Exhibit 99.3
DEGOLYER AND MACNAUGHTON
4925 Greenville Avenue, Suite 400
One Energy Square
Dallas, Texas 75206
APPRAISAL REPORT
AS OF
DECEMBER 31, 2004
ON
CERTAIN PROPERTIES
OWNED BY
CARRIZO OIL & GAS, INC.
DEGOLYER AND MACNAUGHTON
4925 Greenville Avenue, Suite 400
One Energy Square
Dallas, Texas 75206
APPRAISAL REPORT
AS OF
DECEMBER 31, 2004
ON
CERTAIN PROPERTIES
OWNED BY
CARRIZO OIL & GAS, INC.
FOREWORD
Scope of Investigation
This report presents an appraisal, as of December 31, 2004, of
the extent and value of the proved condensate and natural gas reserves of
certain properties owned by Carrizo Oil & Gas, Inc. (Carrizo). The reserves
estimated in this report are located in the Barnett Shale play in North Texas.
The properties appraised are listed in detail in the appendix bound with this
report.
Reserves estimated in this report are expressed as gross and net
reserves. Gross reserves are defined as the total estimated petroleum to be
produced from these properties after December 31, 2004. Net reserves are defined
as that portion of the gross reserves attributable to the interests owned by
Carrizo after deducting royalties and interests owned by others.
This report also presents values for proved reserves using
initial prices and costs provided by Carrizo. In general, a NYMEX index gas
price of $6.01 per million British thermal units (MMBtu) was held constant for
the life of the properties. Operating expenses and capital costs were not
escalated for inflation. A detailed explanation of the future price and cost
assumptions is included in the Valuation of Reserves section of this report.
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Values of proved reserves in this report are expressed in terms
of estimated future gross revenue, future net revenue, and present worth. Future
gross revenue is that revenue which will accrue to the appraised interests from
the production and sale of the estimated net reserves. Future net revenue is
calculated by deducting estimated production taxes, ad valorem taxes, operating
expenses, and capital costs from the future gross revenue. Operating expenses
include field operating expenses, compression charges, transportation charges
and the estimated expenses of direct supervision, but do not include that
portion of general administrative expenses sometimes allocated to production.
Future income tax expenses were not taken into account in the preparation of
these estimates. Present worth is defined as future net revenue discounted at a
specified arbitrary discount rate compounded monthly over the expected period of
realization. In this report, present worth values using a discount rate of 10
percent are reported in detail and values using discount rates of 5, 9, 12, 15,
20, 25, and 30 percent are reported as totals in the appendix bound with this
report.
Estimates of condensate and gas reserves and future net revenue
should be regarded only as estimates that may change as further production
history and additional information become available. Not only are such reserves
and revenue estimates based on that information which is currently available,
but such estimates are also subject to the uncertainties inherent in the
application of judgmental factors in interpreting such information.
Authority
This report was prepared at the request of
Mr. Andy Agosto, Vice President Business
Development, Carrizo.
Source of Information
Data used in the preparation of this report were obtained from
Carrizo, and from public sources. Additionally, this information includes data
supplied by Petroleum Information/Dwights LLC; Copyright 2004 Petroleum
Information/Dwights LLC. In the preparation of this report we have relied,
without independent verification, upon information furnished by Carrizo with
respect to its property interests, production from such properties, current
costs of operation and development, current prices for production, agreements
relating to current and future operations and sale of production, and various
other information and data
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that were accepted as represented. A field examination of the properties was not
considered necessary for the purposes of this report.
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CLASSIFICATION OF RESERVES
Petroleum reserves included in this report are classified as
proved and are judged to be economically producible in future years from known
reservoirs under existing economic and operating conditions and assuming
continuation of current regulatory practices using conventional production
methods and equipment. In the analyses of production-decline curves, reserves
were estimated only to the limit of economic rates of production under existing
economic and operating conditions using prices and costs as of the date the
estimate is made, including consideration of changes in existing prices provided
only by contractual arrangements but not including escalations based upon future
conditions. Proved reserves classifications used in this report are in
accordance with the reserves definitions of Rules 4-10(a) (1)-(13) of Regulation
S-X of the Securities and Exchange Commission (SEC) of the United States. The
petroleum reserves are classified as follows:
Proved oil and gas reserves - Proved oil and gas reserves are the estimated
quantities of crude oil, natural gas, and natural gas liquids which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic
and operating conditions, i.e., prices and costs as of the date the
estimate is made. Prices include consideration of changes in existing
prices provided only by contractual arrangements, but not on escalations
based upon future conditions.
(i) Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test.
The area of a reservoir considered proved includes (A) that portion
delineated by drilling and defined by gas-oil and/or oil-water
contacts, if any; and (B) the immediately adjoining portions not yet
drilled, but which can be reasonably judged as economically productive
on the basis of available geological and engineering data. In the
absence of information on fluid contacts, the lowest known structural
occurrence of hydrocarbons controls the lower proved limit of the
reservoir.
