exh2.htm


    EXHIBIT
10.2

     

    Execution
Copy

     

    

      PARTICIPATION
AGREEMENT

       

      THIS
PARTICIPATION AGREEMENT, among Carrizo (Marcellus) LLC, a Delaware limited
liability company (“Carrizo”), Carrizo Oil &
Gas, Inc., a Texas corporation (“COGI” and, together with
Carrizo, the “Carrizo
Parties”), Avista Capital Partners II, L.P., a Delaware limited
partnership (“Avista”),
and ACP II Marcellus LLC, a Delaware limited liability company (“Investor LLC” and, together
with Avista, the “Avista
Parties”), is entered into this 3rd day of November, 2008 (the “Execution Date”), effective as
of the 1st day of August, 2008 (except as otherwise expressly provided herein)
(the “Effective
Date”).  In this Agreement, Carrizo, COGI, Avista and Investor
LLC are collectively referred to as the “Parties” and each as a “Party.”

       

      RECITALS:

       

      A.           The
Carrizo Parties and Investor LLC have agreed to dedicate their respective
interests in certain Oil and Gas Interests for the mutual benefit of Carrizo and
Investor LLC.

       

      B.           COGI
and Investor LLC are parties to that certain Agreement, dated as of August 1,
2008 (the “Land Bank
Agreement”), whereby, among other things, COGI agreed to act as Investor
LLC’s agent with respect to the acquisition of oil, gas and mineral
interests/leases in the geologic play area commonly known as the Marcellus Shale
in Maryland, New York, Pennsylvania, Virginia and West Virginia (the “Designated Area”), and
Investor LLC agreed to purchase such leases for a total consideration not to
exceed, in any event, Thirty Million Dollars ($30,000,000) in the
aggregate.

       

      C.           Concurrently
with the execution hereof, Carrizo and Investor LLC are entering into that
certain Operating Agreement, effective as of the Effective Date (the “Operating Agreement”), which
governs, to the extent not otherwise provided in this Agreement, the joint
operation of the Properties and memorializes the agreement between Carrizo and
Investor LLC to share certain revenues and expenses related to the exploration,
development and operation of such dedicated Oil and Gas Interests.

       

      D.           Concurrently
with the execution hereof, Carrizo Marcellus Holding Inc., a Delaware
corporation and wholly owned Subsidiary of COGI (“Carrizo Holding”), ACP II AMS
LP, a Delaware limited partnership and wholly owned Subsidiary of Avista (“ACP II”), and ACP II AMS
(Offshore) LP, a Delaware limited partnership and wholly owned Subsidiary of
Avista (“ACP II
Offshore”), are entering into that certain Amended and Restated Limited
Liability Company Agreement of ACP II Marcellus LLC (the “Investor LLC Agreement”),
effective as of the Effective Date, whereby, among other things, Carrizo Holding
is being issued an interest in Investor LLC having the rights and preferences
described in the Investor LLC Agreement as the “Profit Interest.”

       

      E.           The
Parties intend that Investor LLC shall bear all the initial expenses under the
Operating Agreement and also receive a preferred return on capital contributed
by it to pay such expenses, and Carrizo shall contribute a portion of the
profits it would otherwise be entitled to receive under this Agreement in
exchange for the issuance of the Profit Interests.

       


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Parties agree as follows:

       

      ARTICLE 1

       

      DEFINITIONS

       

      “ACP II” means ACP II AMS LP, a
Delaware limited partnership.

       

      “ACP II Offshore” means ACP II
AMS (Offshore) LP, a Delaware limited partnership.

       

      “Affiliate” means any Person
that, directly or indirectly, or through one or more intermediaries controls, is
controlled by, or is under common control with another Person.  For
the purposes of this Agreement, “control” means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management of a Person, whether through the ownership of voting securities or by
contract, agency, or otherwise.  Notwithstanding the foregoing, COGI
and its Subsidiaries and other Affiliates shall not be deemed to be Affiliates
of Avista or any of its Subsidiaries or its other Affiliates, and vice
versa.

       

      “Agreement” means this
Participation Agreement.

       

      “AMI” has the meaning set forth
in the Operating Agreement.

       

      “Avista” means Avista Capital
Partners II, L.P., a Delaware limited partnership.

       

      “Avista Allocation Threshold”
means the first time that (a) the aggregate amounts of Net Cash Flow From
Production allocated to Investor LLC pursuant to Section 3.1(a) and proceeds
allocated to Investor LLC pursuant to Section 3.2(a) equal (b) the Avista
Investments made through the end of the calendar month immediately preceding the
date of determination.

       

      “Avista Controlled
Entity”  means (a) any general partner or managing member of
ACP II or ACP II Offshore or any Affiliate of such general partner or managing
member (excluding portfolio companies), provided that such Person is
controlled by the same Persons (the “Avista Controlling Parties”)
that, as of the date hereof, control Avista GP, or (b) any Person organized,
formed or incorporated and managed or controlled by the Avista Controlling
Persons (excluding portfolio companies) as a vehicle for purposes of making
investments.

       

      “Avista GP” means Avista
Capital Partners II GP, LLC, a Delaware limited liability company.

       

      “Avista Investments” means the
sum of the Investor Asset Basis and the expenditures under the Operating
Agreement funded by Investor LLC pursuant to
Section 2.2(a)(i).

       

      “Avista Offshore” means Avista
Capital Partners (Offshore) II LP, a Delaware limited partnership.

       


      
        
           


        

        
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      “Avista Parties” means Avista
and Investor LLC.

       

      “Business Day” means any day
other than a Saturday, a Sunday or a day on which banks are closed for business
in Houston, Texas.

       

      “Carrizo” means Carrizo
(Marcellus) LLC, a Delaware limited liability company.

       

      “Carrizo Adjusted Investment
Amount” means the Carrizo Investments less the Increased Land
Value.

       

      “Carrizo Allocation Threshold”
means the first time that (a) the aggregate amounts of Net Cash Flow From
Production allocated to Carrizo pursuant to Section 3.1(b) and proceeds
allocated to Carrizo pursuant to Section 3.2(b) equal (b) the Increased Land
Value.

       

      “Carrizo Asset Basis” means the
sum of the Initial Carrizo Assets Market Value and the aggregate acquisition
cost for the Carrizo Parties’ interest in any Oil and Gas Interests dedicated
under Section 2.1(a)(ii), which, for the avoidance of doubt, does not
include acquisition costs for Oil and Gas Interests acquired pursuant to the
Land Bank Agreement without Carrizo Party funds.

       

      “Carrizo Cap” means One Hundred
Fifty Million Dollars ($150,000,000), including the Carrizo Asset Basis, but
excluding any payments by Carrizo to Investor LLC under Section 5.2(b) and
expenditures by Carrizo in connection with Exclusive Operations conducted by it
in which Investor LLC does not participate.

       

      “Carrizo Equalization Share”
means 100% minus the Investor Equalization Share.

       

      “Carrizo Holding” means Carrizo
Marcellus Holding Inc., a Delaware corporation.

       

      “Carrizo Investments” means the
sum of the Carrizo Asset Basis and any expenditures under the Operating
Agreement funded by Carrizo pursuant to Sections 2.2(b) or
2.2(c).

       

      “Carrizo Parties” means COGI
and Carrizo.

       

      “Cash Call” has the meaning set
forth in Exhibit D of the Operating Agreement.

       

      “Catch-Up Period” means the
period beginning on the Effective Date and ending on the first date that the
Avista Investments equal the Carrizo Asset Basis.

       

      “Change of Control” means, with
respect to any Person, a transaction or event (including a Transfer of
securities), or series of related transactions or events, that causes such
Person to cease to be controlled by the same Person or Persons who controlled
such Person prior to the occurrence of such transaction or event; provided, that a transaction
or event affecting the control of any wholly owned Subsidiary of COGI or any
Avista Controlled Entity that is undertaken for internal restructuring or
reorganization purposes will not constitute a Change of

       


      
        
           


        

        
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      Control
of such Person, provided,
further that such Person remains a wholly owned Subsidiary of COGI or an
Avista Controlled Entity, as the case may be, following such transaction or
event.

       

      “COGI” means Carrizo Oil &
Gas, Inc., a Texas corporation.

       

      “Designated Area” has the
meaning set forth in the recitals to this Agreement.

       

      “Drilling Unit” has the meaning
set forth in the Operating Agreement.

       

      “Entitlement” means that
quantity of Hydrocarbons (excluding all quantities used or lost in Joint
Operations) of which a Party has the right and obligation to take delivery
pursuant to the terms of the Operating Agreement, as such rights and obligations
may be adjusted by the terms of any lifting, balancing or other disposition
agreements entered into pursuant to Article 9 of the Operating
Agreement.

       

      “Equity Offeror” has the
meaning set forth in Section 4.3(b)(i).

       

      “Equity Purchase Rights” has
the meaning set forth in Section 4.2(b).

       

      “Equity ROFR Initiator” has the
meaning set forth in Section 4.2(b).

       

      “Equity Tag-Along Initiator”
has the meaning set forth in Section 4.3(b)(i).

       

      “Equity Tag-Along Interest”
means, with respect to Carrizo or Investor LLC, as applicable, such Party’s
interest in the Properties (expressed as a percentage of all of such Party’s
interest in the Properties) that is equal to the product of (x) such Party’s
Participation Interest in all of the Properties and (y) the Indirect Beneficial
Ownership Interest in the other Party that is subject to the Proposed Equity
Tag-Along Sale.

       

      “Equity Tag-Along Notice” has
the meaning set forth in Section 4.3(b)(ii).

       

      “Equity Tag-Along Rights” has
the meaning set forth in Section 4.3(b)(i).

