Saturday, July 1, 2017

Richard Zeits' Analysis Of Carrizo's Recent Permian Acquisition -- July 1, 107

Link here to SeekingAlpha.

  • The Permian acquisition, while not inexpensive, improves the stock's risk/reward profile
  • Divestitures will streamline the portfolio. The loss of the resource base will be compensated by the stacked-pay upside in the Permian
  • Growth profile is unchanged in the near term and is more sustainable in the longer term.
Richard Zeits' observation regarding the price of the acquired property:
The acquired properties are of excellent quality but come at a high price, in-line with other comparable transaction in this specific area. Including the contingent payment, which I value for illustration at ~$75 million, the implied valuation is $33,000 per undeveloped acre.
My estimate is substantially higher than the $22,300 per acre metric provided by the company in its presentation (the company's estimate appears to exclude the contingent payment and is based on a somewhat arbitrary multiple of flowing production).
This is a great article to archive to see how one values the price paid for oil-producing assets. 

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