from $8.8 million during 2005. The increase in G&A was due primarily to higher incentive compensation and base salary costs of $0.1 million; increased contract labor costs of $1.1 million to cover certain accounting staff vacancies and to support the continued phase-in of our new integrated software system; and $0.2 million in higher audit fees primarily related to the Company’s 2005 financial restatement for mark-to-market accounting of derivatives.
Non-cash stock-based compensation expense was $2.9 million ($1.9 million after tax) for the year ended December 31, 2006 compared to $2.5 million for the prior year.

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The net gain on derivatives was $16.5 million for the year ended December 31, 2006, comprised of (1) $9.3 million ($6.0 million after tax) for the unrealized mark-to-market, non-cash gain on derivatives ($9.9 million gain on oil and gas derivatives and $0.6 million loss on interest rate swaps) and (2) $7.2 million for realized derivative gains ($5.6 million gain for oil and gas derivatives, $1.0 million gain on interest rate swaps and $0.6 million gain on the sell down of the interest rate swaps as a result of the amendment to the Company’s second lien credit facility in December 2006).
Loss on the early extinguishment of debt was $0.3 million ($0.2 million after tax) in connection with the Company’s refinancing of its first lien credit facility in May 2006. The Company’s borrowing base availability under its senior secured credit facility was $65.0 million with $41.0 million drawn and outstanding at December 31, 2006.
Interest expense, net of amounts capitalized, was $9.1 million for the year ended December 31, 2006 compared to $5.2 million for the same period in 2005. The increase was attributable to the higher debt level following the Company’s July 2005 refinancing and to borrowings under the Company’s senior secured credit facility beginning in May 2006.
S.P. Johnson IV, Carrizo’s President and Chief Executive Officer, commented, “Carrizo completed one of its best operational quarters on record, including record production of 39.7 MMcfe/d. We also continue to grow our Barnett Shale production which is currently about 21 MMcfe/d with several expected high rate wells waiting on pipeline hook-up.”
“We continue to define the Company’s upside potential with Barnett Shale downspacing. We have successfully completed the frac and have begun flow testing a horizontal Barnett Shale well drilled in ‘Tier 2’ Erath County, Texas. Two of our high potential ‘core’ wells in southeast Tarrant County, Texas tested with initial flowback rates of 4.2 MMcf/d and 6 MMcf/d which were still increasing when shut-in to run tubing. First production from these wells is expected in April.”
“We remain focused on expanding our acreage position in our other Shale plays, in which we now have over 240,000 net acres. In the Floyd Shale in Mississippi, where we have leased over 134,000 net acres, we have completed processing the data on our 3-D survey and recently spudded our first Floyd Shale well.”
“In the Gulf Coast, we successfully drilled our Doberman prospect in Liberty County, Texas, where we retained a 71 percent working interest, encountering 57 feet of pay. First production is expected in May 2007. In Harris County, the Baby Ruth discovery well went online to sales March 16th. The production rate is currently up to 6.5 MMcfe/d, and we expect it to be up to 10 MMcfe/d within three days. In Matagorda County, our company-operated Mega-Mata well has been logged and an initial flow test is scheduled later in March 2007.”
Carrizo Oil & Gas, Inc. is a Houston-based energy company actively engaged in the exploration, development, exploitation and production of oil and natural gas primarily in proven onshore trends along the Texas and Louisiana Gulf Coast regions and the Barnett Shale area in North

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Texas. Carrizo controls significant prospective acreage blocks and utilizes advanced 3-D seismic techniques to identify potential oil and gas reserves and drilling opportunities.
Statements in this news release, including but not limited to those relating to the Company’s or management’s intentions, beliefs, expectations, hopes, projections, assessment of risks, estimations, plans or predictions for the future, including high potential wells, production rate of Barnett Shale wells awaiting hook-up, timing of production from the wells in the “Tier 2” Erath County, Texas and in the Doberman prospect, production rate of the Baby Ruth discovery well, potential effects or timing, cash flow, the expected timing of drilling of additional wells, and other statements that are not historical facts are forward looking statements that are based on current expectations. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that these expectations will prove correct. Important factors that could cause actual results to differ materially from those in the forward looking statements include the results and dependence on exploratory drilling activities, operating risks, oil and gas price levels, land issues, availability of equipment, weather and other risks described in the Company’s Form 10-K/A for the year ended December 31, 2005 and its other filings with the Securities and Exchange Commission.
(Financial Highlights to Follow)

