At year-end 2006, Pinnacle had completed the acquisition and/or drilling of 883 gross wells, or approximately 535 net. As of December 31, 2006, Pinnacle owned natural gas and oil leasehold interests in approximately 454,000 gross (306,000 net) acres and had estimated net proved reserves of 20.3 Bcf.

Coalbed methane wells typically first produce water in a process called dewatering and then, as the water production declines, begin producing methane gas at an increasing rate. As the wells mature, the production peaks and begins declining. The dewatering process may require significant time and resources, and there can be no assurance that a well that encounters coal accumulations will in fact produce gas in commercial quantities. The ultimate commercial success of the well will depend upon several factors, including the establishment of gas and/or water inflow, the presence of pipelines and infrastructure, the satisfaction of engineering or production issues and other risks and uncertainties associated with drilling activities.

See “Regulation - Coalbed Methane Proceedings in Montana” for a description of certain regulatory proceedings affecting coalbed methane drilling in Montana.

Other Project Areas

Floyd Shale

In 2005, we began activities in the Floyd Shale, a large shale play located in Alabama and Mississippi. At year end 2006, we had acquired approximately 136,500 net acres in this area. Based on our experience in the Barnett Shale and on preliminary geologic evaluation, in 2006 we decided to shoot 3-D seismic to evaluate our initial drilling locations. We had acquired and processed 18 square miles of 3-D seismic data at year end 2006. As in the Barnett Shale, our drilling program involves the drilling of both vertical and horizontal wells. We anticipate spending $2.5 million to drill one vertical well (0.5 net) and one horizontal well (0.5 net) in this region in 2007.

We have designed an evaluation program that will provide us with detailed information about the Floyd Shale project. Our plan is to drill a vertical well in which a core of the shale section will be taken. This core will be 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.

Fayetteville Shale and Woodford/Barnett Shale Plays

Carrizo identified several large shale resource plays in 2005 in the Fayetteville Shale (located in the Arkoma Basin of Arkansas), and the Delaware Basin Woodford/Barnett (West Texas/New Mexico) and Marfa Basin Barnett Shales (West Texas) (collectively, the “Woodford/Barnett Shale”). Detailed mapping of shale extent, depth, thickness, organic content, thermal maturation, as well as cost and availability of acquiring leases were analyzed to define the project fairways to lease. Carrizo has been successful in acquiring over 15,000 net acres in the Fayetteville Shale and over 70,000 net acres in the Woodford/Barnett Shale comprised of over 58,000 net acres in the Marfa Basin and about 12,100 net acres in the Delaware Basin.

U.K. North Sea Region

We were originally awarded seven acreage blocks in 2003, consisting of one “Traditional” and three “Promote” licenses, in the United Kingdom’s 21st Round of Licensing. Subsequently, we generated a number of prospects from certain of these blocks and, accordingly, with a four year term, renewed the Promote license on two of these blocks in 2006. In 2006, all the Promote licenses were converted to Traditional licenses. As of December 31, 2006, we held licenses in five exploration blocks (totaling 124,000 gross acres), all located in mature producing areas of the Central and Southern North Sea in water depths of 30 to 350 feet. One of the Traditional licenses has a one well drilling commitment, with a four year term. The other Traditional licenses will be canceled after four years if we or our assignee elects not to commit to drill a well.

We believe that our U.K. North Sea interests are a natural extension of our business model to exploit resources in proven mature regions through 3-D seismic surveys, related technology and proper risk management. The U.K. North Sea includes proven hydrocarbon trends with established technological expertise, available large 3-D seismic datasets and significant exploration potential. On two of our licenses, we have promoted our interests to other parties experienced in drilling and operating in this region, leaving us with a carried interest on the initial exploration wells.

The first of two early prospects, in which we retain a 25% carried nonoperating working interest through casing point and a 3% overriding royalty, was drilled 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 currently is being studied for commercial viability by the