EX-99.1 CHARTER 2 press_release.htm PRESS RELEASE 11.04.05 Press Release 11.04.05
PRESS RELEASE                                Contact:  Carrizo Oil & Gas, Inc.
            B. Allen Connell, Director of Investor Relations
            Paul F. Boling, Chief Financial Officer
            (713) 328-1000

CARRIZO OIL & GAS, INC. ANNOUNCES THIRD QUARTER 2005 FINANCIAL RESULTS INCLUDING RECORD REVENUES AND EBITDA

HOUSTON, November 4, 2005 — Carrizo Oil & Gas, Inc. (Nasdaq: CRZO) today reported the Company’s financial results for the third quarter of 2005, which included the following highlights:

Third Quarter 2005 Results --

The third quarter 2005 results included the following highlights:

 
·
Production of 2.18 Bcfe.

 
·
Record quarterly revenue of $17.6 million.

 
·
Net Income of $0.6 million, or $4.7 million before non-cash charges, noted below.

 
·
Record EBITDA, as defined below, of $13.3 million.

Revenues for the three months ended September 30, 2005 increased 43 percent to $17.6 million as compared to $12.3 million during the quarter ended September 30, 2004. The increase in revenues was driven by higher natural gas production and higher prevailing oil and natural gas prices. Production volumes during the three months ended September 30, 2005 increased seven percent to 2.18 Bcfe as compared to 2.04 Bcfe during the third quarter of 2004. Carrizo’s average oil sales price increased 44 percent to $62.84 per barrel from $43.57 per barrel during the third quarter of 2004, while the average natural gas sales price increased 35 percent to $7.65 per Mcf from $5.69 per Mcf in the third quarter of 2004. The above prices include the effect of hedging activities.

After dividends and accretion of discount on preferred stock, and before exclusion of certain non-cash after-tax charges, the Company reported net income available to common shares (“Net Income”) of $0.6 million, or $0.02 and $0.02 per basic and diluted share, respectively, for the three months ended September 30, 2005, as compared to $3.4 million, or $0.15 and $0.15 per basic and diluted share, respectively, for the same quarter during 2004. For the quarter ended September 30, 2005, Net Income was $4.7 million, or $0.19 and $0.19 per basic and diluted share, respectively, excluding $4.1 million for the non-cash after-tax charges attributable to (1) stock option compensation expense ($1.2 million - related to employee stock options repriced in 2000), (2) loss on the early extinguishment of long-term debt ($2.4 million - related to unamortized debt issuance cost and discount on debt retired in the Company’s July 2005 debt refinancing) and (3) equity in the loss of Pinnacle Gas Resources, Inc. (“Pinnacle”) ($0.4 million - comprised of $0.1 million net income from operations offset by $0.5 million for dividends on preferred stock).

 
EBITDA (earnings before interest, income tax, depreciation and amortization expenses, and certain other non-cash items) during the third quarter of 2005 was $13.3 million, or $0.55 and $0.53 per basic and diluted share, respectively, as compared to $9.4 million, or $0.43 and $0.41 per basic and diluted share, respectively, during the third quarter of 2004.

Oil and gas operating expenses, excluding production taxes, decreased to $1.3 million during the three months ended September 30, 2005 as compared to $1.4 million for the third quarter of 2004.

Production taxes increased to $0.9 million during the three months ended September 30, 2005 as compared to $0.8 million for the third quarter of 2004 due to higher oil and natural gas sales.

Depreciation, depletion and amortization expenses (“DD&A”) were $4.7 million during the three months ended September 30, 2005 as compared to $3.7 million during the third quarter of 2004. The increase in DD&A expense was due to (1) an increase in the DD&A rate primarily due to additions to the proved property cost base and (2) an increase in the production volumes.
 
General and administrative expenses (“G&A”) increased to $1.9 million during the three months ended September 30, 2005 from $1.3 million during the same quarter of 2004. The increase in G&A was due primarily to higher salary (due to salary raises and increased headcount) and incentive compensation costs.

Non-cash stock based compensation expense was $1.9 million for the three months ended September 30, 2005 as compared to a $0.1 million benefit during the third quarter of 2004. These amounts represent primarily the change in value of employee stock options that were repriced in 2000.

Loss on early extinguishment of long-term debt was a non-cash charge of $3.7 million (or $2.4 million after tax) for the three months ended September 30, 2005, primarily attributable to the unamortized debt issuance cost and discount on the long-term debt retired in the Company’s July 2005 debt refinancing.

