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I Item 1. and Item 2. Business and Properties General
Carrizo Oil & Gas, Inc. (“Carrizo,” the “Company”
or “We”) is an independent energy company engaged in the exploration, development
and production of natural gas and oil. Our current operations are focused in proven,
producing natural gas and oil geologic trends along the onshore Gulf Coast area
in Texas and Louisiana, primarily in the Miocene, Wilcox, Frio and Vicksburg trends,
and, since mid-2003, in the Barnett Shale area in North Texas. Our other interests
include properties in East Texas, and a coalbed methane investment in the Rocky
Mountains. We have obtained licenses to explore in the U.K. North Sea. We recently
acquired acreage in shale plays in the Barnett/Woodford in West Texas/New Mexico,
Floyd/Neal in Mississippi/Alabama, the western New Albany in Kentucky and the
Fayetteville in Arkansas. We have traditionally grown
our production through our 3-D seismic-driven exploratory drilling program. Our
compound production growth rate for the period December 31, 1999 through December
31, 2005 on an annualized basis was 14 %. From our inception through December
31, 2005, we participated in the drilling of 438 wells (155.5 net) with an apparent
success rate of approximately 70% in our onshore Gulf Coast area and apparent
100% in the Barnett Shale area in North Texas. Exploratory wells accounted for
83 % of the total wells we drilled. Our total proved reserves as of December 31,
2005 were an estimated 150.6 Bcfe with a PV-10 Value of $404.2 million. During
2005, we added a record 50.9 Bcfe to proved reserves and produced a record 9.6
Bcfe. We have traditionally financed the majority of our drilling activity through
internal cash flow generated primarily from oil and natural gas production sales
revenue. As a main component of our business strategy,
we have acquired licenses for over 10,000 square miles of 3-D seismic data for
processing and evaluation. Historically, we either (1) sought to acquire seismic
permits from landowners that included options to lease the acreage prior to conducting
proprietary surveys or (2) participated in 3-D group shoots in which we typically
sought to obtain leases or farm-ins rather than lease options. Since 2001, we
have been able to increase the size of our 3-D seismic holdings in our onshore
Gulf Coast area by approximately 177% to over 7,600 square miles, in large part
by taking advantage of very favorable pricing available for nonproprietary data
from libraries of seismic companies. Since 2003, we have also grown our 3-D seismic
holdings in the Barnett Shale area to over 299 square miles. One
of our primary strengths is the experience of our management and technical staff
in the development, processing and analysis of this 3-D seismic data to generate
and drill natural gas and oil prospects. Our technical and operating employees
have an average of over 20 years of industry experience, in many cases with major
and large independent oil and gas companies, including Shell Oil, Ocean Energy,
ARCO, Conoco, Burlington Resources, Unocal, Pennzoil and Tenneco. Analyzing and
reprocessing our 3-D seismic database, our highly qualified technical staff is
continually adding to and refining our substantial inventory of drilling locations.
We believe that our utilization of large-scale 3-D
seismic surveys and related technology allows us to create and maintain a multiyear
inventory of high-quality exploration prospects in the Gulf Coast area. As of
December 31, 2005, we had 145,144 net acres in Texas and Louisiana under lease
or lease option (all references to acres under lease in this Form 10-K/A also
include lease option acres unless otherwise indicated), including 64,795 net acres
in our onshore Gulf Coast area, predominantly all covered by 3-D seismic data,
and 80,349 net acres in our Barnett Shale area. We have identified: (1) 174 potential
exploratory drilling locations in our onshore Gulf Coast area, comprised of 104
leased exploratory drillsites, ten of which are field extension wells based on
initial drilling activities, and 70 seismically defined prospects on which we
are pursuing acreage, and (2) over 500 potential exploratory and development horizontal
drilling locations on our leased acreage in the Barnett Shale area. The vast majority
of our 3-D seismic data covers productive geological trends in our onshore Gulf
Coast area, where we have made 247 completions as a result of our utilization
and evaluation of this data. In our onshore Gulf Coast
area, most of our drilling targets prior to 2000 were shallow (from 4,000 to 7,000
feet), normally pressured reservoirs that generally involved moderate cost (typically
$0.3 million to $0.4 million per completed well) and risk. Since then, the depth
of many of the wells that we have drilled, as well as our current drilling prospects,
are deeper, overpressured targets with greater economic potential but generally
higher cost (typically $1.0 million to $4.0 million per completed well) and risk.
We seek to sell a portion of these deeper prospects to reduce our exploration
risk and financial exposure while retaining significant upside potential. More
recently, we have begun to retain larger percentages of, and increased our exposure
to, higher cost, higher potential wells. In mid-2003,
we became active in the Barnett Shale area in North Texas (primarily in the Tarrant,
Parker, Denton, Johnson, Hill and Erath counties). Improvements in fracture techniques
in recent years have dramatically changed the economics of producing reserves
in the Barnett Shale, which is now considered one of the most active natural gas
plays in North America. The | |
