Carrizo Oil & Gas Can Make a Comeback If Oil Prices Keep Rising

carrizo-oil-gas-2019-crzo

Carrizo Oil & Gas is having a terrible year so far thanks to the volatility in oil prices. This is not surprising as Carrizo’s financial performance this year was going to depend a lot on the direction oil prices take because the company was focused on reducing costs rather than increasing production.

The stock is down nearly 7% this year as oil prices have reversed course thanks to the U.S.-China trade war. In such a scenario, should investors keep avoiding Carrizo stock or is there any possibility of a turnaround? Let’s find out.

A Closer Look at Operations

Carrizo had announced at the beginning of the current fiscal year that it will produce between 66,800 and 67,800 barrels of oil equivalent per day in 2019. At the mid-point of that guidance, the company’s production would rise 10% year over year.

But at the same time, Carrizo had also said that its capital expenditure would fall to a range of $525 million to $575 million. This is a massive cut as compared to the $969 million capital expenses the company had incurred in 2018.

Management pointed out that “greater-than-expected efficiency gains have yielded further well cost reductions across the asset portfolio.”

A closer look at Carrizo’s first-quarter results indicates that it is on track to meet its goals. The company’s total production increased 21% year over year to almost 62,000 BOE/day. The increase in the company’s production allowed it to offset the weak oil pricing scenario during the quarter.

More specifically, Carrizo’s average realized price of crude oil was down to $55.32 per barrel during the quarter from $63.45 per barrel in the year-ago period. The prices of natural gas and natural gas liquids also fell year over year.

However, Carrizo’s revenue increased slightly and its adjusted net income remained almost flat year over year at $0.47 per share thanks to a combination of higher production and cost controls. Management pointed out that “greater-than-expected efficiency gains have yielded further well cost reductions across the asset portfolio.”

So with this positive result in the bag, should investors consider taking advantage of the recent weakness in Carrizo stock to buy more shares?

Is It Time to Buy?

Analysts don’t expect Carrizo to deliver a solid performance this year. The company’s top line is expected to decline slightly in 2019, while earnings per share are expected to shrink as well.

However, Carrizo can outperform expectations if oil prices keep ticking higher. WTI crude oil is currently holding the $60 per barrel mark after dipping to nearly $50 per barrel a month ago. The good part is that crude oil prices could increase in the future thanks to supply constraints and a potential resolution to the U.S.-China trade war.

As a result, don’t be surprised to see Carrizo stock delivering better-than-expected performance on the back of improving financials. The company is pulling the right strings as far as boosting production and reducing costs are concerned, and an increase in oil prices will allow it to put the disappointment of the first half of the year behind.

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.

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