Other income and expense for the three months ended September 30, 2005 was a net expense of $0.5 million attributable primarily to the non-cash equity in the loss of Pinnacle of $0.4 million (both before and after tax). Other income and expense for the three months ended September 30, 2004 was a net benefit of $0.3 million, directly attributable to the non-cash $0.2 million loss in the equity of Pinnacle (both before and after tax) and (2) the sale of our Enron claim for a gain of $0.5 million, which was fully reserved for in prior years. Net losses are expected in this early phase of Pinnacle’s development of its coalbed methane play, initiated in the second half of 2003.

Interest income was $0.4 million for the three months ended September 30, 2005 as compared to an inconsequential amount in the third quarter of 2004. The increase is attributable to the significant increase in our cash balance following the recent debt refinancing.

Interest expense, net of amounts capitalized, was $1.8 million for the three months ended September 30, 2005 compared to $0.1 million for the three months ended September 30, 2004. The increase is attributable to the significant increase in our long-term debt in connection with the Company’s July 2005 debt refinancing, partially offset by higher capitalized interest. The interest expense, net of capitalized interest, had been inconsequential in periods prior to the fourth quarter of 2004 because
 
 
the interest expense that is capitalizable (“capitalizable interest”) under GAAP has typically been equal to or greater than the gross interest expense (i.e. interest expense before capitalization of interest expense) in each period. Starting in the fourth quarter of 2004, the gross interest expense exceeded the capitalizable interest by an amount proportionate to the outstanding debt in excess of the Company’s unproved property balance.

Results for the Nine Months Ended September 30, 2005 --

The results for the nine months ended September 30, 2005 include the following highlights:

 
·
Record Production of 6.9 Bcfe.

 
·
Record revenues of $49.4 million.

 
·
Net income of $6.8 million, or $12.1 million before non-cash charges, noted below.

 
·
Record EBITDA, as defined below, of $35.8 million.

Revenues for the nine months ended September 30, 2005 increased 41 percent to $49.4 million from $35.1 million during the nine months ended September 30, 2004. The increase in revenues was driven by higher prevailing oil and natural gas prices and higher production. Production volumes during the nine months ended September 30, 2005 increased 17 percent to 6.9 Bcfe as compared to 5.9 Bcfe during the first nine months of 2004. Carrizo’s average oil sales price increased 50 percent to $55.79 per barrel from $37.14 per barrel during the first nine months of 2004, while the average natural gas sales price increased 15 percent to $6.78 per Mcf from $5.89 per Mcf in the first nine months of 2004. The above prices include the effect of hedging activities.

The Company reported Net Income of $6.8 million, or $0.29 and $0.28 per basic and diluted share, respectively, for the nine months ended September 30, 2005, as compared to $7.4 million, or $0.38 and $0.34 per basic and diluted share, respectively, for the same period during 2004. For the nine months ended September 30, 2005, Net Income was $12.1 million, or $0.52 and $0.50 per basic and diluted share, respectively, excluding $5.3 million for the non-cash after-tax items of (1) stock option compensation expense ($1.9 million - related to employee stock options repriced in 2000) (2) loss on the early extinguishment of long-term debt ($2.4 million - related to unamortized debt issuance cost and discount on debt retired in our recent debt refinancing) and (3) equity in the loss of Pinnacle ($1.0 million - comprised of $0.3 million net income from operations offset by $1.3 million for dividends on preferred stock).

EBITDA (earnings before interest, income tax, depreciation and amortization expenses, and certain other non-cash items) during the first nine months of 2005 was $35.8 million, or $1.53 and $1.48 per basic and diluted share, respectively, as compared to $24.7 million, or $1.28 and $1.15 per basic and diluted share, respectively, during the first nine months of 2004.

Oil and gas operating expenses, excluding production taxes, increased to $4.2 million during the nine months ended September 30, 2005 as compared to $3.7 million in the first nine months of 2004. The increase was primarily the result of the addition of new wells (including a number of Barnett Shale wells).

 
Production taxes increased to $2.9 million during the nine months ended September 30, 2005 as compared to $2.2 million for the third quarter of 2004. The increase is attributable to significantly higher oil and gas revenues.

Depreciation, depletion and amortization expenses (“DD&A”) were $14.4 million during the nine months ended September 30, 2005 as compared to $10.6 million during the first nine months of 2004. The increase in DD&A expense was due (1) to an increase in the DD&A rate primarily due to additions to the proved property cost base and (2) in part to increased production volumes.
 
