UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the Fiscal Year Ended December 31, 2008
Commission No. 0-22915
 Carrizo Oil & Gas, Inc.
 (Exact name of registrant as specified in its charter)
 Texas
    
    76-0415919(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)1000 Louisiana Street, Suite 1500, Houston, Texas
    
    77002(Principal executive offices)
    
    (Zip Code)
 (713) 328-1000
  Common Stock, $0.01 par value
  o þ
  o þ
  þ o
 o
  Large accelerated filer þAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o  o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 Forward Looking Statements
    
    
    3PART I
    
    
    
    
    4Item 1.
    
    and Item 2. Business and Properties
    
    
    4Item 1A.
    
    Risk Factors
    
    
    25Item 1B.
    
    Unresolved Staff Comments
    
    
    35Item 3.
    
    Legal Proceedings
    
    
    37Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    37PART II
    
    
    
    
    39Item 5.
    
    Market
for Registrants Common Stock, Related Shareholder Matters and Issuer Purchases of Equity Securities
    
    
    39Item 6.
    
    Selected Financial Data
    
    
    41Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    42Item 7A.
    
    Qualitative and Quantitative Disclosures About Market Risk
    
    
    57Item 8.
    
    Financial Statements and Supplementary Data
    
    
    57Item 9.
    
    Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    57Item 9A.
    
    Controls and Procedures
    
    
    58Item 9B.
    
    Other Information
    
    
    60PART III
    
    
    
    
    60Item 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    60Item 11.
    
    Executive Compensation
    
    
    60Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
    
    
    60Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    60Item 14.
    
    Principal Accountant Fees and Services
    
    
    60PART IV
    
    
    
    
    60Item 15.
    
    Exhibits and Financial Statement Schedules
    
    
    60




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3




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PART I
 
 Item 1. and Item 2. Business and Properties
 OVERVIEW
 General
     Barnett Shale Area
  4




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Marcellus Shale Area
    Onshore Gulf Coast Area
  U.K. North Sea Area
  5




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Other Areas
   Business Strategy
 Measured Growth Through the Drillbit
  
    
    Control Capital Costs and Maintain Financial Flexibility.In response to reduced demand
for natural gas and lower natural gas prices as a result of the current economic downturn
and the current cost of accessing the capital markets, we have reduced our capital and
exploration budget for 2009 to $105 million, and we are striving to maintain our financial
flexibility and a positive production growth profile. Any further deterioration in
commodity prices may cause us to reduce our capital and exploration budget for 2009 even
further.
    
    Grow Primarily Through Drilling.We pursue a technology-driven exploration drilling
program. We generate exploration prospects through geological and geophysical analysis of
3-D seismic and other data. Our ability to successfully define and drill exploratory
prospects is demonstrated by our exploratory drilling success rate in the onshore Gulf
Coast area of 85% over the last six years and our 100% drilling success rate in the Barnett
Shale area since inception in 2003. During 2009, we plan to drill approximately 45 gross
(30.0 net) wells in the Barnett Shale area, and three gross (1.0 net) wells in the onshore
Gulf Coast area. We also expect to complete 44 gross (44.0 net) wells in our Camp Hill
Field. We have planned approximately $105.0 million for capital expenditures in 2009,
approximately $90.0 million of which we expect to use for drilling activities, including
$85.0 million in the Barnett Shale area and $3.0 million in the onshore Gulf Coast area.
In addition, we currently expect to participate in 12 gross (4.0 net) Marcellus Shale play
area wells in 2009, including eleven vertical wells and one horizontal well, all of which
we currently expect will be funded by Avista under our joint venture agreement with them.
    
    Focus on Areas Where We Have Experience and a Technical Advantage.We focus our
activities in the industry-proven Barnett Shale in which our wells have generally
longer-lived reserves and where our management, technical staff and field operations teams
have significant experience and, we believe, a technical advantage derived from operating
over 150 horizontal wells. We are attempting to leverage this advantage in other shale
trends, principally in the Marcellus Shale, by utilizing the knowledge and expertise of our
personnel and partnering with Avista, a joint venture partner that has significant
financial knowledge, expertise and capital. We plan to focus a majority of our near-term
capital expenditures in the Barnett Shale area, where we have acquired a significant
acreage position and accumulated a large drillsite inventory, and in the Marcellus Shale,
where our joint venture currently controls over 230,000 acres and where we currently expect
Avista to fund substantially all of the joint ventures 2009 capital and exploration
program. We also intend to continue to explore in the onshore Gulf Coast area, where
members of our staff have been exploring for over 30 years.
    
    Maintain a Conservative Exploration and Development Portfolio.Recently we have sought
to more heavily weight our drilling program toward projects with relatively lower risk and
moderate potential, such as our development drilling in the Barnett Shale, than to projects
that have relatively higher risk, but substantial upside potential such as our onshore Gulf
Coast projects.
 6




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
    
    Manage Risk Exposure by Market Testing Prospects and Optimizing Working Interests.We
seek to limit our financial and operating risks by varying our level of participation in
drilling prospects with differing risk profiles and by seeking additional technical input
and economic review from knowledgeable industry participants regarding our prospects.
Additionally, we rely on advanced technologies, including 3-D seismic analysis, to better
define geologic risks, thereby enhancing the results of our drilling efforts. The use of
3-D seismic analysis does not guarantee that hydrocarbons are present or, if present, that
they can be recovered economically. We also seek to operate our core projects in order to
better control drilling costs and the timing of drilling. Our joint venture with Avista in
the Marcellus Shale is a recent and prominent example of this strategy.
    
    Retain and Incentivize a Highly Qualified Technical Staff.We employ over 36 natural gas
and oil professionals, including geophysicists, petrophysicists, geologists, petroleum
engineers and production and reservoir engineers and technical support staff, who have an
average of over 20 years of experience. This level of expertise and experience gives us an
in-house ability to apply advanced technologies to our drilling and production activities,
including our extensive experience in fracturing and horizontal drilling technologies. Our
technical staff is granted stock-based awards and participates in an incentive bonus pool
based on production resulting from our exploratory successes.
 EXPLORATION APPROACH
    OPERATING APPROACH
  7




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SIGNIFICANT PROJECT AREAS
  3-D Seismic
    
    
    Net
    
    
    Drilling CapitalProductive Wells
    
    
    Data
    
    
    Leased
    
    
    ExpendituresGross
    
    
    Net
    
    
    (Sq. Miles)
    
    
    Acres
    
    
    2008
    
    
    2009 Plan(In millions)Barnett Shale
    
    
    189
    
    
    
    135.0
    
    
    
    524
    
    
    
    59,336
    
    
    $
    227.6
    
    
    $
    85.0Marcellus Shale(1)
    
    
    1
    
    
    
    0.2
    
    
    
    
    
    
    
    91,659
    
    
    
    1.3
    
    
    
    Gulf Coast
    
    
    113
    
    
    
    31.4
    
    
    
    8,527
    
    
    
    40,009
    
    
    
    19.9
    
    
    
    3.0U.K. North Sea
    
    
    
    
    
    
    
    
    
    
    2,057
    
    
    
    24,798
    
    
    
    4.2
    
    
    
    Other Shales
    
    
    14
    
    
    
    0.4
    
    
    
    18
    
    
    
    263,394
    
    
    
    1.2
    
    
    
    Camp Hill
    
    
    57
    
    
    
    55.8
    
    
    
    
    
    
    
    928
    
    
    
    7.1
    
    
    
    2.0Other
    
    
    
    
    
    
    
    
    
    
    2,130
    
    
    
    45,226
    
    
    
    3.3
    
    
    
    Total
    
    
    374
    
    
    
    222.8
    
    
    
    13,256
    
    
    
    525,350
    
    
    $
    264.6
    
    
    $
    90.0
 
 (1)
    
    We expect our capital and exploration expenditures during 2009 in the Marcellus,
including a joint venture drilling budget of $12.7 million, will be funded by our joint
venture partner until they match our initial contribution (see Marcellus Shale Area below). Barnett Shale Area
  8




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Marcellus Shale Area
    9




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Gulf Coast Area
  U.K. North Sea Region
     10




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Other Shale Project Areas
  Camp Hill Field
    11




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ADDITIONAL OIL AND GAS DISCLOSURES
 Working Interest and Drilling in Project Areas
  12




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Oil and Natural Gas Reserves
  Proved ReservesDeveloped
    
    Undeveloped
    
    Total(Dollars in thousands)Oil and condensate (MBbls)
    
    
    7,869
    
    
    
    10,439
    
    
    
    18,308Natural gas (MMcf)
    
    
    216,229
    
    
    
    176,507
    
    
    
    392,736Total proved reserves (MMcfe)
    
    
    263,443
    
    
    
    239,141
    
    
    
    502,584PV-10 Value(1)(2)
    
    $
    466,268
    
    
    $
    129,623
    
    
    $
    595,891
 
 (1)
    
    The PV-10 value as of December 31, 2008 is pre-tax and was determined by using the
December 31, 2008 sales prices, which averaged $40.12 per Bbl of oil, $19.62 per Bbl of
natural gas liquids and $4.99 per Mcf of natural gas. Management believes that the
presentation of PV-10 value may be considered a non-GAAP financial measure as defined in Item
10(e) of Regulation S-K. Therefore, we have included a reconciliation of the measure to the
most directly comparable GAAP financial measure (standardized measure of discounted future net
cash flows in footnote (2) below). Management believes that the presentation of PV-10 value
provides useful information to investors because it is widely used by professional analysts
and sophisticated investors in evaluating oil and gas companies. Because many factors that
are unique to each individual company may impact the amount of future income taxes to be paid,
the use of the pre-tax measure provides greater comparability when evaluating companies. It
is relevant and useful to investors for evaluating the relative monetary significance of our
oil and natural gas properties. Further, investors may utilize the measure as a basis for
comparison of the relative size and value of our reserves to other companies. Management also
uses this pre-tax measure when assessing the potential return on investment related to its oil
and natural gas properties and in evaluating acquisition candidates. The PV-10 value is not a
measure of financial or operating performance under GAAP, nor is it intended to represent the
current market value of the estimated oil and natural gas reserves
owned by us. PV-10 value should not be considered in isolation or as a substitute for the
standardized measure of discounted future net cash flows as defined under GAAP.(2)
    
    Future income taxes and present value discounted (10%) future income taxes were
$407.9 and $154.6 million, respectively. Accordingly, the after-tax PV-10 value of Total
Proved Reserves (or Standardized Measure of Discounted Future Net Cash Flows) is $441.3
million. 13




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Oil and Natural Gas Reserve Replacement
  2008
    
    2007
    
    2006Reserve Replacement Ratio
    
    
    705
    %
    
    
    887
    %
    
    
    607
    %
 14




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Volumes, Prices and Oil & Natural Gas Operating Expense
  Year Ended December 31,2008
    
    2007
    
    2006Production volumesOil (MBbls)
    
    
    186
    
    
    
    241
    
    
    
    255Natural gas (MMcf)
    
    
    24,513
    
    
    
    16,042
    
    
    
    10,176Natural gas equivalent (MMcfe)
    
    
    25,632
    
    
    
    17,487
    
    
    
    11,705Average sales pricesOil (per Bbl)
    
    $
    99.74
    
    
    $
    71.42
    
    
    $
    63.62Natural gas (per Mcf)
    
    
    7.80
    
    
    
    6.77
    
    
    
    6.56Natural gas equivalent (per Mcfe)
    
