Carrizo's deal won't answer any of the conspiratorial questions, but it does show the market giving a lot more short-term credit to the company able to buy up these dry gas assets at a reasonable price than to the seller trying to transition away from the natural gas story to the hunt for liquids.
The assets sold by Carrizo produce 35 million cubic feet of natural gas production per day, which when divided into the $190 million price tag, suggests a price paid of roughly $5,400 per flowing cubic feet per day.
Stephens analyst Will Green said the estimated price is significantly lower than what had been the norm in recent years, a range of $7,500 to $12,500 per flowing cubic feet per day. Peer companies have traded based on a $7,700 assumed value. Yet all of that was based on a world of $4 natural gas, a world that seems like a distant memory now.
The Carrizo deal is one of the first divestitures of dry gas assets since the historic slide in natural gas pricing began this year. While the bump to Atlas shares comes as a direct result of the impact the additional assets -- all of which will be hedged -- will have on EBITDA [earnings before interest, taxes, depreciation and amortization] and cash flow, Carrizo still has its work cut out for it in proving to the market that it's also a winner in this deal.Green thinks Carrizo is a winner, though, or ultimately will be, and the market is missing the point of the deal for the seller.
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