Carrizo Oil & Gas Inc., Houston, was formed in 1993 by energy industry executives and investors to apply 3D seismic technology to mature proven, producing natural gas and oil plays primarily in the Miocene, Wilcox, Frio, and Vicksburg trends along the Gulf Coast in Texas and Louisiana.
“That program was working very well. We’ve built a huge seismic data base of 7,000 sq miles on the Gulf Coast from South Texas to south Louisiana,” said S.P. Johnson IV, president and chief executive. However, that’s “kind of a difficult story” for a publicly traded company to sell to investors “because things aren’t very predictable, and sometimes you have ups and downs in production,” he said.
“What we needed was a resource play, a gas play that was very predictable that could be a nice steady growth, which we then could put the onshore Gulf Coast higher-potential discoveries on top of,” he said.
Carrizo found its solution in 2003 in the Barnett shale play in North Texas. “We have more acreage per market cap of any sizable company, with now over 75,000 net acres in the Barnett shale and are active in almost every county that is considered in the normal part of that play-10 counties,” Johnson said.
“What has really helped us, at least in the market’s eyes, is that we have a lot of upside potential in the steady growth of the Barnett shale, although most wells come on around 2 MMcfd, and we think they’re going to make about 2 bcf. But on the Gulf Coast we can bring on wells that make 10-15 MMcfd and sometimes have reserve potential of better than 20 bcf in a single well. We think we’ve got the right blend here of predictability but also some sort of exciting outside potential,” he said.
Drilling, 3D seismic
From its inception through 2004, Carrizo has participated in drilling 373 wells (119.7 net) with a success rate of 70% along the Gulf Coast and 100% in the Barnett shale. Of the total wells drilled, 86% were exploratory. “This year we plan to spend $55 million drilling in the Barnett and $35 million drilling in the Gulf Coast. We’re actively buying acreage in both areas,” said Johnson.
Carrizo also applied its expertise with 3D seismic to the Barnett shale. “It helps us plan where we put the lateral in the well and then how we’re going to perforate and how we’re going to fracture-stimulate the well to get the most out of it without making water. That’s some technology that most of the little companies up there don’t have,” Johnson said. “Now we’re trying to figure out some sort of cutting edge interpretation techniques that could help us. There might be some ways to use 3D to predict [hydraulic fracture] barriers and rock properties.”
Carrizo’s other interests include properties in East Texas and a coalbed methane investment in the Rocky Mountains. In 2003 it obtained licenses to explore in the UK North Sea. “We put together some nice prospects [in the North Sea]...and promoted a couple of those out to some bigger companies, and we’ll have carried interest in the drilling,” Johnson said. “We have very little money in it and are not going to have any money in the drilling, and yet we stand to be in some pretty big discoveries. We could end up with 25% of three big fields over there, with no drilling risk. These are not slam-dunks, but they’re not rank wildcats either. They’re right in the middle of the central and southern North Sea.”
More expansion
Johnson plans to keep expanding the company. “We’re certainly adding reserves at a pretty fast clip, especially in the Barnett. We’re still adding a lot of production on the Gulf Coast. We’ve got 3D data to add to the library, and we’re finding prospects on that,” he said. “Right now with commodity prices where they are, we’re just trying to take advantage of it and drill as fast as we can. The economics right now are just outstanding. Service costs haven’t gone up nearly as fast as commodity prices.”
Carrizo is at $600 million market capital and had proved reserves of 130 bcfe at the start of the year. Production is over 30 MMcfd of gas equivalent, “which is a record,” said Johnson. “We’ve raised some money this year, so we have a lot of cash on the balance sheet right now, so we can drill as fast as we can and buy acreage where the numbers look right. We’re about 80% gas, and the rest is mostly condensate.”
At the start of this year, Carrizo had 159,496 gross acres in Texas and Louisiana under lease or lease option, including 109,129 gross acres along the Gulf Coast, almost all of it covered by 3D seismic data, and 44,835 gross acres in the Barnett shale. Company officials earlier said they had identified 155 potential exploratory drilling locations along the Gulf Coast area, including 78 additional extension opportunities, and more than 200 potential exploratory and development horizontal drilling locations in the Barnett shale.✦
Career highlights
S.P. Johnson IV has been president, chief executive, and a director of Carrizo Oil & Gas Inc. since December 1993.
Employment
Before joining Carrizo, Johnson worked for Shell Oil Co. for 15 years. His managerial positions included operations superintendent, manager of planning and finance and manager of development engineering.
Johnson is a director of Basic Energy Services Inc., a well servicing contractor.
Education
A registered petroleum engineer, he has a bachelor of science degree in mechanical engineering from the University of Colorado.