Carrizo’s recent Delaware deal
In yet another Permian deal, on June 28, 2017, Carrizo Oil & Gas (CRZO) announced its intention to acquire properties owned by ExL Petroleum Management, a portfolio company of Quantum Energy Partners, in the Delaware Basin. The transaction’s value was pegged at $648 million in cash.
Key highlights of the acquisition
The acquired assets would include 16,000 net acres in the core of the Delaware Basin, located in Reeves and Ward counties, Texas. Offset operators in the area include Anadarko Petroleum (APC), Centennial Resources Development (CDEV), Devon Energy (DVN), Noble Energy (NBL), and PDC Energy (PDCE).
The acreage, which CRZO noted is highly contiguous with its current acreage position, currently has four operated rigs running and a net production of 8,000 boepd (barrels of oil equivalent per day). The company also noted that these properties would be favorable for long-lateral development. On a pro forma basis, the acquisition increases CRZO’s acreage position in the Delaware Basin to ~43,000. The transaction is expected to close in mid-August this year.
Apart from the $648 million cash payment, Carrizo has also agreed to pay a contingency fee of $50 million per year to a maximum of $125 million to ExL Petroleum Management should WTI (West Texas Intermediate) crude oil prices average more than $50 per barrel in any year between 2018 and 2021.
To finance the deal, Carrizo issued $250 million in senior notes, which are due in 2025. Further, Carrizo also announced 15.6 million shares of its common stock.
Carrizo’s president and CEO, S.P. Johnson IV, said about the acquisition, “Over the past couple of years, we have evaluated numerous deals in the Delaware Basin, and these properties rank amongst the best we have evaluated, meeting all of our acquisition criteria.”
In this series, we’ll see how the latest developments at CRZO have changed its 2017 planned activity. First, let’s take a look at the valuation metrics of the transaction.