Carrizo narrows focus to Delaware, Eagle Ford

By Luke Geiver | August 15, 2017

Carrizo Oil and Gas has operated in 14 states and completed more than 800 horizontal wells. Following the acquisition of Delaware Basin acreage, the exploration and production company has set its sights on two shale plays—the Eagle Ford and Delaware. The company announced this month that it has closed on its Delaware Basin acreage and that it is transitioning away from other assets in the Niobrara and Utica.

“The second quarter was an eventful one for Carrizo as we announced the largest acquisition in our history, approximately 16,500 net acres in the core of the Delaware Basin,” said Chip Johnson, president and CEO. With the scale we now expect to have in these two plays, our plan is to focus our activity on these regions. As a result, we currently have active divestiture processes for our assets in the Marcellus, Utica and Niobrara.”

Earlier this year, Johnson said the company was not intending to invest in its Niobrara assets but that wells there were showing positive economics that in some cases were better than those in the Permian or Eagle Ford.

In addition to its new two-play focus, Carrizo’s team intends to continue an aggressive push to hedge oil production for 2018. To date, the company has 18,000 barrels of oil per day hedged for next year. Johnson said the company plans its well economics and operations on $45/b oil and that it hopes to secure hedging options for next year with a floor of $40/b and a ceiling of $60/b. Because of uncertainty around OPEC and the expectation that service costs were going to rise in the middle of the year, Johnson said the company was hesitant to perform more hedging earlier in the year. The fear was that oil prices would rise along with service costs at the same time and they price they would receive for oil produced would be lower than what they would need to commit to long-term service agreements.

The $560 million capital budget the company has released for 2017 is lower than its previous budget, due in part to a redo of its drilling plans in the Delaware. The majority of its budget this year however, will be spent in the Eagle Ford. Drilling operations in the Delaware will be mainly linked to holding leaseholds.

Although acreage costs roughly double that of the Eagle Ford, Carrizo is aggressively pursuing additions to its 16,000 acre position. The goal is add acreage that allows for longer laterals, Johnson said.

In the Eagle Ford, Carrizo has changed the way it approaches resource development based on gains seen in tighter more complex fracture wings kept closer to the well bore. According to Johnson, creating a complex network of fractures near the well bore increase initial production rates and long-term type curves. But, the practice also leaves some of the resource in the rock, a dilemma he said is not a major issue in today’s industry due to lower drilling costs that will allow for more wells to be drilled.

By 2019, the company expects to be cashflow neutral. Until oil price volatility settles, Johnson said the company will also focus mainly on rates of return on new wells and operations.