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Oil In the Ascent at Carrizo Oil & Gas

Last year saw a transformation at Houston-based Carrizo Oil & Gas Inc. as the company shifted from deriving its revenue mostly from natural gas to an equal reliance upon revenue from oil production, CEO Chip Johnson told financial analysts Tuesday. "We expect this trend to continue for the entire year of 2012 as we become increasingly weighted toward oil production," he said.

"Evidence of our success in oil-focused drilling during the year is best seen in the increase in the value of our reserves. Our proved reserves' PV-10 value grew 44% from $1.01 billion at year-end 2010 to $1.45 billion at year-end 2011, driven by an increase in the oil component from 30% of the value in 2010 to 53% in 2011.

"Because of our higher anticipated oil-to-gas production mix for 2012, at flat $95 oil and $3.15 gas, our forecast 30% overall growth in domestic production would generate an approximate 80% increase in EBITDA due to the higher margins associated with oil."

The Barnett Shale leads the company's portfolio, but Carrizo also is active in the Eagle Ford and Marcellus Shales as well as the Niobrara formation and in the U.S. Gulf Coast and the North Sea.

Carrizo production during the fourth quarter was 11.9 Bcfe, an increase of 1.2 Bcfe, or 12%, from fourth quarter 2010 production of 10.7 Bcfe and an increase of 0.6 Bcfe, or 6%, from third quarter 2011 production of 11.3 Bcfe. The boost was primarily due to increased production from new wells, partially offset by normal declines, the company said.

Production during 2011 was a record 45.1 Bcfe, an increase of 8.3 Bcfe, or 22%, compared with production of 36.8 Bcfe during 2010. The increase was primarily due to more production from new wells, partially offset by declines.

"Our 2012 spending will focus heavily on oil with 83% of our capital directed toward oil drilling," Johnson said. "We anticipate our investment spending will be funded through cash flow, planned asset sales, a potential joint venture in the Niobrara, and borrowing on our revolving credit facility. We expect to build on our 2011 exit rate throughout the year and believe we may reach a net oil production rate higher than 9,000 b/d before the end of the year, before any contribution from the Huntington Field project.

"We expect our first quarter oil production to average from 5,500-5,900 b/d and for natural gas production to average from 108-112 MMcf/d. This would be a sequential quarterly increase of approximately 83% for oil production at the midpoint of the range."

Adjusted net income was $9.1 million (23 cents/share), compared with $19.5 million (54 cents) during the fourth quarter of 2010, including an $18 million benefit of cash distributions from a joint venture partner for the fourth quarter of 2010. The company reported net income of $6.5 million (16 cents/share) for the fourth quarter, compared with a net loss of $24.4 million (minus 69 cents) for the same quarter during 2010.

For 2011 adjusted income was $38.8 million (98 cents/share), compared with $64.1 million ($1.87) for 2010, including a $3.3 million and $38.8 million benefit of cash distributions from a joint venture partner for the 2011 and 2010 periods, respectively. Net income for 2011 was $36.6 million (92 cents/share) compared with $9.9 million (29 cents) for 2010.

Year-end 2011 estimated proved reserves grew by 11% year-on-year to a record 936 Bcfe despite the effect of 144 Bcfe of property sales, Carrizo said. Proved reserves consist of 728 Bcf of natural gas, a 9% increase over 2010 levels; 30.5 million bbl of oil and condensate, a 92% increase over 2010; and 4.1 million bbl of natural gas liquids, a 67% decrease from 2010 levels. Adjusting for the sale of properties with 144 Bcfe of proved reserves during 2011, the estimated reserve growth was 28%.

Notably, the company's Eagle Ford Shale reserves grew by 90% from 15 million boe to 28.5 million boe at the end of last year. Overall, proved reserves are distributed approximately 658 Bcfe in the Barnett Shale, 171 Bcfe in the Eagle Ford, 37 Bcfe in the North Sea, 37 Bcfe in the Marcellus Shale, 26 Bcfe in the Gulf Coast/Camp Hill area, and 6 Bcfe in the Niobrara.

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