Freeman Report Carrizo Final

April 21, 2015
CARRIZO OIL AND GAS
CRZO/NASDAQ
Initiating Coverage: “Key Largo, Carrizo, baby why don’t we go…”
Investment Rating: Market Perform
PRICE: $54.44 S&P 500: 2,100.40 DJIA: 18,034.93 RUSSEL 2000: 1,264.92
 Significantly reduced capital expenditures in 2015.
 Focus on low cost Eagle Ford assets to weather economic downturn.
 Slow production on Niobrara, Utica, and Marcellus in current economic conditions.
 Good hedges in place and financial flexibility for 2015
 Our 12-month target price/range is $58.77
Company Information:
Location: 500 Dallas St, Houston TX, 77002
Industry: Independent Oil and Gas Exploration
Description: Carrizo Oil and Gas is an independent exploration and production company that focuses on onshore and
shale drilling activities in the Eagle Ford, Utica, Niobrara, and Marcellus shales.
Key Products & Services: Production of Crude Oil and natural gas.
Web Site: http://www.carrizo.com/
Freeman Analysts
Brennan Brignac
Song Gao
Difei Sun
John Woolley
FREEMAN
Reports
Please Note: Freeman Reports are produced solely as part of an
educational program of Tulane University’s A.B. Freeman School
of Business. The reports are not investment advice and you should
not and may not rely on them for making any investment decisions.
You should consult an investment professional and/or conduct your
own primary research regarding any potential investment.
Valuation 2014A 2015E 2016E
EPS $4.90 $3.31 $5.31
EBITDA $532.98 $487.94 $621.06
EV/EBITDA 3.60x 3.94x 3.09x
CFPS $11.08 $9.44 $12.37
P/CFPS 3.75x 4.41x 3.36x
Market Capitalization Stock Data
Equity Marekt Cap(MM) $2,800.80 52-Week Range: $31.70-$70.49
Enterprise Value(MM) $4,141.30 12-Month Stock Performances 0.61%
Share Outstanding(MM) 51.45 Divid end Yield: N.A.
Current Floate(MM) 47.90 Book Value Per Share: $23.92
6-Mo. Avg Daily Volume 1,264,537.12 Bata: 1.26

Carrizo Oil and Gas (CRZO) April 21, 2015
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STOCK PRICE
PERFORMANCE
Figure 1:
5-year Stock Price
Performance
Source:Yahoo Finance (As of 4/20/2015)
INVESTMENT
SUMMARY
Our Freeman Reports analyst team gives Carrizo Oil and Gas a Market
Perform rating, and projects a 12-month target stock price of $58.77, a
7.95 percent increase from its April 20, 2014 stock price of $54.44. To
reach our target price our team used a weighted average of our PV-10
intrinsic valuation (60 percent), multiple valuation using EV/EBITDA (20
percent), and multiple valuation using P/CF (20 percent). Our projections
are based on Carrizo’s historical performance, industry outlook, and
management guidance.
Carrizo’s ability to generate returns for shareholders stems from its ability
to find, drill, and extract oil for positive net present value (NPV) projects.
Cost control is imperative in the current low oil price environment. In the
coming years, Carrizo plans to focus on its large Eagle Ford Shale
position because it offers well established distribution networks, easily
drillable land, and reasonably consistent production numbers based on
estimated reserves, and high quality oil, all of which will keep costs
down. If oil prices remain low, Carrizo plans to divert capital and assets
allocated to other plays to produce more of their existing reserves in the
Eagle Ford play because of its cost effectiveness. For 2015, Carrizo has
good hedges in place, high concentrations of properties in low cost oil
plays, no near term debt obligations due, no upcoming leasehold
obligations, and significant liquidity available from its revolver. Carrizo is
in a solid financial and operational position to weather the economic
downturn in oil.
Carrizo’s biggest challenge is low oil prices in 2015. The Niobrara, Utica,
and Marcellus plays are uneconomical to produce as a result of low oil
prices. The Marcellus play is primarily natural gas, which currently has
even weaker pricing than oil. The Niobrara play offers large upside
potential for Carrizo, however, the distribution network in the Niobrara
play is not developed and the company has no cost effective way to

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transport its product. In addition, oil prices have significantly impacted
operating profit to the firm and as a result Carrizo has had to drastically
cut capital expenditure, limiting its ability to explore for and drill new
reserves in less developed plays. Carrizo plans to develop its existing
reserves in the Eagle Ford play using a three drill rig program in 2015
because the play is the most cost effective. Management plans to focus on
the Eagle Ford Shale and keep oil production flat at Q4 2014 levels until
oil prices rise, equating to a 17 percent increase in oil production year
over year.
Figure 2: Carrizo Asset Portfolio
Source: Carrizo Scotia Howard Weil 2015 Energy Conference Presentation
INVESTMENT
THESIS
As an E&P company, Carrizo’s value is driven by its ability to explore for
new reserves, drill new wells, and increase production year over year by
replacing the natural decline in well production with new producing wells.
Because, Carrizo is currently a price taker in an economic downturn, the
company’s profitability is dependent on its ability to maintain current
production levels at lower well costs. In order to stay profitable, the
company will grow production while using a significantly smaller amount
of capital expenditure in 2015 than in the previous year. Management
plans to drill horizontal wells and produce more from its existing
developed plays in order to cut costs while increasing production. Carrizo
will cut expenditure on new plays in 2015 in order to whether the oil
pricing downturn.

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Figure 3: Carrizo CAPEX Budget
Significantly
Reduced Capital
Expenditures in
2015
As a result of the depressed oil price environment, Carrizo’s operating
profits have decreased leaving the company with less capital to explore
for, drill, and produce new reserves. Carrizo has significant liquidity in its
revolver with only $210 million drawn from the $800 million revolver in
place. However, taking on additional debt in a precarious pricing
environment is risky. Carrzio, like many other E&P companies, was
forced to cut capital expenditures by nearly 50 percent in 2015.
Management provided capital expenditure guidance of $496 million for
2015, down 42 percent from $857 million in the previous year. $377
million (76.17 percent) of Carrizo’s capital expenditure plan has been
allocated to the Eagle Ford Shale because of its cost efficiency.
The majority of capital expenditures allocated to plays other than the
Eagle Ford Shale, is dedicated to exploratory and experimental programs.
Carrizo’s allocation of capital to alternative plays shows that it is looking
ahead to when oil prices recover.
Focus on Low Cost
Eagle Ford Assets
to Weather
Economic
Downturn
Carrizo will primarily focus its production efforts on its Eagle Ford assets
in 2015. Carrizo has previously developed mature operations in the Eagle
Ford Shale. To cut costs, the company plans to drill near existing
infrastructure. In an effort to increase production, Carrizo is testing 330
foot downspacing between wells in the area. The company has already
reduced the per well cost 21 percent in Q1 2015 compared to FY2014.
Carrizo management expects oil prices to recover in the near future and is
using this play to keep production stable while waiting for a recovery.
Carrizo has 260.5MMBoe of probable reserves in the Eagle Ford valued
at $3.11 billion using an SEC PV10 valuation at the end of FYE2014.
Carrizo has one rig online in Eagle Ford and plans to bring on two
additional rigs in early 2015. Carrizo’s current Eagle Ford reserves have a
SEC PV10 of over $6 billion with a three rig drilling plan according to
Management. Management is counting on additional Eagle Ford reserves

