1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to _________
Commission File Number 000-22915.
CARRIZO OIL & GAS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0415919
----- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
14701 ST. MARY'S LANE, SUITE 800, HOUSTON, TX 77079
- --------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(281) 496-1352
--------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No
--- ---
The number of shares outstanding of the registrant's common stock, par value
$0.01 per share, as of May 10, 2001, the latest practicable date, was 14,058,061
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CARRIZO OIL & GAS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Condensed Balance Sheets
- As of December 31, 2000 and March 31, 2001 2
Condensed Statements of Operations
- For the three-month periods ended March 31, 2000
and 2001 3
Condensed Statements of Cash Flows - For the three-month
periods ended March 31, 2000
and 2001 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Items 1-6. 19
SIGNATURES 21
3
CARRIZO OIL & GAS, INC.
CONDENSED BALANCE SHEETS
December 31, March 31,
2000 2001
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 8,217,427 $ 6,023,322
Accounts receivable, net of allowance for doubtful accounts of
$480,000 at December 31, 2000 and March 31, 2001, respectively 7,392,621 9,409,351
Advances to operators 1,756,396 966,393
Deposits 629,460 467,460
Other current assets 401,181 257,582
------------ -----------
Total current assets 18,397,085 17,124,108
PROPERTY AND EQUIPMENT, net (full-cost method of accounting for
oil and gas properties) 72,128,589 78,829,124
INVESTMENT IN MICHAEL PETROLEUM CORPORATION 1,544,180 1,544,180
OTHER ASSETS 930,059 871,549
------------ -----------
$ 92,999,913 $98,368,961
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 3,353,570 $ 5,047,921
Accrued liabilities 1,775,830 1,213,286
Advances for joint operations 376,190 739,385
Current maturities of long-term debt 6,458,310 4,857,898
------------ -----------
Total current liabilities 11,963,900 11,858,490
LONG-TERM DEBT 28,097,490 28,432,960
DEFERRED INCOME TAXES - 1,699,888
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Warrants (3,010,189 outstanding at December 31, 2000 and
March 31, 2001, respectively 765,047 765,047
Common stock, par value $.01, (40,000,000 shares authorized
with 14,055,061 and 14,058,061 issued and outstanding at
December 31, 2000 and March 31, 2001, respectively) 140,551 140,581
Additional paid in capital 62,708,100 62,718,870
Accumulated deficit (10,675,175) (7,211,366)
Other comprehensive income or (loss) - (35,509)
------------ -----------
52,938,523 56,377,623
------------ -----------
$ 92,999,913 $98,368,961
============ ===========
The accompanying notes are an integral part of these financial statements.
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CARRIZO OIL & GAS, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the Three
Months Ended
March 31,
-------------------------
2000 2001
---------- -----------
OIL AND NATURAL GAS REVENUES $4,279,597 $8,727,481
COSTS AND EXPENSES:
Oil and natural gas operating expenses 877,667 1,299,571
Depreciation, depletion and amortization 1,668,806 1,629,744
General and administrative 731,126 870,482
Stock option compensation - (331,655)
---------- ----------
Total costs and expenses 3,277,599 3,468,142
---------- ----------
OPERATING INCOME
OTHER INCOME AND EXPENSES:
Interest income 163,771 120,501
Interest expense (881,986) (749,781)
Interest expense, related parties (58,850) (52,359)
Capitalized interest 929,082 802,140
---------- ----------
INCOME BEFORE INCOME TAXES 1,154,015 5,379,840
INCOME TAXES (Note 4) 25,500 1,916,031
---------- ----------
NET INCOME $1,128,515 $3,463,809
========== ==========
BASIC EARNINGS PER COMMON SHARE (Note 2) $ 0.08 $ 0.25
========== ==========
DILUTED EARNINGS PER COMMON SHARE (Note 2) $ 0.08 $ 0.21
========== ==========
The accompanying notes are an integral part of these financial statements.
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CARRIZO OIL & GAS, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE
MONTHS ENDED
MARCH 31,
------------------------------
2000 2001
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,128,515 $ 3,463,809
Adjustment to reconcile net income (loss) to net
cash provided by operating activities-
Depreciation, depletion and amortization 1,668,806 1,629,744
Discount accretion 7,720 21,315
Interest payable in kind - 314,155
Stock option compensation - (331,655)
Deferred income taxes - 1,882,944
Changes in assets and liabilities-
Accounts receivable (1,001,593) (2,016,731)
Other assets (234,422) 101,554
Accounts payable, trade 384,461 10,203
Other current liabilities 14,347 (266,397)
----------- -----------
Net cash provided by operating activities 1,967,834 4,808,941
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, accrual basis (4,951,540) (8,250,779)
Adjustment to cash basis (555,820) 1,684,147
Advances to operators 265,629 790,003
Advances for joint operations 870,877 363,195
----------- -----------
Net cash used in investing activities (4,370,854) (5,413,434)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the sale of common stock - 10,800
Debt repayments (308,172) (1,600,412)
----------- -----------
Net cash used in financing activities (308,172) (1,589,612)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,711,192) (2,194,105)
CASH AND CASH EQUIVALENTS, beginning of period 11,345,618 8,217,427
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 8,634,426 $ 6,023,322
=========== ===========
SUPPLEMENTAL CASH DISCLOSURES:
Cash paid for interest (net of amounts capitalized) $ 11,754 $ -
=========== ===========
The accompanying notes are an integral part of these financial statements.
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CARRIZO OIL & GAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. ACCOUNTING POLICIES:
The condensed financial statements included herein have been prepared by Carrizo
Oil & Gas, Inc. (the Company), and are unaudited, except for the balance sheet
at December 31, 2000, which has been prepared from the audited financial
statements at that date. The financial statements reflect necessary adjustments,
all of which were of a recurring nature, and are in the opinion of management
necessary for a fair presentation. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). The Company
believes that the disclosures presented are adequate to allow the information
presented not to be misleading. The condensed financial statements included
herein should be read in conjunction with the audited financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000.
2. EARNINGS PER COMMON SHARE:
Supplemental earning per share information is provided below:
FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------
INCOME SHARES PER-SHARE AMOUNT
------------------------- ------------------------- ----------------
2000 2001 2000 2001 2000 2001
---------- ---------- ---------- ---------- ----- -----
Basic Earnings per Share
Net income $1,128,515 $3,463,809 14,011,364 14,057,928 $0.08 $0.25
===== =====
Stock Options and Warrants - - 875,281 2,696,906
---------- ---------- ---------- ----------
Diluted Earnings per Share
Net income (loss) available to common
shareholders plus assumed conversions $1,128,515 $3,463,809 14,886,645 16,754,834 $0.08 $0.21
========== ========== ========== ========== ===== =====
Net income per common share has been computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
periods. The Company had outstanding 236,120 and 67,000 stock options and
250,000 and no warrants during the three months ended March 31, 2000 and 2001,
respectively, which were antidilutive and were not included in the calculation
because the exercise price of these instruments exceeded the underlying market
value of the options and warrants.