(ii) Reserves which can be produced economically through application
of improved recovery techniques (such as fluid injection) are included
in the "proved" classification when
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successful testing by a pilot project, or the operation of an
installed program in the reservoir, provides support for the
engineering analysis on which the project or program was based.
(iii) Estimates of proved reserves do not include the following: (A)
oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural
gas, and natural gas liquids, the recovery of which is subject to
reasonable doubt because of uncertainty as to geology, reservoir
characteristics, or economic factors; (C) crude oil, natural gas, and
natural gas liquids, that may occur in undrilled prospects; and (D)
crude oil, natural gas, and natural gas liquids, that may be recovered
from oil shales, coal, gilsonite, and other such sources.
Proved developed oil and gas reserves - Proved developed oil and gas
reserves are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Additional oil and gas
expected to be obtained through the application of fluid injection or other
improved recovery techniques for supplementing the natural forces and
mechanisms of primary recovery should be included as "proved developed
reserves" only after testing by a pilot project or after the operation of
an installed program has confirmed through production response that
increased recovery will be achieved.
Proved undeveloped reserves - Proved undeveloped oil and gas reserves are
reserves that are expected to be recovered from new wells on undrilled
acreage, or from existing wells where a relatively major expenditure is
required for recompletion. Reserves on undrilled acreage shall be limited
to those drilling units offsetting productive units that are reasonably
certain of production when drilled. Proved reserves for other undrilled
units can be claimed only where it can be demonstrated with certainty that
there is continuity of production from the existing productive formation.
Under no circumstances should estimates for proved undeveloped reserves be
attributable to any acreage for which an application of fluid injection or
other improved recovery technique is contemplated, unless such techniques
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have been proved effective by actual tests in the area and in the same
reservoir.
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ESTIMATION OF RESERVES
Estimates of reserves were prepared by the use of geological and
engineering methods generally accepted by the petroleum industry. The method or
combination of methods used in the analysis of each reservoir was tempered by
experience with similar reservoirs, stage of development, quality and
completeness of basic data, and production history.
All of the properties evaluated in this report produce from the
Barnett Shale. The Barnett Shale has low porosity and permeability. Gas
production from this depletion-drive reservoir is a function of both the natural
fractures and the hydraulically induced fractures. The production-decline curves
for the Barnett Shale wells in Denton, Tarrant, Parker, and Wise Counties,
Texas, were analyzed to determine the shape and final decline of a typical well
producing from this reservoir in the various areas.
Proved developed producing reserves were estimated by
extrapolation of historical production trends using a hyperbolic curve with a
6-percent exponential tail that was terminated at an economic limit based on
current economic conditions.
Proved developed producing reserves were also estimated for the
refracturing of certain Barnett Shale wells based on analogy with other wells
that have been refractured and have established decline rates.
Proved undeveloped reserves were estimated for undrilled
locations by analogy using producing offset wells. Future rates of production
from these wells were estimated using the type curve previously discussed.
Gas volumes estimated herein are expressed as wet gas and sales
gas. Wet gas is defined as the total gas to be produced before reductions for
volume loss due to fuel and flare consumption and reduction for plant
processing. Sales gas is defined as the total gas to be produced after deduction
for fuel usage and shrinkage resulting from field separation and plant
processing. Gross gas volumes are reported as wet gas. Net gas volumes are
reported as sales gas. All gas volumes are expressed at a temperature base of 60
degrees Fahrenheit (degrees F) and at the standard pressure base of 14.65 pounds
per
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square inch absolute (psia). Condensate reserves estimated herein are those to
be recovered by conventional lease separation.
The reserves estimates presented in this report were based on
monthly production data through December 2004. Where applicable, cumulative
production, as of December 31, 2004, was deducted from estimated gross ultimate
recovery to estimate gross reserves, as of December 31, 2004. Data available on
wells drilled through December 31, 2004, were used in this report.
The table below presents estimates of the proved reserves, as of
December 31, 2004, of the properties appraised, expressed in thousands of
barrels (Mbbl) or millions of cubic feet (MMcf):
GROSS RESERVES
--------------------
CONDENSATE WET GAS
(MBBL) (MMCF)
---------- -------
Proved
Developed Producing 20 27,211
Developed Nonproducing 25 11,183
Undeveloped 12 64,029
--- -------
TOTAL PROVED 57 102,423
NET RESERVES
--------------------
CONDENSATE SALES GAS
(MBBL) (MMCF)
---------- ---------
Proved
Developed Producing 5 6,305
Developed Nonproducing 13 3,342
Undeveloped 2 21,933
--- ------
TOTAL PROVED 20 31,580
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VALUATION OF RESERVES
This report has been prepared using initial prices and costs
specified by Carrizo. Future prices were estimated using guidelines established
by the United States Securities and Exchange Commission (SEC) and the Financial
Accounting Standards Board (FASB).
