Q3 2004 Carrizo Oil & Gas, Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Ladies and gentlemen, thank you for standing by. Welcome to the third-quarter 2004 earnings for Carrizo Oil & Gas Incorporated conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). A rebroadcast of today's conference will be available beginning November 11 through November 25. To access the rebroadcast, please dial 1-800-633-8284 or 402-977-9140. Enter reservation member 21213229. As a reminder this conference is being recorded Thursday, November 11. Your speakers for today are Chip Johnson, President and Chief Executive Officer, and Paul Boling, Vice President and Chief Financial Officer of Carrizo Oil & Gas Incorporated. Also on today's call is Allen Connell, Vice President of Investor Relations. I would now like to turn the conference over to Mr. Chip Johnson, President and Chief Executive Officer. Please proceed, sir.

CHIP JOHNSON, PRESIDENT, CEO, CARRIZO OIL & GAS: Thank you and thank you all for calling in.

As we've done before, Paul Boling will start off with a summary of the earnings and then I will give an operational status review and then we will open it up to questions. So I will go ahead and turn it over to Paul Boling now.

PAUL BOLING, CFO, CARRIZO OIL & GAS: The financial performance in the third quarter 2004 was strong, starting with record oil and gas revenues of 12.3 million, compared to the previous all-time record of 10.9 million in the second quarter of '04. Natural gas prices were also strong at $5.69 per Mcf and $43.57 per barrel in the third quarter of '04 compared to 5.21 per Mcf and $29.15 per barrel in the second quarter of '04.

Our third-quarter 2004 production level was 2.04 Bcfe, compared to 1.99 Bcfe produced during the third quarter of '03. While our third-quarter production was 22.1 Mmcfe per day, production is currently about 26 Mmcfe per day before adding additional production expected from three Gulf Coast wells and several Barnett Wells currently being completed for sales.

Our EBITDA was a record 9.4 million in the third quarter of '04 or 43 and 41 cents per basic and fully diluted shares respectively, compared to 6.9 or 48 and 41 cents per basic and diluted shares respectively.

Oil and gas operating expense, excluding production taxes in the third quarter of '04, were 1.4 million in the third quarter of '04 or 0.5 million higher than the third quarter of '03. This is largely due to additional wells that have been added to the Company this year. In a great deal contributing to that is the Barnett wells that we've entered into.

Depreciation, depletion and amortization expense was 3.7 million or 0.6 million higher than the third quarter of '03, primarily due to an increase in the DD&A rate per Mcfe due to additions to the proved property cost base, and a 3 percent increase in our production volumes for the period.

General and Administrative expenses were 1.3 million in the third quarter of '04, or 0.3 million lower than the third quarter of '03. This is largely due to executive severance in the third quarter of 2003.

The Company recorded other income of 0.5 million in connection with the sale of our 1.1 million derivatives claims contract against Enron North America, which we had fully reserved for back in 2001. This represents a recovery percentage of about 46 percent of the original claim outstanding, so we're very happy with that result.

Pinnacle Gas Resources Inc., our minority-owned subsidiary, recorded a 0.2 million after-tax charge -- (technical difficulty) -- to Carrizo, or 0.01 per share fully diluted, largely comprised of the quarterly dividend on the preferred stock held by Credit Suisse First Boston. Pinnacle's production continues to grow and is currently estimated at 13.5 Mmcfe per day.

Non-cash stock option compensation benefit was .1 million for the third quarter of '04. This is directly attributable to the increased value of the employee stock options that were repriced in 2000.

Net income available to common stock in the third quarter of '04 was 3.4 million, or 15 cents for both basic and fully diluted shares, which includes the after-tax impact of the non-cash stock option compensation benefit of 0.1 million and the non-cash equity loss in Pinnacle of 0.2 million, or .01 per share fully diluted.

In addition to the successful operating results during the period, the Company was also successful in issuing 18 million of its new 10 percent senior subordinated secured Notes due in December of 2008 to an affiliate of HBK Investments on October 29th of '04. This financing provides significant flexibility, along with improved liquidity for the Company, and funds the continued aggressive development of the Barnett Shale play as well as helping to optimize the level of borrowing capacity with our senior bank facility, so we are very happy about that new transaction.

Let's move onto the nine months -- moving onto financial performance in the nine months of '04, we also set a number of records as well, starting with the record oil and gas revenues of 35.1 million, up 5.5 million or 19 percent compared to 29.6 million in the nine months of '03. Including the effects of hedging, which were negligible, natural gas prices were also strong at $5.89 per Mcf and $37.14 per barrel in the nine months of '04, compared to $5.56 per Mcf and $29.08 per barrel in the first nine months of '03.

Our nine-month 2004 production level of 5.89 Bcfe was 5 percent higher than the 5.61 Bcfe produced during the nine months of 2003.

Our EBITDA was a record 24.7 million in the nine months of 2004, $1.28 and $1.22 per basic and fully diluted shares respectively, compared to 20.2 million or $1.42 and $1.22 per basic and diluted share respectively.

Oil and gas operating expense, excluding production tax in the nine months of 2004, was 3.7 million in the nine months of '04 or 0.6 million higher than the nine months of '03. Similar to the third quarter that we just compared, this is largely due to the increased well count, which again is comprised of the Barnett Shale wells as well as other new wells that we've added this year.

Depreciation, depletion and amortization expense was 10.6 million, or 1.8 million higher than the nine months of '03. This again is primarily due to the increase in the DD&A rate per Mcfe due to additions for the proved property cost base and also due to a 5 percent increase in the production volumes.

General and Administrative expense was 5.1 million in the nine months, or 0.8 million higher than the nine months of '03, largely due to the higher incentive compensation costs in the first nine months of 0.4 …