3. LONG-TERM DEBT:
At December 31, 2000 and March 31, 2001, long-term debt consisted of the
following:
DECEMBER 31, MARCH 31,
2000 2001
------------ ---------
Credit facility:
Borrowing base facility $ 5,426,000 $ 5,426,000
Term loan facility 5,260,000 3,940,000
Senior subordinated notes 20,462,797 20,706,265
Senior subordinated notes, related parties 2,208,693 2,300,695
Vendor note payable 1,198,310 917,898
----------- -----------
34,555,800 33,290,858
(6,458,310) (4,857,898)
Less: current maturities ----------- -----------
$28,097,490 $28,432,960
=========== ===========
Carrizo amended its existing credit facility with Compass Bank ("Compass") in
September 1998 to provide for a term loan under the facility (the "Term Loan")
in addition to the then existing revolving credit facility limited by the
Company's borrowing base (the
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"Borrowing Base Facility") which provided for a maximum loan amount of $25
million subject to Borrowing Base limitations. The Borrowing Base Facility was
amended in March, 1999 to provide for a maximum loan amount under such facility
of $10 million. Substantially all of Carrizo's oil and natural gas property and
equipment is pledged as collateral under this facility. The interest rate for
both borrowings is calculated at a floating rate based on the Compass index rate
or LIBOR plus 2 percent. The Company's obligations are secured by certain of its
oil and gas properties and cash or cash equivalents included in the borrowing
base. Certain members of the Board of Directors had provided collateral,
primarily in the form of marketable securities, to secure the revolving credit
loans. This collateral was released during April 2001. The Borrowing Base
Facility and the Term Loan are referred to collectively as the "Company Credit
Facility". Proceeds from the Borrowing Base portions of this credit facility
have been used to provide funding for exploration and development activity. In
April 2001, the maturity date of the Borrowing Base Facility was extended from
February 2002 to April 2003.
Under the Borrowing Base Facility, Compass, in its sole discretion, will make
semiannual borrowing base determinations based upon the proved oil and natural
gas properties of the Company. Compass may also redetermine the borrowing base
and the monthly borrowing base reduction at any time at its discretion. The
Company may also request borrowing base redeterminations in addition to the
required semiannual reviews at the Company's cost.
At December 31, 2000 and March 31, 2001, amounts outstanding under the Borrowing
Base Facility totaled $5,426,000 with an additional $2,676,884 and $5,323,967,
respectively, available for future borrowings. The Borrowing Base totaled
$8,326,884 and $10,973,967 at December 31, 2000 and March 31, 2001,
respectively. The Borrowing Base Facility was also available for letters of
credit, one of which has been issued for $224,000 at December 31, 2000 and March
31, 2001. The Borrowing Base facility was amended in November 2000 to provide up
to $2 million of Guidance Line letters of credit (the "Guidance Line letters of
credit") relating exclusively to the Company's outstanding hedge positions. At
December 31, 2000 and March 31, 2001, the Company had one and none Guidance
Line letter of credit outstanding amounting to $180,000 and zero, respectively.
The Term Loan was initially due and payable upon maturity in September 1999. In
March 1999, the maturity date of the Term Loan was amended to provide for twelve
monthly installments of $750,000 beginning January 1, 2000. The repayment terms
were also amended to provide for $1.74 million of principal due ratably over the
last six months of 2000, $2.64 million of principal due ratably over the first
six months of 2001, and the balance due in July 2001. During 2001, the repayment
schedule was amended to provide for $4.84 million of principal due ratably over
the first eleven months of 2001, and the balance due December 2001. Certain
members of the Board of Directors have guaranteed the Term Loan. At December 31,
2000 and March 31, 2001, $5,260,000 and $3,940,000 respectively, was outstanding
under the Term Loan.
The Company is subject to certain covenants under the terms of the Company
Credit Facility, including but not limited to (a) maintenance of specified
tangible net worth, (b) a ratio of quarterly EBITDA (earnings before interest,
taxes, depreciation and amortization) to quarterly debt service of not less than
1.25 to 1.00, and (c) a specified minimum amount of working capital. The Company
Credit Facility also places restrictions on, among other things, (a) incurring
additional indebtedness, guaranties, loans and liens, (b) changing the nature of
business or business structure, (c) selling assets and (d) paying dividends. In
March 1999, the Company Credit Facility was amended to decrease the required
specified tangible net worth covenant. The Company is currently in compliance
with the covenants under the Company Credit Facility.
In November 1999, certain members of the Board of Directors provided a bridge
loan in the amount of $2,000,000 to the Company secured by certain oil and
natural gas properties. This bridge loan bore interest at 14 percent per annum.
Also, in consideration for the bridge loan, the Company assigned to those
members of the Board of Directors an Overriding Royalty Interest in certain of
the Company's producing properties. The bridge loan was repaid from the proceeds
of the sale of Subordinated Notes, Common Stock and Warrants in 1999.
In December 1999, the Company consummated the sale of $22 million principal
amount of 9 percent Senior Subordinated Notes due 2007 (the "Subordinated
Notes") to an investor group led by CB Capital Investors, L.P. (now known as
J.P. Morgan Partners, LLC) which included certain members of the Board of
Directors. The Company also sold Common Stock and Warrants to this investor
group. The Subordinated Notes were sold at a discount of $688,761, which is
being amortized over the life of the notes. Quarterly interest payments began on
March 31, 2000. The Company may elect, for a period of up to five years to
increase the amount of the Subordinated Notes for 60 percent of the interest
which would otherwise be payable in cash. As of December 31, 2000 and March 31,
2001, the outstanding balance of the Subordinated Notes had been increased by
$1,227,325 and $1,541,480, respectively, for such interest.
The Company is subject to certain covenants under the terms under the
Subordinated Notes securities purchase agreement, including but not limited to,
(a) maintenance of a specified tangible net worth, (b) maintenance of a ratio of
EBITDA (earnings before interest, taxes, depreciation and amortization) to
quarterly Debt Service (as defined in the agreement) of not less than 1.00 to
1.00, and (c) a
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limitation of its capital expenditures to a specified amount for the year ended
December 31, 2000 and thereafter equal to the Company's EBITDA for the
immediately prior fiscal year (unless approved by the Company's Board of
Directors and a JP Morgan Partners director).
During 1999, Carrizo restructured certain current accounts payable into vendor
notes, extending the payment dates through 2001. One note was outstanding in the
amount of $1,198,310 and $917,898 at December 31, 2000 and March 31, 2001,
respectively, which bears interest at the prime rate.