       

      “Exclusive Operations” has the
meaning set forth in the Operating Agreement and includes any Subsequent
Exclusive Operation described in Section 5.2(b).

       

      “Governmental Authority” or
“Governmental
Authorities” means any nation or state and any political subdivision
thereof and any governmental, regulatory or administrative agency, commission,
body or other authority exercising or entitled to exercise any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power; and any court or governmental tribunal.

       

      “Hydrocarbons” means oil,
condensate, gas, casinghead gas and other liquid or gaseous
hydrocarbons.

       

      “Increased Land Value” means
$33,503,238.89, which represents the difference between the Initial Carrizo
Assets Market Value and the aggregate acquisition cost (as reflected on COGI’s
books) of the Initial Carrizo Assets.

       

       

      
        
          
          

        

        
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      “Indirect Beneficial Ownership
Interest” means Carrizo’s or Investor LLC’s, as applicable, interest in
the Properties (expressed as a percentage of all of such Party’s interest in the
Properties) represented by limited liability company interests in such Party,
which the Parties acknowledge and agree shall be in the same proportion that a
Person’s aggregate ownership of limited liability company interests bears to all
of the issued and outstanding limited liability company interests in such Party;
provided that the
Profit Interest shall be disregarded for purposes of such
calculation.

       

      “Initial Carrizo Assets” has
the meaning set forth in Section 2.1(a)(i).

       

      “Initial Carrizo Assets Market
Value” means the agreed value for Initial Carrizo Assets as set forth on
Exhibit 2.1(a) and totaling $98,977,561.73.

       

      “Initial Members” has the
meaning set forth in the Investor LLC Agreement.

       

      “Investor Asset Basis” means
the aggregate amount funded by Investor LLC pursuant to the Land Bank Agreement
for the purchase of the Investor Assets.

       

      “Investor Assets” has the
meaning set forth in Section 2.1(b).

       

      “Investor Equalization Share”
means the quantity obtained (expressed as a percentage) by dividing (a) the
Avista Investments by (b) the sum of the Avista Investments and the Carrizo
Adjusted Investment Amount, in each case as of the last day of the month
immediately preceding the date of calculation.

       

      “Investor LLC” means ACP II
Marcellus LLC, a Delaware limited liability company.

       

      “Investor LLC Agreement” means
the limited liability company agreement of Investor LLC, dated the Execution
Date, but effective as of the Effective Date.

       

      “Investor LLC Cap” means One
Hundred Fifty Million Dollars ($150,000,000), including the Investor Asset
Basis, but excluding any payments by Investor LLC to Carrizo under Section
5.2(b) and expenditures by Investor LLC in connection with Exclusive Operations
conducted by it in which Carrizo does not participate.

       

      “JOA Trigger Date” has the
meaning set forth in Section 5.2(a).

       

      “Joint Account” has the meaning
set forth in the Operating Agreement.

       

      “Joint Operations” has the
meaning set forth in the Operating Agreement.

       

      “Joint Properties” has the
meaning set forth in the Operating Agreement.

       

      “Knowledge” means, with respect
to a Party, the actual knowledge of any officer of such Party or other Person
with primary responsibility for the particular subject matter.

       

      
        
          
          

        

        
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      “Land Bank Agreement” means the
Agreement, dated as of August 1, 2008, by and between COGI and Investor
LLC.

       

      “Laws” means all laws,
statutes, rules, regulations, ordinances, orders, decrees, requirements,
judgments and codes of Governmental Authorities.

       

      “Management Services Agreement”
means the Management Services Agreement dated the Execution Date, by and between
COGI and Investor LLC.

       

      “Membership Interest” means the
interest in Investor LLC designated as such in the Investor LLC Agreement,
having the rights and preferences set forth therein.

       

      “Minimum Commitment Date” means
the date on which the aggregate contributions of the Carrizo Parties, on the one
hand, and the Avista Parties, on the other hand, pursuant to Section 2.1 and 2.2
have satisfied the Carrizo Cap and the Investor LLC Cap.

       

      “Net Cash Flow From Production”
means the positive amount, if any, shown on the Cash Call for a given calendar
month (e.g., March)
that is calculated as (a) the proceeds from the sale of the Parties’
Entitlements to Hydrocarbons from Operations conducted on the Properties
actually received by the Operator in respect of joint marketing conducted
pursuant to Section 2.4 during the calendar month immediately preceding the date
of such Cash Call (e.g.,
February) plus the positive adjustment, if any, by which estimated
operating and capital expenditures for Operations of the Parties reflected on
the Cash Call for the second calendar month immediately preceding the date of
such Cash Call (e.g.,
January) exceeded actual or accrued operating and capital expenditures
for Operations of the Parties during such second preceding calendar month, less
(b) the total amount of estimated operating and capital expenditures for
Operations of the Parties during the calendar month immediately following the
date of such Cash Call (e.g., April) less the
negative adjustment, if any, by which actual or accrued operating and capital
expenditures for Operations of the Parties reflected on the Cash Call for the
second calendar month immediately preceding the date of such Cash Call (e.g., January) exceeded the
estimated operating and capital expenditures for Operations of the Parties
reflected on the Cash Call for such second preceding calendar
month.  Notwithstanding the foregoing, both the proceeds from the sale
of Entitlements and the operating and capital expenditures attributable to
Properties that either (i) Carrizo has Transferred to a wholly-owned Subsidiary
of COGI or (ii) Investor LLC has Transferred to an Avista Controlled Entity in
accordance with Section 4.1(b), shall be included in this definition of “Net
Cash Flow From Production.”  However, neither the proceeds from the
sale of Entitlements, nor the operating and capital expenditures attributable to
Exclusive Operations where either Carrizo or Investor LLC is a Non-Consenting
Party pursuant to (i) Article 7.4(B)(1) of the Operating Agreement or Section
5.2(b) or (ii) Article 7.4(B)(2), (3) or (4) of the Operating Agreement until
the termination of the Non-Consenting Party’s relinquishment of its rights in
the affected Property, shall be included in this definition of “Net Cash Flow
From Production.”


      “Non-Consenting Party” means
either Carrizo or Investor LLC, if such Party elects not to participate in an
Exclusive Operation as described in the Operating Agreement.  For the
avoidance of doubt, as used herein, the term “Non-Consenting Party” shall not
include any other party that may be subject to the Operating
Agreement.

       

      
        
          
          

        

        
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      “Offered Equity Interest” has
the meaning set forth in Section 4.3(b)(ii).

       

      “Offered Property Interest” has
the meaning set forth in Section 4.3(a)(ii).

       

      “Oil and Gas Interests” means
(a) interests in and rights with respect to oil, gas, mineral, and related
properties and assets of any kind and nature, direct or indirect, including
working, leasehold and mineral interests and operating rights and royalties,
overriding royalties, production payments, net profit interests and other
nonworking interests and nonoperating interests; (b) all interests in
rights with respect to Hydrocarbons and other minerals or revenues therefrom,
all contracts in connection therewith and claims and rights thereto (including
all oil and gas leases, operating agreements, unitization and pooling agreements
and orders, division orders, transfer orders, mineral deeds, royalty deeds, oil
and gas sales, exchange and processing contracts and agreements, and in each
case, interests thereunder), surface interests, fee interests, reversionary
interests, reservations, and concessions; (c) all easements, rights of way,
licenses, permits, leases, and other interests associated with, appurtenant to,
or necessary for the operation of any of the foregoing; and (d) all
interests in equipment and machinery (including wells, well equipment and
machinery), oil and gas production, gathering, transmission, treating,
processing, and storage facilities (including tanks, tank batteries, pipelines,
and gathering systems), pumps, water plants, electric plants, gasoline and gas
processing plants, refineries, and other tangible personal property and fixtures
associated with, appurtenant to, or necessary for the operation of any of the
foregoing.

       

      “Operator” has the meaning set
forth in the Operating Agreement.

       

      “Operating Agreement” means the
Operating Agreement, dated the Execution Date, but effective as of the Effective
Date, by and between Carrizo and Investor LLC.

       

      “Operating Committee” has the
meaning set forth in the Operating Agreement.

       

      “Operation” means any Joint
Operation or Exclusive Operation in which both Investor LLC and Carrizo
participate.

       

      “Participation Interest” means
as to any Party, the undivided interest of such Party (expressed as a percentage
of the total interests of all the Parties) in the rights and obligations derived
from the Parties’ respective interests in each of the Properties and each
Operation thereon.

       

      “Party” means Carrizo, COGI,
Avista, Investor LLC, or any of their respective permitted successors and
assigns.

       

      “Permitted Pledge” means the
pledge, hypothecation or other voluntary encumbrance of a Party’s direct or
indirect interest (including the securities of any of its Affiliates) in the
Properties; provided
that (a) each pledge, hypothecation or encumbrance of a Party’s
direct interest in the Properties complies with the Operating Agreement, and (b)
with respect to each pledge, hypothecation or other voluntary encumbrance of the
limited liability company interests of Carrizo or Investor LLC, any Transfer of
such limited liability company interests in connection with a secured party’s
exercise of remedies under such pledge, 

       

      
        
          
          

        

        
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      hypothecation
or encumbrance is subject to the other Party’s rights under Sections 4.2(b) and
4.3(b) of this Agreement.

       

      “Permitted Pledge Transfer”
means, subject to Section 4.1(c), any Transfer made in connection with a secured
party’s exercise of remedies under a Permitted Pledge or any Transfer made after
commencement of a bankruptcy or insolvency proceeding respecting the Party bound
by the Permitted  Pledge and approved by the court or tribunal having
jurisdiction over such proceeding.

       

      “Person” means any individual,
firm, corporation, partnership, limited liability company, joint venture,
association, trust, unincorporated organization, Governmental Authority, or any
other entity.