    
    8.19
    
    
    
    7.19
    
    
    
    7.09Average costs (per Mcfe)Camp Hill operating expenses
    
    $
    14.11
    
    
    $
    16.12
    
    
    $
    11.50Other operating expenses
    
    
    1.44
    
    
    
    1.36
    
    
    
    1.33Total operating expenses(1)
    
    
    1.48
    
    
    
    1.41
    
    
    
    1.40
 
 (1)
    
    Includes direct lifting costs (labor, repairs and maintenance, materials and
supplies), workover costs, transportation costs and the administrative costs of production
offices, insurance and property and severance taxes. Finding and Development Costs
  Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)Acquisition costs:Other unproved properties
    
    $
    271,618
    
    
    $
    54,467
    
    
    $
    48,409Proved properties
    
    
    
    
    
    
    
    
    
    
    Exploration
    
    
    235,382
    
    
    
    144,402
    
    
    
    104,473Development
    
    
    49,626
    
    
    
    30,562
    
    
    
    37,889Asset retirement obligation
    
    
    630
    
    
    
    1,961
    
    
    
    299Total costs incurred
    
    $
    557,256
    
    
    $
    231,392
    
    
    $
    191,070Total proved reserves added (MMcfe)
    
    
    180,594
    
    
    
    155,139
    
    
    
    71,066Average all-sources finding cost (per Mcfe)
    
    $
    3.09
    
    
    $
    1.49
    
    
    $
    2.69Average all-sources finding cost (per Mcfe)  excluding Marcellus(1)
    
    $
    2.75
    
    
    $
    1.49
    
    
    $
    2.69Average finding and development cost
(per Mcfe)(2)
    
    $
    1.68
    
    
    $
    1.22
    
    
    $
    2.10Average drilling finding cost
(per Mcfe)
    
    $
    1.58
    
    
    $
    1.14
    
    
    $
    2.01
 
 (1)
    
    The all source finding cost (per Mcfe), excluding our Marcellus Shale area
activities (which began in 2008 and has been primarily limited to land acquisitions).(2)
    
    Comprised of all exploration and development costs incurred
in the year plus the leasehold and seismic costs attributable
to all proved drilling location additions in the year.  15




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Development, Exploration and Acquisition Capital Expenditures
  Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)Acquisition costsUnproved prospects
    
    $
    271,618
    
    
    $
    54,467
    
    
    $
    48,409Proved properties
    
    
    
    
    
    
    
    
    
    
    Exploration
    
    
    235,382
    
    
    
    144,402
    
    
    
    104,473Development
    
    
    49,626
    
    
    
    30,562
    
    
    
    37,889Asset retirement obligation
    
    
    630
    
    
    
    1,961
    
    
    
    299Total costs incurred(1)
    
    $
    557,256
    
    
    $
    231,392
    
    
    $
    191,070
 
 (1)
    
    Excludes capitalized interest on unproved properties of $14.4 million, $11.7 million
and $10.0 million for the years ended December 31, 2008, 2007 and 2006, respectively, and
includes capitalized overhead of $7.8 million, $4.5 million, and $3.5 million for the years
ended December 31, 2008, 2007 and 2006, respectively. The table also includes non-cash asset
retirement obligations of $0.6 million, $2.0 million and $0.3 million, respectively, for the
years ended December 31, 2008, 2007 and 2006. 16




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Drilling Activity
  Year Ended December 31,2008
    
    2007
    
    2006Gross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetExploratory WellsProductive
    
    
    83
    
    
    
    60.0
    
    
    
    65
    
    
    
    42.8
    
    
    
    47
    
    
    
    26.9Nonproductive
    
    
    2
    
    
    
    0.3
    
    
    
    1
    
    
    
    0.4
    
    
    
    3
    
    
    
    0.9Total
    
    
    85
    
    
    
    60.3
    
    
    
    66
    
    
    
    43.2
    
    
    
    50
    
    
    
    27.8Development WellsProductive
    
    
    31
    
    
    
    24.2
    
    
    
    29
    
    
    
    24.0
    
    
    
    20
    
    
    
    17.1Nonproductive
    
    
    3
    
    
    
    3.0
    
    
    
    1
    
    
    
    1.0
    
    
    
    
    
    
    
    Total
    
    
    34
    
    
    
    27.2
    
    
    
    30
    
    
    
    25.0
    
    
    
    20
    
    
    
    17.1
  Productive Wells
  CompanyOperated
    
    Other
    
    TotalGross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetOil
    
    
    67.0
    
    
    
    59.3
    
    
    
    2.0
    
    
    
    1.2
    
    
    
    69.0
    
    
    
    60.5Natural gas
    
    
    151.0
    
    
    
    122.3
    
    
    
    154.0
    
    
    
    40.0
    
    
    
    305.0
    
    
    
    162.3Total
    
    
    218.0
    
    
    
    181.6
    
    
    
    156.0
    
    
    
    41.2
    
    
    
    374.0
    
    
    
    222.8
 Acreage Data
  17




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Developed Acreage
    
    Undeveloped Acreage
    
    TotalGross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetBarnett Shale  Texas
    
    
    30,871
    
    
    
    20,144
    
    
    
    51,460
    
    
    
    39,192
    
    
    
    82,331
    
    
    
    59,336Marcellus ShaleNew York
    
    
    
    
    
    
    
    
    
    
    34,642
    
    
    
    8,213
    
    
    
    34,642
    
    
    
    8,213Pennsylvania
    
    
    
    
    
    
    
    
    
    
    83,862
    
    
    
    31,393
    
    
    
    83,862
    
    
    
    31,393West Virginia
    
    
    
    
    
    
    
    
    
    
    98,405
    
    
    
    45,522
    
    
    
    98,405
    
    
    
    45,522Virginia and other
    
    
    
    
    
    
    
    
    
    
    13,239
    
    
    
    6,531
    
    
    
    13,239
    
    
    
    6,531Marcellus Shale Total
    
    
    
    
    
    
    
    
    
    
    230,148
    
    
    
    91,659
    
    
    
    230,148
    
    
    
    91,659Gulf CoastTexas
    
    
    30,853
    
    
    
    9,616
    
    
    
    34,906
    
    
    
    13,514
    
    
    
    65,759
    
    
    
    23,130Louisiana
    
    
    1,977
    
    
    
    1,024
    
    
    
    15,625
    
    
    
    14,571
    
    
    
    17,602
    
    
    
    15,595Alabama
    
    
    160
    
    
    
    42
    
    
    
    1,800
    
    
    
    1,242
    
    
    
    1,960
    
    
    
    1,284Gulf Coast Total
    
    
    32,990
    
    
    
    10,682
    
    
    
    52,331
    
    
    
    29,327
    
    
    
    85,321
    
    
    
    40,009U.K. North Sea(1)
    
    
    
    
    
    
    
    
    
    
    110,628
    
    
    
    24,798
    
    
    
    110,628
    
    
    
    24,798Other Shales(2)
    
    
    293
    
    
    
    54
    
    
    
    438,977
    
    
    
    263,340
    
    
    
    439,270
    
    
    
    263,394Other Texas(3)
    
    
    2,259
    
    
    
    2,042
    
    
    
    52,987
    
    
    
    42,969
    
    
    
    55,246
    
    
    
    45,011Other
    
    
    
    
    
    
    
    
    
    
    7,618
    
    
    
    1,143
    
    
    
    7,618
    
    
    
    1,143Total
    
    
    66,413
    
    
    
    32,922
    
    
    
    944,149
    
    
    
    492,428
    
    
    
    1,010,562
    
    
    
    525,350
 
 (1)
    
    U.K. North Sea does not include the four licenses that we have been notionally
awarded in the 25th bid round that were announced last year. These four
licenses include 164,518 gross (115,548 net) acres of additional undeveloped acreage.(2)
    
    Other Shales principally includes the Fayetteville Shale in Arkansas; the New
Albany Shale in Kentucky and Illinois; the Floyd Shale in Mississippi; the West Texas
Barnett/Woodford in Texas and New Mexico; and the Bakken in North Dakota.(3)
    
    Other Texas includes the Camp Hill Field and other plays in North, East and
Central Texas.  Marketing
   18




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
    
    demand for natural gas and oil;
    
    the extent of production of natural gas and oil and, in particular, domestic production
and imports;
    
    the proximity and capacity of natural gas pipelines and other transportation facilities;
    
    the marketing of competitive fuels; and
    
    the effects of state and federal regulations on natural gas and oil production and
sales.
   Competition and Technological Changes
   Regulation
  19




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Regulation of Natural Gas and Oil Exploration and Production
  
    
    require permits for the drilling of wells;
    
    mandate that we maintain bonding requirements in order to drill or operate wells; and
    
    regulate the location of wells, the method of drilling and casing wells, the surface use
and restoration of properties upon which wells are drilled, the plugging and abandoning of
wells and the disposal of fluids used in connection with operations.
  Regulation of Sales and Transportation of Natural Gas
    20




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Oil Price Controls and Transportation Rates
   Environmental Regulations
  21




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22




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Global Climate Change
   Massachusetts v.
Environmental Protection Agency Massachusetts
  Operating Hazards and Insurance
     23




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Title to Properties; Acquisition Risks
   Customers
  Year Ended December 31,2008
    
    2007
    
    2006DTE Energy Trading, Inc.
    
    
    39
    %
    
    
    
    
    
    
    Cokinos Natural Gas Company
    
    
    11
    %
    
    
    11
    %
    
    
    Reichmann Petroleum
    
    
    
    
    
    
    
    
    
    
    10
    %Chevron/Texaco
    
    
    
    
    
    
    
    
    
    
    11
    %Houston Pipeline Company
    
    
    
    
    
    
    11
    %
    
    
    Energy Transfer
    
    
    
    
    
    
    10
    %
    
    
    Crosstex Energy
    
    
    10
    %
    
    
    15
    %
    
    
    
  Employees
    24




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##### 



Available Information
   
    
    Audit Committee Charter;
    
    Compensation Committee Charter;
    
    Nominating Committee Charter;
    
    Code of Ethics and Business Conduct; and
    
    Compliance Employee Report Line.
  