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to drive target growth of 17 percent production year over year. In
addition, Carrizo assumes that its probable reserves in the Eagle Ford will
be producible. According to management, more than 50 percent of
Carrizo’s undrilled locations are economic (IRR>10 percent) if oil is
below $50/Bbl. Specifically, over 80 percent of Eagle Ford Shale
locations have a break even cost below $44/Bbl. If price depression lasts
through 2016, Carrizo plans to divert assets from other plays to drill in the
Eagle Ford shale to continue production growth. Our intrinsic valuation is
based on $55/Bbl oil. At that price level, Carrizo’s Eagle Ford assets
generate a rate of return of 29 percent.
Figure 4: Operating Cash Flow By Region
Slow Production in
Niobrara, Utica,
and Marcellus in
Current Conditions
Carrizo plans to aggressively cut capital expenditures, exploration,
drilling, and production efforts in its Niobrara and Utica plays. The
company is prepared to cut production and turn off wells in the event that
the price of oil drops further. Conversely, if oil prices recover, Carrizo is
positioned to continue production in its other plays. Carrizo regards
operational flexibility as an important competitive advantage in this low
oil pricing environment.
In 2015, Carrizo plans to drill one well and frac two wells in the Utica
play, which is a historically low drill count. Most of Carrizo’s capital
expenditure allocated to Utica is allocated to securing leaseholds that will
be used two or three years in the future when commodity prices are
expected to recover.

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Good Hedges in
Place and Financial
Flexibility for 2015
Carrizo has $590 million in liquidity available on its revolver and an
elected commitment of $685 million at FYE2014. Carrizo has a
debt/EBITA ratio of approximately 2.3x which is relatively low in the
highly leverage E&P industry. Management guidance states that the
company plans to keep debt/EBITDA under a 3.0x target ratio during
2015.
On 4/14/2015 Carrizo announced that it replaced $600 million in senior
bonds with $650 million in new bonds. Carrizo lowered the interest rate
on its bonds from 8.625 percent to 6.250 percent, saving the company
over $11 million a year in interest expense. The increase in bond offering
reflects the company’s financial strength and its ability to take advantage
of the low interest rate environment.
In Q1 2015, Carrizo entered into hedging positions to lock in $166.4
million of cash flows, using costless collars for March 2015, through
December 2015. The hedges will provide Carrizo with downside
protection on prices below the floor of $50/Bbl and allow Carrizo to
benefit from an increase in prices up to a ceiling of $66.46/Bbl.
Specifically, Carrizo has approximately 55 percent of its oil production
hedged at a weighted average floor price of $56.91/Bbl and 40 percent of
its natural gas production hedged at a weighted average price of
$4.29/MMBtu.
VALUATION The 12 month target price for Carrizo Oil and Gas is $58.77, a 7.95
percent increase from the $54.44 closing price as of 4/20/2015. As a
result of the increase in Carrizo’s expected stock performance, Carrizo Oil
and Gas has a Market Perform Rating. Carrizo’s target price was
reached using three valuation methods: PV-10 valuation, multiple
valuation using EV/EBITDA, and multiple valuation using P/CF.
PV-10 Valuation A PV-10 valuation is a commonly used discounted reserve valuation for
E&P companies. A PV-10 measures the revenue a company would earn
on its reserves if it were to stop acquiring new acreage today and produce
the rest of its current reserves through their useful life. The cash flows
from this process are then discounted at a 10 percent discount rate to find
the NPV and NAV of an oil company’s reserves. Major drivers in
Carrizo’s PV-10 valuation are estimated production, capex, commodity
prices, recovery rates, natural decline rates, and lease operating expense.
This methodology accurately reflects the current fundamental value of an
E&P company as it currently stands. Our base case intrinsic valuation
assumes 50 percent of Carrizo’s probable reserves will be produced in
addition to our PV-10 discounted proved reserves. Our high case, includes
100 percent of PV-10 proved reserves, 50 percent of probable reserves,
and 50 percent of possible reserves. In addition, Carrizo is assumed to
produce considerably less than estimated probable reserves in less

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profitable plays, such as the Utica and Marcellus shales. The final
intrinsic value price was reached using an average of the base case and
high case to yield a stock price of $56.89.
Table 1: Intrinsic Valuation
Multiple Valuation Oil and gas companies commonly use multiple valuations because net
income is unpredictable and financial statements do not reflect an E&P
company’s actual future expected cash flows. Our multiple valuation
examines Carrizo’s enterprise value, EBITDA, discretionary cash flow,
and share price in comparison to its peers’.

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Peer Group
EV/EBITDA
Enterprise value (EV) over earnings before interest expense, taxes,
depletion, and amortization (EBITDA) uses a peer group average multiple
to determine a company’s enterprise value based on the expected future
EBITDA of the company being valued. Carrizo’s peer group consists of
five E&P companies similar to Carrizo in operational focus and market
capitalization. E&P companies use EV/EBITDA ratio valuation for two
important reasons. First, the ratio excludes the effect of leverage, which is
typically very high in E&P companies and varies depending on the
company. Second, EBITDA measures profits before interest, non-cash
expenses, and depletion and amortization, which can have a large impact
on an E&P firms’ earnings but does not impact EBITDA. Applying the
peer group EV/EBITDA multiple of 8.72x to Carrizo’s FY2015E
EBITDA yielded a stock price of $63.73.
Peer Group P/CF Oil and gas analysts commonly use the price to cash flow multiple
because cash flow is hard to for management to manipulate as opposed to
net income. The cash flow in this case is operating cash flow, which
excludes exploration expenses and adds back non-cash expenses,
depreciation, amortization, deferred taxes, and depletion which have a
material impact on a company’s earnings. When commodity prices are
low, multiples expand, and when commodity prices are high, multiples
contract. Applying Carrizo’s peer group P/CFPS multiple of 6.3x to
Carrizo’s FY2015E CFPS we arrived at a stock price for Carrizo of
$59.46.
Table 2: Multiple Valuation and Price Comparison

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Figure 5: Valuation
COMPANY
DESCRIPTION &
PROPERTY
OVERVIEW
As a Houston-based Independent Energy Exploration and Production
(E&P) company founded in 1993, Carrizo Oil and Gas Incorporated
(CRZO/NASDAQ) operates through its wholly-owned subsidiaries, such
as Carrizo (Marcellus) LLC. Within the upstream segment of the oil and
gas industry, Carrizo conducts nearly all of its business within the U.S.
Carrizo focuses its oil and gas exploration, production, and development
efforts on its proved reserves in the Eagle Ford, Niobrara, Marcellus, and
Utica shale plays. Within these plays, Carrizo reports 151 million barrels
of oil in proven reserves on an equivalent basis with an additional 480
million in probable reserves. In these four areas, the company has 259
developed wells producing 33 thousand barrels oil a day on an equivalent
basis. Currently, 67 percent of Carrizo’s production and reserves are oil
based.
History Carrizo initially went public in 1998 on the NASDAQ. Carrizo has
focused on horizontal drilling and the completion of unconventional
resource plays over the last ten years. In 2010, Carrizo announced the
initiation of oil focused horizontal development programs in the Eagle
Ford Shale in South Texas and Niobrara Formation in Northeastern
Colorado. As of 2011, the company accumulated proved oil and gas
reserves of 935.6 billion cubic feet equivalent comprised of 728 billion
cubic feet of natural gas, and operated 349 gross producing oil and gas
wells, making it a market leader. As of December 31, 2014 Carrizo
recorded 900 billion cubic feet equivalent in reserves with 259 net
producing wells. For the fiscal year 2014, Carrizo had record production
of 37,696 Boe/d. Carrizo performed well due to the company's previously
developed Eagle Ford shale assets and continues to improve production in