       

      “Profit Interest” means the
interest in Investor LLC designated as such in the Investor LLC Agreement,
having the rights and preferences set forth therein.

       

      “Properties” means all Oil and
Gas Interests dedicated pursuant to Sections 2.1(a) and 2.1(b); provided that any Oil and Gas
Interests in Properties  relinquished by Carrizo or Investor LLC
pursuant to Exclusive Operations under Article 7 of the Operating Agreement or
as set forth in Section 5.2(b)shall not be deemed “Properties” hereunder from
and after such event, except to the extent otherwise expressly provided
herein.

       

      “Property Offeror” has the
meaning set forth in Section 4.3(a)(ii).

       

      “Property Tag-Along Initiator”
has the meaning set forth in Section 4.3(a)(i).

       

      “Property Tag-Along Interest”
has the meaning set forth in Section 4.3(a)(iii).

       

      “Property Tag-Along Notice” has
the meaning set forth in Section 4.3(a)(ii).

       

      “Property Tag-Along Rights” has
the meaning set forth in Section 4.3(a)(i).

       

      “Property Transfer Effective
Date” has the meaning set forth in Section 2.3(c).

       

      “Proposed Forecast” has the
meaning set forth in Section 5.2(c).

       

      “Proposed Equity Tag-Along
Sale” means (a) the Transfer of limited liability company interests
(expressed as a percentage), other than the Profit Interest, in either Carrizo
or Investor LLC, as applicable, to, in the case of Carrizo, any Person other
than a wholly owned Subsidiary of COGI, or in the case of Investor LLC, any
Person other than an Avista Controlled Entity, in one transaction or a series of
related transactions, that constitutes a Transfer of an Indirect Beneficial
Ownership Interest in Carrizo’s or Investor LLC’s, as applicable, interests in
the Properties that is equal to or greater than the Tag-Along Threshold or (b) a
Change of Control, direct or indirect, of Carrizo or Investor LLC, except that
any such Change of Control that
occurs as a result of a Change of Control of COGI will not constitute a Proposed
Equity Tag-Along Sale, and Investor LLC will have no right to participate in any
such Change of Control pursuant to Section 4.3(b) or otherwise.

       

      
        
          
          

        

        
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      “Proposed Property Tag-Along
Sale” has the meaning set forth in Section 4.3(a)(i).

       

      “Proposing Party” has the
meaning set forth in Section 5.2(b).

       

      “Prospect” has the meaning set
forth in the Operating Agreement.

       

      “Qualifying Equity Interests”
has the meaning set forth in Section 4.2(b).

       

      “Qualifying Equity Transfer”
has the meaning set forth in Section 4.2(b).

       

      “Selling Member” has the
meaning set forth in Section 4.2(b).

       

      “Subsequent Exclusive
Operation” has the meaning set forth in the Operating
Agreement.

       

      “Subsidiary” of a Person means
a corporation, partnership, joint venture, limited liability company or other
business entity of which a majority of the shares of securities or other
interests having ordinary voting power for the election of directors or other
governing body (other than securities or interests having such power only by
reason of the happening of a contingency) are at the time beneficially owned, or
the management of which is otherwise controlled, directly or indirectly through
one or more intermediaries, or both, by such Person.

       

      “Tag-Along Threshold” means,
with respect to Carrizo or Investor LLC, (a) 10% of such Party’s interest in the
proved reserves (based on the most recent independent reserve report) in the
Properties, (b) 10% of the aggregate acquisition cost of such Party’s net
mineral leasehold interests in the Properties or (c) 10% of such Party’s book
value in the Joint Properties.

       

      “Taxes” means all income,
profits, franchise, sales, use, ad valorem, property, severance, production,
excise, stamp, documentary, real property transfer or gain, gross receipts,
goods and services, registration, capital, transfer, or withholding taxes or
other governmental fees or charges imposed by any Governmental Authority,
including any interest, penalties, or additional amounts that may be imposed
with respect thereto.

       

      “Transaction Documents” means
this Agreement, the Operating Agreement, the Investor LLC Agreement and the
Management Services Agreement.

       

      “Transfer” means any sale,
assignment, conveyance, transfer or other disposition, voluntary or involuntary,
by operation of law (including without limitation by merger or other business
combination transaction) or otherwise; provided that unless
otherwise specified herein, a Party’s entry into a Permitted Pledge shall not
constitute a Transfer.  When used as a verb, the term “Transfer” shall
have a correlative meaning.


      “Transfer Taxes” means any
Transfer, documentary, sales, use, registration, value-added, and other similar
Taxes, including interest, fines, penalties or additional amounts which may be
imposed with respect thereto, incurred in connection with the execution,
delivery or performance of this Agreement or the transactions contemplated
hereby.

       

      
        
          
          

        

        
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      “Voting Securities” means any
securities which at present or upon conversion entitle the owner or holder
thereof to vote for the election of directors of the entity who issued such
securities or, with respect to unincorporated entities, Persons exercising
similar functions.

       

      “Work Program and Budget” has
the meaning set forth in the Operating Agreement.

       

      ARTICLE 2

       

      DEDICATIONS; EXPENSE
ALLOCATION;

      INTEREST TRANSFERS; JOINT
MARKETING

       

      2.1 Dedication of Oil and Gas
Interests.

       

      (a) The
Carrizo Parties hereby dedicate, for the joint benefit of Carrizo and Investor
LLC, (i) 100% of their interests in and to the properties described on
Exhibit 2.1(a), and all of their Oil and Gas Interests associated with such
properties (the “Initial
Carrizo Assets”), (ii) 100% of their interests in any Oil and Gas
Interests within the AMI acquired on or prior to the Effective Date that are not
the Initial Carrizo Assets, and (iii) 100% of their interests in the Oil and Gas
Interests that the parties to the Operating Agreement agree to acquire pursuant
to the Operating Agreement.  

       

      (b) Investor
LLC hereby dedicates, for the joint benefit of Investor LLC and Carrizo, (i)
100% of its interests in and to the properties described on Exhibit 2.1(b),
as well as all of its Oil and Gas Interests associated with such properties,
(ii) 100% of its interest in the Oil and Gas Interests acquired in the
Designated Area pursuant to the Land Bank Agreement following the Effective Date
and (iii) 100% of its interest in the Oil and Gas Interests that the parties to
the Operating Agreement agree to acquire pursuant to the Operating Agreement
(the “Investor
Assets”).  Prior to dedicating any Oil and Gas Interests
pursuant to Section 2.1(b)(i)-(ii), Investor LLC will not create or allow to
exist any overriding royalty interest, burdens or other obligations with respect
to such Oil and Gas Interests other than those existing at the time such Oil and
Gas Interests were acquired.

       

      (c) The
Parties acknowledge that, following the Effective Date, activities and
operations with respect to certain Oil and Gas Interests dedicated pursuant to
Sections 2.1(a) and 2.1(b) may constitute Exclusive Operations whereby Carrizo
or Investor LLC elect not to participate in such activities or operations in
accordance with the Operating Agreement.  In such case, the Parties
agree that notwithstanding Sections 2.1(a) and 2.1(b), the Oil and Gas Interests
associated with Operations relinquished by Carrizo or Investor LLC pursuant to
Exclusive Operations (i) under Article 7.4(B)(1) of the Operating Agreement or
as set forth in Section 5.2(b) shall no longer constitute Properties hereunder
and (ii) under Article 7.4(B)(2), (3) or (4) of the Operating Agreement shall
not
constitute Properties hereunder unless and until the Non-Consenting Party has
reinstated its rights pursuant to Article 7.4(C)(2) of the Operating
Agreement.

       

      2.2 Capital
Commitments

       

      
        
          
          

        

        
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      (a) Investor
LLC shall fund (i) until the Property Transfer Effective Date, 100% of all
expenditures and amounts allocated to or required to be paid by either Investor
LLC or Carrizo under the Operating Agreement, and (ii) thereafter, all
expenditures and amounts allocated to or required to be paid by Investor LLC
under the Operating Agreement, up to the Investor LLC Cap.

       

      (b) From and
after the Property Transfer Effective Date, Carrizo shall fund all expenditures
and amounts allocated to or required to be paid by it under the Operating
Agreement, up to the Carrizo Cap.

       

      (c) From and
after the satisfaction of the funding obligations provided for in Sections
2.2(a) and (b) above, Carrizo’s and Investor LLC’s funding obligations shall be
governed by the Operating Agreement.  At Carrizo’s election, the
funding of expenditures and other amounts provided for in Sections 2.2(a) and
(b) above may be accomplished by net cash calls in accordance with the Operating
Agreement.

       

      (d) Carrizo
may, in its sole discretion, elect from time to time to fund expenditures or
amounts allocated to it under the Operating Agreement prior to the Property
Transfer Effective Date in accordance with Article 1.6 of Exhibit D to the
Operating Agreement (even though such amounts are required to be funded by
Investor LLC pursuant to Section 2.2(a)(i)).  In the event that
Carrizo so elects, Investor LLC shall promptly reimburse Carrizo for any such
amounts and, upon Carrizo’s receipt of such reimbursements, such amounts will
not be aggregated in respect of the Carrizo Cap but shall instead be aggregated
in respect of the Investor LLC Cap.

       

      (e) Notwithstanding
anything to the contrary herein or in the Operating Agreement, if either Party
fails to make any capital commitments as required by Section 2.2(a)(i) or
Section 2.2(b), as applicable, and such failure is not cured within ten (10)
Business Days of notice provided by the non-defaulting Party, at the option of
the non-defaulting Party the provisions in Article 20.3 of the Operating
Agreement (regarding the AMI) shall terminate and be of no further effect as
between Carrizo and Investor LLC.

