We are pleased to report on the progress of your company. During the past year, Carrizo continued with its transition to a better balance between low risk development from unconventional natural gas resource plays and the higher risk, high potential of its traditional onshore Gulf Coast drilling program. Our results in 2006 reflected solid execution. We are optimistic that Carrizo can continue its progress.

During 2006, Carrizo achieved the following results:

•	Record revenues of $82.9 million, a 6% increase over 2005
•	Record EBITDA of $63.4 million, a 13% increase over 2005
•	Record annual production of 11.7 Bcfe, a 22% increase over 2005
•	Record average daily quarterly production during 4Q2006 of 39.74 MMcfe, a 34% increase over the 4Q2005 rate and a 35% increase over the average daily rate for the previous three quarters of 2006
•	Record reserves at year end of 210 Bcfe, a 39% increase over year end 2005
•	Reserve replacement of 607% of 2006 production

Carrizo has been able to achieve the significant growth of production and reserves largely through its investment in the development of its 86,750 net acre leasehold position in the Barnett Shale of the Fort Worth Basin (the “Barnett”). Carrizo now has 70% of its proved reserves coming from the Barnett and 79% of its total estimated 3P reserve resource derived from the Barnett and its other shale plays.

In addition to the growth of a more stable longer life reserve and production base, Carrizo has at the same time enhanced the option value of its overall asset profile. With the benefit of this expanding and more predictable resource base, Carrizo has been able to (a) increase participation in higher potential drilling in Gulf Coast exploratory wells and (b) continue to assemble acreage in emerging shale plays, where 240,000 net acres have now been leased in the Floyd, Fayetteville, New Albany and Barnett/Woodford West Texas plays.

Carrizo will continue to accelerate its development in the Barnett. In 2006, Carrizo drilled 46 gross and 34 net wells in this basin, up from 37 gross and 22 net wells during 2005. An even more robust program is budgeted for 2007. At year end, Carrizo operated three rigs drilling horizontal wells. A fourth rig was contracted in February and Carrizo expects to pick up a fifth rig in the Barnett by the fourth quarter. During the past year, Carrizo continued to improve the efficiency of both its surface and subsurface operations. Average drilling time per well was cut by about 25%. Carrizo also expects to benefit from moderating service costs in 2007.

Various developments in the Barnett are particularly exciting and could add meaningful value. First, during last year, two 60 acre downspacing pilots were initiated in Parker County. Initial results are encouraging. Second, Carrizo has begun drilling its promising Tier 2 acreage in Erath County. Third, Carrizo has now drilled three “monster” wells in southeast Tarrant County which have tested initial production rates well in excess of any previous Carrizo Barnett wells. We have already begun permitting 30 additional drillsites on the one-third of our 6,500 net acres in this area currently covered by 3D seismic.

Drilling in Carrizo’s more traditional Gulf Coast play also yielded record results in 2006. Carrizo drilled 16 successful wells in 19 attempts, for an apparent success rate of 84%, in line with past success rates. Importantly, significant reserves were added. In particular, important discoveries were made with the Galloway #2 and Galloway #3 wells in Liberty County and the Baby Ruth #1 well in Harris County.