TO OUR SHAREHOLDERS

During the past year, our Company has taken advantage of favorable industry conditions to strengthen its operational and financial position. We remain optimistic that the external environment will provide continued opportunity for Carrizo to make further progress. Market conditions favor the oil and gas company that can create value through the drill bit, an ideal environment for a company with our skill set.

While market forces have and will continue to adjust energy demand based on the market price of oil, natural gas and alternative fuels, the U.S. continues to encounter supply problems, particularly for natural gas. As a consequence, oil and natural gas prices have remained at a higher price plateau that in recent history. Despite higher prices and increases in US drilling activity, natural gas production has continued to decline. The industry continues to fight steep production decline rates. This is a trend which cannot be reversed. While modern completion techniques have driven better economics for the producer and helped the industry become increasingly capital efficient. It has also helped put supply replacement on a treadmill.

Carrizo is especially well positioned to thrive in this environment. We create value through prospect generation and drilling new wells. Since the Company's inception, 97 percent of the wells Carrizo has participated in have been classified as exploration, albeit, primarily of the lower risk category. Carrizo continues to maintain a large and growing prospect inventory in its core area of operations, the onshore Gulf Coast. Today, we have over 120 3-D seismic delineated drilling locations, most of which have been leased. This compares to 39 wells drilled in 2003 and 37 wells budgeted for drilling in 2004.

In the last two years, Carrizo has almost doubled its inventory of 3-D seismic data to 8,700 square miles. Quality data is the lifeblood of an exploration company. We expect to develop a new generation of prospects in our core project areas as we continue to process and reprocess new data and well information.

Management believes 2003 was a very good year for the Company both in terms of measurable success and in positioning the company for the future. We drilled 39 wells (10.2 net wells), of which 34 (.94 net) were completed for an 87 percent success rate. Our three year record of drilling success is over 80 percent. During the year, we produced a record 7.5 Bcfe and as this letter is written we are producing at a record rate. Moreover, we replaced 202 percent of this production, ending the year with over 70 Bcfe of proved reserves. In the last three years we have grown proven reserves at an annual rate of 12.4 percent.

In early 2004, Carrizo completed a common stock offering of 6,485,000 shares, of which 3,655,500 shares were for the benefit of the Company and the balance for selling shareholders. Total net equity proceeds to the Company of $23.5 million has been used initially to pay down debt and ultimately will be used to increase Carrizo's drilling budget. This will allow us to retain a higher interest in our scheduled wells where we believe the risk / reward balance is especially attractive. Our 2004 capital spending budget is $45 million, including $40 million for drilling. Over 95 percent of the budget will be dedicated to our core area in the onshore Gulf Coast. Management is quite excited about our prospects for the 2004 campaign,