       

      2.3 Transfer of Properties
Between the Parties.

       

      (a) Until the
termination of the Catch-Up Period, record title to the Oil and Gas Interests
dedicated pursuant to Sections 2.1(a) and 2.1(b) shall not be Transferred
between Carrizo and Investor LLC, and the Carrizo Parties or Investor LLC, as
the case may be, will hold record title to the Oil and Gas Interests dedicated
by such Party pursuant to Section 2.1 notwithstanding Carrizo’s or Investor
LLC’s beneficial ownership interest in such Oil and Gas Interests as set forth
below.

       

      (b) The
Carrizo Parties and Investor LLC agree and acknowledge that, during the Catch-Up
Period, Carrizo shall own and hold an undivided beneficial ownership
interest
in the Properties, as it may be adjusted from time to time, in the same
proportion that the Carrizo Investments bear to the sum of the Avista
Investments and the Carrizo Investments, and Investor LLC shall own and hold an
undivided beneficial ownership interest in the Properties, as it may be adjusted
from time to time, in the same proportion 

       

      
        
          
          

        

        
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      that the
Avista Investments bear to the sum of the Avista Investments and the Carrizo
Investments.  The Carrizo Parties and Investor LLC further agree and
acknowledge that, upon the making of any investment pursuant to the terms hereof
during the Catch-Up Period, undivided beneficial ownership interests in the
Properties necessary to adjust Carrizo’s and Investor LLC’s beneficial ownership
interests in accordance with the preceding sentence shall be simultaneously
assigned, transferred and conveyed from Carrizo to Investor LLC or from Investor
LLC to Carrizo, as the case may be, automatically and without further act or
deed of any such Party.

       

      (c) Effective
as of the date that the Catch-Up Period terminates (the “Property Transfer Effective
Date”), (i) Carrizo, or in the case Carrizo does not hold record title,
the Carrizo Parties, shall assign to Investor LLC, and Investor LLC shall accept
from Carrizo or the Carrizo Parties (as the case may be), record title to an
undivided 50% interest in the Carrizo Parties’ Oil and Gas Interests dedicated
pursuant to Section 2.1(a); and (ii) Investor LLC shall assign to
Carrizo, and Carrizo shall accept from Investor LLC, record title to an
undivided 50% interest in Investor LLC’s Oil and Gas Interests dedicated
pursuant to Section 2.1(b).  As soon as reasonably practicable
following the Property Transfer Effective Date, the Carrizo Parties and Investor
LLC shall execute and deliver, in recordable form reasonably acceptable to such
Parties, conveyances to effect the cross-assignments described in this
paragraph.  To the extent the Transfer of any Oil and Gas Interest is
subject to a third Person consent or preferential purchase right triggered by
the Transfers contemplated hereunder, and consent or waiver is not received,
such Party holding record title shall hold the Property for the benefit of such
other Party, and the intended Party shall pay all amounts due and be responsible
for the performance of all obligations as if record title and beneficial
ownership had been held by the intended Party, until such consent is obtained or
preferential purchase right waived.

       

      2.4 Joint
Marketing.  Notwithstanding
anything to the contrary in Article 9 of the Operating Agreement, until the
provisions of Section 3.1(a) and 3.1(b) are no longer applicable, Carrizo, in
its capacity as Operator under the Operating Agreement, shall use commercially
reasonable efforts, and Investor LLC hereby irrevocably designates Carrizo as
agent for such purpose, to market on behalf of Investor LLC all of Investor
LLC’s Entitlement to Hydrocarbons from the Properties, together with Carrizo’s
Entitlement to Hydrocarbons from the Properties, as a single
stream.  Investor LLC shall not market and shall cause its Affiliates
not to market any of its Entitlement without the prior written consent of
Carrizo.  Investor LLC acknowledges and agrees that Carrizo does not
warrant or guarantee any market or price that it will be able to procure for the
Parties’ collective Entitlement.

       

      ARTICLE 3

      ALLOCATIONS
OF NET CASH FLOW FROM PRODUCTION

      AND
PROPERTY SALE PROCEEDS

       

      
        3.1 Allocation of Net Cash Flow From
Production.  Within
twenty (20) days following the end of each calendar month, Net Cash Flow From
Production shall be allocated between Investor LLC and Carrizo as
follows:

      

       

      
        
          
          

        

        
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        (a) the
Investor Equalization Share thereof to Investor LLC, and the Carrizo
Equalization Share thereof to Carrizo, until the Avista Allocation Threshold is
reached;

         
(b) thereafter,
100% to Carrizo, until the Carrizo Allocation Threshold is reached;
and

       

      (c) thereafter,
with respect to each Operation from which such Net Cash Flow From Production
arises, in accordance with their respective Participation Interests in that
Operation.

       

      
        3.2 Allocation of Proceeds from
Property Dispositions.  Except
as provided in Section 3.3, proceeds received in the preceding calendar
month from the Transfer of any Oil and Gas Interest in the Properties shall be
allocated at the same time as allocations are being made pursuant to
Section 3.1, except that proceeds from a single Property Transfer in excess
of One Million Dollars ($1,000,000) shall be allocated promptly after receipt
thereof, in either case, between Investor LLC and Carrizo as
follows:

         

        (a) the
Investor Equalization Share thereof to Investor LLC and the Carrizo Equalization
Share thereof to Carrizo, until the Avista Allocation Threshold is
reached;

         

        (b) thereafter,
100% to Carrizo, until the Carrizo Allocation Threshold is reached;
and

         

        (c) thereafter,
in accordance with the Parties’ respective Participation Interests in the Oil
and Gas Interests disposed of.

         

        3.3 Special Allocation of
Proceeds from Certain Property Dispositions.  Proceeds
from any Transfer of Oil and Gas Interests in the Properties (i) by Carrizo to a
wholly owned Subsidiary of COGI, (ii) by Avista to an Avista Controlled Entity
in accordance with Section 4.1(b), (iii) attributable to Operations relinquished
by Carrizo or Investor LLC pursuant to Exclusive Operations under Article
7.4(B)(1) of the Operating Agreement or as set forth in Section 5.2(b) or (iv)
effected pursuant to Sections 4.2(a), 4.3(a)(v) or 4.3(b), shall not be
subject to Section 3.2 and shall be allocated 100% to the Transferring
Party.  Proceeds from any Transfer of Oil and Gas Interests in
Properties pursuant to which Exclusive Operations were conducted by a Party in
which the other Party did not participate pursuant to Article 7.4(B)(2), (3) or
(4) of the Operating Agreement shall be allocated 100% to the Party
participating in such Exclusive Operations to the extent required to terminate
the relinquishment of the Non-Consenting Party’s rights in the affected Property
or Properties pursuant to Article 7.4(C)(2) of the Operating Agreement and
shall not be subject to Section 3.2; provided, if such allocation
results in termination of such relinquishment, any remaining proceeds shall be
allocated to the Parties as otherwise contemplated by Section 3.2,

         

        3.4 Coordination With Operating
Agreement.  Nothing
in this Article 3 shall change or affect any Party’s obligation to pay its
proportionate share of all costs and liabilities incurred in Operations on or in
connection with the Properties, as its share thereof is set forth in the
Operating Agreement, remaining subject, however, to modifications under
Section 2.2.

         

        
          
            
            

          

          
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        ARTICLE 4

        TRANSFER OF OIL AND GAS
INTERESTS IN PROPERTIES

         

        4.1 Prohibition
on Certain Transfers.

         

        (a) During
the Catch-Up Period, Carrizo may not Transfer any of its interest in the
Properties dedicated pursuant to Section 2.1 to any Person without the
prior written consent of Investor LLC, except to any wholly owned Subsidiary of
COGI or any Permitted Pledge Transfer.  Following the Catch-Up Period,
Transfers by Carrizo shall be subject to Sections 4.2(a) and 4.3(a), except for
Transfers to any wholly owned Subsidiary of COGI or in the case of a Permitted
Pledge Transfer.  Transfers of limited liability company interests in
Carrizo and other transactions that constitute a Proposed Equity Tag-Along Sale
shall be subject to Section 4.2(b) or Section 4.3(b), as
applicable.

         

        (b) During
the Catch-Up Period, Investor LLC may not Transfer any of its interest in the
Properties dedicated pursuant to Section 2.1 to any Person without the
prior written consent of the Carrizo Parties, except in the case of a Permitted
Pledge Transfer.  Without the prior written consent of the Carrizo
Parties (which may not be unreasonably withheld), Investor LLC may not Transfer
any of its interest in the Properties to any Avista Controlled
Entity.  Following the Catch-Up Period, Transfers by Investor LLC
shall be subject to Sections 4.2(a) and 4.3(a), except for Transfers to any
Avista Controlled Entity with the prior written consent of the Carrizo Parties
(which may not be unreasonably withheld) or any Permitted Pledge
Transfer.  Transfers of limited liability company interests in
Investor LLC and other transactions that constitute a Proposed Equity Tag-Along
Sale shall be subject to Section 4.2(b) or Section 4.3(b), as
applicable.

         

        (c) Prior
to the Property Transfer Effective Date, any encumbrance or security interest
created by the Carrizo Parties or Investor LLC in the Properties (including any
Permitted Pledge) shall provide that the lienholder’s rights are expressly
subordinated to the beneficial interest of the Carrizo Parties or Investor LLC,
as the case may be, in the Properties as set forth in Section
2.3(b).  Promptly following receipt, the Carrizo Parties shall provide
Investor LLC a copy of any notification of default under any agreement governing
any material funded debt of Carrizo or any of its Affiliates that are
“Restricted Subsidiaries” (as such term may be defined in COGI's senior secured
revolving credit facility or other similar commercial financing agreement), the
result of which default is to cause, or permit the holder or holders thereof to
cause, such debt to be accelerated.  Following Carrizo’s default under
the terms of any Permitted Pledge of Carrizo’s interest in the Properties but
prior to the secured party’s exercise of remedies with respect to such interest,
Carrizo agrees to designate Investor LLC (or its designee) as “co-operator”
under the Operating Agreement for any Operations with respect to such
Properties.

