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in Pinnacle of 26.9%. In March 2006 we entered into an agreement with Pinnacle
and certain other shareholders of Pinnacle allowing us to exercise the Pinnacle
stock options on a cashless, net exercise basis. At the end of 2005, we retained
our interests in approximately 159,000 gross acres in the Castle Rock project
area in Montana and the Oyster Ridge project area in Wyoming. We no longer have
a drilling obligation in connection with the oil and natural gas leases contributed
to Pinnacle. During 2004, we opted to exercise our right to cancel one-half of
a remaining note payable to RMG, or approximately $300,000 in exchange for assigning
one-half of our interest in the Oyster Ridge project area to RMG. Simultaneously
with the contribution of these assets, affiliates and related parties of CSFB
Private Equity (“CSFB”) contributed approximately $17.6 million of cash to Pinnacle
in return for redeemable preferred stock of Pinnacle, 25% of Pinnacle’s common
stock as of the closing date and warrants to purchase Pinnacle common stock. The
CSFB parties currently have greater than 50% of the voting power of the Pinnacle
capital stock through their ownership of Pinnacle common and preferred stock.
Our Chairman, Steven A. Webster, was Chairman of Global Energy Partners, Ltd.,
an affiliate of CSFB and is currently Chairman of Avista Capital Holdings, L.P.,
a private equity firm that makes investments in the energy sector and that has
an affiliate that provides consulting services to an affiliate of CSFB. In
March 2004, the CSFB parties contributed additional funds of $11.8 million to
continue funding the 2004 development program of Pinnacle.
In 2005, the CSFB Parties contributed $15.0 million to Pinnacle to finance an
acquisition of additional undeveloped acreage. CCBM and U.S. Energy Corp. elected
not to participate in the equity contribution. In November 2005, the CSFB Parties
and a former Pinnacle employee received 30,000 and 2,000 shares of Pinnacle common
stock, respectively, after exercising certain warrants and options. Accordingly,
CCBM’s ownership in Pinnacle is 32.3% as of December 31, 2005 (15.8% on a fully
diluted basis). We understand that Pinnacle is in the process of raising additional
capital to expand its operations, which may result in a further dilution of our
interest. As of December 31, 2005, on a fully diluted
basis, assuming that all parties exercised their Pinnacle warrants and Pinnacle
stock options, the CSFB Parties, CCBM and U.S. Energy Corp. would have ownership
interests of approximately 68.4%, 15.8% and 15.8%, respectively. Immediately
following its formation, Pinnacle acquired an approximate 50% working interest
in existing leases and approximately 36,529 gross acres prospective for coalbed
methane development in the Powder River Basin of Wyoming from an unaffiliated
party for $6.2 million. At the time of the Pinnacle transaction, these wells were
producing at a combined gross rate of approximately 2.5 MMcfd, or an estimated
1 MMcfd net to Pinnacle. At the end of 2004 and 2005 Pinnacle’s production was
approximately 13 MMcfe/d gross (5.6 MMcfe/d net) and 17.8 MMcfe/d gross (6.0 MMcfe/d
net). As of December 31, 2004 and 2005, Pinnacle owned interests in approximately
170,000 gross acres (79,000 net) and 418,000 gross acres (272,000 net), respectively,
in the Powder River Basin. Available Information Our
website address is www.carrizo.cc. We make our website content available for informational
purposes only. It should not be relied upon for investment purposes, nor is it
incorporated by reference in this Form 10-K/A. We make available on this website,
through a direct link to Securities and Exchange Commission’s website at www.sec.gov,
free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports as soon as reasonably
practicable after we electronically file those materials. You
may also find information related to our corporate governance, board committees
and company code of ethics at our website. Among the information you can find
there is the following: - Audit Committee Charter;
- Compensation
Committee Charter;
- Nominating Committee Charter;
- Code
of Ethics and Business Conduct; and • Compliance Employee Report Line.
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