 Item 1A. Risk Factors
 The global financial and credit crisis may have impacts on our liquidity and financial condition
that we currently cannot predict.
  Natural gas and oil prices are highly volatile and have declined significantly since mid 2008, and
lower prices will negatively affect our financial condition, planned capital expenditures and
results of operations.
  25




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##### 




    
    the level of consumer product demand;
    
    overall economic conditions;
    
    weather conditions;
    
    domestic and foreign governmental relations, regulations and taxes;
    
    the price and availability of alternative fuels;
    
    political conditions;
    
    the level and price of foreign imports of oil and liquefied natural gas; and
    
    the ability of the members of the Organization of Petroleum Exporting Countries to agree
upon and maintain production constraints and oil price controls.
 Natural gas and oil drilling is a speculative activity and involves numerous risks and substantial
and uncertain costs that could adversely affect us.
  
    
    unexpected or adverse drilling conditions;
    
    elevated pressure or irregularities in geologic formations;
    
    equipment failures or accidents;
    
    adverse weather conditions;
    
    compliance with governmental requirements; and
    
    shortages or delays in the availability of drilling rigs, crews and equipment.
  26




---



##### 



We may not adhere to our proposed drilling schedule.
  
    
    the results of our exploration efforts and the acquisition, review and analysis of the
seismic data;
    
    the availability of sufficient capital resources to us and the other participants for
the drilling of the prospects;
    
    the approval of the prospects by the other participants after additional data has been
compiled;
    
    economic and industry conditions at the time of drilling, including prevailing and
anticipated prices for natural gas and oil and the availability and prices of drilling rigs
and crews; and
    
    the availability of leases and permits on reasonable terms for the prospects.
  Our reserve data and estimated discounted future net cash flows are estimates based on assumptions
that may be inaccurate and are based on existing economic and operating conditions that may change
in the future.
    27




---



##### 




    
    the actual prices we receive for natural gas and oil;
    
    our actual operating costs in producing natural gas and oil;
    
    the amount and timing of actual production;
    
    supply and demand for natural gas and oil;
    
    increases or decreases in consumption of natural gas and oil; and
    
    changes in governmental regulations or taxation.
  We depend on successful exploration, development and acquisitions to maintain reserves and revenue
in the future.
  We participate in oil and natural gas leases with third parties and these third parties may not be
able to fulfill their commitments to our projects.
  We have substantial capital requirements that, if not met, may hinder operations.
  28




---



##### 



Our senior credit facility contains operating restrictions and financial covenants, and we may have
difficulty obtaining additional credit.
  
    
    our ability to obtain financing for working capital, capital expenditures, our drilling
program, purchases of new technology or other purposes may be impaired;
    
    the covenants in our senior credit facility that limit our ability to borrow additional
funds and dispose of assets may affect our flexibility in planning for, and reacting to,
changes in business conditions;
    
    because our indebtedness is subject to variable interest rates, we are vulnerable to
increases in interest rates;
    
    any additional financing we obtain may be on unfavorable terms;
    
    we may be required to use a substantial portion of our cash flow to make debt service
payments, which will reduce the funds that would otherwise be available for operations and
future business opportunities;
    
    a substantial decrease in our operating cash flow or an increase in our expenses could
make it difficult for us to meet debt
service requirements and could require us to modify our operations, including by curtailing
portions of our drilling program, selling assets, reducing our capital expenditures,
refinancing all or a portion of our existing debt or obtaining additional financing; and
    
    we may become more vulnerable to downturns in our business or the economy.
  29




---



##### 



We have limited experience drilling wells in the Marcellus Shale and less information regarding
reserves and decline rates in the Marcellus Shale than in other areas of our operations. We may
face difficulties in securing and operating under authorizations and permits to drill and/or
operate our Marcellus Shale wells.
  We face strong competition from other natural gas and oil companies.
  We may not be able to keep pace with technological developments in our industry.
  We are subject to various governmental regulations and environmental risks.
  30




---



##### 



We are
subject to various operating and other casualty risks that could result in liability exposure or the loss of production and revenues.
  
    
    well blowouts;
    
    mechanical failures;
    
    explosions;
    
    uncontrollable flows of oil, natural gas or well fluids;
    
    fires;
    
    geologic formations with abnormal pressures;
    
    pipeline ruptures or spills;
    
    releases of toxic gases; and
    
    other environmental hazards and risks.
   A substantial portion of our operations is exposed to the additional risk of tropical weather
disturbances.
   We may not have enough insurance to cover all of the risks we face.
  31




---



##### 



We cannot control the activities on properties we do not operate.
  
    
    the operator could refuse to initiate exploration or development projects;
    
    if we proceed with any of those projects the operator has refused to initiate, we may
not receive any funding from the operator with respect to that project;
    
    the operator may initiate exploration or development projects on a different schedule
than we would prefer;
    
    the operator may propose greater capital expenditures than we wish, including
expenditures to drill more wells or build more facilities on a project than we have funds
for, which may mean that we cannot participate in those projects or participate in a
substantial amount of the revenues from those projects; and
    
    the operator may not have sufficient expertise or resources.
  The marketability of our natural gas production depends on facilities that we typically do not own
or control, which could result in a curtailment of production and revenues.
  Our future acquisitions may yield revenues or production that varies significantly from our
projections.
  Our business may suffer if we lose key personnel.
  32




---



##### 



We may experience difficulty in achieving and managing future growth.
  
    
    our ability to obtain leases or options on properties, including those for which we have
3-D seismic data;
    
    our ability to acquire additional 3-D seismic data;
    
    our ability to identify and acquire new exploratory prospects;
    
    our ability to develop existing prospects;
    
    our ability to continue to retain and attract skilled personnel;
    
    our ability to maintain or enter into new relationships with project partners and
independent contractors;
    
    the results of our drilling program;
    
    hydrocarbon prices; and
    
    our access to capital.
  We may continue to enter into derivative transactions to manage the price risks associated with our
production. Our derivative transactions may result in our making cash payments or prevent us from
benefiting from increases in prices for natural gas and oil.
  Periods of high demand for field services and equipment and the ability of suppliers to meet that
demand may limit our ability to drill and produce our oil and natural gas properties.
  33




---



##### 



We may record ceiling limitation write-downs that would reduce our shareholders equity.
  We may incur losses as a result of title deficiencies.
  We have risks associated with our foreign operations.
  
    
    currency restrictions and exchange rate fluctuations;
    
    loss of revenue, property and equipment as a result of expropriation, nationalization,
war or insurrection;
    
    increases in taxes and governmental royalties;
    
    renegotiation of contracts with governmental entities and quasi-governmental agencies;
    
    changes in laws and policies governing operations of foreign-based companies;
    
    labor problems; and
    
    other uncertainties arising out of foreign government sovereignty over our international
operations.
 34




---



##### 



The threat and impact of terrorist attacks or similar hostilities may adversely impact our
operations.
  
 Item 1B. Unresolved Staff Comments
  Glossary of Certain Industry Terms
  After payout.
 Bbl.
 Bbls/d.
 Bcf.
 Bcfe.
 Before payout.
 BOE or Barrel of Oil Equivalent.
 Btu or British Thermal Unit.
 Completion.
 Developed acreage.
 Development well.
 Dry hole or well.
 35




---



##### 



Exploratory well.
 Farm-in or farm-out.
 Field.
 Finding costs.
 Gross acres or gross wells.
 MBbls.
 MBbls/d.
 Mcf.
 Mcf/d.
 Mcfe.
 MMBbls.
 MMBtu.
 MMcf.
 MMcf/d.
 MMcfe.
 Net acres or net wells.
 Net Revenue Interest.
 Present value.
 Productive well.
 Proved developed nonproducing reserves.
 36




---



##### 



Proved developed producing reserves.
 Proved developed reserves.
 Proved reserves.
 Proved undeveloped location.
 Proved undeveloped reserves.
 PV-10 Value.
 Recompletion.
 Reservoir.
 Royalty interest.
 3-D seismic data.
 Undeveloped acreage.
 Working interest.
 Workover.
 
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  Executive Officers of the Registrant
  37




---



##### 



Name
    
    Age
    
    PositionS.P. Johnson IV
    
    
    53
    
    
    President, Chief Executive Officer and DirectorPaul F. Boling
    
    
    55
    
    
    Chief Financial Officer, Vice President,
Secretary and TreasurerJ. Bradley Fisher
    
    
    48
    
    
    Vice President and Chief Operating OfficerGregory E. Evans
    
    
    59
    
    
    Vice President of ExplorationRichard H. Smith
    
    
    51
    
    
    Vice President of Land
  S.P. Johnson IV
 Paul F. Boling
 J. Bradley Fisher
 Gregory E. Evans
 Richard H. Smith
 38




---



##### 



PART II
 
 Item 5. Market for Registrants Common Stock, Related Shareholder Matters and Issuer Purchases of
Equity Securities
  High
    
    Low2008First Quarter
    
    $
    62.47
    
    
    $
    43.11Second Quarter
    
    
    76.30
    
    
    
    58.26Third Quarter
    
    
    69.51
    
    
    
    30.75Fourth Quarter
    
    
    36.26
    
    
    
    11.722007First Quarter
    
    $
    35.58
    
    
    $
    25.54Second Quarter
    
    
    47.70
    
    
    
    34.44Third Quarter
    
    
    46.23
    
    
    
    34.51Fourth Quarter
    
    
    57.38
    
    
    
    43.90
    39




---



##### 



S&P
    
    AMEX
    
    COGIDecember 31, 2003
    
    
    100
    
    
    
    100
    
    
    
    100December 31, 2004
    
    
    109
    
    
    
    128
    
    
    
    157December 31, 2005
    
    
    112
    
    
    
    196
    
    
    
    343December 31, 2006
    
    
    128
    
    
    
    217
    
    
    
    403December 31, 2007
    
    
    132
    
    
    
    277
    
    
    
    760December 31, 2008
    
    
    81
    
    
    
    142
    
    
    
    224
   40




---



##### 



Item 6. Selected Financial Data
  Year Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In thousands, except per share data)Statement Of Operations Data:Oil and natural gas revenues
    
    $
    216,677
    
    
    $
    125,789
    
    
    $
    82,945
    
    
    $
    78,155
    
    
    $
    52,397Costs and expenses:Oil and natural gas operating expenses
    
    
    37,885
    
    
    
    24,662
    
    
    
    16,428
    
    
    
    10,437
    
    
    
    8,392Impairment of oil and natural gas properties
    
    
    138,591
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation, depletion and amortization
    
    
    58,311
    
    
    
    41,899
    
    
    
    31,129
    
    
    
    21,374
    
    
    
    15,464Third party gas purchase
    
    
    6,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    General and administrative
    
    
    23,425
    
    
    
    18,912
    
    
    
    14,909
    
    
    
    11,243
    
    
    
    8,255Accretion expense related to asset retirement
    
    
    154
    
    
    
    374
    
    
    
    496
    
    
    
    70
    
    
    
    23Total costs and expenses
    
    
    264,936
    
    
    
    85,847
    
    
    
    62,962
    
    
    
    43,124
    
    
    
    32,134Operating income (loss)
    
    
    (48,259
    )
    
    
    39,942
    
    
    
    19,983
    
    
    
    35,031
    
    
    
    20,263Gain (loss) on derivatives
    
    
    37,499
    
    
    
    (1,366
    )
    
    
    16,457
    
    
    
    (5,882
    )
    
    
    (625
    )Loss on extinguishment of debt
    
    
    (5,689
    )
    
    
    
    
    
    
    (294
    )
    
    
    (3,721
    )
    
    
    Equity in net income/(loss) of Pinnacle Gas
Resources, Inc.
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    (2,542
    )
    
    
    (1,399
    )Interest (expense) income, net of amounts
capitalized and interest income
    
    
    (7,636
    )
    
    
    (13,994
    )
    
    
    (8,127
    )
    
    
    (4,295
    )
    
    
    (622
    )Other income and expenses, net
    
    
    17
    
    
    
    130
    
    
    
    427
    
    
    
    (457
    )
    
    
    506Income (loss) before income taxes
    
    
    (24,068
    )
    
    
    24,712
    
    
    
    28,481
    
    
    
    18,134
    
    
    
    18,123Income tax expense (benefit)
    
    
    (6,129
    )
    
    
    9,243
    
    
    
    10,233
    
    
    
    7,500
    
    
    
    7,009Income (loss) before cumulative effect of change
in accounting principle
    
    
    (17,939
    )
    
    
    15,469
    
    
    
    18,248
    
    
    
    10,634
    
    
    
    11,114Dividends and accretion of discount on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350Net income (loss) available to common shareholders
    
    
    (17,939
    )
    
    
    15,469
    
    
    