         

        (d) Notwithstanding
any provision of this Agreement to the contrary, any Transfer of a Party’s
interest in the Properties (including, for purposes of this Section 4.1(d) only,
a Party’s entry into a Permitted Pledge) is subject to the restrictions on
Transfer in the event of such Party’s default set forth in Article 8.2(A)(5) of
the Operating Agreement.

         

        
          
            
            

          

          
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      4.2 Transfers Below the
Tag-Along Threshold.

       

      (a) Following
termination of the Catch-Up Period, Carrizo and Investor LLC may Transfer their
respective interests in the Properties (in a single transaction or series of
related transactions) constituting less than the Tag-Along Threshold, subject to
applicable preferential purchase rights and other Transfer restrictions set
forth in the Operating Agreement; provided that the Parties
hereby agree that any exclusion in the Operating Agreement from such
preferential purchase rights and other Transfer restrictions with respect to
Affiliate transactions shall not apply to Transfers by Carrizo to any Affiliate
other than a wholly owned Subsidiary of COGI or by Investor LLC to any of its
Affiliates.

       

      (b) In
connection with any Transfer of limited liability company interests in Carrizo
or Investor LLC (in such capacity, the “Equity ROFR Initiator”) that
does not constitute a Proposed Equity Tag-Along Sale (except Transfers to, in
the case of Carrizo, any wholly owned Subsidiary of COGI, or in the case of
Investor LLC, any Avista Controlled Entity), in one transaction or a series of
related transactions (a “Qualifying Equity Transfer”),
the other Party shall be entitled to exercise a right of first refusal (the
“Equity Purchase
Rights”) to purchase the limited liability company interests that are
subject to the Qualifying Equity Transfer (the “Qualifying Equity Interests”)
in accordance with this Section 4.2(b).  Once the final terms and
conditions of a Qualifying Equity Transfer have been fully negotiated, the
Person that proposes to Transfer (the “Selling Member”) the
Qualifying Equity Interests shall disclose all the final terms and conditions as
are relevant to the Equity ROFR Initiator, and the Equity ROFR Initiator shall
forward such notice to the Party that has the Equity Purchase Rights hereunder
(Carrizo or Investor LLC, as applicable), which notice shall be accompanied by a
copy of all instruments or relevant portions of instruments establishing such
terms and conditions.  The Party having the Equity Purchase Rights
shall have the right to acquire the Qualifying Equity Interests from the Selling
Member on the same final terms and conditions as such Selling Member negotiated
with the proposed transferee if, within thirty (30) days of the Selling Member’s
notice, such Party delivers to the Equity ROFR Initiator a counter-notification
that it accepts such terms and conditions without reservations or
conditions.  If Carrizo or Investor LLC, as applicable, does not
deliver such counter-notification, the Selling Member may complete the Transfer
of the Qualifying Equity Interests to the proposed transferee under terms and
conditions no more favorable to the Selling Member than those set forth in the
notice to the Parties, provided that such Transfer
is concluded within one hundred eighty (180) days from the date of the
notice.


      
        4.3 Other
Transfers.  Preferential
purchase rights and other Transfer restrictions set forth in the Operating
Agreement and otherwise applicable shall not apply to any Transfer (including
indirect Transfers described under Section 4.3(b)) of a Party’s direct or
indirect interests in the Properties to any Person (in a single transaction or
series of related transactions), if such Oil and Gas Interests equal or exceed
the Tag-Along Threshold; provided that any such
Transfer not otherwise excepted in this Article IV shall be subject to the
restrictions set forth in this Section 4.3:

         

        
          
            
            

          

          
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      (a) Tag-Along Rights in Sales of
the Properties.

       

      (i) If
Carrizo or Investor LLC (such Party, the “Property Tag-Along Initiator”)
desires to Transfer all or a part of its interests in the Properties to, in the
case of Carrizo, a Person that is not a wholly owned Subsidiary of COGI, or in
the case of Investor LLC, any Person, in a single transaction or series of
related transactions, equal to or greater than the Tag-Along Threshold (a “Proposed Property Tag-Along
Sale”),  then the other Party shall be entitled to exercise
tag-along rights to participate in such Proposed Property Tag-Along Sale (in
accordance with this Section 4.3(a)) at the same price and on the same
terms and conditions as those offered to the Property Tag-Along Initiator
(“Property Tag-Along
Rights”).

       

      (ii) No later
than ten (10) Business Days following the Property Tag-Along Initiator’s receipt
of an offer constituting a Proposed Property Tag-Along Sale, the Property
Tag-Along Initiator shall deliver a written notice (a “Property Tag-Along Notice”) to
the other Party stating that it desires to effect a Proposed Property Tag-Along
Sale, which notice shall set forth (A) the identity of the Person (the
“Property Offeror”) that
desires to acquire the Property Tag-Along Initiator’s interest in the
Properties, (B) a summary in reasonable detail of the representations,
warranties, covenants, conditions and indemnification proposed by the Offeror,
(C) the Property Tag-Along Initiator’s interest in the Properties (the
“Offered Property
Interest”) that the Property Offeror proposes to acquire (expressed as a
percentage of all of the Property Tag-Along Initiator’s interest of such type in
the Properties), (D) the proposed total purchase price for the Offered
Property Interest and (E) any other material terms governing the
offer.

       

      (iii) Within
twenty (20) Business Days of its receipt of a Property Tag-Along Notice, Carrizo
or Investor LLC, as applicable, shall have the right, but not the obligation, to
elect, by written notice to the Property Tag-Along Initiator, to include a
portion of its interest in the Properties constituting the same type of interest
as the Offered Interest in the Proposed Property Tag-Along Sale (expressed as a
percentage of all of such Party’s interest of such type in the Properties) that
is equal to the product of (x) its Participation Interest in the Properties and
(y) the Offered Property Interest (the “Property Tag-Along
Interest”).  Such Party’s failure to give unconditional written
notice of such election within such period shall be deemed an election by such
Party not to exercise its Property Tag-Along Rights.


      (iv) If
Carrizo or Investor LLC, as applicable, exercises its Property Tag-Along Rights,
then both Parties shall participate in the Proposed Property Tag-Along Sale, and
the Offered Property Interest shall be reduced to the extent of the Property
Tag-Along Interest.

       

      (v) If
Carrizo or Investor LLC, as applicable, does not elect to exercise its Property
Tag-Along Rights, then the Property Tag-Along Initiator may, for a period of
sixty (60) days from the date of the Property Tag-Along Notice, 

       

      
        
          
          

        

        
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      consummate
the Proposed Property Tag-Along Sale upon terms and conditions that are no more
favorable to the Property Tag-Along Initiator than those set forth in the
Property Tag-Along Notice.  Immediately after the closing of the
Proposed Property Tag-Along Sale, the Property Tag-Along Initiator shall provide
the other Party true and complete copies of all agreements relating to such
Transfer.

       

      (vi) In the
event that the Property Offeror fails to purchase the Property Tag-Along
Interest for which Property Tag-Along Rights have been properly exercised from
Carrizo or Investor LLC, as applicable, in accordance with Section 4.3(a)(iv)
and the Property Tag-Along Initiator consummates the Proposed Property Tag-Along
Sale in violation of this Section 4.3(a), then the Property Tag-Along Initiator
shall be required to purchase the other Party’s Property Tag-Along Interest in
the Properties in accordance with the provisions of Section
4.3(a)(iv).

       

      (b) Sales of Membership
Interests in Carrizo or Investor LLC.  In addition to the
Property Tag-Along Rights of Carrizo and Investor LLC described in
Section 4.3(a), the limited liability company agreements of Carrizo and
Investor LLC shall prohibit Transfers of limited liability company interests in
such Party and other transactions that constitute a Proposed Equity Tag-Along
Sale, except in accordance with Section 4.2(b) and this
Section 4.3(b).

       

      (i) In
connection with any Proposed Equity Tag-Along Sale with respect to Carrizo or
Investor LLC (in such capacity, the “Equity Tag-Along Initiator”),
the other Party shall be entitled to exercise tag-along rights to sell to the
proposing acquiror (the “Equity
Offeror”) the Equity Tag-Along Interest of its interest in the Properties
(the “Equity Tag-Along
Rights”) as determined by Section 4.3(b)(iii).

       

      (ii) No later
than ten (10) Business Days following the Equity Tag-Along Initiator’s receipt
of a notice from one of its members of (x) such member’s intent to Transfer an
amount of limited liability company interests in the Equity Tag-Along Initiator
constituting a Proposed Equity Tag-Along Sale or (y) any other transaction that
may, if consummated, constitute a Proposed Equity Tag-Along Sale, the Equity
Tag-Along Initiator shall deliver a written notice (an “Equity Tag-Along Notice”) to
Carrizo or Investor LLC, as applicable, stating that a member of the Equity
Tag-Along Initiator or one of its Affiliates desires to effect a Proposed Equity
Tag-Along Sale, which notice shall set forth (A) the identity of the Equity
Offeror, (B) a summary in reasonable detail of the representations, warranties,
covenants, conditions and indemnification proposed by the
Equity Offeror, (C) the amount of such member’s limited liability company
interests in the Equity Tag-Along Initiator (the “Offered Equity Interest”) that
the Equity Offeror is willing to acquire, directly or indirectly (expressed as a
percentage of all outstanding limited liability company interests in the Equity
Tag-Along Initiator), (D) the proposed total purchase price for the Offered
Equity Interest and (E) any other material terms governing the
offer.

