Barnett shale and Gulf Coast player Carrizo Oil & Gas has aggressively upped its stake in the Marcellus shale using funds from financial partner Avista Capital Partners to boost its holdings with up to 212,000 acres in the play. In 2008, Avista committed $71 million toward the play, with a commitment of sharing costs 50/50 going forward. KeyBanc Capital Markets analyst Jack Aydin says Carrizo is focusing its leasing efforts in Susquehanna and Bradford counties in northern Pennsylvania, with current holdings at some 30,000 acres there with 20,000 more in negotiation. Says Aydin, "Our impression is that the company has been paying $2,000 to $3,000 per acre for five-year leases with additional five-year options and royalties of 15-18%." Carrizo also holds 112,000 acres in West Virginia and 70,000 acres in Centre, Clinton and Clearfield counties in central PA, with a total of 103,000 acres prospective for Marcellus net to Carrizo discounting its 50% partnerships with Avista. And lease expirations are not an issue. "We have almost nothing expiring this year," says Carrizo president and CEO Chip Johnson. Additionally, to advance lease acquisitions in both the Marcellus and Barnett, Carrizo is seeking to form a land bank in which investors would pool $25 million or more, providing Carrizo with an option to buy the leases for a 120% premium after a period, with investors retaining an override. Aydin surmises, "Carrizo's management believes the prevailing economic, credit market and commodity price environment have made it possible to buy premium acreage and, in certain instances, PUDs at depressed prices." Additionally, Carrizo may advance this goal with asset sales involving a Barnett midstream gathering system and its U.K. North Sea assets. BMO Capital Markets analyst Dan McSpirit says Carrizo's increased exposure to the Marcellus could be a catalyst for growth. "We believe Carrizo is one micro-cap stock among select few positioned to come out the other end of this asset value deflationary period as stonger, and potentially bigger, company." Steve Toon, Editor, A&D Watch; The A&D Center, www.A-Dcenter.com; Contributing Editor, Oil and Gas Investor; www.OilandGasInvestor.com; firstname.lastname@example.org
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