    18,248
    
    
    
    10,634
    
    
    
    10,764Basic earnings (loss) per common share
    
    $
    (0.60
    )
    
    $
    0.59
    
    
    $
    0.74
    
    
    $
    0.45
    
    
    $
    0.54Diluted earnings (loss) per common share
    
    $
    (0.60
    )
    
    $
    0.57
    
    
    $
    0.71
    
    
    $
    0.44
    
    
    $
    0.49Basic weighted average shares outstanding
    
    
    30,010
    
    
    
    26,287
    
    
    
    24,827
    
    
    
    23,492
    
    
    
    19,958Diluted weighted average shares outstanding
    
    
    30,010
    
    
    
    27,120
    
    
    
    25,565
    
    
    
    24,361
    
    
    
    21,818Statements of Cash Flow Data:Net cash provided by operating activities
    
    $
    148,754
    
    
    $
    95,231
    
    
    $
    65,437
    
    
    $
    38,839
    
    
    $
    32,501Net cash used in investing activities
    
    
    (555,345
    )
    
    
    (227,724
    )
    
    
    (161,576
    )
    
    
    (111,417
    )
    
    
    (80,294
    )Net cash provided by (used in) financing activities
    
    
    403,749
    
    
    
    135,111
    
    
    
    72,822
    
    
    
    95,635
    
    
    
    50,139Other Operating Data:Capital expenditures
    
    $
    571,291
    
    
    $
    247,003
    
    
    $
    201,773
    
    
    $
    135,156
    
    
    $
    83,891Debt repayments(1)
    
    
    498,239
    
    
    
    108,258
    
    
    
    40,536
    
    
    
    101,021
    
    
    
    13,737
 41




---



##### 



As of December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(In thousands)Balance Sheet Data:Working capital (deficit)
    
    $
    (57,602
    )
    
    $
    (50,053
    )
    
    $
    (17,014
    )
    
    $
    10,307
    
    
    $
    (8,937
    )Property and equipment, net
    
    
    1,021,621
    
    
    
    646,810
    
    
    
    445,447
    
    
    
    314,074
    
    
    
    205,482Total assets
    
    
    1,108,014
    
    
    
    709,670
    
    
    
    494,795
    
    
    
    383,101
    
    
    
    234,345Long-term debt, including current
maturities
    
    
    533,057
    
    
    
    254,501
    
    
    
    188,758
    
    
    
    149,294
    
    
    
    62,974Total equity
    
    
    426,986
    
    
    
    310,721
    
    
    
    212,274
    
    
    
    155,385
    
    
    
    121,060
 
 (1)
    
    Debt repayments include amounts refinanced. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  General Overview
  Drilling program.
 Reserve Growth.
 Production.
 Commodity prices.
 Capital funding.
 42




---



##### 



Outlook for 2009
  Control capital costs and maintain financial flexibility.
 2009 drilling and capital program
 Results of Operations
 Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
  43




---



##### 



2008 PeriodCompared to 2007 PeriodDecember 31,
    
    
    Increase
    
    
    % Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)Production volumes-Oil and condensate (Mbbls)
    
    
    186
    
    
    
    241
    
    
    
    (55
    )
    
    
    (23
    )%Natural gas (MMcf)(1)
    
    
    24,513
    
    
    
    16,042
    
    
    
    8,471
    
    
    
    53
    %Average sales prices-Oil and condensate (per Bbl)
    
    $
    99.74
    
    
    $
    71.42
    
    
    $
    28.32
    
    
    
    40
    %Natural gas (per Mcf)
    
    
    7.80
    
    
    
    6.77
    
    
    
    1.03
    
    
    
    15
    %Operating revenues (In thousands) -Oil and condensate
    
    $
    18,598
    
    
    $
    17,197
    
    
    $
    1,401
    
    
    
    8
    %Natural gas
    
    
    191,231
    
    
    
    108,592
    
    
    
    82,639
    
    
    
    76
    %Other
    
    
    6,848
    
    
    
    
    
    
    
    6,848
    
    
    
    100
    %Total
    
    $
    216,677
    
    
    $
    125,789
    
    
    $
    90,888
    
    
    
    72
    %
 
 (1)
    
    Includes 2,467.6 and 1,316.3 Mmcfe of natural gas liquids in 2008
and 2007, respectively.        44




---



##### 



Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
   2007 PeriodCompared to 2006 PeriodDecember 31,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)Production volumes-Oil and condensate (Mbbls)
    
    
    241
    
    
    
    255
    
    
    
    (14
    )
    
    
    (5
    )%Natural gas (MMcf)(1)
    
    
    16,042
    
    
    
    10,176
    
    
    
    5,866
    
    
    
    58
    %Average sales prices-Oil and condensate (per Bbl)
    
    $
    71.42
    
    
    $
    63.62
    
    
    $
    7.80
    
    
    
    12
    %Natural gas (per Mcf)
    
    
    6.77
    
    
    
    6.56
    
    
    
    0.21
    
    
    
    3
    %Operating revenues (In thousands) -Oil and condensate
    
    $
    17,197
    
    
    $
    16,217
    
    
    $
    980
    
    
    
    6
    %Natural gas
    
    
    108,592
    
    
    
    66,728
    
    
    
    41,864
    
    
    
    63
    %Total
    
    $
    125,789
    
    
    $
    82,945
    
    
    $
    42,844
    
    
    
    52
    %
 
 (1)
    
    Includes 1,316.3 Mmcfe of  natural gas liquids in 2007.      45




---



##### 



Liquidity and Capital Resources
 2009 Capital Budget
and Funding Strategy.
 Sources and Uses of Cash.
 
    
    Cash on hand and cash generated by operations. Cash flows from operations are highly
dependent on commodity prices and market conditions for oil and gas field services. We
hedge a portion of our production to reduce the downside risk of declining natural gas and
oil prices.
    
    Available borrowings under our senior credit facility. During the fourth quarter of
2008, the borrowing base under our senior credit facility increased to $250.0 million. At
March 2, 2009, $71.0 million was available for borrowing under our senior credit facility.
The next borrowing base redetermination is currently scheduled for March 31, 2009.
    
    Other debt and equity offerings. In February 2008, we received $135.1 million of net
proceeds from an underwritten public offering of 2,587,500 shares of our common stock
priced at $54.50 per share. In May 2008, we received $365.3 million of net proceeds from
the issuance of our convertible notes. As situations or conditions arise, we may need to
issue debt, equity or other instruments to supplement our cash flows. However, we may not
be able to obtain such financing on terms that are acceptable to us, or at all.
    
    Asset sales. In order to fund our capital and exploration budget, we may consider the
sale of certain properties or assets that are not part of our core business, can be
monetized at a price we find acceptable, or are no longer deemed essential to our future
growth.
    
    Project financing in certain limited circumstances.
    
    Lease option agreements and land banking arrangements, such as those we have entered
into regarding the Marcellus Shale, the Barnett Shale and other plays.
    
    Joint ventures with third parties through which such third parties fund a portion of our
exploration activities to earn an interest in our exploration acreage, such as our recent
joint venture in the Marcellus Shale play.
    
    We may consider sale/leaseback transactions of certain capital assets, such as pipelines
and compressors, which are not part of our core oil and gas exploration and production
business.
  46




---



##### 



Overview of Cash Flow Activities.
   Liquidity/Cash Flow Outlook.
   47




---



##### 



Contractual Obligations
  Payments Due by Year(In thousands)2013 andTotal
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    ThereafterLong-term Debt
    
    $
    533,230
    
    
    $
    173
    
    
    $
    148
    
    
    $
    159
    
    
    $
    159,000
    
    
    $
    373,750Operating Leases
    
    
    3,212
    
    
    
    1,008
    
    
    
    1,102
    
    
    
    1,102
    
    
    
    
    
    
    
    Drilling Contracts
    
    
    58,937
    
    
    
    25,294
    
    
    
    25,295
    
    
    
    8,348
    
    
    
    
    
    
    
    Pipeline Volume Commitment(1)
    
    
    46,976
    
    
    
    6,273
    
    
    
    7,144
    
    
    
    6,479
    
    
    
    5,857
    
    
    
    21,223Total Contractual
Cash Obligations
    
    $
    642,355
    
    
    $
    32,748
    
    
    $
    33,689
    
    
    $
    16,088
    
    
    $
    164,857
    
    
    $
    394,973
 
 (1)
    
    Includes a seven firm year transportation agreement for 80,000 MMBtus/d with an
estimated starting date in October 2009. Off Balance Sheet Arrangements
  Financing Arrangements
 Senior Secured Revolving Credit Facility
     48




---



##### 



Convertible Senior Notes
    Second Lien Credit Facility
  49




---



##### 



Public Offerings in 2008 and 2007; and Private Placement of Common Stock in 2006.
    Lease Option Arrangements
    Effects of Inflation and Changes in Price
  50




---



##### 



Recently Issued Accounting Pronouncements
 Disclosures about Derivative Instruments and Hedging Activities
 Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion Including
Partial Cash Settlement Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants
 Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.
  Recently Adopted Accounting Pronouncements
 Fair Value Measurement
 Summary of Critical Accounting Policies
  51




---



##### 



Use of Estimates
    Oil and Natural Gas Properties
       52




---



##### 



Oil and Natural Gas Reserve Estimates
     53




---



##### 



Derivative Instruments
    Income Taxes
 Accounting for
Income Taxes
 Contingencies
  Volatility of Oil and Natural Gas Prices
  54




---



##### 



December 31,2008
    
    2007
    
    2006Oil positions settled (Bbls)
    
    
    64,100
    
    
    
    52,000
    
    
    
    82,200Natural gas positions settled (MMBtu)
    
    
    15,733,000
    
    
    
    7,846,000
    
    
    
    5,481,000Realized gain ($ millions) (1)
    
    $
    0.6
    
    
    $
    5.8
    
    
    $
    6.8Unrealized gain (loss) ($ millions) (1)
    
    $
    38.6
    
    
    $
    (4.6
    )
    
    $
    8.7
 
 (1)
    
    Included in gain (loss) on derivatives, net in the Consolidated Statements of
Operations.    55




---



##### 



Natural Gas Swaps
    
    Natural Gas Collars
    
    Basis Differential Swaps(2)Average
    
    
    
    
    
    Average
    
    AverageQuarter
    
    MMbtu
    
    Fixed Price(1)
    
    MMBtu
    
    Floor Price(1)
    
    Ceiling Price(1)
    
    MMBtu
    
    PriceFirst Quarter 2009
    
    
    2,803,000
    
    
    $
    6.13
    
    
    
    2,520,000
    
    
    $
    7.37
    
    
    $
    9.10
    
    
    
    310,000
    
    
    $
    0.31Second Quarter 2009
    
    
    1,547,000
    
    
    
    5.40
    
    
    
    2,548,000
    
    
    
    7.12
    
    
    
    8.85
    
    
    
    
    
    
    
    Third Quarter 2009
    
    
    
    
    
    
    
    
    
    
    2,576,000
    
    
    
    7.16
    
    
    
    8.88
    
    
    
    920,000
    
    
    
    0.31Fourth Quarter 2009
    
    
    
    
    
    
    
    
    
    
    2,576,000
    
    
    
    7.17
    
    
    
    8.90
    
    
    
    
    
    
    
    First Quarter 2010
    
    
    
    
    
    
    
    
    
    
    1,620,000
    
    
    
    7.92
    
    
    
    9.63
    
    
    
    
    
