GAIL – Carrizo Joint Venture Agreement in the Eagle Ford

The Gas Authority of India Limiated (GAIL) becomes the latest international company to enter the Eagle Ford. On September 28, 2011, GAIL announced a joint venture agreement with Carrizo Oil & Gas on a portion of the company’s Eagle Ford Shale assets. The Indian oil & gas company will gain a 20% interest in 20,200 net acres owned by Carrizo in South Texas. That’s 4,040 net acres to the company for $95 million in total consideration. Almost $64 million will be paid upfront and more than $31 million will be paid over the next year in the form of a drilling carry.

Carrizo is selling an interest in eight existing horizontal wells as part of the deal. Production from the wells is running at a rate of 1,700 barrels per day and 3.8 mmcfd. With consideration for production, the acreage traded for somewhere between $13,000 and $14,000 per acre. That’s off previous acreage prices paid in the Talisman-SM Energy deal, as well as the record Marathon-Hilcorp deal, but don’t forget oil prices are down almost $20 per barrel in that same period.

Carrizo Oil & Gas, Inc. (NASDAQ: CRZO) today announced the closing of an unincorporated joint venture with a wholly owned subsidiary of GAIL. Under the joint venture agreement, Carrizo sold 20% of Carrizo’s interest in approximately 20,200 net mineral acres leased by the Company in the highly prospective condensate zone of the Eagle Ford Shale for total consideration of $95 million, comprised of $63.65 million in cash and the assumption of an additional $31.35 million of Carrizo’s future drilling and development costs (“drilling carry”). The cash proceeds from the transaction were used to reduce the outstanding balance under Carrizo’s revolving credit facility. The consideration payable to Carrizo is subject to customary post-closing adjustments and indemnities.

The Eagle Ford Shale assets conveyed to GAIL under the terms of the agreement include approximately 4,040 net acres located primarily in La Salle County, Texas and a 20% interest in eight horizontal wells currently producing approximately 1,700 net barrels of oil per day (340 barrels per day net to GAIL) and 3,800 net Mcf per day of rich gas (760 Mcfpd net to GAIL). Carrizo’s internally estimated mid-year 2011 proved reserves allocated to these acres amount to 13.8 million boe (2.76 million boe net to GAIL), of which 2.5 million boe are classified as proved developed (0.5 million boe net to GAIL). A drilling rig is currently in the process of drilling a four well pad on the joint venture property which is expected to be completed and brought on production near the end of this year. Carrizo continues as operator of these properties, and currently expects the $31.35 million drilling carry to be fully realized in less than one year.

Read the full news release at

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Kenneth E. DuBose

Kenneth E. DuBose

Kenneth DuBose is the past President of Cheyenne Minerals Inc., an independent oil and gas operator. He began his energy industry career with ARCO Oil & Gas. Mr. DuBose then directed development of natural gas storage projects with Tejas Power Corp. He was a founding member of U.S. Minerals, (acquired by Torch Energy in 1999) a provider of internet based education for America’s mineral owners. Mr. DuBose holds a BS in Petroleum Engineering from Mississippi State University. He has served on various industry steering committees, non-profit boards, and is an active member of the Society of Petroleum Engineers, the National Association of Royalty Owners, the American Association of Professional Landmen, as well as being a Registered Investment Advisor. He writes on topics of oil and gas investing, wealth management and personal finance, having appeared in the Wall Street Journal, Kiplinger’s, Kiplinger’s Personal Finance, Houston Business Journal, Financial Advisor and various radio and TV outlets.

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