Production testing is underway on the Mega Mata well in Matagorda County. With our partner Petrobras, Carrizo drilled this well to 23,000’ to test a huge Lower Tertiary Wilcox structure. After paying a lower percentage of the drilling cost, Carrizo now has a 28% working interest in this well. Over the next several months, the well will be perforated and fracture stimulated. If commercial viability of the discovery can be validated, this well can have a meaningful impact on both production and reserves.

Carrizo believes there is significant potential in its other shale plays. We have now leased 240,000 net acres in the Floyd Shale in Mississippi and Alabama, Fayetteville Shale in Arkansas, New Albany Shale in western Kentucky and Barnett/Woodford Shale in West Texas. We are particularly excited about the potential in the Floyd where we have assembled an attractive 137,000 net acre position. During 2006, we completed a 3-D seismic shoot on part of the acreage. Recently, we drilled a vertical “monitoring” well and are currently drilling our first horizontal test. Given our acreage position and promising interpretation, we believe the value of the Floyd could potentially exceed that of the Barnett for Carrizo.

Carrizo also retains attractive option value in two other positions where it is not committing capital: (a) its 9.5% ownership In Pinnacle Gas Resources, a coalbed methane producer in the Powder River Basin and (b) its position in the North Sea, where a second non-operated well, in which Carrizo retains a carried interest, has been spud.

We recognize that we operate in a volatile commodity price environment but we believe we will continue to see a healthy US natural gas market over the coming years given (a) steep production decline curves and (b) the minimal production response despite a significant increase in the number of working rigs. The US needs to develop additional natural gas supply at a reasonable price. We believe Carrizo can do its part and in doing so will continue to reward its shareholders.

In closing, we would like to thank the Carrizo team for its dedication and hard work and our shareholders for their trust.

Sincerely,