4. INCOME TAXES:
The Company provided deferred income taxes at the rate of 35 percent, which also
approximates its statutory rate, that amounted to $1,882,944 for the three
months ended March 31, 2001. In the first quarter of 2000, the Company decreased
the valuation allowance associated with $1,154,015 of its net operating loss
carryforwards as management had determined that it was more likely than not that
such carryforwards will be utilized based upon the Company's estimate of future
taxable income at that time. As a result of this determination, the Company
realized a deferred tax benefit in the amount of $403,905 for the three months
ended March 31, 2000.
5. COMMITMENTS AND CONTINGENCIES:
From time to time, the Company is party to certain legal actions and claims
arising in the ordinary course of business. While the outcome of these events
cannot be predicted with certainty, management does not expect these matters to
have a materially adverse effect on the financial position or results of
operations of the Company.
Settlement of Litigation. The Company, as one of three plaintiffs, filed a
lawsuit against BNP Petroleum Corporation ("BNP"), Seiskin Interests, LTD,
Pagenergy Company, LLC and Gap Marketing Company, LLC, as defendants, in the
229th Judicial District Court of Duval County, Texas, for fraud and breach of
contract in connection with an agreement between plaintiffs and defendants
whereby the defendants were obligated to drill a test well in an area known as
the Slick Prospect in Duval County, Texas. The allegations of the Company in
this litigation were that BNP gave the Company inaccurate and incomplete
information on which the Company relied in making its decision not to
participate in the test well and the prospect, resulting in the loss of the
Company's interest in the lease, the test well and four subsequent wells drilled
in the prospect. The Company has sought to enforce its approximate 23.68 percent
interest in the prospect and sought damages or rescission, as well as costs and
attorneys' fees. The case was originally filed in Duval County, Texas on
February 25, 2000.
In mid March, 2000, the defendants filed an original answer and certain
counterclaims against plaintiffs, seeking unspecified damages for slander of
title, tortious interference with business relations, and exemplary damages. The
case proceeded to trial before the Court (without a jury) on June 19, 2000 after
the plaintiffs' were found by the court to have failed to comply with procedural
requirements regarding the request for a jury. After several days of trial the
case was recessed and later resumed on September 5, 2000. The court at that time
denied the plaintiffs' motion for mistrial based on the court's denial of a jury
trial. The court also ordered that the defendants' counterclaims would be the
subject of a separate trial that would commence on December 11, 2000. The
parties proceeded to try issues related to the plaintiffs' claims on September
5, 2000. All parties rested on the plaintiffs' claims on September 13, 2000. The
court took the matter under advisement and has not yet announced a ruling.
Defendants filed a second amended answer and counterclaim and certain
supplemental responses to request for disclosure in which they stated that they
were seeking damages in the amount of $33.5 million by virtue of an alleged lost
sale of the subject properties, $17 million in alleged lost profits from other
prospective contracts, and unspecified incidental and consequential damages from
the alleged wrongful suspension of funds under their gas sales contract with the
gas purchaser on the properties, alleged damage to relationships with trade
creditors and financial institutions, including the inability to leverage the
Slick Prospect, and attorneys' fees at prevailing hourly rates in Duval County,
Texas incurred in defending against plaintiffs' claims and for 40 percent of any
aggregate recovery in prosecuting their counterclaims. In subsequent testimony,
the defendants verbally alleged $26 million of damages by virtue of the alleged
lost sale of the properties (as opposed to the $33.5 million previously sought),
$7.5 million of damages by virtue of loss of a lease development opportunity and
$100 million of damages by virtue of the loss of a business opportunity related
to BNP's alleged inability to participate in a 3-D seismic project.
The Company had also alleged that BNP Petroleum Corporation, Seiskin Interests,
LTD and Pagenergy Company, LLC breached a contract with the plaintiffs by
obtaining oil and gas leases within an area restricted by that contract. This
breach of contract allegation is the subject of an additional lawsuit by
plaintiffs in the 165th District Court in Harris County, Texas. The defendants
took the position that the claim must be tried in the Duval County case. The
Duval County court, without issuing a formal ruling, took the
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position that this claim should be considered in the Duval County case. The
Company was seeking damages as a result of defendants' actions as well as costs
and attorneys' fees.
On December 8, 2000 the Company entered into a Compromise and Settlement
Agreement ("Settlement Agreement") with the defendants with regard to the above
described litigation. Under the terms of the Settlement Agreement, the Company
and the defendants agreed to enter into an Agreed Order of Dismissal with
Prejudice of the litigation and, among other things, agreed as follows:
1. Should a co-plaintiff to the Duval County litigation secure a final
judgment (without regard to appeals, new trials or other such actions)
in the trial court in Duval County that results in such plaintiff being
entitled to recover a five percent or greater undivided interest in the
Slick Prospect, BNP will pay to Carrizo, at BNP's option, either
$500,000 or an amount equal to the judgment rendered in favor of such
plaintiff.
2. Should the defendants secure a final judgment (without regard to
appeals, new trials or other such actions) in the trial court in Duval
County against a co-plaintiff, the Company will be obligated to pay BNP
an amount equal to five percent of any percentage of the total judgment
apportioned to the Company in the case, such payment being limited
however to no more than five percent of 47.2 percent of the total
judgment entered in the case.
3. In the event the defendants and such co-plaintiff reach a full and
final settlement prior to the entry of a written final judgment in the
trial court in Duval County (including but not limited to any type of
agreed judgment or any agreement that such co-plaintiff will not be
ultimately liable to BNP for the full amount of any judgment rendered
in favor of the defendants), the obligations described in (1) and (2)
above will be null and void. Also, in the event BNP and such
co-plaintiff both only obtain take nothing judgments in the case, such
obligations will be null and void.
4. Both the Company and the defendants released each other from any and
all claims, demands, actions or causes of action relating to or arising
out of the litigation.
The case proceeded to trial on the counterclaims on December 11, 2000 in the
Duval County court. BNP presented evidence that its damages were in the amounts
of $19.6 million for the alleged lost sale of the properties, $35 million for
loss of the lease development opportunity, and $308 million for loss of the
opportunity related to participation in the 3-D seismic project. During the
course of the trial, the co-plaintiff presented its motion for summary judgment
on the counterclaims based on the doctrine of absolute judicial proceeding
privilege. The court partially granted the co-plaintiff's motion for summary
judgment as it related to the filing of a lis pendens, but denied it with regard
to the other allegations of BNP. The court also granted the co-plaintiff's plea
in abatement relating to the breach of contract allegation, ruling that the
District Court in Harris County has dominant jurisdiction of that issue. Upon
completion of the trial, the court announced that it would take the case under
advisement. As of May 14, 2001, the Court has not yet announced a ruling.
While the outcome of these events cannot be predicted with certainty, management
does not expect these matters to have a materially adverse effect in the
financial position or results of operations of the Company.
