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Related Party Transactions
12 Months Ended
Dec. 31, 2012
Related Party Transactions [Abstract]  
Related Party Transactions
11. Related Party Transactions
Transactions with Avista and affiliates
Utica Shale Joint Venture. In September 2011, the Company entered into a joint venture with affiliates of Avista to acquire and develop acreage in the liquids rich region of the Utica Shale. The Company serves as operator of the joint venture properties under joint operating agreements with ACP II and ACP III. The Company has also agreed to a management services agreement under which it will perform specified management services for ACP III on the same cost and reimbursement bases provided for in the joint operating agreements. Avista or its designee has the right to become a co-operator of the joint venture properties if (i) Avista sells substantially all of its interests in the Avista Utica joint venture or (ii) the Company defaults under the terms of any pledge of its interest in the properties. In addition to the Company's share in the production and sale proceeds from joint venture properties, the Company also acquired B Units in ACP III at the formation of the Avista Utica joint venture.
In the fourth quarter of 2012, the Company sold substantially all of its interests in oil and gas properties dedicated to its Utica joint venture in the northern portion of the Utica Shale play to an unrelated third party. Simultaneously with the closing of this transaction, ACP II sold substantially all of its interests in the same oil and gas properties.
In connection with these sale transactions, the Company elected to exercise its first option granted by Avista to increase its participating interest in the same oil and gas properties on a “net proceeds basis” so that the Company received net proceeds with respect to 50% of the properties subject to the sale rather than the 10% for which it held record title. Pursuant to the joint venture agreements, as amended, the Company paid $24.0 million for the 40% additional interest in the acreage subject to the sale and certain other Avista Utica joint venture properties. Subsequently, on October 24, 2012, the Company and Avista amended their Utica Shale joint venture agreements to provide that the expiration date of the Company’s remaining option to increase its participating interest in the Avista Utica joint venture properties was accelerated from March 2013 to January 15, 2013. The Company exercised this option on January 15, 2013 by paying $63.1 million for an additional 40% in the remaining Avista Utica joint venture properties. The Company and Avista also agreed that after the option was exercised, the Company’s participating interest in subsequently acquired properties within an area of mutual interest continued to be 10%, and Avista’s participating interest is 90%, and the Company was granted an additional option to increase its 10% ownership in such subsequently acquired properties to 50% at 8.625% above Avista’s acreage cost and associated improvements (compounded monthly following Avista’s contribution of purchase proceeds). This additional option will expire May 31, 2013. Additionally, the Company and Avista agreed to increase the cap on ACP III’s contribution right to an aggregate of $170.0 million from an initial $130.0 million. The Company's right to receive distributions associated with the properties owned by ACP II in the Avista Utica joint venture through its B Units in ACP II was terminated upon the consummation of the Company’s exercise of its option with respect to 50% of the properties subject to the sale described above. The Company's right to receive distributions associated with the properties owned by ACP III through its B Units in ACP III terminated upon the consummation of the Company’s January 15, 2013 option to increase its interest in the Avista Utica joint venture properties.
Steven A. Webster, Chairman of the Company’s Board of Directors, serves as Co-Managing Partner and President of Avista Capital Holdings, LP, which has the ability to control Avista and its affiliates. ACP II’s and III’s Boards of Managers have the sole authority for determining whether, when and to what extent any cash distributions will be declared and paid to members of ACP II or ACP III, respectively. Mr. Webster is not a member of either entity’s Board of Managers.
Marcellus Shale Joint Ventures. Effective August 1, 2008, Carrizo (Marcellus) LLC, a wholly owned subsidiary of the Company, entered into a joint venture arrangement with ACP II, an affiliate of Avista. In September 2010, the Company completed the sale of 20% of its interests in substantially all of its oil and gas properties in Pennsylvania that had been subject to the Avista joint venture to Reliance. Simultaneously with the closing of this transaction, ACP II closed the sale of its entire interest in the same properties to Reliance for a purchase price of approximately $327.0 million. At the time of entering into the agreements for these transactions, the Company and Avista agreed that B Unit distributions to the Company with respect to Avista’s sale of properties to Reliance would be principally based upon Avista’s internal rates-of-return and return-on-investment thresholds associated with such properties, subject to amounts withheld from distribution by ACP II’s board. In connection with these sales transactions, the Company and Avista amended the participation agreement and other joint venture agreements with Avista to provide that the properties that the Company and Avista sold to Reliance, as well as the properties the Company committed to the new joint venture with Reliance, are not subject to the terms of the Avista Marcellus joint venture, and that the Avista Marcellus joint venture’s area of mutual interest will generally not include Pennsylvania, the state in which those properties are located. The Company’s joint venture with Avista continues and now covers approximately 71,774 net acres, primarily in West Virginia and New York. Pursuant to the terms of the Avista area of mutual interest, effective December 31, 2010, the initial area of mutual interest was reduced to specified halos in which the Avista Marcellus joint venture was active.
