By Oil & Gas Financial Journal staff
Building upon the existing relationship Carrizo Oil & Gas Inc. (NASDAQ: CRZO) has with private equity firm Avista Capital Partners in the Marcellus Shale, the two companies have just announced a joint venture agreement to acquire and develop acreage in the Utica Shale.
While some predict Utica Shale acreage values to trend higher, the new JV, closing on its first acquisition of 15,000 net acres at an average cost of less than $1,500 per acre, paid less than Chesapeake, Rex Energy, and Gulfport Energy have paid this year for certain Ohio assets prospective for the Utica. The acreage aquired by the Carrizo/Avista joint venture contains a mix of eastern Ohio and northwestern Pennsylvania acreage.
Under the terms of the agreement, Carrizo will own an initial 10% interest in the joint venture properties with Avista owning the remaining 90%. Avista has the right to contribute aggregate funds of up to $130 million to the joint venture, with the ability to raise this amount by an incremental $70 million.
Carrizo holds two purchase options to increase its participating interest to 50% in the properties acquired by the joint venture over the next 18 months. Carrizo's purchase options may be exercised at specified increments above acreage cost and associated improvements at any time during the option period. In the event these purchase options are not exercised, Carrizo will be entitled to share in any cash distributions by Avista to its partners, provided specified return on investment thresholds on Avista's investment are achieved.
Carrizo will initially serve as operator of the joint venture properties and will provide certain management services to Avista related to the joint venture.
Carrizo’s entry into the emerging Utica Shale didn’t come as a surprise to some. In its note to investors September 30, Global Hunter Securities (GHS) pointed out that a Utica acquisition was possible on the heels of Carrizo’s deal with India’s Gail Ltd. in the Eagle Ford Shale. “The partnership with private equity firm Avista and the received cash from yesterday’s Eagle Ford joint venture should provide ample liquidity for Carrizo to further build a meaningful position in the emerging Utica play,” noted GHS analysts.