COMMITMENTS
During November 2000, the Company entered into a one-year contract with Grey
Wolf, Inc. for utilization of a 1,500 horsepower drilling rig capable of
drilling wells to a depth of approximately 18,000 feet. The contract, which
commenced in February 2001, provides for a dayrate of $12,000 per day. The
rig is expected to be utilized primarily to drill wells in the Company's focus
areas, including the Matagorda Project Area and the Cabeza Creek Project Area.
The contract contains a provision which would allow the Company to terminate the
contract early by tendering payment equal to one-half the dayrate for the number
of days remaining under the term of the contract as of the date of termination.
Steven A. Webster, who is the Chairman of the Board of Directors of the Company,
is a member of the Board of Directors of Grey Wolf, Inc.
6. CHANGE IN ACCOUNTING PRINCIPLE:
In June 1998, The Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133 "Accounting for derivative Instruments
and Hedging Activities". This statement, as amended by SFAS No. 137 and SFAS No.
138, establishes standards of accounting for and disclosures of derivative
instruments and hedging activities. This statement requires all derivative
instruments to be carried on the balance sheet at fair value and is effective
for the Company beginning January 1, 2001.
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The Company adopted SFAS No. 133 on January 1, 2001. In accordance with the
current transition provisions of SFAS No. 133, the Company recorded a net-of-tax
cumulative-effect transition adjustment of $2.0 million (net of related tax
expense of $1.1 million) in accumulated other comprehensive income to recognize
the fair value of its derivatives designated as cash-flow hedging instruments at
the date of adoption.
All of the Company's derivative instruments will be recognized on the balance
sheet at their fair value. The Company typically uses fixed rate swaps and no
cost collars to hedge its exposure to material changes in the price of natural
gas and crude oil.
On the date a derivative contract is entered into, the Company designates its
derivative as a hedge of the variability of a cash flow to be received (cash
flow hedge). Changes in the fair value of a cash flow hedge are recorded in
other comprehensive income to the extent that that the derivative is effective
in offsetting changes in the fair value of the hedged item. Any ineffectiveness
in the relationship between the cash flow hedge and the hedged item is
recognized currently in income. Gains and losses accumulated in other
comprehensive income associated with the cash flow hedge are recognized in
earnings when the forecasted transaction occurs. All of the Company's derivative
instruments at January 1, 2001 were designated as cash-flow hedges.
The Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk management objectives and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated cash flow hedges to forecasted transactions. The
Company also formally assesses, both at the hedge's inception and on an ongoing
basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash flows of hedged transactions.
When hedged accounting is discontinued because it is probable that a forecasted
transaction will not occur, the derivative will continued to be carried on the
balance sheet at its fair value and gains and losses that were accumulated in
other comprehensive income will be recognized in earnings immediately. In all
other situations in which hedge accounting is discontinued, the derivative will
be carried at fair value on the balance sheet with future changes in its fair
value recognized in then current earnings.
At March 31, 2001, the Company had recorded $36,000 of hedging losses in other
comprehensive income, which all of which is expected to be reclassified to
earnings within the next twelve months. The amount ultimately reclassified to
earnings will vary due to changes in the fair values of the derivatives
designated as cash flow hedges prior to their settlement. Total oil and natural
gas purchased and sold under swap arrangements during the three months ended
March 31, 2000 and 2001 were 39,300 Bbls and 18,000 Bbls, respectively, and
240,000 MMBtu and 993,000 MMBtu, respectively. Pre-tax income and (losses)
realized by the Company under such swap arrangements were $32,000 and
($1,013,000) for the three months ended March 31, 2000 and 2001, respectively.
At March 31, 2000, the Company had 360,000 MMBtu and 12,200 Bbls of outstanding
hedge positions (at an average price of $2.69 per MMBtu and $25.45 per Bbl) for
April through June 2000 production. At March 31, 2001, the Company had
outstanding hedge positions covering 2,004,000 MMBtu and zero Bbls. The
2,004,000 MMBtu of natural gas hedges had an average floor of $4.73 and an
average ceiling of $5.72 for April through December 2001 production.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors that have affected certain aspects of the Company's financial position
and results of operations during the periods included in the accompanying
unaudited condensed financial statements. This discussion should be read in
conjunction with the discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the annual financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 and the unaudited condensed financial statements
included elsewhere herein. Unless otherwise indicated by the context, references
herein to "Carrizo" or "Company" mean Carrizo Oil & Gas, Inc., a Texas
corporation that is the registrant.
GENERAL OVERVIEW
The Company began operations in September 1993 and initially focused on the
acquisition of producing properties. As a result of the increasing availability
of economic onshore 3-D seismic surveys, the Company began to obtain 3-D seismic
data and options to lease substantial acreage in 1995 and began to drill its 3-D
based prospects in 1996. The Company drilled 39 gross wells in 2000 and 3 gross
wells through the three months ended March 31, 2001. The Company has budgeted to
drill 40 gross wells (11.1 net) in 2001; however, the actual number of wells
drilled will vary depending upon various factors, including the availability and
cost of drilling rigs, land and industry partner issues, Company cash flow,
success of drilling programs, weather delays and other factors. If the Company
drills the number of wells it has budgeted for 2001, depreciation, depletion and
amortization, oil and gas operating expenses and production are expected to
increase. The Company has typically retained the majority of its interests in
shallow, normally pressured prospects and sold a portion of its interests in
deeper, overpressured prospects.
The Company has primarily grown through the internal development of properties
within its exploration project areas, although the Company acquired properties
with existing production in the Camp Hill Project in late 1993, the Encinitas
Project in early 1995 and the La Rosa Project in 1996. The Company made these
acquisitions through the use of limited partnerships with Carrizo or Carrizo
Production, Inc. as the general partner. In addition, in November 1998, the
Company acquired assets in Wharton County, Texas in the Jones Branch project
area for $3,000,000.
In order to reduce its exposure to short-term fluctuations in the price of oil
and natural gas, and not for speculation purposes, the Company periodically
enters into hedging arrangements. The Company's hedging arrangements apply to
only a portion of its production and provide only partial price protection
against declines in oil and natural gas prices. Such hedging arrangements may
expose the Company to risk of financial loss in certain circumstances, including
instances where production is less than expected, the Company's customers fail
to purchase contracted quantities of oil or natural gas or a sudden, unexpected
event materially impacts oil or natural gas prices. In addition, the Company's
hedging arrangements limit the benefit to the Company of increases in the price
of oil and natural gas. Total oil and natural gas purchased and sold under swap
arrangements during the three months ended March 31, 2000 and 2001 were 39,300
Bbls and 18,000 Bbls, respectively, and 240,000 MMBtu and 993,000 MMBtu,
respectively. Pre-tax income and (losses) realized by the Company under such
swap arrangements were $32,000 and ($1,013,000) for the three months ended March
31, 2000 and 2001, respectively. At March 31, 2000, the Company had 360,000
MMBtu and 12,200 Bbls of outstanding hedge positions (at an average price of
$2.69 per MMBtu and $25.45 per Bbl) for April through June 2000 production. At
March 31, 2001, the Company had outstanding hedge positions covering 2,004,000
MMBtu and zero Bbls. The 2,004,000 MMBtu of natural gas hedges had an average
floor of $4.73 and an average ceiling of $5.72 for April through December 2001
production. The Company's hedge prices are based on Houston Ship Channel prices.
