In March of 2000, the FASB issued Interpretation No. 44 "Accounting for Certain Transactions involving Stock Compensation - an interpretation of APB No. 25" ("the Interpretation") which was effective July 1, 2000 and clarifies the application of APB No. 25 for certain issues associated with the issuance or subsequent modifications of stock compensation. For certain modifications, including stock option repricings made subsequent to December 15, 1998, the Interpretation requires that variable plan accounting be applied to those modified awards prospectively from July 1, 2000. This requires that the change in the intrinsic value of the modified awards be recognized as compensation expense. On February 17, 2000, Carrizo repriced certain employee and director stock options covering 348,500 shares of stock with a weighted average exercise price of $9.13 to a new exercise price of $2.25 through the cancellation of existing options and issuance of new options at current market prices. Subsequent to the adoption of the Interpretation, the Company records the effects of any changes in its stock price over the remaining vesting period through February 2010 on the corresponding intrinsic value of the repriced options in its results of operations as compensation expense until the repriced options either are exercised or expire. Stock option compensation expense (benefit) relating to the repriced options for the years ended December 31, 2001, 2002 and 2003 amounted to $(0.6 million), $(0.1 million) and $0.3 million, respectively.

12. RELATED-PARTY TRANSACTIONS

During the years ended December 31, 2002 and 2003, the Company incurred drilling costs in the amount of and $2.9 million and $2.2 million, respectively, with Grey Wolf Drilling. Mr. Webster is the Chairman of the Board of Carrizo and a member of the Board of Directors of Grey Wolf Drilling. During the year ended December 31, 2003 the Company incurred lease operating costs of $0.4 million with Basic Services, Inc. Mr. Webster and Mr. Johnson are members of the Board of Directors of Basic Services, Inc. It is management's opinion that the transactions with both of these entitities were performed at prevailing market rates.

At December 31, 2003, the Company had outstanding related party accounts payable balances of $0.9 million. At December 31, 2002, the Company had outstanding related-party accounts receivable, payable and advances for joint operations balances of $1.2 million, $1.2 million and $0.3 million, respectively.

During the years ended December 31, 2002 and 2003, the Company participated in the drilling of one well and no wells, respectively, that were operated by a subsidiary of Brigham Exploration Company. During the years ended December 31, 2002 and 2003, Brigham Exploration Company ("Brigham") participated in the drilling of two wells and two wells, respectively, operated by the Company. During the year ended December 31, 2003, the Company incurred $0.7 million of operating expenses with Brigham and Brigham incurred drilling and operating expenses of $2.8 million with the Company. Mr. Webster is a member of the Board of Directors of Brigham. Mr. Webster is also a managing director of a merchant banking affiliate of the beneficial owner of approximately 35% of the common stock of the parent company of Brigham Oil and Gas, LP. The terms of the operating agreements between the Company and Brigham are consistent with standard industry practices.

During the year ended December 31, 2002, the Company sold a 2% working interest in certain leases in Matagorda County, TX to Mr. Webster. The terms of the sale were the same as other sales of working interests in the same leases to industry partners.

See Notes 7 and 9 for a discussion of the investment in Pinnacle, Subordinated Notes and Series B Preferred Stock, respectively, with parties that include members of the Company's Board of Directors or their affiliates.

F-25