In December 2010, the Company entered into a settlement agreement with Reliance providing for the resolution of defects in title that Reliance alleged with respect to the properties it acquired from the Company and Avista in September 2010. In the agreement, the Company agreed to undertake specified curative measures with respect to the properties it and Avista sold to Reliance, and to indemnify Reliance on its own behalf and on behalf of Avista with respect to specified third party claims (in addition to existing customary indemnification obligations under the purchase agreement). In connection with entering into the settlement agreement, the Company entered into an agreement with Avista by which Avista agreed to indemnify the Company for amounts paid on Avista’s behalf by the Company under the settlement agreement, if any.
On November 16, 2010, Carrizo Marcellus assigned, via distribution and subsequent contribution, its interests in the Avista Marcellus joint venture to Carrizo (Marcellus) WV LLC (“Carrizo WV”), also a wholly owned subsidiary of the Company. In connection with the assignment, Carrizo Marcellus assigned to Carrizo WV its rights and obligations under the participation agreement, as well as the related joint operating agreement, pursuant to which operatorship of the Avista Marcellus joint venture was assumed by Carrizo WV. In addition, Carrizo WV and the other parties thereto amended and restated the participation agreement on November 16, 2010, effective as of October 1, 2010. This amended and restated participation agreement amends the participation agreement by, among other things, (i) providing fixed percentages and thresholds for sharing net cash flow from hydrocarbon production and proceeds from the sales of underlying joint venture properties and (ii) eliminating provisions that have been performed and are inapplicable going forward.
The Company serves as operator of the properties covered by the Avista Marcellus joint venture under a joint operating agreement with Avista and also performs specified management services for ACP II. An operating committee composed of one representative of each party provides overall supervision and direction of joint operations. Avista or its designee has the right to become a co-operator of the properties if all of its membership interests or substantially all of its assets are sold to an unaffiliated third party or if the Company defaults under the terms of any pledge of its interest in the properties.
The Company has agreed to jointly market Avista’s share of the production from the properties with its own until the cash flows and sale proceeds are allocated in accordance with the parties’ participating interests under the joint operating agreement.
Each party now has ability to transfer its interest in the Avista Marcellus joint venture to third parties subject in most instances to preferential purchase rights for transfers of less than 10% of its interest in joint venture properties, or to “tag along” rights for most other transfers.
Steven A. Webster, Chairman of the Company’s Board of Directors, serves as Co-Managing Partner and President of Avista Capital Holdings, LP, which has the ability to control Avista. ACP II’s Board of Managers have the sole authority for determining whether, when and to what extent any cash distributions will be declared and paid to members of ACP II. Mr. Webster is not a member of ACP II’s Board of Managers. As disclosed elsewhere, the Company has been and is a party to prior arrangements with affiliates of Avista Capital Holdings, LP in respect of the Company’s joint venture with affiliates of Avista in the Utica Shale.
ACP II Distribution. During the third and fourth quarters of 2010 the Company received cash distributions aggregating approximately $38.8 million and during the second quarter of 2011 received an additional $3.3 million on its B Unit investment in ACP II, which were recognized as a reduction of capitalized oil and gas property costs. As described in “Utica Shale Joint Venture” above, the Company’s right to receive distributions associated with the properties owned by ACP II in the Avista Utica joint venture through its B Units in ACP II was terminated upon the consummation of the Company’s exercise of its option with respect to certain Avista Utica joint venture properties in October 2012.
Advances to and from Avista and Affiliates. At December 31, 2012, related party receivables on the consolidated balance sheets included $9.8 million, representing the net amounts Avista owes the company related to activity within the Utica and Marcellus Shale joint ventures. At December 31, 2011, advances for joint operations on the consolidated balance sheets included $9.5 million, representing the net amount Avista had advanced the Company related to activity within the Utica and Marcellus Shale joint ventures.