Kimmeridge Energy Schedule 13D: Carrizo Should Divest Eagle Ford or Merge with Another Permian Operator

  • Kimmeridge owns 6,587,300 shares or 8.1% of Carrizo Oil & Gas

Purpose of Transaction

  • Kimmeridge Principals have expressed the view that Carrizo has some of the most attractive leaseholds for oil and gas development in the Eagle Ford and the Permian
  • However, despite these leading asset positions, Carrizo:
    • Maintains a relatively high level of indebtedness
    • Employs and unfocused multi-basin approach
    • Operates with limited scale in each basin, resulting in underperformance in terms of valuation and shareholder returns
  • Over the past year, Carrizo has made efforts to address these strategic challenges and to close the valuation gap
  • Kimmeridge believes that the sale of non-core assets and the partial sales in the Eagle Ford, Utica, Marcellus, and Niobrara and repayment of debt are positive steps
  • These initial steps have not resulted in a material re-rating of the common stock and more is needed and could be readily accomplished
  • Kimmeridge believes Carrizo should strongly consider specific actions that can be taken to enhance and maximize shareholder value. Over the next calendar year, Carrizo should take one or more of the following courses of action to address its low valuation:
    • Completely divest its Eagle Ford position to pay down debt and become a Permian pure-play with an industry-leading balance sheet
    • Merge with another operator with Permian overlap to increase scale. Following such a merger, the Eagle Ford position could either be divested or run as a smaller portion of the overall company
    • Exit part of the Eagle Ford position and use the proceeds to repurchase a significant portion of the common stock of Carrizo
  • While Carrizo is in relatively strong position right now in terms of certain leasehold assets, as time passes and inventory is reduced within the Eagle Ford and Permian basin, Kimmeridge believes that Carrizo’s relative attractiveness and opportunity to re-rate the valuation will decline
  • Given Carrizo’s high level of indebtedness, Kimmeridge believes Carrizo will not be able to increase its scale in the Permian sufficiently to become a dominant basin player absent a major sale or merger
  • In the event that Carrizo’s Board and management team are unable or unwilling to execute a viable strategic path within the next 12 months, Kimmeridge believes that Carrizo’s shareholders would be best served by a sale of Carrizo

Kimmeridge Energy Schedule 13D, March 26, 2018

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