Carrizo Forms JV To Develop Niobrara
Formation of $82.5 million joint venture to develop Niobrara formation.
Carrizo Oil & Gas Inc. (Nasdaq: CRZO) has entered into an $82.5 million joint venture with the subsidiaries of Oil India Ltd. (OIL) and Indian Oil Corp. Ltd. (IOCL) to develop its acreage in the Niobrara shale.
Under the terms of the joint venture, the two Indian oil companies have together acquired an undivided 30% non-operated interest in substantially all of Carrizo’s assets and operations prospective for the Niobrara Formation, primarily in Weld and Adams counties, Colo. Included in the transaction is the sale of about 18,100 net mineral acres and about 555 barrels of oil equivalent (BOE) per day, 75% of which is oil, from 24 gross producing wells operated by Carrizo.
The agreement enables Carrizo to receive $41.25 million in cash and an additional $41.25 million in drilling carry that will be applied to fund a portion of Carrizo’s share of future Niobrara development costs. The carry is expected to be fully utilized by early 2014. The effective date of the transaction is Oct. 1.
"We plan to apply the cash portion of the transaction to help fund our remaining 2012 capital expenditures and the drilling carry will allow the addition of a second drilling rig in the Niobrara in early 2013,” said Carrizo's president and chief executive, S.P. "Chip" Johnson, IV.
“We estimate that the acceleration in development activity net to Carrizo from the additional rig will offset our future lower working interest and will result in an increase in Niobrara oil production net to our shareholder's interests over the course of 2013 compared to our pre-JV internal estimates."
The joint venture gives OIL and IOCL their first access to shale production in the U.S.
"This acquisition is in line with our corporate growth strategy along the energy value chain. We have earmarked part of our financial reserves for acquisitions and new opportunities to bolster our overseas portfolio and were keen on joint ventures in countries with geopolitical stability. This acquisition will also give us first hand exposure to operations of shale/tight oil and gas fields and technologies deployed for the same," said OIL's chairman and managing director, S.K. Srivastava.
"The Carrizo stake is another step in our journey to emerge as an integrated energy company. Our various diversifications in petrochemicals and gas business have not only made a notable impact by garnering a significant share of the market but are also poised to emerge as a potent and vibrant feature of the company's profile in the future,” said IndianOil's chairman R.S. Butola.
“While our E&P plans have been relatively low key so far, with the shale asset in the Niobrara basin we should gain momentum in this space. The learning and technology exposure that will accrue in this field would stand us in good stead in the future,” he said.
BMO Capital Markets acted as exclusive financial advisor to Oil India Ltd. Thompson & Knight LLP acted as legal counsel, while Ernst & Young and Halliburton acted as tax and accounting and technical due diligence consultants, respectively.
Incorporated in 1959, Oil India Ltd. (OIL) is the second largest national oil and gas company in India as measured by total proved plus probable oil and natural gas reserves and production. It is engaged in the business of oil & gas exploration, production and crude oil transportation. The company has over 100,000 sq km of petroleum exploration license (PEL) and mining lease (ML) areas for its exploration and production activities.
IOCL is India's largest national oil company, with business interests that include refining, pipeline transportation, marketing of petroleum products and natural gas, exploration, and production of crude oil and natural gas.
Carrizo Oil & Gas, Inc. is a Houston-based energy company active in the Eagle Ford shale in South Texas, the Barnett shale in North Texas, the Marcellus shale in Appalachia, and the Niobrara Formation in Colorado. Carrizo is also actively developing its oil discovery known as the Huntington Field in the UK North Sea.
In addition to the joint venture, Carrizo has sold off most of its legacy producing properties along the onshore Gulf of Mexico located primarily in Texas and Louisiana to an undisclosed buyer for approximately $19.5 million in cash.
The effective date for the transaction was July 1, 2012. Net production from the Gulf coast properties is approximately 120 barrels of oil and condensate per day and 5 million cubic feet (MMcf) of high BTU natural gas per day.