    
    
    Second Quarter 2010
    
    
    
    
    
    
    
    
    
    
    1,638,000
    
    
    
    7.18
    
    
    
    8.89
    
    
    
    
    
    
    
    Third Quarter 2010
    
    
    
    
    
    
    
    
    
    
    1,656,000
    
    
    
    7.35
    
    
    
    9.06
    
    
    
    
    
    
    
    Fourth Quarter 2010
    
    
    
    
    
    
    
    
    
    
    1,656,000
    
    
    
    7.45
    
    
    
    9.16
    
    
    
    
    
    
    
    First Quarter 2011
    
    
    
    
    
    
    
    
    
    
    450,000
    
    
    
    9.70
    
    
    
    11.70
    
    
    
    
    
    
    
    Second Quarter 2011
    
    
    
    
    
    
    
    
    
    
    455,000
    
    
    
    8.25
    
    
    
    10.25
    
    
    
    
    
    
    
    Third Quarter 2011
    
    
    
    
    
    
    
    
    
    
    460,000
    
    
    
    8.65
    
    
    
    10.65
    
    
    
    
    
    
    
    Fourth Quarter 2011
    
    
    
    
    
    
    
    
    
    
    460,000
    
    
    
    8.85
    
    
    
    10.85
    
    
    
    
    
    
    
    First Quarter 2012
    
    
    
    
    
    
    
    
    
    
    455,000
    
    
    
    9.55
    
    
    
    11.55
    
    
    
    
    
    
    
    Second Quarter 2012
    
    
    
    
    
    
    
    
    
    
    455,000
    
    
    
    8.35
    
    
    
    10.35
    
    
    
    
    
    
    
    TOTAL
    
    
    4,350,000
    
    
    
    
    
    
    
    19,525,000
    
    
    
    
    
    
    
    
    
    
    
    1,230,000
 Oil CollarsAverage
    
    AverageQuarter
    
    Bbls
    
    Floor Price(3)
    
    Ceiling Price(3)First Quarter 2009
    
    
    9,000
    
    
    $
    131.65
    
    
    $
    151.65Second Quarter 2009
    
    
    9,100
    
    
    
    131.40
    
    
    
    151.40Third Quarter 2009
    
    
    9,200
    
    
    
    130.85
    
    
    
    150.85Fourth Quarter 2009
    
    
    9,200
    
    
    
    130.35
    
    
    
    150.35TOTAL
    
    
    36,500
 
 (1)
    
    Based on Houston Ship Channel and WAHA spot prices.(2)
    
    Basis differential swaps cover the price differential for natural gas between NYMEX
and HSC.(3)
    
    Based on West Texas intermediate index prices. 56




---



##### 



Natural Gas Swaps
    
    Natural Gas Collars
    
    Basis Differential Swaps(2)Average
    
    
    
    
    
    Average
    
    AverageQuarter
    
    MMbtu
    
    Fixed Price(1)
    
    MMBtu
    
    Floor Price(1)
    
    Ceiling Price(1)
    
    MMBtu
    
    PriceFirst Quarter 2009
    
    
    2,803,000
    
    
    $
    6.13
    
    
    
    2,520,000
    
    
    $
    7.37
    
    
    $
    9.10
    
    
    
    
    
    
    $
    Second Quarter 2009
    
    
    5,187,000
    
    
    
    5.34
    
    
    
    2,548,000
    
    
    
    7.12
    
    
    
    8.85
    
    
    
    
    
    
    
    Third Quarter 2009
    
    
    3,680,000
    
    
    
    5.31
    
    
    
    2,576,000
    
    
    
    7.16
    
    
    
    8.88
    
    
    
    920,000
    
    
    
    0.31Fourth Quarter 2009
    
    
    3,680,000
    
    
    
    5.58
    
    
    
    2,576,000
    
    
    
    7.17
    
    
    
    8.90
    
    
    
    
    
    
    
    First Quarter 2010
    
    
    1,800,000
    
    
    
    5.57
    
    
    
    1,620,000
    
    
    
    7.92
    
    
    
    9.63
    
    
    
    
    
    
    
    Second Quarter 2010
    
    
    1,820,000
    
    
    
    5.57
    
    
    
    182,000
    
    
    
    7.35
    
    
    
    9.15
    
    
    
    
    
    
    
    Third Quarter 2010
    
    
    1,840,000
    
    
    
    5.57
    
    
    
    184,000
    
    
    
    7.35
    
    
    
    9.15
    
    
    
    
    
    
    
    Fourth Quarter 2010
    
    
    1,840,000
    
    
    
    5.57
    
    
    
    184,000
    
    
    
    7.35
    
    
    
    9.15
    
    
    
    
    
    
    
    First Quarter 2011
    
    
    1,800,000
    
    
    
    5.64
    
    
    
    450,000
    
    
    
    9.70
    
    
    
    11.70
    
    
    
    
    
    
    
    Second Quarter 2011
    
    
    1,820,000
    
    
    
    5.64
    
    
    
    455,000
    
    
    
    8.25
    
    
    
    10.25
    
    
    
    
    
    
    
    Third Quarter 2011
    
    
    1,840,000
    
    
    
    5.64
    
    
    
    460,000
    
    
    
    8.65
    
    
    
    10.65
    
    
    
    
    
    
    
    Fourth Quarter 2011
    
    
    1,840,000
    
    
    
    5.64
    
    
    
    460,000
    
    
    
    8.85
    
    
    
    10.85
    
    
    
    
    
    
    
    First Quarter 2012
    
    
    910,000
    
    
    
    5.88
    
    
    
    455,000
    
    
    
    9.55
    
    
    
    11.55
    
    
    
    
    
    
    
    Second Quarter 2012
    
    
    910,000
    
    
    
    5.88
    
    
    
    455,000
    
    
    
    8.35
    
    
    
    10.35
    
    
    
    
    
    
    
    Third Quarter 2012
    
    
    920,000
    
    
    
    5.88
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fourth Quarter 2012
    
    
    920,000
    
    
    
    5.88
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    
    33,610,000
    
    
    
    
    
    
    
    15,125,000
    
    
    
    
    
    
    
    
    
    
    
    920,000
 
 (1)
    
    Based on Houston Ship Channel and WAHA spot prices.(2)
    
    Basis differential swaps cover the price differential for natural gas between
NYMEX and HSC. 
 Item 7A. Qualitative and Quantitative Disclosures about Market Risk
 Commodity Risk.
  Financial Instruments and Debt Maturities.
 
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
  57




---



##### 



Item 9A. Controls and Procedures
 (a) Disclosure Controls and Procedures.
    (b) Managements Annual Report on Internal Control over Financial Reporting.
  1.
    
    pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company;2.
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and3.
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Companys assets that could have a material effect
on the financial statements.
  Internal
Control-Integrated Framework
   58




---



##### 



(c) Changes in Internal Control over Financial Reporting.
 59




---



##### 



Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
   
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accountant Fees and Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)(1) Financial Statements
  60




---



##### 



(a)(2) Financial Statement Schedules
 
 Balance at
    
    Charged to
    
    
    
    
    
    Charged
    
    BalanceBeginning
    
    Costs and
    
    
    
    
    
    to Other
    
    at EndDescription
    
    of Period
    
    Expenses
    
    Deductions
    
    Accounts
    
    of Period2008Allowance for doubtful accounts
    
    $
    1,430
    
    
    $
    (166
    )
    
    $
    
    
    
    $
    
    
    
    $
    1,2642007Allowance for doubtful accounts
    
    $
    1,639
    
    
    $
    (209
    ) (1)
    
    $
    
    
    
    $
    
    
    
    $
    1,4302006Allowance for doubtful accounts
    
    $
    253
    
    
    $
    1,386
    (2)
    
    $
    
    
    
    $
    
    
    
    $
    1,639
 
 (1)
    
    Relates primarily to an adjustment of the 2006 bankruptcy filing by an outside
operator.(2)
    
    Relates primarily to a bankruptcy filing by an outside operator. (a)(3) Exhibits
 EXHIBIT INDEX
 ExhibitNumber
    
    
    
    Description2.1
    
    
    
    Combination Agreement by and among the Company, Carrizo Production, Inc., Encinitas Partners
Ltd., La Rosa Partners Ltd., Carrizo Partners Ltd., Paul B. Loyd, Jr., Steven A. Webster,
S.P. Johnson IV, Douglas A.P. Hamilton and Frank A. Wojtek dated as of September 6, 1997
(incorporated herein by reference to Exhibit 2.1 to the Companys Registration Statement on
Form S-1 (Registration No. 333-29187)).3.1
    
    
    
    Amended and Restated Articles of Incorporation of the Company (incorporated herein by
reference to Exhibit 3.1 to the Companys Annual Report on Form 10-K for the year ended
December 31, 1998).3.2
    
    
    
    Articles of Amendment to Amended and Restated Articles of Incorporation (incorporated herein
by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed on June 25,
2008).3.3
    
    
    
    Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1
to the Companys Current Report on Form 8-K filed on January 3, 2008).4.1
    
    
    
    Indenture among Carrizo Oil & Gas, Inc., the subsidiaries named therein and Wells Fargo
Bank, National Association, as trustee, dated May 28, 2008 (incorporated herein by reference
to Exhibit 4.1 to the Companys Current Report on Form 8-K filed on May 28, 2008).4.2
    
    
    
    First Supplemental Indenture dated May 28, 2008 between Carrizo Oil & Gas, Inc. and Wells
Fargo Bank, National Association, as trustee (incorporated herein by reference to Exhibit
4.2 to the Companys Current Report on Form 8-K filed on May 28, 2008).10.1
    
    
    
    Amendment No. 1 to the Letter Agreement Regarding Participation in the Companys 2001
Seismic and Acreage Program, dated June 1, 2001 (incorporated herein by reference to Exhibit
4.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2001).*10.2
    
    
    
    Amended and Restated Incentive Plan of the Company effective as of February 17, 2000
(incorporated herein by reference to Exhibit 10.3 to the Companys Quarterly Report on Form
10-Q for the quarter ended June 30, 2000).
 61




---



##### 



ExhibitNumber
    
    
    
    Description*10.3
    
    
    
    Amendment No. 1 to the Amended and Restated Incentive Plan of the Company (incorporated
herein by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002).*10.4
    
    
    
    Amendment No. 2 to the Amended and Restated Incentive Plan of the Company (incorporated
herein by reference to Exhibit 10.3 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2002).*10.5
    
    
    
    Amendment No. 3 to the Amended and Restated Incentive Plan of the Company (incorporated
herein by reference to Appendix A to the Companys Proxy Statement dated April 21, 2003).*10.6
    
    
    
    Amendment No. 4 to the Amended and Restated Incentive Plan of the Company (incorporated
herein by reference to Appendix B to the Companys Proxy Statement dated April 26, 2004).*10.7
    
    
    
    Amendment No. 5 to the Amended and Restated Incentive Plan of the Company (incorporated
herein by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on May
16, 2005).*10.8
    
    
    
    Amendment No. 6 to the Amended and Restated Incentive Plan of the Company (incorporated
herein by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on
August 19, 2005).*10.9
    
    
    
    Amendment No.7 to the Amended and Restated Incentive Plan of Carrizo Oil & Gas, Inc.
(incorporated herein by reference to Exhibit 10.3 to the Companys Current Report on Form
8-K filed on May 30, 2006).*10.10
    
    
    