       

      
        
          
          

        

        
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      (iii) Within
twenty (20) Business Days of its receipt of an Equity Tag-Along Notice, Carrizo
or Investor LLC, as applicable, shall have the right, but not the obligation, to
elect, by written notice to the Equity Tag-Along Initiator, to require that the
Equity Offeror acquire such Party’s Equity Tag-Along Interest in the Properties
concurrently with its consummation of the Proposed Equity Tag-Along Sale; provided that in the case of
a direct or indirect Change of Control of the Equity Tag-Along Initiator
constituting a Proposed Equity Tag-Along Sale under clause (b) of the definition
of Proposed Equity Tag-Along Sale, such Party’s Equity Tag-Along Interest shall
equal all of its right, title and interest in the Properties.  Such
Party’s failure to give unconditional written notice of such election within
such period shall be deemed an election by such Party not to exercise its Equity
Tag-Along Rights.

       

      (iv) If
Carrizo or Investor LLC, as applicable, exercises its Equity Tag-Along Rights,
then the Equity Offeror shall be required, as a condition to its acquisition of
the Offered Equity Interest, to purchase such Party’s Equity Tag-Along Interest
in the Properties for the market value (expressed in U.S. dollars) of such
interest, based upon the amount in cash a willing buyer would pay a willing
seller in an arm’s length transaction.

       

      (v) If
Carrizo or Investor LLC, as applicable, does not elect to exercise its Equity
Tag-Along Rights, then the Equity Offeror may, for a period of sixty (60) days
from the date of the Equity Tag-Along Notice, consummate the Proposed Equity
Tag-Along Sale upon terms and conditions that are no more favorable to the
member of the Equity Tag-Along Initiator selling the Offered Equity Interest
than those set forth in the Equity Tag-Along Notice.  Immediately
after the closing of the Proposed Equity Tag-Along Sale, the Equity Tag-Along
Initiator shall provide Carrizo or Investor LLC, as applicable, true and
complete copies of all agreements relating to such Transfer.

       

      (vi) In the
event that the Equity Offeror fails to purchase the Equity Tag-Along Interest in
the Properties from Carrizo or Investor LLC, as applicable, in accordance with
Section 4.3(b)(iv) and the Equity Offeror consummates the Proposed Equity
Tag-Along Sale in violation of this Section 4.3(b), then the Equity
Tag-Along Initiator shall be required to purchase the other Party’s Equity
Tag-Along Interest in the Properties in accordance with the provisions of
Section 4.3(b)(iv).

       

      (c) Certain Transfers of
Membership Interests and Investor LLC’s Interest in the
Properties.  The Parties agree that (a) at the time of the
Transfer of all Membership Interests in Investor LLC to an unAffiliated third
Person, or (b) the sale of all or substantially
all of the assets of Investor LLC to an unAffiliated third Person, Investor LLC
may, by written notice delivered no later than simultaneously with the notice
required under Section 4.3(a)(ii) or 4.3(b)(ii), as applicable, require, as
a condition to any such Transfer and in accordance with Article 4.9(B) of the
Operating Agreement, that the Parties jointly operate the Properties by either
(x) entering into a mutually acceptable new joint operating agreement or
series of joint operating agreements on a well by well or 

       

      
        
          
          

        

        
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      Prospect
area by Prospect area basis, each of which will be based upon the AAPL model
form attached hereto as Exhibit 4.3(c) naming Investor LLC as “co-operator”
or (y) Carrizo designating Investor LLC (or its designee) as “co-operator”
under the Operating Agreement.  The division of rights, duties and
responsibilities of the Parties as “co-operator” shall be negotiated in good
faith with the goal of developing a mutually satisfactory and workable mechanism
by which the Parties shall jointly operate the Properties.  If the
Parties are unable to reach mutual agreement on alternative (x) or (y) above,
the Parties shall work together in good faith to develop an alternative
solution.

       

      ARTICLE 5

      OPERATING AGREEMENT AND
CERTAIN RESTRICTIONS

       

      5.1 Operations Subject to Laws,
Contract and Operating Agreement.  The
activities of Carrizo and Investor LLC with respect to the Designated Area shall
be conducted subject to applicable Laws and the terms of this Agreement and the
Operating Agreement.

       

      5.2 Operating
Agreement.  Investor
LLC and Carrizo are parties to the Operating Agreement, which governs the Joint
Operations with respect to the exploration and development of the
Properties.  Notwithstanding any provision of the Operating Agreement
to the contrary, Investor LLC and Carrizo agree as follows:

       

      (a) The AMI
shall not be reduced to the Prospect areas in accordance with Article 20.3(A) of
the Operating Agreement until the first to occur of:  (i)
December 31, 2010; (ii) the Minimum Commitment Date; (iii) Carrizo
designates Investor LLC (or its designee) as “co-operator” of the Properties
pursuant to Section 4.1(c); and (iv) a request by Investor LLC that it (or its
designee) be designated as “co-operator” of the Properties pursuant to Section
4.3(c) (such date, the “JOA
Trigger Date”).

       

      (b) Until the
Minimum Commitment Date, if either Carrizo or Investor LLC is a Non-Consenting
Party in a Subsequent Exclusive Operation proposed by the other Party pursuant
to Article 7.4(B)(2) of the Operating Agreement (the “Proposing Party”), then the
consequence for such Non-Consenting Party’s election not to participate in such
Subsequent Exclusive Operation shall not be as set forth in Article 7.4(C)(2)(a)
of the Operating Agreement, but shall consist of the following:  (i)
the Proposing Party shall designate a Drilling Unit consisting of 320 acres
around the proposed location of the wellbore as part of the proposal to conduct
such Subsequent Exclusive Operation, and (ii) the Non-Consenting Party shall
permanently sell, transfer and convey to the Proposing Party all of such
Non-Consenting Party’s Participation Interest within such Drilling Unit at a
price equal to the aggregate acquisition cost actually paid by the
Non-Consenting Party for its Participation Interest in the Drilling Unit, plus
the aggregate amount of all direct costs actually paid by the Non-Consenting
Party under the Operating Agreement attributable to the Drilling Unit after the
acquisition thereof.  Any Transfer under this Section
5.2(b) will be subject to the preemptive rights, excluding rights otherwise
entitled to the Non-Consenting Party, set forth in Article 12.2(G) of the
Operating Agreement.

       

      (c) Attached
hereto as Exhibit 5.2(c) is a proposed budget for the period from October 1,
2008 through December 31, 2009 (the “Proposed
Forecast”).  Until the 

       

      
        
          
          

        

        
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      Minimum
Commitment Date, Carrizo shall not propose any Work Program and
Budget  pursuant to Article 6.1(B) of the Operating Agreement that
(when added to expenditures proposed under any prior Work Program and Budget)
would include expenditures for:

       

      (i) the
“G&G” and “drilling and completion” categories that would exceed the total
amount shown for each such category for each Prospect area identified in the
Proposed Forecast by more than 15% for the period covered by the Proposed
Forecast; and

       

      (ii) land
acquisitions for the Joint Account that, in the aggregate, exceed the total
shown for the “land” category for each Prospect area identified in the Proposed
Forecast at price ranges (on a per acre basis) agreed to by the Operating
Committee for the period covered by the Proposed Forecast.

       

      (d) Until the
Minimum Commitment Date, Carrizo agrees that the aggregate expenditures under
each six-month Work Program and Budget it proposes pursuant to Article 6.1(B) of
the Operating Agreement, commencing with the Work Program and Budget it proposes
for the six-month period that begins October 1, 2009, will not exceed 115% of
the aggregate expenditures under the six-month Work Program and Budget proposed
by it for the calendar quarter immediately preceding each such proposed Work
Program and Budget.

       

      (e) Until the
Minimum Commitment Date, with respect to each Prospect for which any drilling
Operations are proposed in a Work Program and Budget, the Operating Committee
will vote on a well-by-well basis with respect thereto.  Until the
Minimum Commitment Date, Investor LLC shall cause each of its representatives on
the Operating Committee to vote in favor of any Exploration Well and associated
items as proposed by Carrizo in the Work Program and Budget.

       

      (f) Until
Investor LLC (or its designee) is designated as “co-operator” of the Properties
pursuant to Section 4.1(c) or 4.3(c), any amounts payable to the Operator by
Investor LLC in respect of proposals approved by Investor LLC under Article 5.12
of the Operating Agreement (Voting by Notice) that are in excess of the amounts
that would otherwise be payable by Investor LLC as contemplated by the Work
Program and Budget in effect at such time shall be due by the later of (i)
fifteen (15) Business Days from Investor LLC’s approval and (ii) the first
Business Day of the Calendar Quarter immediately following such approval
notwithstanding any other time limit set forth in Article 1.6 of Exhibit D to
the Operating Agreement (Payments and Advances).

       

      (g) The
minimum percent of Participating Interest necessary to approve decisions of the
Operating Committee shall not be modified as provided in Article 5.9(B) under
the Operating Agreement until the JOA Trigger Date.


      (h) In
the event of a conflict between the provisions of this Agreement and the
provisions of the Operating Agreement, the provisions of this Agreement shall
prevail.

       

      5.3 Restrictions on Avista’s
Investments in the AMI.  Without
the prior written consent of COGI, which may not be unreasonably withheld,
Avista shall not (and shall 

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

      cause its
controlled Affiliates not to), directly or indirectly, make any controlling
investment in any third Person engaged or that engages in the exploration,
exploitation or development of Hydrocarbons within the AMI, except as provided
in this Agreement and except for such activities that are de minimis or incidental
to activities in the AMI other than exploration, exploitation or development of
Hydrocarbons.

       

      5.4 Termination of Land Bank
Agreement.  Carrizo
and Investor LLC hereby agree that the Land Bank Agreement is terminated as of
the Execution Date.

