In March of 2000, the FASB issued FIN No. 44 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, FIN No. 44 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, 2003, 2004 and 2005 amounted to $0.3 million, $1.1 million and $2.1 million, respectively.

In January 2005, all the remaining 250,000 warrants that were originally issued to affiliates of Enron Corp. were exercised for 250,000 shares of the Company’s common stock . The net cash proceeds from exercise of the warrant was $1.0 million.

11.        RELATED-PARTY TRANSACTIONS

During the years ended December 31, 2004 and 2005, the Company incurred drilling costs in the amount of and $1.6 million and $0 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, 2004 and 2005, the Company incurred lease operating costs of $0.4 million and $0.4 million, respectively, with Basic Energy Services, Inc. Mr. Webster and Mr. Johnson are members of the Board of Directors of Basic Energy Services, Inc. During the year ended December 31, 2005, the Company incurred lease operating costs of $0.2 million with Brigham Exploration. Mr. Webster is a member of the Board of Directors of Brigham Exploration. It is management’s opinion that the transactions with these entitities were performed at prevailing market rates.

At December 31, 2005, the Company had outstanding related-party payable balances of $0.1 million. At December 31, 2004, the Company had outstanding related party accounts receivable and payable balances of $0.3 million and $0.7 million, respectively.

During the year ended 2004, Goodrich Petroleum (“Goodrich”) participated in the drilling of one well operated by the Company. During the year ended December 31, 2004, the Company incurred land and drilling expenses of $0.6 million with the Company. Mr. Webster is a member of the Board of Directors of Goodrich. The terms of the operating agreements between the Company and Goodrich are consistent with standard industry practices.

See Notes 4, 7 and 8 for a discussion of the investment in Pinnacle, the transactions involving the Subordinated Notes and Series B Preferred Stock with parties that include members of the Company’s Board of Directors or their affiliates.

.Steven A. Webster, Chairman of the Board of the Company, is also Chairman of Avista Capital Holdings, L.P. and is therefore a related party to the Pinnacle transaction.