The Company's Board of Directors sets all of the Company's hedging policy,
including volumes, types of instruments and counterparties, on a quarterly
basis. These policies are implemented by management through the execution of
trades by either the President or Chief Financial Officer after consultation and
concurrence by the President, Chief Financial Officer and Chairman of the Board.
The master contracts with the authorized counterparties identify the President
and Chief Financial Officer as the only Company representatives authorized to
execute trades. The Board of Directors also reviews the status and results of
hedging activities quarterly. On January 1, 2001, the Company adopted Statement
of Financial Standards No. 133. See Note 6 to the Financial Statements.
The Company uses the full-cost method of accounting for its oil and gas
properties. Under this method, all acquisition, exploration and development
costs, including any general and administrative costs that are directly
attributable to the Company's acquisition, exploration and development
activities, are capitalized in a "full-cost pool" as incurred. The Company
records depletion of its full-cost pool using the unit-of-production method. To
the extent that such capitalized costs in the full-cost pool (net of
depreciation, depletion and amortization and related deferred taxes) exceed the
present value (using a 10 percent discount rate) of estimated future
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net after-tax cash flows from proved oil and gas reserves, such excess costs are
charged to operations. Primarily as a result of depressed oil and natural gas
prices, and the resulting downward reserve quantities revisions, the Company
recorded a ceiling test write-down of $20.3 million in 1998. A ceiling test
write-down was not required for the three months ended March 31, 2001 and 2000.
Once incurred, a write-down of oil and gas properties is not reversible at a
later date.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2001,
Compared to the Three Months Ended March 31, 2000
Oil and natural gas revenues for the three months ended March 31, 2001 increased
104 percent to $8,727,000 from $4,280,000 for the same period in 2000.
Production volumes for natural gas during the three months ended March 31, 2001
decreased two percent to 1,161,050 from 1,180,616 for the same period in 2000.
Average natural gas prices increased 163 percent to $6.66 per Mcf in the first
quarter of 2001 from $2.53 per Mcf in the same period in 2000. Production
volumes for oil in the first quarter of 2001 decreased 29 percent to 37,460 Bbls
from 52,811 Bbls for the same period in 2000. Average oil prices increased nine
percent to $26.69 per barrel in the first quarter of 2001 from $24.53 per barrel
in the same period in 2000. The decrease in oil production was due to the
natural decline in production primarily at the Jones Branch wells and the
initial Matagorda Project wells. The decrease in natural gas production was due
primarily to the sale of the Metro Project during 2000 and the natural decline
in production primarily at the initial Matagorda Project wells offset by the
commencement of production at the additional Cedar Point Project wells, the
additional N. La Copita Project wells and the West Bay Project well. Oil and
natural gas revenues include the impact of hedging activities as discussed above
under "General Overview."
The following table summarizes production volumes, average sales prices and
operating revenues for the Company's oil and natural gas operations for the
three months ended March 31, 2000 and 2001:
2001 Period
Compared to 2000 Period
March 31, --------------------------
------------------------ Increase % Increase
2000 2001 (Decrease) (Decrease)
---------- ---------- ---------- ------------
Production volumes -
Oil and condensate (Bbls) 52,811 37,460 (15,351) (29%)
Natural gas (Mcf) 1,180,616 1,161,050 (19,566) (2%)
Average sales prices - (1)
Oil and condensate (Bbls) $ 24.53 $ 26.69 $ 2.16 9%
Natural gas (Mcf) 2.53 6.66 4.13 163%
Operating revenues -
Oil and condensate (Bbls) $1,295,560 $ 999,832 $ (295,728) (23%)
Natural gas (Mcf) 2,984,037 7,727,649 4,743,612 159%
---------- ---------- ----------
Total $4,279,597 $8,727,481 $4,447,884 104%
========== ========== ==========
- ------------------
(1) Includes impact of hedging activities.
Oil and natural gas operating expenses for the three months ended March 31, 2001
increased 48 percent to $1,300,000 from $878,000 for the same period in 2000
primarily due to higher severance and ad valorem taxes and the addition of new
production offset by a reduction in costs on older producing fields. Operating
expenses per equivalent unit increased 60 percent to $.94 per Mcfe in the first
quarter of 2001 from $.59 per Mcfe in the same period in 2000 primarily as a
result of higher severance and ad valorem taxes and decreased production of
natural gas as wells naturally decline.
Depreciation, depletion and amortization (DD&A) expense for the three months
ended March 31, 2001 decreased three percent to $1,630,000 from $1,669,000 for
the same period in 2000. This decrease was due to decreased production offset by
increased amortization of deferred loan costs and additional seismic and
drilling costs. General and administrative expense for the three months ended
March 31, 2001 increased 19 percent to $870,000 from $731,000 for the same
period in 2000 primarily as a result of the addition of staff to handle
increased drilling and production activities.
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Income taxes increased to $1,916,000 for the three months ended March 31, 2001
from $26,000 for the same period in 2000. The Company provided deferred income
taxes at 35 percent during the first quarter on 2001 compared to none in the
first quarter of 2000 as a result of an adjustment to its valuation reserve on
net operating loss carryforwards.
Interest income for the three months ended March 31, 2001 decreased to $121,000
from $164,000 in the first quarter of 2000 primarily as a result of lower cash
balances during the first quarter of 2001. Capitalized interest decreased to
$802,000 in the first quarter of 2001 from $929,000 in the first quarter of 2000
primarily due to lower interest costs as a result of the term loan repayments
during the first quarter of 2001.
Income before income taxes for the three months ended March 31, 2001 increased
to $5,380,000 from $1,154,000 in the same period in 2000. Net income for the
three months ended March 31, 2001 increased to $3,464,000 from $1,129,000 for
the same period in 2000 primarily as a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has made and is expected to make oil and gas capital expenditures in
excess of its net cash flow from operations in order to complete the exploration
and development of its existing properties. The Company will require additional
sources of financing to fund drilling expenditures on properties currently owned
by the Company and to fund leasehold costs and geological and geophysical costs
on its active exploration projects.
While the Company believes that the current cash balances and anticipated 2001
operating cash flow will provide sufficient capital to carry out the Company's
2001 exploration plan, management of the Company continues to seek financing for
its capital program from a variety of sources. No assurance can be given that
the Company will be able to obtain additional financing on terms that would be
acceptable to the Company. The Company's inability to obtain additional
financing could have a material adverse effect on the Company. Without raising
additional capital, the Company anticipates that it may be required to limit or
defer its planned oil and gas exploration and development program, which could
adversely affect the recoverability and ultimate value of the Company's oil and
gas properties.