General and administrative expenses (“G&A”) increased to $6.2 million during the nine months ended September 30, 2005 from $5.1 million during the same period of 2004. The increase in G&A was due primarily to higher salary (due to increased headcount and annual raises) and incentive compensation costs.

Non-cash stock based compensation expense was $2.9 million ($1.9 million after tax) for the nine months ended September 30, 2005 as compared to $0.6 million ($0.4 million after tax) for the first nine months of 2004.

Loss on early extinguishment of long-term debt was a non-cash charge of $3.7 million (or $2.4 million after tax) for the nine months ended September 30, 2005, primarily attributable to the unamortized debt issuance cost and discount on the long-term debt retired in the Company’s July 2005 debt refinancing.

Other income and expense for the nine months ended September 30, 2005 was a net expense of $1.3 million primarily attributable to (1) the non-cash equity in the loss of Pinnacle of $1.0 million (both before and after tax) and (2) a $0.2 million loss in connection with excess plugging and abandonment costs. Other income and expense for the first nine months of 2004 was a net expense of $0.3 million, directly attributable to the $0.8 million non-cash equity in the loss of Pinnacle (both before and after tax) and (2) the sale of our Enron claim for a gain of $0.5 million, which was fully reserved for in prior years.

Interest income was $0.5 million for the nine months ended September 30, 2005 as compared to an inconsequential amount in the first nine months of 2004. The increase is directly attributable to the significant increase in our cash balance following the recent debt refinancing.

Interest expense, net of amounts capitalized, was $2.9 million for the nine months ended September 30, 2005 compared to $0.2 million for the first nine months of 2004. The increase is attributable to the significant increase in our long-term debt in connection with the Company’s July 2005 debt refinancing, partially offset by higher capitalized interest. The interest expense, net of capitalized interest, had been inconsequential in periods prior to the fourth quarter of 2004 because the interest expense that is capitalizable (“capitalizable interest”) under GAAP has typically been equal to or greater than the gross interest expense (i.e. interest expense before capitalization of interest expense) in each period. Starting in the fourth quarter of 2004, the gross interest expense exceeded the capitalizable interest by an amount proportionate to the outstanding debt in excess of the Company’s unproved property balance.

 
“We continue to set new performance records both in our quarter and year-to-date results,” commented S.P. Johnson IV, Carrizo’s President and Chief Executive Officer. “Record revenues and EBITDA are especially impressive considering that two of our largest producers were shut-in for workovers from late April to mid-July, later followed by a number of our wells temporarily shut-in until September 30th for the Katrina and Rita hurricanes. Production should continue to climb in the fourth quarter favorably impacted by the Company-operated Galloway #1 (30% working interest) in Liberty County, Texas, put on line in late September along with several Barnett Shale wells to be put on line by the end of the quarter. Year to date, we have had apparent successes in drilling 14 out of 17 Gulf Coast wells (82%) and all of the 31 Barnett Shale wells. With our recent financings completed, we remain positioned to carry out our onshore Gulf Coast drilling program (2 rigs running, including 1 operated) with higher working interests and to accelerate our horizontal drilling program in the Barnett Shale (3 rigs running, including 2 operated). We now have more than 75,000 net acres in the Barnett Shale play and continue to add high quality acreage near successful wells.”

“We are also pleased to announce that Jack L. Bayless, formerly with Unocal Corporation, has joined our management team as Vice President of Land.”

Carrizo Oil & Gas, Inc. is a Houston-based energy company actively engaged in the exploration, development, exploitation and production of oil and natural gas primarily in proven onshore trends along the Texas and Louisiana Gulf Coast regions and the Barnett Shale area in North Texas. Carrizo controls significant prospective acreage blocks and utilizes advanced 3-D seismic techniques to identify potential oil and gas reserves and drilling opportunities.

Statements in this news release, including but not limited to those relating to the Company’s or management’s intentions, beliefs, expectations, hopes, projections, assessment of risks, estimations, plans or predictions for the future including potential effects or timing, cash flow, reserve growth and shareholder value, the expected timing of drilling of additional wells, climb in production and other statements that are not historical facts are forward looking statements that are based on current expectations. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that these expectations will prove correct. Important factors that could cause actual results to differ materially from those in the forward looking statements include the results and dependence on exploratory drilling activities, operating risks, oil and gas price levels, land issues, availability of equipment, weather and other risks described in the Company’s Form 10-K for the year ended December 31, 2004 and its other filings with the Securities and Exchange Commission.