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the new Texas acreage acquired from Eagle Ford Minerals LLC (EFM)
last year.
Latest
Developments
In October of 2014, Carrizo announced the successful acquisition of
additional producing properties in the Eagle Ford Shale for $250 million
in cash. The transaction included 6,280 net acres located in LaSalle,
McMullen, and Atasoca Counties in Texas, increasing Carrizo’s position
in the Eagle Ford Shale to 82,000 net acres. Estimates of property assets
include 16.7 MMBoe net proved reserves consisting of 82 percent oil. The
company financed the transaction with a private debt offering of $300
million. The company does not traditionally purchase producing
properties, however, management felt that the acquisition was beneficial
because of its low price, high production estimates, positive impact on
cash flows, and potential increases in earnings per share. Management
expects a 17 percent increase in oil production from 2014 to 2015.
Despite rapidly dropping oil prices at the beginning of 2015, analysts
continue to rate Carrizo’s stock highly because of its Eagle Ford Shale
acquisition. Of the 21 analysts that cover the company, 14 give Carrizo’s
stock a buy rating, 6 give the stock a hold rating, and only 1 gives the
stock a sell rating. Positive sentiment for Carrizo’s stems from its Eagle
Ford Shale operations, which resulted in record Q4 oil production
increase of 70 percent year over year, with 26 percent increase in
revenues year over year despite falling oil and gas prices.
Properties Currently, Carrizo principally operates in four areas, including the Eagle
Ford Shale in South Texas, the Niobrara Formation in Colorado, the
Marcellus Shale in Pennsylvania, and the Utica Shale in Ohio, and the
company has offices in each state. Management intends to focus their
operations on the plays which yield the highest oil to gas ratios, primarily
the Eagle Ford
Eagle Ford Shale
As part of Carrizo’s strategy for shifting its operations towards crude oil,
management launched a land acquisition program in early 2010 targeting
the Eagle Ford Shale play in Texas. Carrizo restricted its land acquisitions
to the volatile oil window in the central area of the Eagle Ford Shale. As
of February 25, 2014, the company has accumulated approximately
65,500 additional net acres in the Eagle Ford Shale, producing 12.6
MBoe/d. Carrizo currently reports 122.5 MMBoe of proved reserves on
82,000 acres in this location. Currently, Carrizo has 176 wells producing
approximately 21 thousand barrels of oil a day on an equivalent basis in
this area with 220 waiting to be developed. The company’s wells in the
Eagle Ford area come online with a daily production rate of 625 barrels of
oil per day, shown in the Figure 6 below.
In the future, Carrizo’s management intends to focus the majority of
capital expenditures on this area because of the high production rate in

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comparison to the other three shale plays. Horizontal drilling remains the
focus of the drilling efforts in the Eagle Ford area.
Figure 6: Eagle Ford Type Curve
Niobrara Formation
Carrizo’s land position in the Niobrara Formation is located in Weld and
Morgan Counties. Currently, Carrizo has 54 wells producing
approximately 2.6 thousand barrels of oil a day on an equivalent basis in
this area with 11 waiting to be developed. Additionally, the Company is
currently developing and testing for more drilling potential in this area. As
of December 31, 2014, the company accumulated approximately 35,900
net acres in the Niobrara Formation. Carrizo currently has 5.6 MMBoe of
proved reserves in this area. Going forward, the Niobrara formation
remains Carrizo’s secondary focus behind the Eagle Ford due to a lower
percentage of gas production coming from the Niobrara compared to the
Utica and Marcellus areas.
Marcellus Shale
The Marcellus Shale, one of the most active and economical natural gas
plays in the America, extends from New York to Eastern Ohio and West
Virginia. Most of Carrizo’s land position in this area rests in West
Virginia and northeastern and central Pennsylvania. In 2007, Carrizo
launched a leasing program in the play, and currently owns an interest in
approximately 33,400 net acres. Drilling in the Marcellus shale is
predominately horizontal. Carrizo has net production of approximately 8.4
MBoe/d with 22.2 MMBoe of proved reserves in this acreage. Production
in this area comes from 27 producing wells. Because of depressed natural
gas markets and a high concentration of natural gas in the Marcellus
formation, Carrizo intends to reduce capital expenditures in this area
moving forward.

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Utica Shale
Carrizo’s leasing and drilling activities in the Utica Shale are primarily in
Guernsey and northern Noble Counties, Ohio. The Company currently
owns more than 120 net potential drilling locations on 28 thousand acres
in the Utica Shale. Carrizo currently estimates 0.7 MMBoe in proved
reserves in the Utica. The company currents operates only two developed
wells producing less than one thousand barrels of oil a day on an
equivalent basis without any wells waiting to be developed. Carrizo plans
to scale back all capital expenditures in this formation to more effectively
focus assets in the Eagle Ford Shale play.
INDUSTRY
ANALYSIS
Carrizo operates within the global oil and gas industry. Specifically,
Carrizo is a U.S. upstream company which operates strictly on land. The
segments of the oil and gas industry include:
 Service Companies
 Upstream Companies
 Midstream Companies
 Downstream Companies
 Fully Integrated Companies
Service companies supply upstream companies with anything they may
need to extract oil and gas from the earth, including everything from drill
bits to supply boats. Upstream companies specialize in locating crude oil
and natural gas (including liquids), leasing/buying land, and extracting the
commodities from beneath the earth’s surface and ocean floor. Investors
refer to these companies as exploration and production companies (E&P).
Midstream companies transport the oil or gas from the well to the plant or
storage facility. Downstream companies buy the raw oil or gas, process it
into usable end products, and sell it to the public. Integrated companies
operate within all of the above sectors. The “super majors” are the five
largest publically traded, fully integrated oil and gas companies.

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Figure 7: Production and Profit
Source: Thomson Reuters (As of 2015)
The United States is the world’s third-largest petroleum producer, with
more than 500,000 producing wells and approximately 4,000 oil and
natural gas platforms operating in U.S. waters. Together, oil and gas
supply 65 percent of U.S. energy. The nation’s 144 refineries process
more than 17 million barrels of crude oil every day. Oil and gas
production facilities include 16,000 establishments with a value of
shipment of $134 billion. The oil and gas industry employs 9.8 million
people. According to their annual reports, the five super majors reported a
combined $1.53 trillion in revenue in 2014. As seen in Figure 7, the
revenue of any oil and gas company within any segment is highly
correlated with the prices of crude oil and natural gas.
Crude Oil and
Natural Gas Pricing
Commodity prices have dropped more than 50 percent since June 2014,
and the U.S. oil and gas industry has been through an extended economic
downturn. The most recent WTI price is around $55(ICE) and Brent price
is around $63(ICE).The natural gas price is $2.59(NYMEX). The above
oil and gas prices are low compared to recent historical levels.
Supply and demand determine crude oil and natural gas prices. Global
energy consumption is the basis of worldwide oil demand and
macroeconomic factors influence the total usage of oil. As the gross
domestic production of a country increases, so too will its energy
consumption. When U.S. GDP growth is slow and supply is high, prices
decline dramatically. Heating is the main driver of natural gas demand in
the U.S., making the demand, and therefore prices, seasonal. The
macroeconomic side of the natural gas demand is influenced by energy
usage abroad and some domestic consumption. The amount of oil
produced, called the supply side, is influenced by two key factors. First,

