Southeast Texas Areas

The Southeast Texas area contains similar objective levels found in the Frio/Vicksburg/Yegua trend area. We separate this as a focus area because of the geographic concentration of our 3-D seismic data and because reservoirs in this area usually display seismic amplitude anomalies. Seismic amplitude anomalies can be interpreted as an indicator of hydrocarbons, although these anomalies are not necessarily reliable as to hydrocarbon presence or productivity. We have acquired licenses for approximately 1,216 square miles of 3-D data over our Southeast Texas project area which is focused primarily on the Frio, Yegua, Cook Mountain and Vicksburg formations.

We have 25 leased exploratory drillsites, seven of which are dependent on success of the other wells. An additional six prospects have been seismically mapped on which we are currently pursuing acreage.

From January 1, 2003 to December 31, 2006, we participated in the drilling and completion of 19 wells (6.7 net) in 23 attempts in this area. We incurred capital drilling expenditures of $19.0 million and drilled seven wells (2.6 net) in the Southeast Texas area in 2006 and expect to devote approximately $7.8 million and drill 5.0 gross wells in this area in 2007. The Liberty Project Area and Cedar Point Project Area have proven to be successful for us, and we expect that the Liberty Project Area will constitute a significant portion of our drilling program for 2007.

Liberty Project Area

We have identified and leased prospects including the Frio, Yegua, Cook Mountain, and Wilcox formations within the 705 square miles of 3-D seismic data in the Liberty Project Area which now covers significant areas of Liberty, Harris, and Hardin Counties, Texas.

As of December 31, 2006, we had identified 21 leased exploratory drilling locations and an additional six potential locations that we are attempting to lease in the Liberty Project Area. Ten of the total 21 prospects were generated from our 2006 seismic survey project. Carrizo’s 2007 drilling plan provides for drilling two of these exploratory locations. Accordingly, we expect to continue significant drilling activity in the Liberty Project area in 2007.

South Louisiana Area

The South Louisiana area primarily contains objectives in the Middle and Lower Miocene intervals. We have acquired licenses for 2,154 square miles of 3-D data and approximately 5,580 net acres of leasehold. The 3-D seismic data sets are concentrated in one general area including St. Mary, Terrebonne and LaFourche Parishes.

Our South Louisiana inventory consists of 14 leased exploratory drillsites, seven of which are dependent on the success of the other wells. Carrizo is currently pursuing acreage on an additional 17 seismically defined prospects. From January 1, 2003 to December 31, 2006, we drilled and completed six wells (2.1 net) on eleven attempts in this area. We incurred capital drilling expenditures of $6.6 million and drilled three wells (1.1 net) in the South Louisiana area in 2006 and expect to devote approximately $11.2 million to drill 4.0 gross wells in this area in 2007.

Barnett Shale Trend

We began active participation in the Barnett Shale play in the Fort Worth Basin on acreage located west of the city of Fort Worth, Texas in mid-2003. In 2003, we acquired leases on approximately 4,100 net acres and invested $0.9 million to drill six wells (2.6 net), two of which were completed and producing and four of which were awaiting pipeline hookup at year end. Net production from the two online wells (0.6 net) was a combined 380 Mcfe per day at year end 2003.

In February 2004 we purchased specified wells and leases in the Barnett Shale trend in Denton County, Texas from a private company for $8.2 million. These non-operated properties have an average 39 percent working interest. The acquisition included 21 existing gross wells (6.7 net) and interests in approximately 1,500 net acres. Production at year end 2004 was approximately 2,800 Mcfe/d.

In April 2005 we acquired 600 net acres and working interests in 14 existing wells (7.3 net) with an estimated 5.4 MMcfe of proved reserves in the Barnett Shale trend for $2.3 million in cash and 112,697 shares of our common stock. In 2005, we drilled 37 additional wells (22.1 net) and acquired an additional 49,632 net acres.

During 2006, we drilled 46.0 additional wells (33.9 net) and acquired an additional 6,400 net acres, increasing our acreage at the end of 2006 to 86,752 net acres (primarily in Tarrant, Parker, Denton, Johnson, Hill and Erath counties). Carrizo was operator