Information about PV-10 Values
This release contains references to the PV-10 value of the Company's U.S. proved reserves, which is equal to the standardized measure of discounted future net cash flows from proved reserves, before deducting future income taxes, discounted at 10 percent. Carrizo believes that the presentation of PV-10 values provides relevant and useful information because it is widely used by investors, analysts and creditors as a basis for comparing the relative size and value of the Company's proved reserves to other oil and gas companies. Because many factors that are unique to each individual company may impact the amount and timing of future income taxes, the use of a pre-tax measure provides greater comparability when evaluating oil and gas companies. Carrizo also uses PV-10 values when assessing the potential return on investment related to its oil and gas properties and in evaluating acquisitions. The PV-10 value is not a measure of financial or operating performance under U.S. GAAP, nor is it intended to represent the current market value of proved oil and gas reserves. PV-10 value should not be considered in isolation or as a substitute for the standardized measure of discounted future net cash flows as defined under U.S. GAAP. The PV-10 value of the Company's U.S. proved reserves may be reconciled to its standardized measure of discounted future net cash flows, by reducing the Company's PV-10 value by the discounted future income taxes associated with such reserves as shown below.
Reconciliation of PV-10 Value (Non-GAAP) to Standardized Measure of Discounted Future Net Cash Flows (GAAP) as of December 31, 2012 ($ in billions)
PV-10 Value $1.412Future Income Taxes (discounted at 10%) ($0.233) --------Standardized Measure of Discounted Future Net Cash Flows $1.179 ========
Information About Reserve Replacement Ratios
Carrizo uses the reserve replacement ratio as an indicator of its ability to replenish annual production volumes and grow its reserves, thereby providing some information on the sources of future production. Management believes reserve replacement information is frequently used by analysts, investors and others in the industry to evaluate the performance of companies like Carrizo. The reserve replacement ratio is calculated by dividing the sum of reserve additions from all sources (revisions, extensions, discoveries, and other additions and acquisitions) by the actual production for the corresponding period. This calculation is adjusted for the effect of property sales as appropriate. The Company does not use unproved reserve quantities in calculating the reserve replacement ratio. It should be noted that the reserve replacement ratio is a statistical indicator that has limitations. As an annual measure, the ratio is limited because it typically varies widely based on the extent and timing of new discoveries and property acquisitions. Its predictive and comparative value is also limited for the same reasons. The ratio does not distinguish between changes in reserve quantities that are producing and those that will require additional time and capital to begin producing. In addition, since the ratio does not take into consideration the cost or timing of future production of new reserves, it cannot be used as a measure of value creation.
Carrizo Oil & Gas, Inc.
Vice President of Investor Relations
Paul F. Boling
Chief Financial Officer