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oil and gas are difficult to find and extract, making technological
advances a key factor in the success of E&P companies. Second, once
reserves are located, the producer can choose how much to extract and
sell. At this point geopolitics come into play. Several Middle Eastern
countries own oil and gas companies, and because they control nearly 40
percent of the world’s supply, artificially regulating supply is in their best
interest. Oil producing nations created Organization of the Petroleum
Exporting Countries (OPEC) to decide how much oil and gas they should
produce.
In 2014, the balance between supply and demand tipped in the opposite
direction. Prices for crude oil shifted dramatically from June 2014 to the
beginning of 2015 because of several macroeconomic factors. The U.S.
shale revolution, through the usage of hydraulic fracturing and horizontal
drilling, enabled the United States to produce as much crude oil as Saudi
Arabia, the number one producer in the world, causing a large increase in
supply. Around the same time, the market experienced large declines in
GDP from Asian and European countries, causing a global decline in
demand which affected energy prices in the US. Extended declines in
GDP caused the European Union and other countries to enact quantitative
easing measures, causing exchange rates to fall to pre-housing crisis
levels. Crude oil is priced in U.S. dollars around the globe. The strength
of the dollar causes foreign consumers to import less crude oil, further
weakening demand. Given decreased demand, OPEC acted
uncharacteristically by refusing to decrease production in order to reach
equilibrium, in an effort to strengthen their market share.
Equilibrium theories predict that the amount of oil demanded by
customers is exactly the same as the amount being produced by oil and
gas companies. With no significant decrease in production on the horizon,
demand must increase in order for crude oil prices to rebound. In a recent
microeconomic trend report, Goldman Sachs asserted that China is set to
take over as the number one fossil fuel consumer in the world in the near
future, but its demand for oil is relatively low. In addition, the report
stated that oil consumption in emerging markets is slow. This could create
a new equilibrium price for oil that is much lower than prices over the last
decade. A recent study from the U.S. Energy Information Administration
(EIA) projects that oil consumption worldwide will remain relatively flat
over the next three years.
The Nature of the
Production Process
E&P companies usually have four operational phases: exploration,
acquisition, development, and production. In the exploration phase, E&P
companies search for potential oil and gas through geological fieldwork,
geological modeling, seismic imaging, and exploratory drilling.
Successful exploration plays a key role in maintaining reserves and future
revenue for E&P companies. If E&P companies detect oil and gas, they
will start the acquisition phase, which usually involves leasing land to
drill wells on target properties. Drilling wells is risky because it requires

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large amounts of capital, labor, technology, and environmental regulation
compliance. To share risk, many companies tend to enter into joint
ventures with well-funded partners at this phase. Oil and gas drilling is a
speculative activity that involves numerous risks and could have a
significant impact on the operational and financial position of a company.
An E&P company drills oil and gas wells and connects them to pipelines
for distribution. After this phase, oil and gas can be extracted and
transported to downstream companies. Finally, oil refineries refine crude
oil into various marketable end products including gasoline, diesel fuel
and jet fuel. Companies will continue to produce at a particular well as
long as its output is economically viable. Figure 8 shows the process of oil
and gas production.
Figure 8: Oil and Gas Production Map
Source: Energy Information Administration
In the past, U.S. E&P companies have utilized technological innovations
in drilling techniques such as hydro-fracking in the development of oil
shale, horizontal drilling in the development of the natural gas shale plays,
and environment friendly methods like pipeline maintenance and repair.
As previously discussed, oil and gas companies must consistently produce
new wells to grow production. E&P companies also innovate renewable
energy resources such as converting water into snow, and solar power, to
streamline operations.
Customers and
Suppliers
Oil exploration and production is a complex process that involves
specialized technology and equipment. Owning production equipment is
costly and requires extensive maintenance, so most oil companies utilize
oilfield services companies that supply the infrastructure, equipment, and
technology to explore for, extract, and transport crude oil and natural gas

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from the earth to the refinery, and eventually to the consumer.
Oilfield services companies provide five key roles in the market.
1. Oilfield equipment suppliers build rigs and supply hardware for
rig maintenance and upgrades.
2. Oilfield disposal services suppliers provide saltwater disposal and
transportation services for oil and gas companies.
3. Oil exploration and production services contractors deal in seismic
imaging technology or provide drilling services.
4. Oil and gas pipeline companies build onshore pipelines to
transport oil and gas between cities, states, and countries.
5. Oil and gas maritime transportation companies supply the tankers
and services to transport large quantities of oil and gas across the
ocean.
The oilfield service market is a highly competitive environment. E&P
companies have bargaining power in this market because they can switch
to other suppliers if current suppliers do not make competitive offers.
Table 3 presents customers that account for more than 10 percent of
Carrizo’s oil and gas sales for each year respectively.
Table 3: Carrizo’s Major Customers
(a) Revenues from the customer were below 10% during the year.
Source: Carrizo 2014 Annual Report
As other purchasers are available in all areas of Carrizo’s operations,
Carrizo’s sales will not significantly deteriorate from the loss of any one
current customer.
Carrizo’s Position
in the Industry
Carrizo owns a small share of the market. In 2014, Carrizo realized oil
and gas revenues of $720.2 million and production is 12.0 MMBoe. Table
4 illustrates a comparison between Carrizo’s production and the total
production of U.S. energy industry.

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Table 4: Carrizo Production against Entire U.S. Energy Industry
Source: Energy Information Administration (As of 2015)
Carrizo’s discretionary cash flow for 2014 was $512 million.
Discretionary cash flow is an important metric for E&P companies
because they often carry large amounts of debt, capital expenditures, and
depreciation on their books making net income a less accurate measure of
cash flow. Discretionary cash flow is an important measure of whether or
not a company will be able to service its debt and expand cash flow in the
future.
Carrizo’s replacement ratio for 2014 was 513 percent. The reserve
replacement ratio shows whether an E&P company is replacing reserves
or depleting them. The ratio is important for oil and gas companies
because reserves are constantly in natural decline and E&P companies
must consistently add reserves to its books to grow effectively.
Porter’s Five
Forces
Porter’s five forces is a framework for evaluating the strategy,
development, and weaknesses of a given industry. Each force is rated as
either low, medium, or high from the perspective of the company being
analyzed.
Threat of entry: Medium
E&P firms such as Carrizo must overcome large capital requirements
because the costs associated with startup are high. According to Wood
Mackenzie, U.S. upstream operations spent $140 billion in 2014. Carrizo,
a relatively small company, had a capital expenditure budget upwards of
$690 million in 2014. New companies face large financing and liquidity
stress in developing the infrastructure required for finding and developing
new wells.
In addition, locating and developing oil and gas reserves requires
interrelated technical expertise and human capital. E&P firms need
specialists in geography, legal teams, petroleum engineering experts, and
operations specialists to perform competitively. Exploration requires
extensive capital because it includes the process of finding usable
reserves, licensing land, drilling wells and obtaining distribution channels.
Labor cost is usually considered a fixed cost in the E&P industry.
Geopolitical factors and high fixed costs also make entering this industry
difficult because exploration is time consuming and expensive, and
regulatory requirements are strict.