    Employment Agreement between the Company and S.P. Johnson IV (incorporated herein by
reference to Exhibit 10.2 to the Companys Registration Statement on Form S-1 (Registration
No. 333-29187)).*10.11
    
    
    
    Employment Agreement between the Company and J. Bradley Fisher (incorporated herein by
reference to Exhibit 10.8 to the Companys Registration Statement on Form S-2 (Registration
No. 333-111475)).*10.12
    
    
    
    Employment Agreement between the Company and Paul F. Boling (incorporated herein by
reference to Exhibit 10.9 to the Companys Registration Statement on Form S-2 (Registration
No. 333-111475)).*10.13
    
    
    
    Employment Agreement between the Company and Gregory E. Evans dated March 21, 2005
(incorporated herein by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed on March 22, 2005).*10.14
    
    
    
    Employment Agreement between Carrizo Oil & Gas, Inc. and Richard Smith dated September 18,
2006, and effective as of August 23, 2006 (incorporated herein by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K filed on September 22, 2006).*10.15
    
    
    
    Form of Indemnification Agreement between the Company and each of its directors and
executive officers (incorporated herein by reference to Exhibit 10.6 to the Companys Annual
Report on Form 10-K for the year ended December 31, 1998).*10.16
    
    
    
    Form of Amendment to Executive Officer Employment Agreement (incorporated herein by
reference to Exhibit 99.3 to the Companys Current Report on Form 8-K dated January 8,
1998).*10.17
    
    
    
    Form of Amendment to Executive Officer Employment Agreement (incorporated herein by
reference to Exhibit 99.7 to the Companys Current Report on Form 8-K dated December 15,
1999).*10.18
    
    
    
    Form of Amendment to Director Indemnification Agreement (incorporated herein by reference to
Exhibit 99.8 to the Companys Current Report on Form 8-K dated December 15, 1999).*10.19
    
    
    
    Form of Amendment to Executive Officer Employment Agreement (incorporated herein by
reference to Exhibit 99.7 to the Companys Current Report on Form 8-K dated February 20,
2002).*10.20
    
    
    
    Form of Amendment to Director Indemnification Agreement (incorporated herein by reference to
Exhibit 99.8 to the Companys Current Report on Form 8-K dated February 20, 2002).*10.21
    
    
    
    Amendment to the Employment Agreement between the Company and S.P. Johnson IV (incorporated
herein by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on
January 27, 2006).*10.22
    
    
    
    Amendment to the Employment Agreement between the Company and Paul F. Boling (incorporated
herein by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed on
January 27, 2006).*10.23
    
    
    
    Amendment to the Employment Agreement between the Company and Gregory E. Evans (incorporated
herein by reference to Exhibit 10.3 to the Companys Current Report on Form 8- K filed on
January 27, 2006).
 62




---



##### 



ExhibitNumber
    
    
    
    Description*10.24
    
    
    
    Amendment to the Employment Agreement between the Company and J. Bradley Fisher
(incorporated herein by reference to Exhibit 10.4 to the Companys Current Report on Form
8-K filed on January 27, 2006).*10.25
    
    
    
    Amendment to the Employment Agreement between Carrizo Oil & Gas, Inc. and S.P. Johnson IV
effective December 19, 2008 (incorporated herein by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on December 23, 2008).*10.26
    
    
    
    Amendment to the Employment Agreement between Carrizo Oil & Gas, Inc. and Paul F. Boling
effective December 19, 2008 (incorporated herein by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K filed on December 23, 2008).*10.27
    
    
    
    Amendment to the Employment Agreement between Carrizo Oil & Gas, Inc. and J. Bradley Fisher
effective December 19, 2008 (incorporated herein by reference to Exhibit 10.3 to the
Companys Current Report on Form 8-K filed on December 23, 2008).*10.28
    
    
    
    Amendment to the Employment Agreement between Carrizo Oil & Gas, Inc. and Gregory E. Evans
effective December 19, 2008 (incorporated herein by reference to Exhibit 10.4 to the
Companys Current Report on Form 8-K filed on December 23, 2008).*10.29
    
    
    
    Amendment to the Employment Agreement between Carrizo Oil & Gas, Inc. and Richard H. Smith
effective December 19, 2008 (incorporated herein by reference to Exhibit 10.5 to the
Companys Current Report on Form 8-K filed on December 23, 2008).*10.30
    
    
    
    Form of Stock Option Award Agreement (incorporated herein by reference to Exhibit 10.43 to
the Companys Annual Report on Form 10-K for the year ended December 31, 2004).*10.31
    
    
    
    Form of Director Restricted Stock Award Agreement under the Incentive Plan of Carrizo Oil &
Gas, Inc. (incorporated herein by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on April 19, 2005).*10.32
    
    
    
    Form of Director Restricted Stock Award Agreement under the Incentive Plan of Carrizo Oil &
Gas, Inc. (incorporated herein by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K filed on April 19, 2005).*10.33
    
    
    
    Form of Employee Restricted Stock Award Agreement under the Incentive Plan of Carrizo Oil &
Gas, Inc. (incorporated herein by reference to Exhibit 10.3 to the Companys Current Report
on Form 8-K filed on April 19, 2005).*10.34
    
    
    
    Form of Employee Restricted Stock Award under the Incentive Plan of Carrizo Oil & Gas, Inc.
(incorporated herein by reference to Exhibit 10.6 to the Companys Current Report on Form
8-K filed on January 27, 2006).*10.35
    
    
    
    Form of Employee Restricted Stock Award Agreement (incorporated herein by reference to
Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended September
30, 2006).*10.36
    
    
    
    Form of Employee Stock Option Award Agreement (incorporated herein by reference to Exhibit
10.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30,
2006).*10.37
    
    
    
    Form of Independent Contractor Restricted Stock Award Agreement (incorporated herein by
reference to Exhibit 10.4 to the Companys Current Report on Form 8-K filed on May 30,
2006).*10.38
    
    
    
    Form of Employee Restricted Stock Award Agreement (with performance-based vesting)
(incorporated herein by reference to Exhibit 10.6 to the Companys Current Report on Form
8-K filed on December 23, 2008).10.39
    
    
    
    S Corporation Tax Allocation, Payment and Indemnification Agreement among the Company and
Messrs. Loyd, Webster, Johnson, Hamilton and Wojtek (incorporated herein by reference to
Exhibit 10.8 to the Companys Registration Statement on Form S-1 (Registration No.
333-29187)).10.40
    
    
    
    S Corporation Tax Allocation, Payment and Indemnification Agreement among Carrizo
Production, Inc. and Messrs. Loyd, Webster, Johnson, Hamilton and Wojtek (incorporated
herein by reference to Exhibit 10.9 to the Companys Registration Statement on Form S-1
(Registration No. 333-29187)).10.41
    
    
    
    Amended and Restated Registration Rights Agreement dated December 15, 1999 among the
Company, Paul B. Loyd Jr., Douglas A. P. Hamilton, Steven A. Webster, S.P. Johnson IV, Frank
A. Wojtek and DAPHAM Partnership, L.P. (incorporated herein by reference to Exhibit 99.5 to
the Companys Current Report on Form 8-K dated December 15, 1999).
 63




---



##### 



ExhibitNumber
    
    
    
    Description10.42
    
    
    
    Registration Rights Agreement dated February 20, 2002 among the Company, Mellon Ventures,
L.P. and Steven A. Webster (incorporated herein by reference to Exhibit 99.5 to the
Companys Current Report on Form 8-K dated February 20, 2002).10.43
    
    
    
    Credit Agreement dated as of May 25, 2006 among Carrizo Oil & Gas, Inc., as Borrower,
Certain Subsidiaries of Borrower, as Guarantors, the Lenders party thereto, JPMorgan Chase
Bank, National Association, as Administrative Agent, and J.P. Morgan Securities Inc., as
Sole Bookrunner and Lead Arranger (incorporated herein by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on May 30, 2006).10.44
    
    
    
    First Lien Stock Pledge and Security Agreement dated as of May 25, 2006, by Carrizo Oil &
Gas, Inc., in favor of JPMorgan Chase Bank, National Association, as Administrative Agent
(incorporated herein by reference to Exhibit 10.2 to the Companys Current Report on Form
8-K filed on May 30, 2006).10.45
    
    
    
    Second Amendment effective as of September 11, 2007 to Credit Agreement dated as of May 25,
2006 among Carrizo Oil & Gas, Inc., as Borrower, Certain Subsidiaries of Borrower, as
Guarantors, JPMorgan Chase Bank, National Association, as Administrative Agent and Lender,
and Guaranty Bank as Lender (incorporated herein by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on September 11, 2007).10.46
    
    
    
    Third Amendment effective as of December 20, 2007 to Credit Agreement dated as of May 25,
2006 among Carrizo Oil & Gas, Inc., as Borrower, Certain Subsidiaries of Borrower, as
Guarantors, JPMorgan Chase Bank, National Association, as Administrative Agent and Lender,
and Guaranty Bank as Lender (incorporated by reference to Exhibit 10.48 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2008).10.47
    
    
    
    Fourth Amendment to Credit Agreement, dated as of May 20, 2008, by and among Carrizo Oil &
Gas, Inc. and certain subsidiaries thereof, the Lenders party thereto and JPMorgan Chase
Bank, N.A., as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on May 22, 2008).10.48
    
    
    
    Fifth Amendment to Credit Agreement dated as of June 11, 2008 to Credit Agreement dated as
of May 25, 2006 among Carrizo Oil & Gas, Inc., as Borrower, Certain Subsidiaries of
Borrower, as Guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, and the Lenders
party thereto (incorporated herein by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on July 11, 2008).10.49
    
    
    
    Sixth Amendment dated as of July 7, 2008 to Credit Agreement dated as of May 25, 2006 among
Carrizo Oil & Gas, Inc., as Borrower, Certain Subsidiaries of Borrower, as Guarantors,
JPMorgan Chase Bank, N.A., as Administrative Agent, and the Lenders party thereto
(incorporated herein by reference to Exhibit 10.2 to the Companys Current Report on Form
8-K filed on July 11, 2008).10.50
    
    
    
    Seventh Amendment dated as of October 29, 2008 to Credit Agreement dated as of May 25, 2006
among Carrizo Oil & Gas, Inc., as Borrower, Certain Subsidiaries of Borrower, as Guarantors,
the Lenders party thereto, JPMorgan Chase Bank, N.A., as resigning administrative agent and
as resigning issuing bank, and Guaranty Bank, as successor administrative agent and as
successor issuing bank (incorporated herein by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on November 4, 2008).10.51
    
    
    
    Lender Certificate dated December 16, 2008 of Union Bank of California, N.A. regarding
joinder as Lender to Credit Agreement, as amended, dated as of May 25, 2006 among Carrizo
Oil & Gas, Inc., as Borrower, Certain Subsidiaries of Borrower, as Guarantors, Guaranty
Bank, as Administrative Agent and the Lenders party thereto (incorporated herein by
reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on December 22,
2008).10.52
    
    
    
    Base Salaries for certain Executive Officers.21.1
    
    
    
    Subsidiaries of the Company.23.1
    
    
    
    Consent of Pannell Kerr Forster of Texas, P.C.23.2
    
    
    
    Consent of Ryder Scott Company Petroleum Engineers.23.3
    
    
    
    Consent of Fairchild & Wells, Inc.
 64




---



##### 



ExhibitNumber
    
    
    
    Description23.4
    
    
    
    Consent of LaRoche Petroleum Consultants, Ltd.31.1
    
    
    
    CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    
    CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    
    CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
    
    
    
    Summary of Reserve Report of Ryder Scott Company Petroleum Engineers as of December 31, 2008.99.2
    
    
    
    Summary of Reserve Report of Fairchild & Wells, Inc. as of December 31, 2008.99.3
    
    
    
    Summary of Reserve Report of LaRoche Petroleum Consultants, Ltd. as of December 31, 2008.
 
