Carrizo Oil and Gas Guidance Suggests 2019 May Be Tough

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Carrizo Oil and Gas () is coming off a really solid 2018 as far as its operational performance is concerned, but the weak oil pricing environment prevalent for most of last year kept that from translating into stock market gains. West Texas Intermediate (WTI) crude oil prices have lost 12% of their value over the past year, and that has caused a 33% drop in Carrizo stock.

Carrizo Shows Strong Q4 Production

Carrizo reported fourth-quarter revenue of $273.3 million, an increase of nearly 11% as compared to the prior-year period. The company’s non-GAAP earnings per share came in at $0.56 per share. Both numbers were ahead of what Wall Street analysts were expecting from the company.

Carrizo reported fourth-quarter revenue of $273.3 million, an increase of nearly 11% as compared to the prior-year period.

Carrizo’s top line growth was driven by a 9% year-over-year increase in its production, which came in at 68,328 barrels of oil equivalent per day during the fourth quarter. Carrizo’s production increased thanks to a 96% spike in the output in the Delaware Basin.

More importantly, Carrizo witnessed stable pricing during the quarter. The average realized price of crude oil slightly improved year over year to $58.66 per barrel, while natural gas liquids were constant at $23.38 per barrel.

However, Carrizo saw a massive price boost on a full-year basis. The average realized price of crude oil increased 27% year over year to $64.05 per barrel, while natural gas liquids prices increased 30% to $26.10 per barrel. Production on a full-year basis came in at 60,832 barrels of oil equivalent per day, up from 53,805 BOE/day in 2017.

This combination of a substantial increase in the company’s production and pricing pushed its full-year revenue up by nearly 43% to $1.06 billion. However, Carrizo might not be able to deliver such impressive growth this year thanks to weaker oil pricing.

2019 Prediction: Weak Oil pricing May Dampen Outlook

Carrizo expects to produce between 66,800 and 67,800 barrels of oil equivalent per day in 2019, 63% of which will be crude oil. The mid-point of its guidance represents a 10% year over year increase in the output.

The company is likely to be dragged down by weak oil pricing.

However, the company is likely to be dragged down by weak oil pricing as the WTI spot price of around $56/barrel is significantly below the company’s average realized crude oil price last year. This potential weakness in oil prices this year has forced Carrizo to sharply reduce its capital budget.

The company is looking at capital expenditure in the range of $525 million-$575 million this year, which is a significant haircut when compared to the prior-year period’s capital expenditure of almost $969 million. But the good thing is the company will be able to deliver production growth despite the massive capital expenditure cuts, even though weaker oil prices are expected.

Consensus estimates indicate that Carrizo’s top line will actually fall in the low single digits in 2019, hurting the company’s profitability in the process. This doesn’t bode well for investors as the stock was under pressure even when the company was growing at a fast pace. A slowdown this year could lead to more downside.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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