We have grown our production through our 3-D seismic-driven exploratory drilling program. From our inception through December 31, 2005, we participated in the drilling of 438 wells (155.5 net) with an apparent success rate of approximately 70% in our onshore Gulf Coast area and 100% in the Barnett Shale area. Exploratory wells accounted for 83% of the total wells we drilled.

As a main component of our business strategy, we have acquired licenses for over 10,000 square miles of 3-D seismic data for processing and evaluation. One of our primary strengths is the experience of our management and technical staff in the development, processing and analysis of this 3-D seismic data to generate and drill natural gas and oil prospects. Our technical and operating employees have an average of over 20 years industry experience, in many cases with major and large independent oil and gas companies. Using our 3-D seismic database, our highly qualified technical staff is continually adding to and refining our substantial inventory of drilling locations.

We believe that our utilization of large-scale 3-D seismic surveys and related technology allows us to create and maintain a multiyear inventory of high-quality exploration prospects. As of December 31, 2005 we had 145,144 net acres in Texas and Louisiana under lease or lease option, including 64,795 net acres in our onshore Gulf Coast area, almost all of which is covered by 3-D seismic data, and 80,349 net acres in our Barnett Shale area. On this leased acreage, we have identified over 174 potential exploratory drilling locations in our onshore Gulf Coast area, including over 104 additional extension opportunities, depending on the success of our initial drilling activities on those locations. In the Barnett Shale area, where we rely heavily on 3-D seismic to plan our development, we have identified over 500 potential exploratory and development horizontal drilling locations.

In 2005, our capital expenditures were $ 120.0 million, used primarily to drill 65 wells (35.8 net). In 2006, we expect capital expenditures to be approximately $140 to $145 million. We expect to drill 26 wells (12 net) in the onshore Gulf Coast area and 49 gross wells (35 net) in our Barnett Shale area and 40 gross wells (39.5 net) in our East Texas areas in 2006.

Our other interests include a rapidly growing position of over 170,000 net acres in four additional shale resource plays and a coalbed methane investment in the Rocky Mountains. Additionally, in 2003 we obtained licenses to explore in the U.K. North Sea where we expect our working interest partners to drill two prospects in 2006, with no risk capital required from Carrizo.