 
    
    Incorporated by reference as indicated.*
    
    Management contract or compensatory plan or arrangement. 65




---



##### 



CARRIZO OIL & GAS, INC.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PAGEReports of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets, December 31, 2008 and 2007
    
    F-4Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006
    
    F-5Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2008,
2007 and 2006
    
    F-6Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006
    
    F-8Notes to Consolidated Financial Statements
    
    F-9
 F-1




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal Control  Integrated Framework
  
 F-2




---



##### 



REPORT OF INDEPENENT REGISTERED PUBLIC ACCOUNTING FIRMS
 
 Internal ControlIntegrated
Framework Managements Report on Internal Control Over Financial
Reporting.
    Internal
ControlIntegrated Framework
   
 F-3




---



##### 



CARRIZO OIL & GAS, INC.
CONSOLIDATED BALANCE SHEETS
 December 31,2008
    
    
    2007(In thousands, except per share amount)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    5,184
    
    
    $
    8,026Accounts receivable, trade (net of allowance for doubtful accounts of
$1,264 and $1,430
at December 31, 2008 and 2007, respectively)
    
    
    24,675
    
    
    
    27,114Advances to operators
    
    
    336
    
    
    
    1,113Fair value of derivative financial instruments
    
    
    22,791
    
    
    
    1,126Prepayments and deposits
    
    
    3,335
    
    
    
    3,913Deferred tax asset
    
    
    
    
    
    
    324Total current assets
    
    
    56,321
    
    
    
    41,616PROPERTY AND EQUIPMENT, net full-cost method of accounting for oil and
natural
gas properties (including unevaluated costs of properties of $276,138 and
$124,373 at
December 31, 2008 and 2007, respectively)
    
    
    1,021,621
    
    
    
    646,810DEFERRED FINANCING COSTS, NET
    
    
    9,750
    
    
    
    5,921INVESTMENTS
    
    
    3,274
    
    
    
    11,071FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
    
    
    15,876
    
    
    
    OTHER ASSETS
    
    
    1,172
    
    
    
    3,245TOTAL ASSETS
    
    $
    1,108,014
    
    
    $
    708,663LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable, trade
    
    $
    46,683
    
    
    $
    49,700Accrued liabilities
    
    
    54,149
    
    
    
    36,091Advances for joint operations
    
    
    3,815
    
    
    
    872Current maturities of long-term debt
    
    
    173
    
    
    
    2,251Fair value of derivative financial instruments
    
    
    
    
    
    
    2,755Deferred tax liability
    
    
    9,103
    
    
    
    Total current liabilities
    
    
    113,923
    
    
    
    91,669LONG-TERM DEBT, net of current maturities
    
    
    533,057
    
    
    
    252,250ASSET RETIREMENT OBLIGATION
    
    
    6,503
    
    
    
    5,869FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
    
    
    
    
    
    
    1,050DEFERRED INCOME TAXES
    
    
    26,920
    
    
    
    46,321DEFERRED CREDITS
    
    
    625
    
    
    
    783COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    SHAREHOLDERS EQUITY:Common stock, par value $0.01 (90,000 shares authorized with 30,860 and
28,009 issued and outstanding at December 31, 2008 and 2007, respectively)
    
    
    309
    
    
    
    280Additional paid in capital
    
    
    380,571
    
    
    
    239,672Retained earnings
    
    
    47,405
    
    
    
    65,344Accumulated other comprehensive income (loss), net of tax
    
    
    (1,299
    )
    
    
    5,425Total shareholders equity
    
    
    426,986
    
    
    
    310,721TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    1,108,014
    
    
    $
    708,663
  F-4




---



##### 



CARRIZO OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Years Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands, except per share amounts)OIL AND NATURAL GAS REVENUES
    
    $
    216,677
    
    
    $
    125,789
    
    
    $
    82,945COSTS AND EXPENSES:Oil and natural gas operating expenses (exclusive of depletion,
depreciation and amortization, shown separately below)
    
    
    37,885
    
    
    
    24,662
    
    
    
    16,428Third party gas purchases
    
    
    6,570
    
    
    
    
    
    
    
    Depreciation, depletion and amortization
    
    
    58,311
    
    
    
    41,899
    
    
    
    31,129Impairment of oil and natural gas properties
    
    
    138,591
    
    
    
    
    
    
    
    General and administrative
    
    
    23,425
    
    
    
    18,912
    
    
    
    14,909Accretion expenses related to asset retirement obligation
    
    
    154
    
    
    
    374
    
    
    
    496Total costs and expenses
    
    
    264,936
    
    
    
    85,847
    
    
    
    62,962OPERATING INCOME (LOSS)
    
    
    (48,259
    )
    
    
    39,942
    
    
    
    19,983OTHER INCOME AND EXPENSES:Gain (loss) on derivatives, net
    
    
    37,499
    
    
    
    (1,366
    )
    
    
    16,457Loss on extinguishment of debt
    
    
    (5,689
    )
    
    
    
    
    
    
    (294
    )Equity in income of Pinnacle Gas Resources, Inc.
    
    
    
    
    
    
    
    
    
    
    35Interest income
    
    
    269
    
    
    
    691
    
    
    
    969Interest expense
    
    
    (23,546
    )
    
    
    (26,403
    )
    
    
    (19,071
    )Capitalized interest
    
    
    15,641
    
    
    
    11,718
    
    
    
    9,975Other income, net
    
    
    17
    
    
    
    130
    
    
    
    427INCOME (LOSS) BEFORE INCOME TAX EXPENSE
    
    
    (24,068
    )
    
    
    24,712
    
    
    
    28,481INCOME TAX EXPENSE (BENEFIT)
    
    
    (6,129
    )
    
    
    9,243
    
    
    
    10,233NET INCOME (LOSS)
    
    $
    (17,939
    )
    
    $
    15,469
    
    
    $
    18,248OTHER COMPREHENSIVE INCOME (LOSS):Increase (decrease) in market value of investment in Pinnacle
Gas Resources, Inc., net of taxes
    
    
    (6,724
    )
    
    
    5,425
    
    
    
    COMPREHENSIVE INCOME (LOSS)
    
    $
    (24,663
    )
    
    $
    20,894
    
    
    $
    18,248BASIC EARNINGS (LOSS) PER COMMON SHARE
    
    $
    (0.60
    )
    
    $
    0.59
    
    
    $
    0.74DILUTED EARNINGS (LOSS) PER COMMON SHARE
    
    $
    (0.60
    )
    
    $
    0.57
    
    
    $
    0.71WEIGHTED AVERAGE SHARES OUTSTANDING:BASIC
    
    
    30,010
    
    
    
    26,287
    
    
    
    24,827DILUTED
    
    
    30,010
    
    
    
    27,120
    
    
    
    25,565
  F-5




---



##### 



CARRIZO OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Common StockShares
    
    
    Amount(Dollars in thousands)BALANCE, January 1, 2006
    
    
    24,251,430
    
    
    $
    243Common stock issued, net of offering cost
    
    
    1,350,000
    
    
    
    13Common stock issued for property
    
    
    2,000
    
    
    
    Stock options exercised for cash
    
    
    101,800
    
    
    
    1Stock-based compensation
    
    
    
    
    
    
    Capitalization of repriced stock options of adoption of SFAS
123(R)
    
    
    
    
    
    
    Restricted stock awards, net of forfeitures
    
    
    277,436
    
    
    
    3Common stock repurchased for tax withholding obligations
    
    
    (2,061
    )
    
    
    Net income
    
    
    
    
    
    
    BALANCE, December 31, 2006
    
    
    25,980,605
    
    
    $
    260Common stock issued, net of offering cost
    
    
    1,800,000
    
    
    
    18Stock options exercised for cash
    
    
    124,148
    
    
    
    1Stock-based compensation
    
    
    
    
    
    
    Restricted stock awards, net of forfeitures
    
    
    111,839
    
    
    
    1Common stock repurchased for tax withholding obligations
    
    
    (7,440
    )
    
    
    Other comprehensive incomeFair value adjustment to investment in Pinnacle
Gas Resources, Inc., net of tax
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    Total other comprehensive income
    
    
    
    
    
    
    BALANCE, December 31, 2007
    
    
    28,009,152
    
    
    $
    280Common stock issued, net of offering cost
    
    
    2,587,500
    
    
    
    26Stock options exercised for cash
    
    
    65,400
    
    
    
    1Stock-based compensation
    
    
    
    
    
    
    Restricted stock awards, net of forfeitures
    
    
    203,306
    
    
    
    2Common stock repurchased to settle tax withholding obligations
    
    
    (5,711
    )
    
    
    Other comprehensive lossFair value adjustment to investment in Pinnacle
Gas Resources, Inc., net of tax
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    Total other comprehensive loss
    
    
    
    
    
    
    BALANCE, December 31, 2008
    
    
    30,859,647
    
    
    $
    309
  F-6




---



##### 



CARRIZO OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 AccumulatedAdditional
    
    
    
    
    
    
    OtherPaid in
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersCapital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Equity(Dollars in thousands)BALANCE, January 1, 2006
    
    $
    123,515
    
    
    $
    31,627
    
    
    $
    
    
    
    $
    155,385Common stock issued, net of offering cost
    
    
    33,403
    
    
    
    
    
    
    
    
    
    
    
    33,416Common stock issued for property
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    55Stock options exercised for cash
    
    
    601
    
    
    
    
    
    
    
    
    
    
    
    602Stock-based compensation
    
    
    3,007
    
    
    
    
    
    
    
    
    
    
    
    3,007Capitalization of repriced stock options at adoption of SFAS
123(R)
    
    
    1,696
    
    
    
    
    
    
    
    
    
    
    
    1,696Restricted stock awards, net of forfeitures
    
    
    (80
    )
    
    
    
    
    
    
    
    
    
    
    (77
    )Common stock repurchased to settle tax withholding obligations
    
    
    (58
    )
    
    
    
    
    
    
    
    
    
    
    (58
    )Net income
    
    
    
    
    
    
    18,248
    
    
    
    
    
    
    
    18,248BALANCE, December 31, 2006
    
    $
    162,139
    
    
    $
    49,875
    
    
    $
    
    
    
    $
    212,274Common stock issued, net of offering cost
    
    
    71,908
    
    
    
    
    
    
    
    
    
    
    
    71,926Stock options exercised for cash
    
    
    1,030
    
    
    
    
    
    
    
    
    
    
    
    1,031Stock-based compensation
    
    
    5,041
    
    
    
    
    
    
    
    
    
    
    
    5,041Restricted stock awards, net of forfeitures
    
    
    (136
    )
    
    
    
    
    
    
    
    
    
    
    (135
    )Common stock repurchased to settle tax withholding obligations
    
    
    (310
    )
    
    
    
    
    
    
    
    
    
    
    (310
    )Other comprehensive incomeFair value adjustment to investment in Pinnacle
Gas Resources, Inc., net of tax
    
    
    
    
    
    
    
    
    
    
    5,425
    
    
    