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CARRIZO OIL & GAS, INC.
STATEMENTS OF OPERATIONS
(unaudited)
                                 
    THREE MONTHS ENDED     YEAR ENDED  
    DECEMBER 31,     DECEMBER 31,  
    2006     2005     2006     2005  
 
Oil and natural gas revenues
   $ 24,218,311     $ 28,113,229     $ 82,945,234     $ 78,155,286  
 
 
                                
Costs and expenses:
                                
Lease operating expenses
     4,762,486       2,183,394       12,956,496       6,337,168  
Production tax
     684,792       1,184,865       3,470,338       4,100,067  
Depreciation, depletion and amortization
     9,498,613       6,983,562       31,128,925       21,374,051  
General and administrative expenses
     2,124,393       2,556,567       10,594,460       8,789,003  
Bad debt expense
     1,385,911       —       1,385,911       —  
Accretion expense related to asset retirement obligations
     259,605       17,531       496,774       70,121  
Stock-based compensation expense
     930,755       (491,506 )     2,929,620       2,453,598  
 
 
                                
Total costs and expenses
     19,646,555       12,434,413       62,962,524       43,124,008  
 
 
                                
Operating income
     4,571,756       15,678,816       19,982,710       35,031,278  
 
 
                                
Mark-to-market gain (loss) on derivatives, net
     1,523,184       7,883,849       9,257,035       (3,610,346 )
Realized gain (loss) on derivatives, net
     2,847,342       (1,583,660 )     7,200,577       (2,272,579 )
Gain on asset retirement obligation
     196,476       —       196,476       —  
Equity in income (loss) on Pinnacle Gas Resources, Inc.
     —       631,496       34,914       (2,541,935 )
Loss on extinguishment of debt
     —       —       (294,094 )     (3,721,021 )
Other income and expenses, net
     29,203       (165,126 )     231,517       (457,169 )
Interest income
     126,211       383,743       969,176       904,407  
Interest expense, net of amounts capitalized
     (2,577,496 )     (2,249,393 )     (9,095,923 )     (5,198,852 )
 
 
                                
Income before income taxes
     6,716,676       20,579,725       28,482,388       18,133,783  
 
 
                                
Income tax expense (benefit)
     2,440,675       7,047,839       10,233,752       7,500,332  
 
 
                                
Net income available to common shares
   $ 4,276,001     $ 13,531,886     $ 18,248,636     $ 10,633,451  
 
 
                                
EBITDA (see table below)
   $ 19,523,185     $ 20,439,617     $ 63,356,034     $ 56,199,299  
 
 
                                
Basic net income per common share
   $ 0.17     $ 0.56     $ 0.74     $ 0.45  
 
 
                                
Diluted net income per common share
   $ 0.16     $ 0.54     $ 0.71     $ 0.44  
 
 
                                
Basic weighted average common shares outstanding
     25,650,503       24,251,430       24,826,673       23,491,976  
 
 
                                
Diluted weighted average common shares outstanding
     26,433,762       25,047,409       25,564,502       24,361,453  
 
     
(A)   Interest expense, net of amounts capitalized, consists of the following:
                                 
Gross interest expense
   $ (5,318,540 )   $ (4,198,011 )   $ (19,070,792 )   $ (11,043,498 )
Capitalized interest
     2,741,044       1,948,618       9,974,869       5,844,646  
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CARRIZO OIL & GAS, INC.
CONDENSED BALANCE SHEETS
                 
    12/31/06     12/31/05  
    (unaudited)          
ASSETS:
                