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Bargaining Power of Suppliers: Low
Carrizo’s suppliers mostly consist of oil and gas field services suppliers
such as Halliburton. These companies assist Carrizo in logistical activities
such as surveying properties, drilling wells, and cementing wells.
Carrizo’s suppliers charge the company a day rate to rent equipment such
as drilling rigs and hydraulic fracturing equipment. Concentration in the
oil and gas field services industry is relatively low meaning that there are
several competitors, but there are few large companies that own expensive
assets that Carrizo must rent in order to produce oil and gas.
Bargaining Power of Buyers: Low
In the oil and gas industry, buyers have no bargaining power because the
price of oil is determined by supply and demand in the worldwide market.
Future and spot prices driven by the global exchange of oil as a
commodity play a significant role in determining the price of oil. Oil
prices are quoted as a differential between the premium quality products
and the products oil companies are actually producing. WTI and Brent,
which are traded on the NYMEX, are the benchmarks for oil prices.
Figure 9 shows the WTI and Brent index over the last 15 years and
demonstrates the price determined by the spot market. The differential
between the benchmark and the price that a company receives is a
function of oil quality and distance from major processing hubs.
In addition, oil and gas companies hedge against oil price fluctuations
with futures contracts that guarantee a specific price for the oil they
produce. Through the use of hedging, companies have more predictable
plan for the future and ensure that buyers have less bargaining power over
the price of oil.
Figure 9: World Oil Index Movement due to Arbitrage
Source: Thomson Reuters (As of 2015)

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Availability of Substitutes: Low
Fossil fuels are the most widely used sources of energy. External
competition stems from hydro, solar, wind, and nuclear power; however,
competition is minimal because alternative power sources cannot generate
energy on a large scale. According to the Institute for Energy Research,
oil accounted for 95.1 percent of transportation energy consumption and
67 percent of electricity generation in 2014.
Competitive Rivalry: High
Competition in the exploration and production industry is high and the
trend of competition is steady. The exploration and production industry is
fragmented and the four largest companies account for only 25 percent of
industry revenue. Oil and gas companies compete on a price basis;
however, because oil prices are previously determined by macroeconomic
factors, they compete on a basis of cost. Companies compete by lowering
extraction costs thereby bolstering margins. Oil companies also compete
on a quality basis because higher quality oil and gas is valuable.
PEER ANALYSIS Carrizo’s peer group consists of six upstream, onshore focused firms
which are independent and similar in terms of the areas in which they
operate and their market capitalization. Carrizo’s peers are Chesapeake
Energy, Range Resources, Rosetta Resources, SM Energy, and
Southwestern Energy. The companies operate inside the U.S., primarily
within the Eagle Ford, Barnett, Utica, Marcellus, and Bakken shale plays.
As shown in Table 5, all six companies are within the midcap range in
terms of market capitalization.
Table 5: Peer Data
Source: Bloomberg and 2014 Company Annual Reports
Chesapeake Energy
Co. (CHK/NYSE)
Chesapeake is an independent oil and gas exploration and production
company and the 11th largest producer of oil and NGL’s in the U.S. The
company holds a large portfolio of unconventional onshore assets in
major shale plays across the U.S. including properties in the Barnett,
Eagle Ford, Utica, Haynesville, and Marcellus Shales. In Q3 of 2014 the
company produced 726 MBoe/d, of which 70 percent was natural gas. In
2014 Chesapeake spent $5 billion in capital expenditures to increase
production on existing properties and increase leaseholds in the
Marcellus Shale as well as Utica Shale. Chesapeake is forecasting 10
percent overall production growth for 2015.

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Range Resources
Corp. (RRC/NYSE)
Range’s headquarters are in Fort Worth, Texas. Range has producing
upstream wells in the Marcellus, Mid-Continent, and Southern
Appalachian regions. Range’s capital expenditure for the 12 months
ending on September 30, 2014 was $1.13 billion. Revenue for the same
period was $1.2 billion. In 2014, Range produced 425 Bcfe in total, and
early in 2015 the company announced that its proved reserves have
increased 26 percent to 10.3 Tcfe.
Rosetta Resources
Inc.
(ROSE/Nasdaq)
Rosetta operates strictly out of the Eagle Ford Shale and the Permian
Basin formation. The company expected to spend $1.2 billion in capital
expenditures in 2014. Total production for for 2014 was 63 - 66 Mboe
per day and in 2015 the company expects to produce 76 – 82 Mboe per
day.
SM Energy Co.
(SM/NYSE)
SM Energy is an independent exploration and production company that
focuses on oil and gas resource plays in North America. SM Energy’s
primary producing properties are 144,000 net acres in the Eagle Ford
Shale and 238,000 net acres in the Bakken Shale. In addition the firm
leases property in the Rocky Mountain, Mid-Continental, and Permian
regions. In Q3 of 2014, the company produced 143 MBoe/d of which 54
percent was gas and only nine percent was oil. In 2014, SM Energy put a
$1.9 billion capital budgeting plan into effect to increase its position in
the Eagle Ford and Bakken Shales. The company expects to grow
revenues by approximately 15 percent in 2015. In 2013, SM Energy had
estimated reserves of 428.7 MMBoe.
Southwestern
Energy Co.
(SWN/NYSE)
Southwestern has offices in Spring, Texas and Conway, Arizona. Current
upstream operations are located in the Marcellus, Fayetteville, Arkoma,
East Texas, Brown Dense, DJ Basin, and New Brunswick plays.
Southwestern’s capital expenditure for the 12 months ending on
September 30, 2014 was $2.24 billion. Revenue for the same period was
$3.98 billion. Southwestern also has a mid-stream segment which
supports its exploration and production strategy. In 2014 Southwestern
produced 758 – 764 Bcfe. After a recent acquisition from Statoil and
WPX energy, Southwestern increased its proved reserves to 9.5 Tcfe and
expects to produce 2.5 Bcfe/d in 2015.
MANAGEMENT
PERFORMANCE
&
BACKGROUND
Carrizo’s management team, including veterans and experienced
newcomers, plays a key role in the company’s operations and focuses on
stable growth rate, excellent assets, and operational flexibility. The top
executives’ collective experience and expertise in the E&P industries
form a strong foundation for Carrizo’s strategic success.
As shown in Table 6, Carrizo’s management team has improved ROIC
by more than its peer average since 2010, excluding Rosetta because of
its much smaller market cap. Carrizo has reported a positive ROIC every

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year since 2010. The company’s success is a result of its active pursuit of
new opportunities such as the new acreage acquired in the Eagle Ford
Shale in 2014.
Table 6: ROIC
Source: Bloomberg (As of 4/20/2015)
S.P. “Chip”
Johnson
President and Chief Executive Officer(58)
S.P. “Chip” Johnson, a co-founder of Carrizo, has served as President,
Chief Executive Officer, and a director since December 1993. Prior to
joining Carrizo, Mr. Johnson worked as Operations Superintendent,
Manager of Planning and Finance, and Manager of Development
Engineering at Shell Oil Company for 15 years. From 2003 to January
2011, he served as a director of Pinnacle Gas Resources, Inc. Currently
he is also a director of Basic Energy Services, Inc., an oilfield service
provider. Mr. Johnson is a Registered Petroleum Engineer and holds a
B.S. in Mechanical Engineering from the University of Colorado.
Brad Fisher Vice President and Chief Operating Officer(53)
Brad Fisher has served as Vice President and Chief Operating Officer
since March 2005. Starting in July 2000, he served as Vice President of
Operations, and he served as General Manager of Operations from April
1998 to June 2000. Prior to joining Carrizo, Mr. Fisher spent 14 years
with Cody Energy Services. He held various managerial and technical
positions at Ultramar Oil & Gas Limited, last serving as Senior Vice
President of Engineering and Operations. Mr. Fisher holds a B.S. in
Petroleum Engineering from Texas A&M University. At Carrizo’s 2015
Analyst Conference, Mr. Fisher showed that the operations team had a
good track record of meeting production goals and Capex guidance. The
company will enter the learning curve at a much higher point in the
coming year.
David Pitts Vice President, Chief Financial Officer, Chief Accounting Officer
and Treasurer(47)
David Pitts has served as Vice President, Chief Financial Officer, Chief
Accounting Officer, and Treasurer since August 2014. Mr. Pitts had
previously worked as Carrizo’s Vice President and Chief Accounting
Officer since January 2010. Prior to joining Carrizo, Mr. Pitts was an
audit partner with Ernst & Young and a Senior Manager at Arthur
Andersen. Mr. Pitts is a CPA and holds a B.S. in Accounting and