       

      ARTICLE 6

      INFORMATION
RIGHTS

       

      Within
forty-five (45) days following each calendar quarter after the Execution Date,
Carrizo shall provide Investor LLC with a written report discussing the results
of Joint Operations with respect to the Properties that is in substantial
compliance with the substantive requirements of Item 303 under Regulation S-K
(17 CFR Part 229.310) (but reduced to take into account the matters for which
such report will be used).  The Avista Parties shall provide COGI with
such information concerning the Avista Parties as COGI may reasonably request in
order to timely comply with COGI’s reporting obligations under the Securities
Exchange Act of 1934, as amended, or COGI’s disclosure obligations with respect
to any registration statement it files under the Securities Act of 1933, as
amended.

       

      ARTICLE 7

      REPRESENTATIONS

       

      7.1 Representations and
Warranties of the Carrizo Parties.  The
Carrizo Parties hereby represent and warrant to the Avista Parties as of the
Execution Date that:

       

      (a) Ownership of
Carrizo.  COGI owns, directly or indirectly, all of the issued
and outstanding securities of Carrizo.

       

      (b) Organization and Good
Standing.  Each of the Carrizo Parties is an entity duly
incorporated or otherwise organized, validly existing and in good standing under
the Laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither of the Carrizo Parties is in violation of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational, charter or equivalent documents. Each of the Carrizo Parties is
duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case may
be, would not reasonably be expected to have a
material and adverse affect on the ability of such Carrizo Party to perform its
obligations under this Agreement.

       

      (c) Authorization of
Agreement.  Each of the Carrizo Parties has the requisite power
and authority to enter into and to consummate the transactions contemplated by
this Agreement and otherwise to carry out its obligations hereunder. The
execution and 

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      delivery
of this Agreement by each of the Carrizo Parties and the consummation by such
Carrizo Party of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of such Carrizo Party and no further action
is required by such Carrizo Party, its board of directors or other governing
body or shareholders, members or partners in connection
herewith.  This Agreement has been duly executed by each Carrizo Party
and, when executed and delivered by the Avista Parties in accordance with the
terms hereof, will constitute the valid and binding obligation of such Carrizo
Party, enforceable against such Carrizo Party in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other Laws of general application affecting enforcement of
creditors’ rights generally and (ii) as limited by Laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.  COGI has delivered to Avista a certified copy of
resolutions of COGI’s Board of Directors approving the transactions contemplated
by this Agreement and authorizing COGI to fund Carrizo to meet its commitments
hereunder.

       

      (d) No
Violation.  The execution, delivery and performance of this
Agreement by the Carrizo Parties and the consummation by the Carrizo Parties of
the transactions contemplated hereby do not (i) conflict with or violate any
provision of either of the Carrizo Parties’ certificate or articles of
incorporation, bylaws or other organizational, charter or equivalent documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
instrument (evidencing a Carrizo Party’s debt or otherwise) or other
understanding to which either of the Carrizo Parties is a party or by which any
property or asset of either Carrizo Party is bound or affected, or (iii) subject
to any approvals which are expressly required under the terms of any applicable
Law, in order to consummate the transactions contemplated by this Agreement,
result in a violation of any Law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or Governmental Authority to which
either Carrizo Party is subject; except in the case of each of clauses (ii) and
(iii), such as would not, individually or in the aggregate, reasonably be
expected to have a material and adverse affect on the ability of either Carrizo
Party to perform its obligations under this Agreement.

       

      (e) Brokers.  No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Carrizo
Parties.

       

      (f) All AMI Oil and Gas
Interests.  The Oil and Gas Interests described in Exhibit
2.1(a) comprise all of the Carrizo Parties’ Oil and Gas Interests within the AMI
through July 31, 2008.

       

      7.2 Representations and
Warranties of the Avista Parties.  The
Avista Parties represent and warrant to the Carrizo Parties as of the date of
the Execution Date that:

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      (a) Ownership of Investor
LLC.  Avista owns, directly or indirectly, all of the issued
and outstanding securities of ACP II; Avista Offshore owns, directly or
indirectly, all of the issued and outstanding securities of ACP II
Offshore; and except for the Profit Interest, ACP II and ACP II Offshore own all
of the issued and outstanding securities of Investor LLC.  Avista GP
is the sole general partner of and controls each of Avista and Avista
Offshore.

       

      (b) Organization and Good
Standing.  Each of the Avista Parties is an entity duly
incorporated or otherwise organized, validly existing and in good standing under
the Laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither of the Avista Parties is in violation of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational, charter or equivalent documents. Each of the Avista Parties is
duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case may
be, would not reasonably be expected to have a material and adverse affect on
the ability of such Avista Party to perform its obligations under this
Agreement.

       

      (c) Authorization of
Agreement.  Each of the Avista Parties has the requisite power
and authority to enter into and to consummate the transactions contemplated by
this Agreement and otherwise to carry out its obligations hereunder. The
execution and delivery of this Agreement by each of the Avista Parties and the
consummation by such Avista Party of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of such Avista Party
and no further action is required by such Avista Party, its board of directors
or other governing body or shareholders, members or partners in connection
herewith.  This Agreement has been duly executed by each Avista Party
and, when executed and delivered by the Carrizo Parties in accordance with the
terms hereof, will constitute the valid and binding obligation of such Avista
Party, enforceable against such Avista Party in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other Laws of general application affecting enforcement of
creditors’ rights generally and (ii) as limited by Laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. The Avista Parties have delivered to COGI a certified copy of minutes
from a meeting of the Investment Committee of Avista and Avista Offshore,
approving the transactions contemplated by this Agreement and authorizing Avista
and Avista Offshore to fund Investor LLC to meet its commitments
hereunder.

       

      (d) No
Violation.  The execution, delivery and performance of this
Agreement by the Avista Parties and the consummation by the Avista Parties of
the transactions contemplated hereby do not (i) conflict with or violate any
provision of either of the Avista Parties’ certificate or articles of
incorporation, bylaws or other organizational, charter or equivalent documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or
without

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

       

      notice,
lapse of time or both) of, any agreement, credit facility, debt or instrument
(evidencing a Avista Party’s debt or otherwise) or other understanding to which
either of the Avista Parties is a party or by which any property or asset of
either Avista Party is bound or affected, or (iii) subject to any approvals
which are expressly required under the terms of any applicable Law, in order to
consummate the transactions contemplated by this Agreement, result in a
violation of any Law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or Governmental Authority to which either Avista
Party is subject; except in the case of each of clauses (ii) and (iii), such as
would not, individually or in the aggregate, reasonably be expected to have a
material and adverse affect on the ability of either Avista Party to perform its
obligations under this Agreement.

       

      (e) Brokers.  No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Avista
Parties.

       

      (f) All AMI Oil and Gas
Interests.  The Oil and Gas Interests described in Exhibit
2.1(b) comprise all of Investor LLC’s Oil and Gas Interests within the AMI as of
the Execution Date.

       

      7.3 Disclaimer of Other
Representations.  Except for
the representations and warranties set forth in Sections 7.1 and
7.2 hereof or
representations and warranties expressly set forth in any of the other
Transaction Documents, the Carrizo Parties and the Avista Parties make no, and
disclaim any, warranty or representation of any kind, either express, implied,
statutory, or otherwise, including any representation or warranty as to
(a) title, (b) merchantability of all or any part of the Properties
dedicated or Transferred hereunder, (c) fitness for all or any part of the
Properties for any particular purpose, or (d) conformity of all or any part
of the Properties dedicated or Transferred hereunder to models or samples of
materials.  Except as set forth in Sections 7.1 and
7.2, the
Carrizo Parties and the Avista Parties make no warranty or representation,
express, implied, statutory, or otherwise, as to the accuracy or completeness of
any data, reports, records, projections, information, or materials now,
heretofore, or hereafter furnished or made available to the other Parties in
connection with the Properties dedicated or transferred hereunder, including any
description of the Properties dedicated or transferred hereunder, pricing
assumptions, or quality or quantity of Hydrocarbon reserves (if any)
attributable to the Properties dedicated or Transferred hereunder, or the
ability or potential of the properties dedicated or Transferred hereunder to
produce Hydrocarbons.

       

      ARTICLE
8

      RELATIONSHIP
OF THE PARTIES

       

      8.1 Independent
Co-Owners.  Except
as provided in Exhibit 8.1, it is not the intention of the Parties to create,
nor shall this Agreement be construed as creating a relationship 

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

       

      of
partnership, association, principal and agent, joint venture or a mining or
other association, or otherwise render the Parties liable as
partners.  The liability of the Parties hereto shall be several and
not joint or collective.

       

      8.2 Right of
Competition.  Except
as expressly set forth in Sections 5.3 and the Operating Agreement, nothing
in this Agreement shall preclude any Party, or its Affiliates, from engaging in
any business or purchasing any property of any sort whatsoever, whether or not
in competition with Operations under this Agreement, without consulting the
other Party or inviting or allowing the other Party to participate therein, and
the doctrine of corporate opportunity, or any analogous doctrine, shall not
apply.  Except as expressly set forth in the Transaction Documents, no
Carrizo Party shall have any duty, including any fiduciary duty, to any Avista
Party, and vice versa.

       

      ARTICLE 9

      GOVERNING LAW;
DISPUTE

      RESOLUTION AND LIMITATION OF
LIABILITY

       

      9.1 Governing
Law.  This
Agreement and the legal relations between the Parties shall be governed by and
construed in accordance with the Laws of the State of Texas, USA without regard
to principles of conflicts of Laws.

