Carrizo Oil & Gas Inc. said it will abandon stagger-stack drilling and move to multipad development whenever possible in the Eagle Ford Shale, and expects production from its first multipad in the play by month's end.

The Houston-based company reported production of 5.74 million boe (62,417 boe/d) in 4Q2017, a 39.4% increase from the year-ago quarter (4.12 million boe, 44,775 boe/d). Full-year production was 19.6 million boe (53,805 boe/d) in 2017, a 26.9% increase from the 15.5 million boe (42,276 boe/d) produced in 2016.

Crude oil production increased 40% between 4Q2017 (3.7 million bbl, 40,206 b/d) and 4Q2016 (2.6 million bbl, 28,727 b/d). Year/year crude oil production grew 33.3%, to 12.6 million bbl (34,428 b/d) in 2017, up from 9.4 million bbl (25,745 b/d) in 2016.

The company attributed the rise in production to increased drilling activity in the Eagle Ford and the Delaware. Additional production from Eagle Ford acreage it acquired from Sanchez Energy Corp. in October 2016 and Permian assets it purchased from Exl Petroleum Management LLC in 3Q2017 helped offset production losses following Carrizo's exit from the Appalachian Basin in 4Q2017. Carrizo sold its assets in the Marcellus Shale to a subsidiary of Kalnin Ventures LLC for $84 million and its Utica Shale assets to an undisclosed buyer for $62 million in separate deals last November.

In the Eagle Ford, Carrizo drilled 20 gross (16 net) wells and completed 14 gross (13 net) wells during 4Q2017. The company turned 21 net wells in the Eagle Ford, which had an average lateral length of about 7,000 feet, to sales in the fourth quarter. Carrizo had 37 gross (31 net) drilled but uncompleted (DUC) operated wells in the Eagle Ford at the end of 4Q2017.

Meanwhile, the company drilled and completed nine gross (seven net) operated wells in the Delaware in 4Q2017, and had six gross (five net) DUC operated wells in the play at the end of the quarter.

Although Carrizo has tested well spacing tighter than 330 feet in the Eagle Ford, and has determined that such well spacing is profitable, the company said it doesn't plan to drill additional stagger-stack development wells in the play in 2018, citing commodity prices and oilfield service costs.

The company also said that as its number of producing wells continues to grow, it has noticed an increased parent-child impact from the drilling. Carrizo said its new wells are immediately offsetting production from existing wells. As a result, a high ratio of existing wells is being shut-in during completion operations at new wells, and longer shut-in periods have also occurred.

"As our Eagle Ford Shale asset is in development mode, we are currently focusing on ways to optimize our full scale development of the asset and enhance total project level returns," CEO Chip Johnson said during an earnings call last week. "As a result, we plan to shift to a multipad development whenever possible going forward. This involves using multiple completion crews simultaneously to complete a large number of wells on a multiple continuous pads."

The company's first multipad is in the Brown Trust area of the Eagle Ford, in La Salle County, TX. The multipad includes 16 wells on three pads, with well spacing of 250-330 feet, and frac stage spacing of 150-180 feet. Carrizo said production from the multipad is expected to begin in late March, and should reach gross oil rates of more than 10,000 b/d once all of the wells are online.

Carrizo unveiled a $750-800 million capital program for 2018, which includes an expected double-digit increase in oilfield service costs. It also announced initial production guidance of 58,500-60,100 boe/d for 2018 (65-67% oil), including 48,600-49,800 boe/d of production in 1Q2018.

The company said that it has been in negotiations with oilfield service companies, and has currently fixed pricing on approximately 50% of its services for the majority of 2018.

"While the company expects to partially offset some of the service cost increase with future efficiency gains, it has not factored these potential savings into its 2018 capital expenditure [capex] guidance," Carrizo said.

During a Q&A with analysts, Johnson said the company would use any spare cash to pay down its debt, rather than raise its capex guidance.

"We have to maintain some level of growth," Johnson said. "A company our size has to do that. And so, we'll have growth targets but I don't think we're going to raise our capex budget just because we have the money. I think we still need to de-lever further."

The company said it expects to drill 60-65 gross (56-61 net) operated wells and complete 80-85 gross (71-76 net) operated wells in the Eagle Ford in 2018. It also plans to drill 33-38 gross (26-30 net) operated wells and complete 33-38 gross (25-29 net) operated wells in the Delaware in 2018. The company is currently operating two rigs in the Eagle Ford and four rigs in the Delaware, but plans to drop a Delaware rig sometime in 2018.

Carrizo reported a net loss of $23.4 million (minus 29 cents/share), compared to a net loss of $0.8 million (minus one cent) in the year-ago quarter. Total revenues were $246.8 million in 4Q2017, a 71.6% increase from the year-ago quarter ($143.8 million). For the full year, the company posted net earnings of $78.5 million ($1.07) in 2017, compared to a net loss of $675.5 million (minus $11.27) in 2016. Carrizo reported total revenues of $745.9 million in 2017, a 68.1% increase from the $443.6 million in total revenues from 2016.