The path to Carrizo Oil & Gas Inc.’s (NASDAQ: CRZO) $648 million deal to buy ExL Petroleum Management LLC began in the Delaware Basin, stumbled toward Russian ownership and finally found itself in a sketchy oil price neighborhood.
Add in Carrizo’s initial skepticism and the company’s bid not being the highest ExL received, the agreement to buy 16,488 net acres in Reeves and Ward counties, Texas, seems more improbable.
But along the way, Carrizo’s management became increasingly convinced of the merits of ExL’s assets—despite its initial doubts. The deal, which is expected to close in August, eventually sets up Carrizo to be a Texas operator after jettisoning assets in the Appalachia and Niobrara.
Michael Hsu, an analyst at Jefferies LLC, said that since a large package near Carrizo’s Delaware acreage was put up for sale, the company’s increased Permian exposure came at an attractive valuation, adding to its 22,000 net acre position in the western Delaware Basin at about $22,000 per acre.