       

      9.2 Dispute
Resolution.

       

      (a) Any
dispute, controversy or claim arising out of or in relation to or in connection
with this Agreement, including without limitation any dispute as to the
construction, validity, interpretation, enforceability or breach of this
Agreement, shall be mediated by a mutually acceptable mediator, which shall
commence within thirty (30) days after written notice by one Party to the other
demanding mediation.  No Party may unreasonably withhold consent to
the selection of a mediator.  The mediation shall be held in Honolulu,
Hawaii.  The Carrizo Parties and the Avista Parties shall share the
costs of the mediation equally, except that each Party shall bear its own costs
and expenses, including attorneys’ fees, witness fees, travel expenses and
preparation costs.

       

      (b) If the Parties are unable
to resolve such dispute, controversy or claim pursuant to the provisions in
Section 9.2(a) within thirty (30) days after the commencement of such mediation,
a Party may seek relief from a court of competent
jurisdiction.  The Parties
hereby irrevocably submit to the exclusive jurisdiction of the state courts of
Texas located in Houston, Texas or the federal courts of the United States of
America located in Houston, Texas and appropriate appellate courts therefrom,
and each Party hereby irrevocably agrees that all claims in respect of such
dispute, controversy or claim may be heard and determined in such
courts.  The Parties hereby irrevocably waive, to the fullest extent
permitted by applicable Laws, any objection which they may now or hereafter have
to the laying of venue of any such dispute, 

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

       

      controversy
or claim brought in any such court or any defense of inconvenient forum for the
maintenance of such dispute, controversy or claim. Each of the
Parties hereby irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim arising out of or relating to this
Agreement.

       

      9.3 Actual
Damages.  No Party
shall be liable or have any responsibility to any other Party for any indirect,
special, consequential or punitive damages including lost earnings or
profits.  Such limitation on liability shall apply to any claim or
action, whether it is based in whole or in part on contract, negligence, strict
liability, tort, statute or any other theory of liability.

       

      ARTICLE 10

      MISCELLANEOUS

       

      10.1 Counterparts.  This
Agreement may be executed in counterparts, and by different Parties in separate
counterparts, each of which shall be deemed an original instrument, but all such
counterparts together shall constitute one agreement.

       

      10.2 Notice.  All
notices, requests, demands, claims, and other communications hereunder will be
in writing.  Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two (2) Business
Days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:

       

      
        
          	
                  If to either of the Avista
      Parties:

                	 
      	
                  If to either of the Carrizo
      Parties:

                
	 
      	 
      	 
      
	
                  ACP
      II Marcellus LLC

                	 
      	
                  Carrizo
      Oil & Gas, Inc.

                
	
                  1000
      Louisiana, Suite 1200

                	 
      	
                  1000
      Louisiana St., Suite 1500

                
	
                  Houston,
      Texas  77002

                	 
      	
                  Houston,
      Texas  77002

                
	
                  Telephone:  713-328-1085

                	 
      	
                  Telephone:  713-328-1073

                
	
                  Fax:  713-328-1097

                	 
      	
                  Fax:  713-328-1060

                
	
                  Attn.:  Robert
      Cabes

                	 
      	
                  Attn.:  Gerry
      Morton

                


        

      

       

      Any Party
may send any notice, request, demand, claim, or other communication hereunder to
the intended recipient at the address set forth above using any other means
(including personal delivery, expedited courier, messenger service, facsimile,
ordinary mail, or electronic mail), but no such notice, request, demand, claim,
or other communication shall be deemed to have been duly given unless and until
it actually is received by the intended recipient.  Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Party notice in
the manner herein set forth.

       

      10.3 Expenses.  Each
Party shall pay its own legal fees and other costs and expenses incurred by it
in connection with the negotiation, execution and delivery of this Agreement and
the Operating Agreement.

       

      10.4
Transfer Taxes.  All
Transfer Taxes payable with respect to the Properties, including those that may
be incurred in connection with the Property Transfers contemplated by


       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

      Section 2.3(c)
hereof, shall be considered a joint interest expense and allocated in accordance
with the Operating Agreement.

       

      10.5 Captions.  The
captions in this Agreement are for convenience only and shall not be considered
a part of or affect the construction or interpretation of any provision of this
Agreement.

       

      10.6 Waivers.  Any
failure by any Party to comply with any of its obligations, agreements, or
conditions herein contained may only be waived in writing in an instrument
specifically identified as a waiver and signed by the Party to whom such
compliance is owed.  No waiver of, or consent to a change in, any
provision of this Agreement shall be deemed or shall constitute a waiver of, or
consent to a change in, any other provisions hereof, nor shall such waiver
constitute a continuing waiver unless expressly provided in the
waiver.

       

      10.7 Assignment.  Except
for assignments for the benefit of lenders in connection with commercial
financing activities (in which case the assigning Party shall not be relieved of
its obligations hereunder) and as provided in Article 4, no Party may assign all
or any part of its rights and obligations under this Agreement without the prior
written approval of each other Party.  This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective permitted
successors and assigns.

       

      10.8 Amendment.  This
Agreement may be amended or modified only by an agreement in writing executed by
all Parties expressly identifying it as an amendment or modification
hereof.

       

      10.9 No Third Person
Beneficiaries.  Nothing
in this Agreement shall entitle any Person other than the Parties to any claim,
cause of action, remedy, or right of any kind.

       

      10.10 Entire
Agreement.  This
Agreement and the Operating Agreement constitute the entire agreement between
the Parties pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations, and discussions, whether oral or
written, of the Parties with respect thereto.

       

      10.11 Term.  This
Agreement is effective as of the Effective Date and shall continue in effect
until the Operating Agreement terminates, at which time this Agreement shall
terminate except as to rights and obligations previously accrued.

       

      10.12 Survival.  Articles 8
and 9 and Sections 10.2, 10.3, 10.12 and 10.13 shall survive the
termination of this Agreement.

       

      10.13 References and
Construction.  In
this Agreement:

       

      (a) References
to any gender includes a reference to all other genders;

       

      (b) References
to the singular includes the plural, and vice versa;

       

      (c)
Reference to any Article or Section means an Article or Section of this
Agreement;

       

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

       

      (d) Reference
to any Exhibit means an Exhibit to this Agreement, all of which are incorporated
into and made a part of this Agreement;

       

      (e) Unless
expressly provided to the contrary, “hereunder”, “hereof”, “herein”, and words
of similar import are references to this Agreement as a whole and not any
particular Section or other provision of this Agreement;

       

      (f) “Include”
and “including” shall mean include or including without limiting the generality
of the description preceding such term and are used in an illustrative sense and
not a limiting sense;

       

      (g) “Or” is
not exclusive unless the context requires otherwise;

       

      (h) No
consideration shall be given to the fact or presumption that one party had a
greater or lesser hand in drafting this Agreement; and

       

      (i) Capitalized
terms used in this Agreement that are not otherwise defined are used with the
respective meanings given thereto in the Operating Agreement.

       

      [Signature
Page Follows]

       


      
        
           


        

        
          28

          
            

          

        

        
           


        

      

       

      IN
WITNESS WHEREOF, the Parties have caused this Agreement to be executed on the
Execution Date and effective as of the Effective Date.

       

      
        
          
            
              
                
                  	
                          ACP
      II MARCELLUS LLC

                        	
                          CARRIZO
      OIL & GAS, INC.

                        
	 
      	 
      
	
                          By:       ACP
      II AMS LP,

                        	 
      
	
                          its Manager

                        	
                          By:       /s/ S.P. Johnson,
      IV

                        
	 
      	
                          Name:  S.P. Johnson,
      IV

                        
	
                          By:    Avista
      Capital Partners II, L.P.,

                        	
                          Title:  President
      and Chief Executive

                        
	
                          its General
    Partner

                        	
                                     Officer

                        
	 
      	 
      
	
                          By:    Avista
      Capital Partners II GP, LLC

                        	
                          CARRIZO
      (MARCELLUS) LLC

                        
	
                          its General
      Partner

                        	 
      
	 
      	 
      
	
                          By:    /s/ Robert L. Cabes,
      Jr.

                        	
                          By:       /s/ S.P. Johnson,
      IV

                        
	
                          Name:  Robert L.
      Cabes, Jr.

                        	
                          Name:  S.P. Johnson,
      IV

                        
	
                          Title:  Partner

                        	
                          Title:  President
      and Chief Executive

                        
	 
      	
                                     Officer

                        
	
                          AVISTA
      CAPITAL PARTNERS II, L.P.

                        	 
      
	 
      	 
      
	
                          By:    Avista
      Capital Partners II GP, LLC,

                        	 
      
	
                          its General
    Partner

                        	 
      
	 
      	 
      
	
                          By:    /s/ Robert L. Cabes,
      Jr.

                        	 
      
	
                          Name:  Robert L. Cabes,
      Jr.

                        	 
      
	
                          Title:  Partner

                        	 
      


                

              

            

          

        

      

       

      
        
          [Signature
Page to the Participation Agreement]

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Exhibit
2.1(a)

       

      Properties
Dedicated by the Carrizo Parties

       

      [See
Attached]

       

       

      
        
          Exhibit
2.1(a)

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Exhibit
2.1(b)

       

      Properties
Dedicated by Investor LLC

       

      [See
Attached]

       

      
        
          Exhibit
2.1(b)

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Exhibit
4.3(c)

       

      AAPL
Form 610 U.S. Onshore Model Form Operating Agreement (1989)

       

      [See
Attached]

       

      


       

      
        
          Exhibit
4.3(c)

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Exhibit
5.2(c)

       

      Proposed
Forecast Expenditures through December 31, 2009

       

      [See
Attached]

       

      
        
          Exhibit
5.2(c)

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Exhibit
8.1

       

      Tax
and Ownership Interest Adjustment Provisions

       

      [See
Attached]

      


      
        
          Exhibit
8.1