Carrizo Oil & Gas’ Eagle Ford bargain

Houston-based Carrizo Oil & Gas has snagged a bargain in the Eagle Ford, according its recently held first-quarter conference call with analysts.

The company has added 4,300 acres to its Eagle Ford position in La Salle County, where it scooped up the land at an “attractive price” because another company’s mineral leases were about to expire. It has moved a rig into the new acreage to prevent those leases from lapsing. (Operators have to drill within a certain window to hold onto the land.)

How much did it pay? About $1,600 per acre.

Here’s what Sylvester Johnson, CEO, president and director, told an analyst, “… But that was the acreage block we were able to buy from a competitor in La Salle County because the leases were about to expire, and we were able to get a rig in there and start drilling and stitching the unit back together in time and saved a lot of those leases. We’ll have to pay to extend some other ones, but still, the all-in costs for the whole block is probably going to be something like $1,600 per acre.”

So far the company has 87 gross Eagle Ford wells that are producing – 68.3 net to the company after partners are paid – and has three drilling rigs running in the region. It has one hydraulic fracturing crew that’s running 24-7.

Carrizo is completing and testing a Pearsall Shale well.

Will Carrizo scoop up more acreage?

“We’re trying,” Johnson said. “There’s probably going to be around 4,000 to 5,000 acres per year it turns up like that. But we are starting to get to the end of the primary term on a lot of the leading leases that were brought in 2010. So there could be some opportunities here, where people start panicking and have to sell it, or we can top lease it.”

In March it was getting a good price for its crude oil — $105.36 per barrel.

And it’s finding that the Eagle Ford is its most profitable field. Carrizo is making a 90 percent initial rate of return in the Eagle Ford “at these prices.” (It’s making 45 percent to 50 percent initial rates of return in the Niobrara and about 45 percent in the Marcellus.)

The company says it has 10 years of drilling in the field.

You can read the full transcript of the Carrizo call with analysts here on SeekingAlpha, which has free registration.

- Jennifer Hiller

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