The Company's primary sources of liquidity have included proceeds from the 1997
initial public offering, from the December 1999 sale of Subordinated Notes,
Common Stock and Warrants, the 1998 sale of shares of Preferred Stock and
Warrants, funds generated by operations, equity capital contributions,
borrowings (primarily under revolving credit facilities) and the Palace
Agreement that provided a portion of the funding for the Company's 1999, 2000
and 2001 drilling program in return for participation in certain wells.
Cash flows provided by operations (after changes in working capital) were
$1,968,000 and $6,493,000 for the three months ended March 31, 2000 and 2001,
respectively. The increase in cash flows provided by operations in 2001 as
compared to 2000 was due primarily to additional revenue as a result of higher
oil and natural gas prices during the first quarter of 2001.
The Company has budgeted capital expenditures for the year ended December 31,
2001 of approximately $22.0 million of which $4.4 million is expected to be used
to fund 3-D seismic surveys and land acquisitions and $17.6 million of which is
expected to be used for drilling activities in the Company's project areas. The
Company has budgeted to drill up to approximately 40 gross wells (11.1 net) in
2001. The actual number of wells drilled and capital expended is dependent upon
available financing, cash flow, availability and cost of drilling rigs, land and
partner issues and other factors.
The Company has continued to reinvest a substantial portion of its cash flows
into increasing its 3-D supported drilling prospect portfolio, improving its 3-D
seismic interpretation technology and funding its drilling program. Oil and gas
capital expenditures were $8.3 million for the three months ended March 31, 2001
which included $1.1 million of capitalized interest and general and
administrative costs. The Company's drilling efforts resulted in the successful
completion of 24 gross wells (6.6 net) during the year ended December 31, 2000
and 3 gross wells (1.1 net) during the three months ended March 31, 2001.
FINANCING ARRANGEMENTS
In connection with Carrizo's initial public offering in 1997, Carrizo entered
into an amended revolving credit facility with Compass Bank (the "Company Credit
Facility"), to provide for a maximum loan amount of $25 million, subject to
borrowing base limitations. The principal outstanding is due and payable in
April 2003, with interest due monthly. The Company Credit Facility was amended
in March 1999 to provide for a maximum loan amount under such facility of $10
million. The interest rate on all revolving credit loans is calculated, at the
Company's option, at a floating rate based on the Compass index rate or LIBOR
plus 2 percent. The Company's
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obligations are secured by substantially all of its oil and gas properties and
cash or cash equivalents included in the borrowing base. Certain members of the
Board of Directors had provided collateral, primarily in the form of marketable
securities, to secure the revolving credit loans. This collateral was released
during April 2001.
Under the Company Credit Facility, Compass, in its sole discretion, will make
semiannual borrowing base determinations based upon the proved oil and natural
gas properties of the Company. Compass may also redetermine the borrowing base
and the monthly borrowing base reduction at any time at its discretion. The
Company may also request borrowing base redeterminations in addition to the
required semiannual reviews at the Company's cost.
In September 1998, the Company Credit Facility was further amended to provide
for an additional $7 million term loan bearing interest at the Index Rate, of
which $7 million was borrowed in the fourth quarter of 1998. In March 1999, the
Company Credit Facility was further amended to increase the $7 million term loan
by $2 million. In December 1999, $2 million principal amount of the term loan
was repaid with proceeds from the sale from the Subordinated Notes, Common Stock
and Warrants.
Certain members of the Board of Directors have guaranteed the term loan. As
currently amended pursuant to an amendment dated December 1999, interest on the
term loan is payable monthly, bearing interest at the Index Rate. Unless
preceded by the Term Loan Maturity Date (as defined below), principal payments
on the term loan are not due until June 1, 2000, whereupon the term loan is
repayable in consecutive monthly installments in the amount $290,000 each,
beginning July 1, 2000 through December 1, 2000, and thereafter in the amount of
$440,000, beginning January 1, 2001 until the Term Loan Maturity Date, when the
entire principal balance, plus interest, is payable. Term Loan Maturity Date
means the earlier of: (1) the date of closing of the issuance of additional
equity of the Company, if the net proceeds of such issuance are sufficient to
repay in full the term loan; (2) the date of closing of the issuance of
convertible subordinated debt of the Company, if the proceeds of such issuance
are sufficient to repay in full the term loan; (3) the date of repayment of the
revolving credit loans and the termination of the revolving commitment; and (4)
December 1, 2001. As of March 31, 2001 and December 31, 2000, the outstanding
principal balance under the Term Loan was $3,940,000 and $5,260,000,
respectively.
The Company is subject to certain covenants under the terms of the Company
Credit Facility, including but not limited to (a) maintenance of specified
tangible net worth, (b) a ratio of quarterly EBITDA (earnings before interest,
taxes, depreciation and amortization) to quarterly debt service of not less than
1.25 to 1.00, and (c) a specified minimum amount of working capital. The Company
Credit Facility also places restrictions on, among other things, (a) incurring
additional indebtedness, guaranties, loans and liens, (b) changing the nature of
business or business structure, (c) selling assets and (d) paying dividends.
Proceeds of the revolving credit loans have been used to provide funding for
exploration and development activity. At December 31, 2000 and March 31, 2001,
outstanding revolving credit loans totaled $5,426,000, with an additional
$2,676,884 and $5,547,967, respectively, available for future borrowings. The
Company Credit Facility also provides for the issuance of letters of credit, one
of which has been issued for $224,000 at December 31, 2000 and March 31, 2001.
The Borrowing Base facility was amended in November 2000 to provide up to $2
million of Guidance Line letters of credit (the "Guidance Line letters of
credit") relating exclusively to the Company's outstanding hedge positions. At
December 31, 2000 and March 31, 2001, the Company had one and none Guidance Line
letter of credit outstanding amounting to $180,000 and zero, respectively.
In November 1999, certain members of the Board of Directors provided a bridge
loan in the amount of $2,000,000, to the Company, secured by certain oil and
natural gas properties. This bridge loan bore interest at 14 percent per annum.
Also in consideration for the bridge loan, the Company assigned to Messrs.
Hamilton, Webster, and Loyd an aggregate 1.0 percent overriding royalty interest
("ORRI") in the Huebner #1 and Fondren Letulle #1 wells (combined with the prior
assignment, a 2 percent overriding royalty interest), a .8794 percent ORRI in
Neblett #1 (N. La. Copita), a 1.0466 percent ORRI in STS 104-5 #1, a 1.544
percent ORRI in USX Hematite #1, a 2.0 percent ORRI in Huebner #2 and a 2.0
percent ORRI in Burkhart #1. On December 15, 1999 the bridge loan was repaid in
its entirety with proceeds from the sale of Common Stock, Subordinated Notes and
Warrants. Such overriding royalty interests are limited to the well bore and
proportionately reduced to the Company's working interest in the well.
