trending Market Intelligence /marketintelligence/en/news-insights/trending/xsbygpxok7r__lyqw-amtg2 content esgSubNav
In This List

Pipeline constraints prompt Carrizo to shift spending from Permian to Eagle Ford


Infographic: The Big Picture 2024 – Energy Transition Outlook


The Big Picture: 2024 Energy Transition Industry Outlook

Case Study

An Oil and Gas Company's Roadmap for Strategic Insights in a Quickly Evolving Regulatory Landscape


Essential IR Insights Newsletter Fall - 2023

Pipeline constraints prompt Carrizo to shift spending from Permian to Eagle Ford

Carrizo Oil & Gas Inc. is reacting to the pipeline shortage in the Permian Basin by diverting capital to the Eagle Ford Shale for at least the remainder of 2018. Investors greeted the news with concern, sending shares down sharply in trading Aug. 7.

Speaking during the company's second quarter earnings call, company CEO Chip Johnson said Carrizo had "reacted quickly" to the emergence of the lack of pipeline capacity in the Permian during the second quarter, re-allocating some of its capital to the Eagle Ford. Johnson said the decision was made as a defense to Permian Basin differentials, with the lack of pipelines creating a $17 per barrel spread between regional prices and those in Cushing, Okla.

The Houston-based oil and gas driller had warned during its first quarter earnings call that it would consider diverting capital to the Eagle Ford if differentials continued to widen. "This would allow us to continue to generate strong growth in our crude oil production while taking advantage of continued strong pricing in the Eagle Ford Shale and maximize our cash flow," Johnson said at the time.

Carrizo will continue to move capital to the Eagle Ford in the second half of the year, cutting two rigs from the Permian's Delaware Basin and adding two to its Eagle Ford operations.

"This shift is expected to enhance our overall financial metrics as returns in Eagle Ford Shale are currently significantly higher than returns in the Delaware Basin. We believe our ability to quickly shift capital between our plays highlights the advantages of having complementary acreage position," he said.

The company plans to keep diverting money to the Eagle Ford for a year to 18 months, as new oil pipelines are built in the Permian. Currently, Carrizo expects to move the two rigs back into the Permian's Delaware Basin in the third quarter of 2019. As a result, the Eagle Ford, and not the Permian, will become Carrizo's major profit driver into 2019.

"What you are going to probably look at in the Permian is kind of a flattening, I don't know if you will necessarily see a decline, but may be a flattening of production over the next several quarters," Vice President of Investor Relations Jeffrey Hayden said.

For the quarter, Carrizo reported an adjusted net income of $66.6 million, or 79 cents per share. That beat the S&P Global Market Intelligence consensus estimate calling for a profit of 69 cents per share.

Despite reporting financial results that beat analysts' expectations, Carrizo stock had plummeted by about 8% in late afternoon trading.