Cash and cash equivalents
   $ 5,407,502     $ 28,724,993  
Fair value of derivative financial instruments
     5,737,056       —  
Other current assets
     29,912,455       31,459,236  
Property and equipment, net
     445,447,054       314,074,507  
Other assets
     5,519,325       6,156,559  
Investment in Pinnacle Gas Resources, Inc.
     2,771,266       2,687,199  
 
                
 
TOTAL ASSETS
   $ 494,794,658     $ 383,102,494  
 
 
                
LIABILITIES AND EQUITY:
                
Accounts payable and accrued liabilities
   $ 54,554,607     $ 46,778,992  
Fair value of derivative financial instruments
     —       1,563,059  
Current maturities of long-term debt
     1,507,931       1,534,989  
Long-term notes payable
     187,250,744       147,759,355  
Deferred income taxes
     33,832,471       24,550,569  
Other liabilities
     4,462,001       5,530,801  
Equity
     213,186,904       155,384,729  
 
                
 
TOTAL LIABILITIES AND EQUITY
   $ 494,794,658     $ 383,102,494  
 
Income tax expense for the year ended December 31, 2006 and 2005 includes a $9,828,973 and $7,236,502, respectively, provision for deferred income taxes and a $404,779 and $263,830, respectively, provision for currently payable franchise taxes.
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CARRIZO OIL & GAS, INC.
NON-GAAP DISCLOSURES
(unaudited)
                                 
    THREE MONTHS ENDED     YEAR ENDED  
Reconciliation of Net Income to EBITDA   DECEMBER 31,     DECEMBER 31,  
    2006     2005     2006     2005  
 
Net Income
   $ 4,276,001     $ 13,531,886     $ 18,248,636     $ 10,633,451  
 
 
                                
Adjustments:
                                
Depreciation, depletion and amortization
     9,498,613       6,983,562       31,128,925       21,374,051  
Unrealized mark-to-market (gain) loss on derivatives
     (1,523,184 )     (7,883,849 )     (9,257,035 )     3,610,346  
Gain on asset retirement obligation
     (196,476 )     —       (196,476 )     —  
Loss on extinguishment of debt
     —       —       294,094       3,721,021  
Interest expense, net of amounts capitalized and interest income
     2,451,285       1,865,650       8,126,747       4,294,445  
Income tax expense
     2,440,675       7,047,839       10,233,752       7,500,332  
Equity in Pinnacle Gas Resources, Inc.
     —       (631,496 )     (34,914 )     2,541,935  
Stock based compensation expense
     930,755       (491,506 )     2,929,620       2,453,598  
Bad debt expense
     1,385,911       —       1,385,911       —  
Accretion expense related to asset retirement obligations
     259,605       17,531       496,774       70,121  
 
 
                                
EBITDA, as defined
   $ 19,523,185     $ 20,439,617     $ 63,356,034     $ 56,199,299  
 
 
                                
EBITDA per basic common share
   $ 0.76     $ 0.84     $ 2.55     $ 2.39  
 
 
                                
EBITDA per diluted common share
   $ 0.74     $ 0.82     $ 2.48     $ 2.31  
 
CARRIZO OIL & GAS, INC.
PRODUCTION VOLUMES AND PRICES
(unaudited)
                                 
Production volumes-
                                
 
                                
Oil and condensate (Bbls)
     75,882       55,809       254,901       234,287  
Natural gas (Mcf)
     3,200,801       2,399,239       10,176,091       8,206,457  
Natural gas equivalent (Mcfe)
     3,656,093       2,734,093       11,705,497       9,612,179  
 
                                
Average sales prices-
                               
 
Oil and condensate (per Bbl)
   $ 59.09     $ 56.43     $ 63.62     $ 56.36  
Oil and condensate (per Bbl) — with hedge impact
   $ 59.15     $ 56.43     $ 63.21     $ 55.94  
Natural gas (per Mcf)
   $ 6.17     $ 10.40     $ 6.56     $ 7.91  
Natural gas (per Mcf) — with hedge impact
   $ 6.76     $ 9.74     $ 7.11     $ 7.65  
Natural gas equivalent (per Mcfe)
   $ 6.62     $ 10.28     $ 7.09     $ 8.13  

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