Revenue values in this report were estimated using prices,
differentials and costs provided by Carrizo. The following assumptions were used
for estimating future prices and costs:
Condensate Prices
A condensate price of $43.45 per barrel was held constant for the
lives of the properties.
Natural Gas Prices
A NYMEX natural gas index price of $6.01 per MMBtu was used for all
properties and held constant for the lives of the properties. This
price was adjusted in accordance with the marketing agreements for
each lease to arrive at a wellhead price. The weighted average price
over the lives of the properties was $5.38 per thousand cubic feet.
Operating Expenses and Capital Costs
Current operating expenses and capital costs were provided by Carrizo
and were used in estimating future expenditures required to operate
the properties. In certain cases, future expenditures, either higher
or lower than current expenditures, may have been used because of
anticipated changes in operating conditions. Operating expenses and
capital costs were not escalated for inflation.
The estimated future revenue to be derived from the production
and sale of the proved reserves, as of December 31, 2004, of the properties
appraised are as follows:
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PROVED
------------------------------------------------
DEVELOPED DEVELOPED TOTAL
PRODUCING NONPRODUCING UNDEVELOPED PROVED
--------- ------------ ----------- -------
Future Gross Revenue, M$ 33,475 19,130 118,181 170,786
Production and Ad Valorem Taxes, M$ 3,283 1,863 11,608 16,754
Operating Expenses, M$ 8,542 3,711 19,897 32,150
Capital Costs, M$ 1,240 636 29,775 31,651
Future Net Revenue*, M$ 20,410 12,919 56,901 90,230
Present Worth at 10 Percent*, M$ 12,321 7,677 20,320 40,318
* Future income taxes have not been taken into account in the preparation of
these estimates.
Timing of capital expenditures and the resulting development of
production were based on a development plan provided by Carrizo.
The appendix bound with this report includes (i) summary
projections of proved reserves and revenue by reserves classification, (ii)
tabulations of proved reserves and revenue by area, reserves classification, and
lease, (iii) projections of proved reserves and revenue by area, reserves
classification, and lease, and (iv) plots of historical production and future
rates of production for proved developed producing properties.
In our opinion, the information relating to estimated proved
reserves, estimated future net revenue from proved reserves, and present worth
of estimated future net revenue from proved reserves of condensate, and natural
gas contained in this report has been prepared in accordance with Paragraphs
10-13, 15, and 30(a)-(b) of Statement of Financial Accounting Standards No. 69
(November 1982) of the FASB and Rules 4-10(a) (1)-(13) of Regulation S-X and
Rule 302(b) of Regulation S-K of the SEC; provided, however, (i) certain
estimated data have not been provided with respect to changes in reserves
information and (ii) future income tax expenses have not been taken into account
in estimating the future net revenue and present worth values set forth herein.
To the extent the above-enumerated rules, regulations, and
statements require determinations of an accounting or legal nature or
information beyond the scope of our report, we are necessarily unable to express
an opinion as to whether the above-described information is in accordance
therewith or sufficient therefor.
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SUMMARY AND CONCLUSIONS
Carrizo owns working interests in certain properties located in
the Barnett Shale play of North Texas. The estimated net proved reserves, as of
December 31, 2004, of the properties appraised are summarized as follows,
expressed in thousands of barrels (Mbbl) or millions of cubic feet (MMcf).
NET RESERVES
----------------------
CONDENSATE SALES GAS
(MBBL) (MMCF)
---------- ---------
Proved
Developed Producing 5 6,305
Developed Nonproducing 13 3,342
Undeveloped 2 21,933
--- ------
TOTAL PROVED 20 31,580
Estimated revenue and costs attributable to Carrizo's interests
in the proved reserves, as of December 31, 2004, of the properties appraised
under the aforementioned assumptions concerning future prices and costs are
summarized as follows:
PROVED
------------------------------------------------
DEVELOPED DEVELOPED TOTAL
PRODUCING NONPRODUCING UNDEVELOPED PROVED
--------- ------------ ----------- -------
Future Gross Revenue, M$ 33,475 19,130 118,181 170,786
Production and Ad Valorem Taxes, M$ 3,283 1,863 11,608 16,754
Operating Expenses, M$ 8,542 3,711 19,897 32,150
Capital Costs, M$ 1,240 636 29,775 31,651
Future Net Revenue*, M$ 20,410 12,919 56,901 90,230
Present Worth at 10 Percent*, M$ 12,321 7,677 20,320 40,318
* Future income taxes have not been taken into account in the preparation of
these estimates.