FINANCING ARRANGEMENTS

     In connection with the 1997 initial public offering, Carrizo entered into an amended revolving credit facility with Compass Bank (the "Company Credit Facility"), to provide for a maximum loan amount of $25 million, subject to borrowing base limitations. The principal outstanding is due and payable in April 2003, with interest due monthly. The Company Credit Facility was amended in March 1999 to provide for a maximum loan amount under such facility of $10 million. The interest rate on all revolving credit loans is calculated, at the Company's option, at a floating rate based on the Compass index rate or LIBOR plus 2 percent. The Company's obligations are secured by substantially all of its oil and gas properties and cash or cash equivalents included in the borrowing base. Certain members of the Board of Directors had provided collateral, primarily in the form of marketable securities, to secure the revolving credit loans. This collateral was released during April 2001.

     Under the Company Credit Facility, Compass, in its sole discretion, will make semiannual borrowing base determinations based upon the proved oil and natural gas properties of the Company. Compass may also redetermine the borrowing base and the monthly borrowing base reduction at any time at its discretion. The Company may also request borrowing base redeterminations in addition to the required semiannual reviews at the Company's cost.

     In September 1998, the Company Credit Facility was further amended to provide for an additional $7 million Term Loan bearing interest at the Index Rate, of which $7 million was borrowed in the fourth quarter of 1998. In March 1999, the Company Credit Facility was further amended to increase the $7 million Term Loan by $2 million. In December 1999, $2 million principal amount of the Term Loan was repaid with proceeds from the sale from the Subordinated Notes, Common Stock and Warrants.

     Certain members of the Board of Directors have guaranteed the Term Loan. As currently amended pursuant to an amendment dated December 1999, interest on the Term Loan is payable monthly, bearing interest at the Index Rate. Principal payments on the Term Loan were due in consecutive monthly installments in the amount $290,000 each, beginning July 1, 2000 through December 1, 2000, and thereafter in the amount of $440,000, beginning January 1, 2001 until the Term Loan Maturity Date, when the entire principal balance, plus interest, is payable. Term Loan Maturity Date means the earlier of: (1) the date of closing of the issuance of additional equity of the Company, if the net proceeds of such issuance are sufficient to repay in full the Term Loan; (2) the date of closing of the issuance of convertible subordinated debt of the Company, if the proceeds of such
issuance are sufficient to repay in full the Term Loan; (3) the date of repayment of the revolving credit loans and the termination of the revolving commitment; and (4) July 1, 2001. As of December 31, 2001, the principal balance of the Term Loan had been repaid.

     The Company is subject to certain covenants under the terms of the Company Credit Facility, including but not limited to (a) maintenance of specified tangible net worth, (b) a ratio of quarterly EBITDA (earnings before interest, taxes, depreciation and amortization) to quarterly debt service of not less than 1.25 to 1.00, and (c) a specified minimum amount of working capital. The Company Credit Facility also places restrictions on, among other things, (a) incurring additional indebtedness, guaranties, loans and liens, (b) changing the nature of business or business structure, (c) selling assets and (d) paying dividends.

     Proceeds of the revolving credit loans have been used to provide funding for exploration and development activity. At December 31, 2000, and 2001, outstanding revolving credit loans totaled $5,426,000 and $7,166,000, respectively, with an additional $2,900,884 and $620,000, respectively, available for future borrowings. The outstanding amount of the Term Loan was $5,260,000 and none at December 31, 2000 and 2001. The Company Credit Facility also provides for the issuance of letters of credit, one of which has been issued for $224,000 at December 31, 2000 and 2001. The Borrowing Base facility was amended in November 2000 to provide up to $2 million of Guidance Line letters of credit (the "Guidance Line letters of credit") relating exclusively to the Company's outstanding hedge positions. At December 31, 2000, the Company had one Guidance Line letter of credit outstanding amounting to $180,000. The weighted average interest rates for 2000 and 2001 on the Company Credit Facility were 9 and 7 percent, respectively.

     On June 29, 2001, CCBM, Inc. a wholly owned subsidiary of the Company ("CCBM"), issued a non-recourse promissory note payable in the amount of $7,500,000 to RMG as consideration for certain interest in oil and gas leases held by RMG in Wyoming and Montana. The RMG note is payable in 41-monthly principal payments of $125,000 plus interest at eight percent per annum commencing July 31, 2001 with the balance due December 31, 2004. The RMG note is secured solely by CCBM's interests in the oil and gas leases in Wyoming and Montana.

     In December 2001, the Company entered into a capital lease agreement secured by certain production equipment in the amount of $243,369. The lease is payable in one payment of $11,323 and 35 monthly payments of $7,549 including interest at 8.6 percent per annum. The Company has the option to acquire the equipment at the conclusion of the lease for $1.

     Estimated maturities of long-term debt are $2,107,030 in 2002, $8,205,391 in 2003, $3,836,498 in 2004 and the remainder in 2007.

In November 1999, Messrs. Hamilton, Webster and Loyd provided a bridge loan in the amount of $2,000,000, to the Company, secured by certain oil and natural gas properties. This bridge loan bore interest at 14 percent per annum. Also in consideration for the bridge loan, the Company assigned to Messrs. Hamilton, Webster, and Loyd an aggregate 1.0 percent overriding royalty interest ("ORRI") in the Huebner #1 and Fondren Letulle #1 wells (combined with the prior assignment, a 2 percent overriding royalty interest), a .8794 percent ORRI in Neblett #1 (N. La Copita), a 1.0466 percent ORRI in STS 104-5 #1, a 1.544 percent ORRI in USX Hematite #1, a 2.0 percent ORRI in Huebner #2 and a 2.0 percent ORRI in Burkhart #1. On December 15, 1999 the bridge loan was repaid in its entirety with proceeds from the sale of Common Stock, Subordinated Notes and Warrants. Such overriding royalty interests are limited to the well bore and proportionately reduced to the Company's working interest in the well.