Carrizo Oil & Gas, Inc. (CRZO): The Eagle Ford Is Booming, Here Are Three Ways To Participate

Page 1 of 2

The landscape of a swath of southern Texas has seen some radical change lately. Oil derricks are popping up all over the bushy ranch land. Storage facilities, terminals and oil equipment sheds are all dotting along Interstate 37 and US 281. Never has it been as busy as it is now.

Carrizo Oil & Gas, Inc. (NASDAQ:CRZO)

A major oil unconventional oil discovery in the Eagle Ford shale formation has caused all this. For the last three years, oil and gas companies have been rushing in to buy up mineral rights and get in on this apparent bonanza. Nobody is exactly sure how long it will last, but most believe it will be between 20 and 30 years. In fact, it may prove to be the biggest unconventional oil play in North America, already rivaling the Bakken in North Dakota.

EOG Resources (NYSE:EOG) June 2013 Investor Presentation

Let’s take a look at three ways to participate in this boom, all of them upstream oil and gas, all with differing market caps, different risk levels and different exposures to the Eagle Ford. I believe these three companies represent the best way to be in this play.

A focused mid-cap play

Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) is a mid-cap energy company operating in a few premier resource oil locations in the lower 48 states. The majority of its operations, however, are in the Eagle Ford. It is the smallest company of the three and has the most relative Eagle Ford exposure: Of Carrizo’s 95 net wells, 68 of them are in the Eagle Ford. Its market cap is the smallest of my three picks at $1.2 billion.

Carrizo Oil & Gas, Inc. (NASDAQ:CRZO)In 2010, management began a dramatic shift from dry natural gas to oil, and it is now paying off. In the first quarter of 2013, oil production increased by 57% year over year off the back of Eagle Ford operations. Production from the Eagle Ford has jumped to 8,700 barrels of oil per day. Carrizo’s realized price was a very high $105.36 per barrel because it was able to get it to Latin American diesel markets.

Carrizo Oil & Gas, Inc. (NASDAQ:CRZO)’s internal rate of return in the Eagle Ford is an amazing 90%. Will it be able to keep growing Eagle Ford production at this rate? Possibly. It did add acreage in the adjacent Pearsall Shale as early as last quarter.

Despite this dramatic growth, Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) does have a few downsides. First is the $870 million in debt it holds on its balance sheet – quite a bit considering its $1.2 billion market cap. Perhaps more importantly is its funding gap: Capital expenditure is much higher than cash flow. Although it does have ways to fund that gap for now, it is something that must be taken into account.

A large-cap, diversified dividend payer

ConocoPhillips (NYSE:COP) is a former “supermajor” oil and gas company. After spinning off its refining division in 2012, it became an independent oil and gas company. If Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) is the small, focused yet risky play, then ConocoPhillips is the large, diversified and safer way to be in the Eagle Ford. Conoco also pays a nice dividend of 4.4%.

On a path to higher margins and higher growth through 2017, the company has been pouring significant capital into “development projects” in North American resource plays to meet this goal. Eagle Ford is an important lynchpin in this effort: It is perhaps Conoco’s most prolific growth project in North America. ConocoPhillips (NYSE:COP) is now one of the biggest producers in the Eagle Ford.

Source for graphics: ConocoPhillips Investor Update

The Eagle Ford has a tight window of oil. The rest is liquid gas and dry gas, the latter of which is out of favor. So, not all Eagle Ford acreage is equal. Fortunately, ConocoPhillips (NYSE:COP) was an early entrant and seems to have some of the better land here, its wells outlasting and outproducing Eagle Ford averages.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!