Carrizo Oil & Gas's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Carrizo Oil & Gas, Inc. (CRZO)

Q2 2012 Earnings Call

August 7, 2012 11:00 am ET

Executives

Sylvester P. Johnson – President, Chief Executive Officer & Director

Paul F. Boling – Chief Financial Officer, Secretary, Treasurer & Vice President

Analysts

Will Green – Stephens Inc.

Leo Mariani – RBC Capital Markets

Leo P. Mariani – RBC Capital Markets, LLC

Jeffrey Hayden – KLR Group

Michael, A. Glick – Johnson & Rice Company L.L.C.

Marshall Carver – Capital One Southcoast, Inc

Maggie Savage – Robert W. Baird & Co

David Tameron – Wells Fargo Securities

Marshall H. Carver – Capital One Southcoast, Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2012 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, the conference is being recorded Tuesday, August 7, 2012.

I would now like to turn the conference over to Chip Johnson, President of Carrizo Oil. Please proceed.

Sylvester P. Johnson

Thank you for calling in. To summarize the quarter, we beat guidance on oil production, we beat on gas production. We realized almost a $101 of barrel for our Eagle Ford production. We came in under our LOE guidance. We didn’t take any write-downs of our reserves like many of our peers, and we cut CapEx by cutting drilling rigs and frack jobs and they’re still growing oil production at one of the industry’s highest rates.

Paul Boling will now go over the financial results, and then I’ll go over the operational progress and then we’ll take questions. Paul?

Paul F. Boling

Thanks, Chip. We achieved record oil production of 76, 18 barrels per day, or 28% sequential increase from the first quarter of 2012, a record total production in the second quarter 2012 was 2,393 MBOE, or 26,297 BOE per day, a 4% sequential increase from the first quarter of 2012, production of 2,311 MBOE.

The 4% sequential increase in production was due to the contribution of new wells brought on during the quarter. Second quarter production growth would have been substantially higher had it not been for the impact of the sale of the Barnett Shale production to Atlas on May 1, 2012. We reported record adjusted revenues and revenues for the quarter adjusted revenues, including the impact of realized hedges, we’re $92 million in the second quarter, compared to $91.7 million in the first quarter of 2012.

Oil and gas revenues for the second quarter were a record $83.8 million, compared to $80.7 million during the first quarter of 2012. Similarly, oil revenue was a record $68.6 million in the second quarter and 82% of total oil and gas revenue. This compared $59.4 million of oil revenue in the first quarter, which totaled 74% of total oil and gas revenue. These increases were primarily driven by increased oil production and higher realized gain hedges, partially offset by lower gas prices.

Average realized oil prices, including the impact of realized hedges, decreased to $97.97 per barrel, or a 11% in the second quarter, as compared to $109.65 per barrel in the first quarter of 2012. While average realized gas prices decreased 27% to $2.22 per Mcfe from $3.05 per Mcfe in the first quarter of 2012

As discussed before, we have an implied basis differential to WAHA for the Barnett Shale gas market at the well head, which averaged about $0.85 per Mcf for our second quarter gas production. General guidance for realized gains on derivatives in the third quarter of 2012 is $9.3 million to $9.8 million based upon strip prices as of August 6.

Adjusted net income for the second quarter was $10.5 million, or $0.27 and $0.26 per basic and diluted shares respectively, as compared to $9.5 million, or $0.25 and $0.24 per basic and diluted shares respectively during the second quarter of 2011.

Adjusted net income was essentially flat, compared to the second quarter 2011, due largely to higher DD&A, primarily attributable to the April 2012, sale of natural gas properties to Atlas.

Company reported net income of $28.5 million, or $0.72 and $0.71 per basic and diluted share respectively for the second quarter of 2012, as compared to net income of $7.7 million, or $0.20 per basic and diluted share for the same quarter during 2011.

EBITDA was $69.3 million in Q2, or $1.75 and $1.73 per basic and diluted share respectively, as compared to $41.8 million, or $1.7 and $1.6 per basic and diluted shares respectively during the Q2 of 2011.

Lease operating expense including transportation cost of $1 million, or $7 million or $2.94 per BOE for the second quarter, as compared to LOE of $7.4 million, or $3.99 per BOE for the corresponding quarter in 2011. The decrease in operating cost per unit is primarily due to the Atlas and KKR property sales, partially offset by the higher operating cost per unit associated with our oil production. General guidance for LOE in the third quarter of 2012, is $3.90 to $4.20 per BOE.

Production taxes increased to $3.1 million, or 3.7% of oil and gas revenues for the second quarter, compared to $1.5 million, or 2.9% of oil and gas revenues for the same period in 2011.

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