Carrizo identified a large shale resource play in 2005 located in the Black Warrior Basin of Alabama and Mississippi. Detailed mapping of critical shale characteristics as well as locating low cost leases defined project fairways. Relative to the Barnett Shale the Floyd has much better net revenue interests and higher wellhead prices. Carrizo was successful in acquiring 137,000 net acres in the defined fairways. Based on our experience in the Barnett Shale it was decided to acquire an 18 square mile 3D seismic program (the first to be shot in the Floyd Shale) to evaluate our initial drilling locations. The seismic was used to ensure that the location had the geologic characteristics that are consistent with the highest probability of encountering commercial productivity.

Our evaluation plans are to drill a vertical well in which a core of the shale section will be taken and analyzed for all geothermal, geochemical, mineralogical, and mechanical properties. A horizontal well will be drilled immediately thereafter within one thousand feet of the vertical borehole. The vertical well will be used as a monitoring well to evaluate the effectiveness of the hydraulic fracing program in the horizontal well. Carrizo anticipates spending 2007 capital of $3.6 million drilling one vertical well (0.5 net) and one horizontal well (0.5 net) beginning in the first quarter of 2007.

 


Following success in adding low-cost acreage in three of the last four UCKS license rounds, Carrizo now holds traditional four-year licenses in six exploration blocks totaling 167,867 gross acres, all located in mature producing fairways of the Central and Southern North Sea in water depths of 90 to 350 feet. One of the licenses has a one well drilling commitment; the other licenses can be canceled without penalty after four years if we or our assignee elects not to commit to drill a well. On two of our most prospective licenses, we have promoted our interests to other parties experienced in drilling and operating in this region, leaving us with a carried interest on each of the initial exploration wells.

The first of these two early prospects, in which we retain a 25% carried non-operating working interest through casing point and a 3% overriding royalty, was drilled with the Monterey well in late 2006 in the Southern North Sea. We subsequently participated in the test phase of this apparent gas discovery, and the well was suspended in late 2006 and is currently being studied for commercial viability by the operator. The second prospect, in which we retain a 15% carried non-operating working interest through casing point and a 3% overriding royalty, is expected to be drilled as the Huntington well in Q2 of 2007 in the Central North Sea. Both areas have significant remaining exploration potential with a further ten prospects identified on the blocks.

 
 



 

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Carrizo 2006 Annual Report