Carrizo has agreed to sell certain non-core assets, including substantially all of its remaining Barnett Shale assets, as well as all of its interest in the Camp Hill Field in East Texas and certain undeveloped acreage in the Marcellus Shale, for total consideration of approximately $268 million, including aggregate cash proceeds
of approximately $250.4 million,
Market views sale as negative, a comment that $300 mm was more the expectation. Seems at that price with $1.30 cash cost operating breakeven, a good asset, $1.30 plus 80 cents purchase, $2.20/mcf sounds like a great purchase. As CRZO said, they want to be a liquids company, everyone in the industry wants that now. Maybe the gassy focus will be a good move long term. Always seems the industry moves together, until they move in another direction. Saw comments that the Marcellus will over run the NE in a few years, and we have the Utica just beginning. Maybe gas assets in TX and the mid continent makes sense. Wonder what ARP bid. Might be encouraging that they are trying to buy cheaply, probably can afford to and need to at this point.
Based on back of the envelope calcs, the Carrizo deal does appear a bit cheap, but that is based on an assumption of what the Marcellus acreage is worth (listed as non-core) and also based on the overall decline rate of the production. My general feel is that it was private equity buyers that probably looked at the forward strip, hedged out 4 or 5 years to cover 90% of production and taking into account decline and are locking in a nice, albeit modest profit. In 4 or 5 years, they have gotten back the bulk of their money, still own a nice cash flow stream and have a call option on gas that happens to be in a very low risk basin, with plenty of take away capacity. Not a homerun with the real risk being operational and perhaps some modest drilling execution risk for maintenance drilling, to preserve production volumes as the present value. You get some Marcellus acreage which may or may not be worth much, but assuming a $4.20/mcf forward strip price and if these assets are run efficiently, you can come up with a payback period in the 5-7 yr frame when you net out the Marcellus value.