In December 1999, the Company consummated the sale of $22 million principal
amount of 9 percent Senior Subordinated Notes due 2007 (the "Subordinated
Notes") to an investor group led by CB Capital Investors, L.P. which included
certain members of the Board of Directors. The Subordinated Notes were sold at a
discount of $688,761 which is being amortized over the life of the notes.
Interest is payable quarterly beginning March 31, 2000. The Company may elect,
for a period of five years, to increase the amount of the Subordinated Notes for
up to 60 percent of the interest which would otherwise be payable in cash. The
Subordinated Notes were increased by $1,227,325 and $1,541,480 for such interest
as of December 31, 2000 and March 31, 2001, respectively. Concurrent with the
sale of the notes, the Company consummated the sale of 3,636,364 shares of
Common Stock at a price of $2.20 per share and Warrants to purchase up to
2,760,189 shares of the Company's Common Stock at an exercise price of $2.20 per
share. For accounting
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purposes, the Warrants are valued at $0.25 per Warrant. The sale was made to an
investor group led by CB Capital Investors, L.P. which included certain members
of the Board of Directors. The Warrants have an exercise price of $2.20 per
share and expire in December 2007.
The Company is subject to certain covenants under the terms under the related
Securities Purchase Agreement, including but not limited to, (a) maintenance of
a specified Tangible Net Worth, (b) maintenance of a ratio of EBITDA (earnings
before interest, taxes depreciation and amortization) to quarterly Debt Service
(as defined in the agreement) of not less than 1.00 to 1.00, and (c) limit its
capital expenditures to a specified amount for the year ended December 31, 2000,
and thereafter to an amount equal to the Company's EBITDA for the immediately
prior fiscal year (unless approved by the Company's Board of Directors and a JP
Morgan Partners director), as well as limits on the Company's ability to (i)
incur indebtedness, (ii) incur or allow liens, (iii) engage in mergers,
consolidation, sales of assets and acquisitions, (iv) declare dividends and
effect certain distributions (including restrictions on distributions upon the
Common Stock), (v) engage in transactions with affiliates (vi) make certain
repayments and prepayments, including any prepayment of the Company's Term Loan,
any subordinated debt, indebtedness that is guaranteed or credit-enhanced by any
affiliate of the Company, and prepayments that effect certain permanent
reductions in revolving credit facilities.
Of the approximately $29,000,000 net proceeds of this financing, $12,060,000 was
used to fund the Enron Repurchase described below and related expenses,
$2,025,000 was used to repay the bridge loan extended to the Company by its
outside directors, $2 million was used to repay a portion of the Compass Term
Loan, $1 million was used to repay a portion of the Compass Borrowing Base
Facility, and the remaining proceeds were used to fund the Company's ongoing
exploration and development program and general corporate purposes.
In December 1999, the Company consummated the repurchase from certain Enron
Corporation affiliates of all the outstanding shares of Preferred Stock and
750,000 Warrants for $12 million. At the same time, the Company reduced the
exercise price of the remaining 250,000 Warrants from $11.50 per share to $4.00
per share.
EFFECTS OF INFLATION AND CHANGES IN PRICE
The Company's results of operations and cash flows are affected by changing oil
and gas prices. If the price of oil and gas increases (decreases), there could
be a corresponding increase (decrease) in the operating cost that the Company is
required to bear for operations, as well as an increase (decrease) in revenues.
Inflation has had a minimal effect on the Company.
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PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
From time to time, the Company is party to certain legal actions and
claims arising in the ordinary course of business. While the outcome of these
events cannot be predicted with certainty, management does not expect these
matters to have a materially adverse effect on the financial position or results
of operations of the Company.
Settlement of Litigation. The Company, as one of three plaintiffs,
filed a lawsuit against BNP Petroleum Corporation ("BNP"), Seiskin Interests,
LTD, Pagenergy Company, LLC and Gap Marketing Company, LLC, as defendants, in
the 229th Judicial District Court of Duval County, Texas, for fraud and breach
of contract in connection with an agreement between plaintiffs and defendants
whereby the defendants were obligated to drill a test well in an area known as
the Slick Prospect in Duval County, Texas. The allegations of the Company in
this litigation were that BNP gave the Company inaccurate and incomplete
information on which the Company relied in making its decision not to
participate in the test well and the prospect, resulting in the loss of the
Company's interest in the lease, the test well and four subsequent wells drilled
in the prospect. The Company has sought to enforce its approximate 23.68%
interest in the prospect and sought damages or rescission, as well as costs and
attorneys' fees. The case was originally filed in Duval County, Texas on
February 25, 2000.
In mid March, 2000, the defendants filed an original answer and certain
counterclaims against plaintiffs, seeking unspecified damages for slander of
title, tortious interference with business relations, and exemplary damages. The
case proceeded to trial before the Court (without a jury) on June 19, 2000 after
the plaintiffs' were found by the court to have failed to comply with procedural
requirements regarding the request for a jury. After several days of trial the
case was recessed and later resumed on September 5, 2000. The court at that time
denied the plaintiffs' motion for mistrial based on the court's denial of a jury
trial. The court also ordered that the defendants' counterclaims would be the
subject of a separate trial that would commence on December 11, 2000. The
parties proceeded to try issues related to the plaintiffs' claims on September
5, 2000. All parties rested on the plaintiffs' claims on September 13, 2000. The
court took the matter under advisement and has not yet announced a ruling.
Defendants filed a second amended answer and counterclaim and certain
supplemental responses to request for disclosure in which they stated that they
were seeking damages in the amount of $33.5 million by virtue of an alleged lost
sale of the subject properties, $17 million in alleged lost profits from other
prospective contracts, and unspecified incidental and consequential damages from
the alleged wrongful suspension of funds under their gas sales contract with the
gas purchaser on the properties, alleged damage to relationships with trade
creditors and financial institutions, including the inability to leverage the
Slick Prospect, and attorneys' fees at prevailing hourly rates in Duval County,
Texas incurred in defending against plaintiffs' claims and for 40% of any
aggregate recovery in prosecuting their counterclaims. In subsequent testimony,
the defendants verbally alleged $26 million of damages by virtue of the alleged
lost sale of the properties (as opposed to the $33.5 million previously sought),
$7.5 million of damages by virtue of loss of a lease development opportunity and
$100 million of damages by virtue of the loss of a business opportunity related
to BNP's alleged inability to participate in a 3-D seismic project.
The Company had also alleged that BNP Petroleum Corporation, Seiskin
Interests, LTD and Pagenergy Company, LLC breached a contract with the
plaintiffs by obtaining oil and gas leases within an area restricted by that
contract. This breach of contract allegation is the subject of an additional
lawsuit by plaintiffs in the 165th District Court in Harris County, Texas. The
defendants took the position that the claim must be tried in the Duval County
case. The Duval County court, without issuing a formal ruling, took the position
that this claim should be included in the Duval County case. The Company was
seeking damages as a result of defendants' actions as well as costs and
attorneys' fees.
