Saturday, April 10, 2010

Carrizo (Nasdaq:CRZO) Latest Natural Gas Company to Migrate Toward Oil

Carrizo Oil & Gas Gravitating Toward Oil

With what looks like an abundance of natural gas reserves which could last for a century or more, natural gas companies like Carrizo Oil & Gas (Nasdaq:CRZO) are now gravitating toward oil as a way to diversify their product portfolios, as the huge store of natural gas is expected to put downward pressure on natural gas for some time, which of course will squeeze margins.

Oil on the other hand is expected to continue increasing in price, or at minimum hold in price, making it more desirable than natural gas at this time.

Consequently, Carrizzo announced it was going to increase its budget for oil production from $170 million to $225 million, including, along with production, increased acreage and reserves.

Carrizo has recently offered 2.5 million shares of common stock at $23.50, which has reportedly been raised to pay back money it has borrowed from its revolving credit line, but other reports have stated it's to acquire more acreage. Possibly the credit line was tapped for the acreage, although it isn't clear that that's the case.

It looks like once some natural gas companies moved toward oil, the rest are starting to stampede that way, as the future of natural gas, while abundant and saleable, will have margins pressured for a long time, which will dim the profits being generated by the company, even if revenue from natural gas sales grow.

Maybe they should concentrate on selling more and let the profits grow from increased sales, even if margins are less; similar to Wal-Mart (NYSE:WMT) turning over inventory with low margins but high revenue, which in turn raises profits from inventory turnover rather than solely on margins.

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