(Financial Highlights to Follow)
 
 
CARRIZO OIL & GAS, INC.
  
STATEMENTS OF OPERATIONS
  
(unaudited)
  
                   
                   
   
THREE MONTHS ENDED
  
NINE MONTHS ENDED
  
   
SEPTEMBER 30,
  
SEPTEMBER 30,
  
   
2005
  
2004
  
2005
  
2004
  
                   
Oil and natural gas revenues
  
$
17,574,489
  
$
12,273,980
  
$
49,353,139
  
$
35,106,951
  
                           
Costs and expenses:
                          
Oil and natural gas operating expenses
    
1,298,426
   
1,369,169
   
4,153,773
   
3,659,489
 
Production tax
    
941,848
   
757,066
   
2,915,202
   
2,189,284
 
Depreciation, depletion and amortization
    
4,701,331
   
3,708,441
   
14,390,489
   
10,561,427
 
General and administrative expenses
    
1,922,755
   
1,295,803
   
6,232,437
   
5,075,243
 
Accretion expense related to asset retirement obligations
    
17,530
   
8,008
   
52,591
   
20,892
 
Stock based compensation expense
    
1,915,002
   
(138,704
)
  
2,945,104
   
617,280
 
                           
Total costs and expenses
    
10,796,892
   
6,999,783
   
30,689,596
   
22,123,615
 
                           
Operating income
    
6,777,597
   
5,274,197
   
18,663,543
   
12,983,336
 
                           
Loss on early debt retirement
    
(3,721,021
)
  
-
   
(3,721,021
)
      
Other income and (expenses), net
    
(484,731
)
  
268,885
   
(1,280,465
)
  
(313,896
)
Interest income
    
445,093
   
21,790
   
520,664
   
44,717
 
Interest expense, net of amounts capitalized (A)
    
(1,803,624
)
  
(95,672
)
  
(2,949,459
)
  
(181,917
)
                           
Income before income taxes
    
1,213,314
   
5,469,200
   
11,233,262
   
12,532,240
 
                           
Income tax expense
    
(634,543
)
  
(2,078,796
)
  
(4,475,461
)
  
(4,820,360
)
                           
Net income
    
578,771
   
3,390,404
   
6,757,801
   
7,711,880
 
                           
Dividends and accretion of discount on preferred stock
    
-
   
-
   
-
   
(350,720
)
                           
Net income available to common shares
  
$
578,771
  
$
3,390,404
  
$
6,757,801
  
$
7,361,160
  
                           
EBITDA (see table below)
  
$
13,337,949
  
$
9,364,841
  
$
35,759,684
  
$
24,713,697
  
                           
Basic net income per common share
  
$
0.02
  
$
0.15
  
$
0.29
  
$
0.38
  
                           
Diluted net income per common share
  
$
0.02
  
$
0.15
  
$
0.28
  
$
0.34
  
                           
Basic weighted average common shares outstanding
    
24,198,152
   
21,909,855
   
23,302,734
   
19,255,156
 
                           
Diluted weighted average common shares outstanding
    
25,003,002
   
23,004,082
   
24,123,244
   
21,546,329
 
                           
______________________________
                  
(A) Interest expense, net of amounts capitalized, consists of the following:
                  
                   
Gross interest expense
  
$
(3,475,072
)
$
(864,620
)
$
(6,845,487
)
$
(2,273,746
)
Capitalized interest
    
1,671,448
   
768,948
   
3,896,028
   
2,091,829
 
                           
 (more)
                          
 
 
CARRIZO OIL & GAS, INC.
  
CONDENSED BALANCE SHEETS
  
           
           
           
           
   
9/30/05
  
12/31/04
  
   
(unaudited)
      
ASSETS:
          
Cash and cash equivalents
  
$
50,036,912
  
$
5,668,000
  
Other current assets
    
27,057,405
   
15,965,885
 
Property and equipment, net
    
278,146,362
   
205,482,585
 
Other assets
    
6,218,479
    
1,689,447
 
Investment in Pinnacle Gas Resources, Inc.
    