On December 8, 2000 the Company entered into a Compromise and
Settlement Agreement ("Settlement Agreement") with the defendants with regard to
the above described litigation. Under the terms of the Settlement Agreement, the
Company and the defendants agreed to enter into an Agreed Order of Dismissal
with Prejudice of the litigation and, among other things, agreed as follows:
1. Should a co-plaintiff to the Duval County litigation secure a final
judgment (without regard to appeals, new trials or other such actions)
in the trial court in Duval County that results in such plaintiff being
entitled to recover a five percent or greater undivided interest in the
Slick Prospect, BNP will pay to Carrizo, at BNP's option, either
$500,000 or an amount equal to the judgment rendered in favor of such
plaintiff.
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2. Should the defendants secure a final judgment (without regard to
appeals, new trials or other such actions) in the trial court in Duval
County against a co-plaintiff, the Company will be obligated to pay BNP
an amount equal to five percent of any percentage of the total judgment
apportioned to the Company in the case, such payment being limited
however to no more than five percent of 47.2 percent of the total
judgment entered in the case.
3. In the event the defendants and such co-plaintiff reach a full and
final settlement prior to the entry of a written final judgment in the
trial court in Duval County (including but not limited to any type of
agreed judgment or any agreement that such co-plaintiff will not be
ultimately liable to BNP for the full amount of any judgment rendered
in favor of the defendants), the obligations described in (1) and (2)
above will be null and void. Also, in the event BNP and such
co-plaintiff both only obtain take nothing judgments in the case, such
obligations will be null and void.
4. Both the Company and the defendants released each other from any and
all claims, demands, actions or causes of action relating to or arising
out of the litigation.
The case proceeded to trial on the counterclaims on December 11, 2000.
BNP presented evidence that its damages were in the amounts of $19.6 million for
the alleged lost sale of the properties, $35 million for loss of the lease
development opportunity, and $308 million for loss of the opportunity related to
participation in the 3-D seismic project. During the course of the trial, the
co-plaintiff presented its motion for summary judgment on the counterclaims
based on the doctrine of absolute judicial proceeding privilege. The court
partially granted the co-plaintiff's motion for summary judgment as it related
to the filing of a lis pendens, but denied it with regard to the other
allegations of BNP. The court also granted to co-plaintiff's plea in abatement
relating to the breach of contract allegation, ruling that the District Court in
Harris County has dominant jurisdiction of that issue. Upon completion of the
trial, the court announced that it would take the case under advisement. As of
May 14, 2001, the Court has not yet announced a ruling.
Item 2 - Changes in Securities and Use of Proceeds
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
FORWARD LOOKING STATEMENTS
The statements contained in all parts of this document, including, but
not limited to, those relating to the Company's schedule, targets, estimates or
results of future drilling, budgeted wells, increases in wells, budgeted and
other future capital expenditures, use of offering proceeds, effects of
litigation, expected production or reserves, increases in reserves, acreage
working capital requirements, hedging activities, the ability of expected
sources of liquidity to implement its business strategy, matters relating to the
Palace Agreement, including cost of wells and any effect of that agreement, and
any other statements regarding future operations, financial results, business
plans and cash needs and other statements that are not historical facts are
forward looking statements. When used in this document, the words "anticipate,"
"estimate," "expect," "may," "project," "believe" and similar expression are
intended to be among the statements that identify forward looking statements.
Such statements involve risks and uncertainties, including, but not limited to,
those relating to the Company's dependence on its exploratory drilling
activities, the volatility of oil and natural gas prices, the need to replace
reserves depleted by production, operating risks of oil and natural gas
operations, the Company's dependence on its key personnel, factors that affect
the Company's ability to manage its growth and achieve its business strategy,
risks relating to, limited operating history, technological changes, significant
capital requirements of the Company, the potential impact of government
regulations, litigation, competition, the uncertainty of reserve information and
future net revenue estimates, property acquisition risks, availability of
equipment, weather and other factors detailed in the Company's Annual Report on
Form 10-K and other filings with the Securities and Exchange Commission. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated.
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Item 6 - Exhibits and Reports on Form 8-K
Exhibits
Exhibit
Number Description
------ -----------
+2.1 -- Combination Agreement by and among the Company,
Carrizo Production, Inc., Encinitas Partners Ltd., La
Rosa Partners Ltd., Carrizo Partners Ltd., Paul B.
Loyd, Jr., Steven A. Webster, S.P. Johnson IV,
Douglas A.P. Hamilton and Frank A. Wojtek dated as of
September 6, 1997 (incorporated herein by reference
to Exhibit 2.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-29187)).
+3.1 -- Amended and Restated Articles of Incorporation of the
Company (incorporated herein by reference to Exhibit
3.1 -- to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
+3.2 -- Amended and Restated Bylaws of the Company, as
amended by Amendment No. 1 (incorporated herein by
reference to Exhibit 3.2 to the Company's
Registration Statement on Form 8-A (Registration No.
000-22915) and Amendment No. 2 (incorporated herein
by reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K dated December 15, 1999).
4.1 -- Eleventh Amendment to First Amended, Restated and
Combined Loan Agreement by and between Carrizo Oil &
Gas, Inc. and Compass Bank dated April 4, 2001.
+ Incorporated herein by reference as indicated.
Reports on Form 8-K
None
-17-
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Carrizo Oil & Gas, Inc.
(Registrant)
Date: May 15, 2001 By: /s/ S. P. Johnson, IV
--------------------------------------------
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2001 By: /s/ Frank A. Wojtek
--------------------------------------------
Chief Financial Officer
(Principal Financial and Accounting Officer)
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20
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
+2.1 -- Combination Agreement by and among the Company,
Carrizo Production, Inc., Encinitas Partners Ltd., La
Rosa Partners Ltd., Carrizo Partners Ltd., Paul B.
Loyd, Jr., Steven A. Webster, S.P. Johnson IV,
Douglas A.P. Hamilton and Frank A. Wojtek dated as of
September 6, 1997 (incorporated herein by reference
to Exhibit 2.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-29187)).
+3.1 -- Amended and Restated Articles of Incorporation of the
Company (incorporated herein by reference to Exhibit
3.1 -- to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
+3.2 -- Amended and Restated Bylaws of the Company, as
amended by Amendment No. 1 (incorporated herein by
reference to Exhibit 3.2 to the Company's
Registration Statement on Form 8-A (Registration No.
000-22915) and Amendment No. 2 (incorporated herein
by reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K dated December 15, 1999).
4.1 -- Eleventh Amendment to First Amended, Restated and
Combined Loan Agreement by and between Carrizo Oil &
Gas, Inc. and Compass Bank dated April 4, 2001.
+ Incorporated herein by reference as indicated.