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Business from Southwest Baptist University.
Dick Smith Vice President of Land(56)
Dick Smith has served as Vice President of Land for Carrizo Oil & Gas
since August 2006. Prior to joining Carrizo, Mr. Smith held the position
of Vice President of Land for Petrohawk Energy Corporation from its
inception in January of 2004 through August 2006 and was responsible
for managing the entire corporate land function. Mr. Smith was with
Unocal Corporation where he held the position of Land Manager for the
U.S. Gulf Region with areas of concentration in the OCS, Onshore
Texas, Louisiana, and Louisiana State Waters from April, 2001 through
the end of 2003. Mr. Smith is a Certified Professional Landman with a
BBA in Petroleum Land Management from the University of Texas at
Austin.
Gregg Evans Vice President of Exploration(64)
Gregg Evans has served as Vice President of Exploration since March
2005. Prior to joining Carrizo, he worked as Vice President North
America Onshore Exploration for Ocean Energy from 2001 to 2003.
From 1996 to 2000, he worked at Burlington Resources where he served
as Chief Geophysicist North America, Gulf of Mexico Deep Water
Exploration Manager, and Geoscience Manager for the Western Gulf of
Mexico Shelf. Prior to that, Mr. Evans served as Division Exploration
Manager of the Rocky Mountain Region and the Gulf Coast area and also
held various other technical and managerial positions with Burlington
Resources. Mr. Evans holds a B.S. in Geophysical Engineering from the
Colorado School of Mines and received the Cecil H. Green award for
outstanding geophysical student.
Andy Agosto Vice President of Business Development
Andy Agosto has been involved with the oil and gas industry for 30
years. In 2003, Mr. Agosto joined Carrizo Oil & Gas as Vice President of
Business Development to develop and manage its efforts in the Barnett
Shale and Eagle Ford Shale plays. Prior to joining Carrizo, Mr. Agosto
was Chief Operating Officer for CCNG, Inc. focusing on the midstream
and service side of the energy business. Mr. Agosto earned his B.S. in
Chemical Engineering from Texas A&M University. At Carrizo’s recent
2015 Analyst Conference, Mr. Agosto talked about valuation
benchmarking for the company and showed investors how the company
compares to its competitors operating in the Eagle Ford Shale.
RISK ANALYSIS
& INVESTMENT
CAVEATS
Carrizo oil and gas is subject to a number of risks including operational,
regulatory, and financial risks that are systematic in the exploration and
production industry. These risks may significantly impact Carrizo’s
ability to generate cash flows, raise capital, and plan new drilling
projects.

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Operational Risks Operational risks for E&P companies include reserve longevity,
commodity price volatility, technological risks, drilling risks, capital
requirements, and reserve estimates. Drilling and producing oil is a
speculative activity that has inherent uncertainties and therefore risks that
may have an adverse impact on Carrizo’s business.
Reserve Longevity
The primary focus of an E&P Company to ensure long term success is
the ability to replace oil and gas production and sales with additional
proved reserves. If an E&P company continues to produce without
replenishing its reserves, the company will run dry and cease to operate.
Carrizo can increase reserves in two ways. First, Carrizo can buy
property bearing proved reserves, which can be expensive. Second,
Carrizo can also explore for and produce oil and gas itself by leasing the
land and equipment, which yields higher margins if successful.
Operational inputs, such as land and equipment, determine the cost of
production for oil and gas but, no individual company can determine the
price paid for the final product. Carrizo faces the risk of failure in finding
new wells to replace depleted reserves and grow production.
Commodity Price Volatility
In Carrizo’s 2014 10-K, management outlines volatile oil and gas prices
as the primary risk for the company. E&P companies have more price
risk than the midstream and downstream segments because they are
“price takers.” Carrizo must sell its product at prices which the market
determines. Oil and gas prices change with global supply and demand.
These prices can be cyclical. Gas is in higher demand during the colder
months than in warmer months, making it seasonally cyclical. There is a
direct link between oil prices and demand via the gross domestic
production of energy consuming nations, making demand economically
cyclical. Uncertain prices affect the company’s ability to forecast
revenue, profitability, cash flow, and could impact the firm’s ability to
borrow funds and obtain additional financing. Carrizo uses hedging to
lock in the price of future production and guarantee the feasibility of
certain projects. E&P companies benefit most from hedging when prices
decline in a sharp manner. The 50 percent decline in energy prices from
June to December 2014 is a perfect example of a situation in which
hedges become profitable. Management emphasizes that as a result of
recent volatile oil and gas prices, the company is particularly dependent
on the production and sale of oil, but current economic conditions may
force the company to curtail operations. The company also emphasizes
that certain wells that were once profitable to drill no longer meet
Carrizo’s internal rate of return requirements and are no longer
economically viable.

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Technology
The technological feasibility of producing oil and gas is essential in terms
of a company’s success. Although Carrizo does not invest money directly
into research and development, the equipment and methods Carrizo uses
to find and extract hydrocarbons from beneath the Earth’s surface, are
extremely expensive to develop. Service companies spend millions of
dollars inventing and procuring efficient tools and processes to discover
and produce oil and gas, such as drill bits and hydraulic fracturing rigs.
The more technologically advanced these products become, the more
Carrizo must pay in day rates to the service companies to use them.
Carrizo prices the inherent risks of operations into the projects the
company takes on. In addition, many of Carrizo’s competitors are large
fully-integrated oil companies with large amounts of capital resources.
E&P companies are heavily dependent on technological advances and
Carrizo may not have access to technology as advanced as its
competitors, which gives larger companies a competitive advantage.
Drilling Risk
Carrizo’s growth strategy is based on a “growth through the drill bit”
principal, but drilling for oil and gas is a speculative activity that carries
significant risks. One of the major risks in drilling for oil is the
possibility that the company will not establish commercially productive
oil or gas wells. Drilling costs are substantial and even after drilling is
completed and production begins, a well may not be commercially
productive and economically viable. In addition, volatile oil prices may
force Carrizo to delay or cancel drilling projects in several locations,
which will lead to lower cash flows, lower production, and difficulties
expanding the business.
Reserve Estimates
E&P companies estimate oil and gas reserves using volumetric analysis
but these estimates may be inaccurate. Carrizo clearly states that
“reservoir engineering is a subjective and inexact process of estimating
oil and gas that cannot be measured in an exact manner.” As of February
2015, 57 percent of Carrizo’s proved reserves were undeveloped, and
when production begins, proved reserves are subject to upward or
downward adjustment. Finally, all oil wells are subject to natural decline,
a well may suffer from a natural decline rate much steeper than projected
and as a result, management may miss its production target rates.
Capital Requirements
Exploration and production is an extremely capital intensive industry that
requires large amounts of investment for a business to grow. For 2015,
Carrizo anticipates the need for additional outside funding to successfully
continue operations. Because of the recent downturn in oil prices, most