4,240,712
   
5,229,134
 
               
TOTAL ASSETS
  
$
365,699,870
  
$
234,035,051
  
               
LIABILITIES AND EQUITY:
              
Accounts payable and accrued liabilities
  
$
45,958,457
  
$
30,682,970
  
Current maturities of long-term debt
   
1,555,465
   
89,653
 
Long-term notes payable
   
147,867,540
   
18,032,002
 
Long-term subordinated notes payable, net
    
-
   
44,852,384
 
Deferred income taxes
    
20,513,943
    
18,112,950
 
Other liabilities
    
3,606,214
   
1,406,567
 
Equity
    
146,198,251
   
120,858,525
 
               
TOTAL LIABILITIES AND EQUITY
  
$
365,699,870
  
$
234,035,051
  
               
 
(1)
Income tax expense for the three and nine months ended September 30, 2005 includes a $568,587 and $4,277,589 respectively, provision for deferred income taxes and a $65,956 and $197,872, respectively, provision for currently payable franchise taxes. Income tax expense for the three and nine months ended September 30, 2004 includes a $1,999,624 and $4,651,188, respectively, provision for deferred income taxes and a $79,172 and $169,172 provision for currently payable franchise taxes.
     
 
(2)
Long-term subordinated notes payable are presented net of discounts of $1,987,206 as of December 31, 2004.
     
 
(3)
Stock based compensation expense is a non-cash charge resulting primarily from the change in the price of the stock underlying employee stock options that were repriced in February 2000.
     
 
(4)
In February 2002, the Company consummated the sale of $6.0 million of convertible participating preferred stock and warrants to purchase shares of the Company's common stock. All of the convertible participating preferred stock was converted into 1,318,125 shares of common stock during 2004.
     
 
(5)
During the nine and twelve months ended September 30, 2005 and December 31, 2004, 334,210 and 2,928,611 warrants were converted into 304,669 and 2,159,627 shares of common stock, respectively.

(more)
 
 
CARRIZO OIL & GAS, INC.
  
NON-GAAP DISCLOSURES
  
(unaudited)
  
                   
                   
   
THREE MONTHS ENDED
  
NINE MONTHS ENDED
  
Reconciliation of Net Income to EBITDA
  
SEPTEMBER 30,
  
SEPTEMBER 30,
  
   
2005
  
2004
  
2005
  
2004
  
                   
                   
                   
Net Income
  
$
578,771
  
$
3,390,404
  
$
6,757,801
  
$
7,711,880
  
                           
Adjustments:
                          
Depreciation, depletion and amortization
    
4,701,331
   
3,708,441
   
14,390,489
   
10,561,427
 
Interest expense, net of amounts capitalized and interest income
    
1,358,531
   
73,882
   
2,428,795
   
137,200
 
Income tax expense
    
634,543
   
2,078,796
   
4,475,461
   
4,820,360
 
Equity in Pinnacle Gas Resources, Inc.
    
411,220
   
244,014
   
988,422
   
844,658
 
Stock based compensation expense
    
1,915,002
   
(138,704
)
  
2,945,104
   
617,280
 
Loss on early debt retirement
    
3,721,021
   
-
   
3,721,021
   
-
 
Accretion expense related to asset retirement obligations
    
17,530
   
8,008
   
52,591
   
20,892
 
                           
EBITDA, as defined
  
$
13,337,949
  
$
9,364,841
  
$
35,759,684
  
$
24,713,697
  
                           
EBITDA per basic common share
  
$
0.55
  
$
0.43
  
$
1.53
  
$
1.28
  
                           
EBITDA per diluted common share
  
$
0.53
  
$
0.41
  
$
1.48
  
$
1.15
  
                           
                           
CARRIZO OIL & GAS, INC.
PRODUCTION VOLUMES AND PRICES
(unaudited)
                           
                           
                           
                           
                           
Production volumes-
                          
                           
Oil and condensate (Bbls)
    
53,368
   
72,634
   
178,478
   
243,145
 
Natural gas (Mcf)
    
1,857,810
   
1,601,708
   
5,807,218
   
4,427,309
 
Natural gas equivalent (Mcfe)
    
2,178,018
   
2,037,512
   
6,878,086
   
5,886,179
 
                           
Average sales prices-
                          
                           
Oil and condensate (per Bbl)
  
$
62.84
  
$
43.57
  
$
55.79
  
$
37.14
  
Natural gas (per Mcf)
  
$
7.65
  
$
5.69
  
$
6.78
  
$
5.89
  
Natural gas equivalent (per Mcfe)
  
$
8.07
  
$
6.02
  
$
7.18
  
$
5.96
  
                           
                           
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