Carrizo identified a large
shale resource play in 2005 located in the Black Warrior
Basin of Alabama and Mississippi. Detailed mapping of
critical shale characteristics as well as locating low
cost leases defined project fairways. Relative to the
Barnett Shale the Floyd has much better net revenue
interests and higher wellhead prices. Carrizo was successful
in acquiring 137,000 net acres in the defined fairways.
Based on our experience in the Barnett Shale it was
decided to acquire an 18 square mile 3D seismic program
(the first to be shot in the Floyd Shale) to evaluate
our initial drilling locations. The seismic was used
to ensure that the location had the geologic characteristics
that are consistent with the highest probability of
encountering commercial productivity.
Our evaluation plans are to
drill a vertical well in which a core of the shale section
will be taken and analyzed for all geothermal, geochemical,
mineralogical, and mechanical properties. A horizontal
well will be drilled immediately thereafter within one
thousand feet of the vertical borehole. The vertical
well will be used as a monitoring well to evaluate the
effectiveness of the hydraulic fracing program in the
horizontal well. Carrizo anticipates spending 2007 capital
of $3.6 million drilling one vertical well (0.5 net)
and one horizontal well (0.5 net) beginning in the first
quarter of 2007.
Following success in adding
low-cost acreage in three of the last four UCKS license
rounds, Carrizo now holds traditional four-year licenses
in six exploration blocks totaling 167,867 gross acres,
all located in mature producing fairways of the Central
and Southern North Sea in water depths of 90 to 350
feet. One of the licenses has a one well drilling commitment;
the other licenses can be canceled without penalty after
four years if we or our assignee elects not to commit
to drill a well. On two of our most prospective licenses,
we have promoted our interests to other parties experienced
in drilling and operating in this region, leaving us
with a carried interest on each of the initial exploration
wells.
The first of these two early
prospects, in which we retain a 25% carried non-operating
working interest through casing point and a 3% overriding
royalty, was drilled with the Monterey well in late
2006 in the Southern North Sea. We subsequently participated
in the test phase of this apparent gas discovery, and
the well was suspended in late 2006 and is currently
being studied for commercial viability by the operator.
The second prospect, in which we retain a 15% carried
non-operating working interest through casing point
and a 3% overriding royalty, is expected to be drilled
as the Huntington well in Q2 of 2007 in the Central
North Sea. Both areas have significant remaining exploration
potential with a further ten prospects identified on
the blocks.