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exploration and production companies have significantly cut capital
expenditure by an average of 50 percent. The company may not be able
to acquire additional capital under its existing credit facilities in the
current oil environment. With less capital, Carrizo will have to severely
limit its development drilling programs, which means that the company
may not be able to keep pace with natural decline and will struggle to
grow revenue.
Industry Regulation
E&P companies are subject to heavy regulation from local, state, and
federal sources. Carrizo must adhere to laws that cover drilling permits,
well testing, plug and abandonment, and well spacing, which can cost the
company millions of dollars. As environmental regulations have become
more stringent, compliance costs for companies like Carrizo have
become significantly higher in recent years.
Greenhouse Gas Emissions
Increased scrutiny of the E&P industry may occur as a result of the
EPA’s 2011-2016 National Enforcement Initiative, “Assuring Energy
Extraction Activities Comply with Environmental Laws”, increasing
attention in the United States and worldwide to the issue of climate
change and the contributing effect of GHG emissions. Concerns about
emissions may affect operations by limiting drilling opportunities or
imposing materially increased costs on E&P companies including
Carrizo.
Hydraulic Fracturing
The EPA has asserted federal regulatory authority over hydraulic
fracturing under the federal Safe Drinking Water Act, and has released
draft permitting guidance for hydraulic fracturing operations. Several
states, including states where Carrizo operates such as Colorado, Ohio,
and Texas, have proposed or adopted legislative or regulatory restrictions
on hydraulic fracturing through additional permit requirements, public
disclosure of fracturing fluid contents, water sampling requirements, and
operational restrictions. Those ongoing changes could reduce the
volumes of oil and gas that the company can economically recover,
which could materially and adversely affect revenues and results of
operations.
Pipeline Regulations
Although most E&P firms do not own or operate pipelines or facilities
under direct regulation of the FERC, the FERC’s regulations of third-
party pipelines and facilities could indirectly affect Carrizo’s ability to
market production. Beginning in the 1980s, the FERC initiated a series of
major restructuring orders that required pipelines, among other things, to
perform open access transportation. The FERC’s changes substantially
increased competition in the natural gas market. The effect the FERC’s
other activities will have on access to markets, the fostering of

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competition and the cost of Carrizo’s daily operations, remains to be
seen.
Tax Laws
In addition to environmental legislation, the U.S. Congress is currently
debating significant changes to oil and gas tax laws. Proposed changes
may reduce certain tax deductions that are currently available with
respect to oil and gas exploration and development. Any such change can
negatively affect Carrizo’s financial position and operations.
Financial Risk Carrizo operates in a capital intensive industry and certain financial risks
arise when the company takes on debt to finance operations. Financial
risk is particularly relevant today because the current low price of oil has
forced E&P companies to cut capital spending and limit drilling projects.
Cash Flow Risk
The current ratio and quick ratio are indicators of a company’s short-term
liquidity. As Figure 7 shows, Carrizo’s current ratio is 0.66, which is
marginally lower than its peer average; however, its quick ratio is 0.65,
which is marginally higher than its peers. The company’s current and
quick ratios suggest that Carrizo will be able to service current liabilities
on its balance sheet using resources that are immediately available.
Credit Risk
Drilling for oil requires large sums of money, which E&P companies
usually use debt to finance. The more debt a company uses to support
operations, the more the company has to pay in interest on a percentage
and total basis. Therefore, debt heavy E&P companies are sensitive to
interest rate changes. Higher debt levels increase the probability of a
company going bankrupt if production and/or prices fall. Debt-to-Asset
Ratio and Debt-to-Equity Ratio measure a company’s leverage and credit
risk. As Figure 7 shows, Carrizo’s Debt-to-Asset Ratio and Debt-to-
Equity Ratio are significantly higher than its peers, which means Carrizo
has more credit risk than its peers. In addition, Carrizo has an interest
coverage ratio of 16.4, marginally lower than its peers, which means that
Carrizo is less capable of paying interest expense obligations from its
operating income than its peers. Carrizo’s cash generated-to-cash
required ratio is 0.4, among the lowest of its peers, showing the
company’s cash on hand has been significantly reduced because of the
downturn in oil. In addition, as Figure 8 shows, Carrizo’s Debt-to-Asset
Ratio had low fluctuation in the past five years, which is an indication of
the company’s stable credit management.
Hedging
Carrizo hedges a portion of its forecasted production to manage exposure
to commodity price risk. As of March 24, 2015, Carizo’s hedge positions
for 2015 were comprised of 30,000 MMBtu/d of natural gas and 12,200
Bbls/d of crude oil. From March 2015 through December 2016, Carrizo’s

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hedging position provides the company with solid downside protection
on 12,200 Bbls/d in 2015 and 4,000 Bbls/d in 2016 of crude oil at prices
below the floor of $50.00 per Bbl yet allow it to benefit from an increase
in crude oil prices up to the ceiling of $66.46 per Bbl in 2015 and $76.50
per Bbl in 2016. Carrizo’s hedging program helps ensure stable cash flow
and reduces financial risks.
Table 7: Financial Risk Ratios
Table 8: Carrizo Historical Leverage
SHAREHOLDER
ANALYSIS &
CORPORATE
GOVERNANCE
As of April 20, 2015, Carrizo Oil and Gas has 90 million shares
authorized, 51.45 million shares outstanding and 42.8 million (92
percent) of which trade as public float. Institutional investors own 69
percent, mutual funds own 28 percent, and insiders own 7 percent of the
company’s equity. Carrizo has not issued dividends in over a year and
has not announced plans to do so in the immediate future. The company
has not repurchased common stock in recent years. Investors are
currently selling 4,110,000 shares short which is about 9.80 percent of
the float. Short selling on Carrizo’s stock has decreased by 20.92 percent
over the last quarter as a result of falling oil prices. According to
Morningstar data on mutual fund investing styles, 49 percent of funds
bought Carrizo as a growth stock while only 7 percent bought Carrizo as
a value stock. Investor perception that Carrizo is a growth stock reflects
high expectations for the company’s recent investment in the Marcellus
and Eagle Ford Shale.
Institutional
Shareholders
Institutional investors own over 97 percent of Carrizo Oil and Gas equity.
Table 9 shows the top ten institutional investors that control 38.74
percent of the company. Individual investors favor an ownership
structure of this type because of the ‘managers overseeing managers’
effect. Large institutional investment companies watch over Carrizo’s
board carefully because they have a stake in Carrizo’s success. Individual
investors look favorably on the additional third party oversight of
Carrizo’s management. The total number of shares owned by these ten

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highly involved institutions has increased by approximately three percent
since 2014, which indicates confidence in future stock performance.
Table 9: Top Ten Institutional Investors
Insider
Shareholders
As of April 21, 2015, insider holdings represent 7.69 percent of total
shares outstanding, a decrease of 7.8 percent since February 2, 2014.
Over the past six months, Carrizo reported 36 insider transactions,
including 29 selling and 7 buying. On the open market, four insider
shareholders sold a total amount of 83,292 shares, but no insider
shareholder has made any open market purchase since August 2014.
Steven A. Webster, the largest insider shareholder of Carrizo, did not
report any position change over the past six months. Table 10 lists the top
five insider shareholders.
Table 10: Top Five Insider Shareholders
Corporate
Governance
Carrizo’s current leadership structure is Mr. Johnson serving as Chief
Executive Officer, Mr. Webster serving as Chairman of the Board, and
Mr. Parker serving as Lead Independent Director. Mr. Parker is a
Financial Advisor for multiple companies in the Houston, Texas area. He
has owned and operated Parker Investments since 1984 and has been
involved in structuring private and venture capital investments for the
past 15 years. Table 11 shows a brief summary of the board and its sub-
committees.

