Why Carrizo Oil & Gas Is Getting Pummeled

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Since independent oil and gas producer Carrizo Oil & Gas Inc. (NASDAQ: CRZO) reported fourth-quarter and full-year 2017 results Tuesday morning, shares have taken a beating. Just looking at earnings per share (EPS) and revenues, the punishment seems to be worse than the crime.

Analysts had forecast quarterly adjusted EPS of $0.57 and revenues of $246.77 million. Carrizo delivered EPS of $0.58 and revenues of $246.77 million. Check.

For the year, analysts were looking for $1.39 in EPS and revenues of $745.89 million, and the company reported EPS of $1.43 and $745.89 million in revenues. Check.

The issue appears to be production volumes, particularly oil production. At the end of the third quarter, Carrizo forecast oil production for the fourth quarter of 40,400 to 40,800 barrels a day. Tuesday’s reported total was 40,206 barrels a day.

For 2018, Carrizo forecast crude oil production at 58,500 to 60,100 barrels a day for the full year and 48,600 to 49,800 barrels a day for the first quarter. First-quarter production was hit by bad weather in January that shaved 500 to 600 barrels a day from expected production. Carrizo did say it expects second-quarter production to see a “significant increase” once multipad development in the Eagle Ford play is completed.

Carrizo reported a hedging loss of $86.1 million in the fourth quarter and a loss for the year on its hedging contracts of $59.1 million. For 2018, it has hedged some 75% of estimated oil production with three-way collars and swaps contracts. The average floor price on 24,000 barrels a day of production is $49.06, and the ceiling is $60.14 per barrel. Swap contracts on 6,000 barrels a day of production average a fixed price of $49.55 a barrel. Unless the bottom falls out of the oil market, the company will post another loss for non-performing hedges in the current quarter.

What probably has hurt Carrizo most after its earnings report was a virtually instant downgrade from KeyBanc Capital Markets analyst Chris Stevens, who cut his rating from Overweight to Sector Weight with no assigned price target. Stevens did lower his EPS estimate for 2018 from $3.20 to $2.31 and his 2019 EPS estimate from $4.02 to $3.08.

Carrizo stock traded down by more than 18% Tuesday and was last seen at $14.54, down 17.6%, in a 52-week range of $11.10 to $33.30. The 12-month consensus price target is $30.13.