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Table 11: The Board and Sub-Committees
Since the company became a publicly traded company in 1997, several
separate individuals have held roles of Chairman of the Board and Chief
Executive Officer. Because today’s company directors have more
oversight responsibilities than ever before, having a separate Chairman
who has the responsibility of leading the Board is beneficial. In addition,
by having an independent director serve as Chairman of the Board, the
company’s Chief Executive Officer is able to focus on leading the
company. The company’s Lead Independent Director’s responsibility is
to preside over meetings at which the Chairman is not present, to serve as
a liaison between the Chairman (and management) and the independent
directors. The Lead Independent Director has the right to call meetings of
independent directors and vote for the company’s decision, which
benefits both the company’s operation effectiveness and shareholder
interest.
The Audit Committee mainly takes responsibility for the appointment,
retention, compensation and oversight of the independent registered
public accounting firm for the purpose of preparing the Company’s
annual audit reports or performing other audit, review or attest services
for Carrizo. The Board has determined that all of the members of the
Audit Committee satisfy the independence standards under the NASDAQ
Listing Rules and Rule 10A-3 of the Securities Exchange Act. In
addition, the Board has determined that Mr. Parker is an ‘audit committee
financial expert’ who is a certified public accountant and served as
partner at a major accounting firm.

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The primary responsibilities of the Compensation Committee are to
review and approve the compensation of the Chief Executive Officer and
other executive officers and oversee and advise the Board on the policies
that govern Carrizo’s compensation programs. The Nominating and
Corporate Governance Committee works on identifying, evaluating and
recommending, for the approval of the entire Board of Directors,
potential candidates to become members of the Board of Directors. It
also recommends membership on standing committees of the Board of
Directors. Overall, Carrizo has an optimal management with independent
Board members and regulated Board sub-committees structure, which are
well prepared for the company’s operating efficiency.
FINANCIAL
PERFORMANCE
&
PROJECTIONS
Our Team’s Projections for Carrizo’s financial performance are heavily
dependent on the current low oil pricing environment and cost
effectiveness of shale oil plays as oil prices change. Carrizo’s ability to
thrive in the current oil pricing environment, differentiates it from its
peers.
Production Based on company presentations and management conversations we
assumed that Carrizo would have a fairly flat run rate from Q4 2014
production into 2015 with slow growth in the three years following as
commodity prices slowly improve according to our price deck. We
assume the majority of Carrizo’s drilling efforts will be focused on the
Eagle Ford Shale for the next four years and no other material production
will be added during that time. In addition, we Carrizo’s gas production
will decrease year over year and its oil production will increase as the
company moves assets from its gas plays to its oil based sweet spots.
Carrizo gave guidance that it plans to drill 54 new wells in 2015 and exit
2015 with the same number (22) wells waiting to be completed as 2014.
Therefore, guidance for total wells completed in 2015 is 54. In Q1 2015,
only 1 rig will be operating in Eagle Ford therefore production numbers
will be lower than the following three quarters. In the February press
release, CZRO stated average quarterly production for 2015 will be fairly
close to Q4 2014. Also, total year-over-year growth from 2014 to 2015
will be 17 percent due to Q4 2014 being the strongest of the four trailing
quarters.
In the following years we assumed that if commodity price remain
depressed, Capex will be similar to the $495 million laid out in 2015
moving forward. Management will drill a similar amount of wells and
continue to focus on Eagle Ford. Three rigs will be operated and
production will be evenly spread across four quarters and production will
remain stable. Farther into the future, our team assumed that management
will need to move assets from other gas and uneconomical oil plays to
the Eagle Ford play in order to keep up with current production.

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Oil & Gas Pricing
Assumptions
The pricing forecast used in our intrinsic valuation is based on the
NYMEX oil prices for WTI oil as of April 20, 2015, which was $55/Bbl.
At $55/Bbl oil pricing, Carrizo’s Eagle Ford assets generate a rate of
return of 29 percent. Our gas price projections are based on a Henry Hub
price of $3/Mcf. We used a 30 percent discount to the price of oil and gas
to account for Carrizo’s unsuccessful drilling projects that would occur in
the event the company attempted to produce its remaining proved,
probable, and possible reserves at current commodity prices.
Operational
Expenses
SGA will decrease by five percent every year after 2015 because as oil
prices decline Carrizo will be forced to cut costs. Interest expense will
increase by five percent every year after 2015 because the company will
draw down debt on its RLOC and have to pay interest on that debt. We
assume that Carrizo will pay a consistent percentage of stock based
compensation based on total compensation in next three years because
stock. Total compensation is tied to overall company performance, the
current oil and gas price environment, and Carrizo’s commitment to cost
reductions. We assume Income tax rate is 36 percent and that all taxes
will be deferred during 2015 and in perpetuity.
Lifting Costs will stay in the range of $6.75 and $7.50 in 2015 according
to management guidance. We project lifting costs will remain stable
thereafter. Production taxes are four percent of production which is the
average of last four quarters. Ad valorem taxes will remain fairly in line
with the previous period minus a small differential because ad valorem
taxes are based on the value of the minerals a company is leasing, and
reserve property value will fall with falling oil prices.
Gain/Loss on derivatives is based on a four quarter trailing average
because this number will be a large gain until Carrizo’s existing hedges
expire and new, less profitable hedges take effect. DD&A will be roughly
$25.50 per barrel of oil equivalent in production. Because Carrizo plans
to scale back its capex we assumed this percentage will remain flat.
Financing Our major assumptions were that Carrizo would need to draw down $65
million in debt in each quarter of 2015 which will come directly from
Carrizo’s revolving line of credit (RLOC). This is the amount that
Carrizo will need in cash to be able to continue its operations. After
2015, Carrrizo will decrease its borrowing to $50 million per year in
order reduce total debt. The debt needed above is based on our cash on
hand projections and will come from Carrizo’s revolving credit facility as
well. This cash will be used to fund drilling and production operations. In
addition, we assumed that there will be no change in income tax
percentage and that all taxes will remain deferred for all periods
projected.
Carrizo will remain 60 percent hedged in gas and NGL, and 44 percent
hedged in oil for 2015. Carrizo has approximately 20 percent of 2016 oil

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production hedged with no other gas or oil hedges in place thereafter. In
addition we assumed that the company differentials from the benchmarks
will remain the same for the next four years.

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Reports
Carrizo Oil & Gas Inc. (CRZO)
Annual and Quarterly Income Statement

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Discretionary Cash Flow

35
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Reports
Annual and Quarterly Balance Sheets

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Annual and Quarterly Statement of Cash Flows

37
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Reports
Ratios

Freeman Report Carrizo Final

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