    5,425Net income
    
    
    
    
    
    
    15,469
    
    
    
    
    
    
    
    15,469Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,894BALANCE, December 31, 2007
    
    $
    239,672
    
    
    $
    65,344
    
    
    $
    5,425
    
    
    $
    310,721Common stock issued, net of offering cost
    
    
    135,049
    
    
    
    
    
    
    
    
    
    
    
    135,075Stock options exercised for cash
    
    
    261
    
    
    
    
    
    
    
    
    
    
    
    262Stock-based compensation
    
    
    6,013
    
    
    
    
    
    
    
    
    
    
    
    6,013Restricted stock awards, net of forfeitures
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    (61
    )Common stock repurchased to settle tax withholding obligations
    
    
    (361
    )
    
    
    
    
    
    
    
    
    
    
    (361
    )Other Comprehensive incomeFair value adjustment to investment in Pinnacle
Gas Resources, Inc., net of tax
    
    
    
    
    
    
    
    
    
    
    (6,724
    )
    
    
    (6,724
    )Net loss
    
    
    
    
    
    
    (17,939
    )
    
    
    
    
    
    
    (17,939
    )Total other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,663
    )BALANCE, December 31, 2008
    
    $
    380,571
    
    
    $
    47,405
    
    
    $
    (1,299
    )
    
    $
    426,986
 F-7




---



##### 



CARRIZO OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net Income (Loss)
    
    $
    (17,939
    )
    
    $
    15,469
    
    
    $
    18,248Adjustments to reconcile net income (loss) to net
cash provided by operating activities Depreciation, depletion and amortization
    
    
    58,311
    
    
    
    41,899
    
    
    
    31,129Impairment of oil and natural gas properties
    
    
    138,591
    
    
    
    
    
    
    
    Fair value (gain) loss on derivative financial instruments
    
    
    (41,345
    )
    
    
    7,377
    
    
    
    (8,069
    )Provision for allowance for doubtful accounts
    
    
    (166
    )
    
    
    (209
    )
    
    
    1,386Accretion of discounts on asset retirement obligations and debt
    
    
    154
    
    
    
    374
    
    
    
    496Loss on extinguishment of debt
    
    
    4,601
    
    
    
    
    
    
    
    294Stock-based compensation
    
    
    5,952
    
    
    
    4,907
    
    
    
    2,930Equity in income of Pinnacle Gas Resources, Inc.
    
    
    
    
    
    
    
    
    
    
    (35
    )Deferred income taxes
    
    
    (6,324
    )
    
    
    8,329
    
    
    
    9,829Other
    
    
    5,272
    
    
    
    1,623
    
    
    
    1,237Changes in operating assets and liabilities Accounts receivable
    
    
    2,605
    
    
    
    316
    
    
    
    (2,178
    )Other assets
    
    
    (3,661
    )
    
    
    (210
    )
    
    
    2,037Accounts payable
    
    
    (1,476
    )
    
    
    15,463
    
    
    
    5,560Accrued liabilities
    
    
    4,179
    
    
    
    (107
    )
    
    
    2,573Net cash provided by operating activities
    
    
    148,754
    
    
    
    95,231
    
    
    
    65,437CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (571,291
    )
    
    
    (247,003
    )
    
    
    (201,773
    )Change in capital expenditure accrual
    
    
    11,808
    
    
    
    17,079
    
    
    
    7,791Proceeds from the sale of oil and natural gas properties
    
    
    3,259
    
    
    
    1,505
    
    
    
    38,319Advances to operators
    
    
    776
    
    
    
    994
    
    
    
    (517
    )Advances for joint operations
    
    
    2,943
    
    
    
    (229
    )
    
    
    (4,786
    )Other
    
    
    (2,840
    )
    
    
    (70
    )
    
    
    (610
    )Net cash used in investing activities
    
    
    (555,345
    )
    
    
    (227,724
    )
    
    
    (161,576
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net proceeds from common stock issuances:Private placements, net of offering costs
    
    
    135,075
    
    
    
    71,926
    
    
    
    33,525Stock option exercises
    
    
    262
    
    
    
    1,031
    
    
    
    602Net proceeds from debt issuance and borrowings
    
    
    778,182
    
    
    
    174,000
    
    
    
    80,000Debt repayments
    
    
    (498,923
    )
    
    
    (108,258
    )
    
    
    (40,536
    )Deferred loan costs and other
    
    
    (10,847
    )
    
    
    (3,588
    )
    
    
    (769
    )Net cash provided by financing activities
    
    
    403,749
    
    
    
    135,111
    
    
    
    72,822NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
    
    
    (2,842
    )
    
    
    2,618
    
    
    
    (23,317
    )CASH AND CASH EQUIVALENTS, beginning of year
    
    
    8,026
    
    
    
    5,408
    
    
    
    28,725CASH AND CASH EQUIVALENTS, end of year
    
    $
    5,184
    
    
    $
    8,026
    
    
    $
    5,408SUPPLEMENTAL CASH FLOW DISCLOSURES:Cash paid for interest (net of amounts capitalized)
    
    $
    4,160
    
    
    $
    12,217
    
    
    $
    7,211Cash paid for income taxes
    
    $
    30
    
    
    $
    
    
    
    $
    
  F-8




---



##### 



CARRIZO OIL & GAS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. NATURE OF OPERATIONS
  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Unconsolidated Investments
    Reclassifications
  Use of Estimates
   F-9




---



##### 



Oil and Natural Gas Properties
      Oil and Natural Gas Reserve Estimates
      Cash and Cash Equivalents
  F-10




---



##### 



Revenue Recognition and Natural Gas Imbalances
   Financing Costs, net
  Supplemental Cash Flow Information
  Financial Instruments
  Stock-Based Compensation
  2008
    
    
    2007
    
    
    2006(In millions)Stock Option
    
    $
    0.1
    
    
    $
    0.3
    
    
    $
    0.5Restricted Stock
    
    
    5.9
    
    
    
    4.6
    
    
    
    2.4Total Stock-Based Compensation
    
    $
    6.0
    
    
    $
    4.9
    
    
    $
    2.9
 Stock Options. Share-Based Payment
   F-11




---



##### 




    
    The risk-free interest rate is based on the five-year Treasury bond at date of grant.
    
    The dividend yield on the Companys common stock is assumed to be zero since the Company
does not pay dividends and has no current plans to do so in the future.
    
    The market price volatility of the Companys common stock is based on daily, historical
prices for the last three years.
    
    The term of the grants is based on the simplified method as described in Staff
Accounting Bulletin No. 107.
  Restricted Stock
 Taxes.
 Derivative Instruments
     Income Taxes
 Accounting for Income Taxes,
 Concentration of Credit Risk
  F-12




---



##### 



Allowance for Doubtful Accounts
   Major Customers
  Year Ended December 31,2008
    
    2007
    
    2006DTE Energy Trading, Inc.
    
    
    39
    %
    
    
    
    
    
    
    Cokinos Natural Gas
Company
    
    
    11
    %
    
    
    11
    %
    
    
    Crosstex Energy
    
    
    10
    %
    
    
    15
    %
    
    
    Houston Pipeline Company
    
    
    
    
    
    
    11
    %
    
    
    Energy Transfer
    
    
    
    
    
    
    10
    %
    
    
    Reichmann Petroleum
    
    
    
    
    
    
    
    
    
    
    10
    %Chevron/Texaco
    
    
    
    
    
    
    
    
    
    
    11
    %
 Earnings Per Share
  Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands, exceptper share amounts)Net income (loss) available to common
shareholders
    
    $
    (17,939
    )
    
    $
    15,469
    
    
    $
    18,248Basic weighted average common shares outstanding
    
    
    30,010
    
    
    
    26,287
    
    
    
    24,827Restricted stock
    
    
    
    
    
    
    354
    
    
    
    254Stock options
    
    
    
    
    
    
    479
    
    
    
    484Diluted weighted average shares outstanding
    
    
    30,010
    
    
    
    27,120
    
    
    
    25,565Earnings (loss) per shareBasic
    
    $
    (0.60
    )
    
    $
    0.59
    
    
    $
    0.74Diluted
    
    $
    (0.60
    )
    
    $
    0.57
    
    
    $
    0.71
  F-13




---



##### 



Contingencies
  Asset Retirement Obligation
 Accounting
for Asset Retirement Obligations
    2008
    
    

2007(In thousands)Asset retirement obligation at beginning of year
    
    $
    5,869
    
    
    $
    3,625Liabilities incurred
    
    
    1,004
    
    
    
    1,251Liabilities settled
    
    
    (177
    )
    
    
    (234
    )Accretion expense
    
    
    154
    
    
    
    374Revisions to previous estimates
    
    
    (347
    )
    
    
    853Asset retirement obligation at end of year
    
    $
    6,503
    
    
    $
    5,869
 Foreign Currency
  Recently Issued Accounting Pronouncements
 Disclosures about Derivative Instruments and
Hedging Activities
 F-14




---



##### 



Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion Including
Partial Cash Settlement Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants
 Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
  Recently Adopted Accounting Pronouncements
 Fair Value Measurement
 3. INVESTMENTS
  December 31,
    
    
    December 31,2008
    
    
    2007(In thousands)Pinnacle Gas Resources, Inc.
    
    $
    751
    
    
    $
    11,071Oxane Materials, Inc.
    
    
    2,523
    
    
    
    $
    3,274
    
    
    $
    11,071
 Pinnacle Gas Resources, Inc.
   F-15




---



##### 



Oxane Materials, Inc.
  4. PROPERTY AND EQUIPMENT
  December 31,2008
    
    
    2007(In thousands)Proved oil and natural gas properties
    
    $
    958,726
    
    
    $
    701,521Unproved oil and natural gas properties
    
    
    276,138
    
    
    
    124,373Land, building and other equipment
    
    
    6,363
    
    
    
    2,853Total property and equipment
    
    
    1,241,227
    
    
    
    828,747Accumulated depreciation, depletion and
amortization
    
    
    (219,606
    )
    
    
    (181,937
    )Property and equipment, net
    
    $
    1,021,621
    
    
    $
    646,810
   5. INCOME TAXES
  Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)Provision at the statutory tax rate
    
    $
    (8,424
    )
    
    $
    8,649
    
    
    $
    9,968Preferred dividend on Pinnacle
    
    
    
    
    
    
    
    
    
    
    141Increase in valuation allowance
for equity in income of Pinnacle
    
    
    
    
    
    
    
    
    
    
    (153
    )State taxes
    
    
    123
    
    
    
    594
    
    
    
    277Nondeductible expenses
    
    
    1,930
    
    
    
    
    
    
    
    Other
    
    
    242
    
    
    
    
    
    
    
    Income tax expense (benefit)
    
    $
    (6,129
    )
    
    $
    9,243
    
    
    $
    10,233
  F-16




---



##### 



December 31,2008
    
    
    2007(In thousands)Deferred income tax assets:Net operating loss carryforward
    
    $
    23,608
    
    
    $
    17,430Stock based compensation
    
    
    1,549
    
    
    
    1,675Fair value derivative instruments
    
    
    
    
    
    
    1,332Allowance for doubtful accounts
    
    
    442
    
    
    
    500Equity in income of Pinnacle
    
    
    385
    
    
    
    385Valuation allowance
    
    
    (385
    )
    
    
    (385
    )Adjustmennt to fair value of
investment in Pinnacle
    
    
    699
    
    
    
    26,298
    
    
    
    20,937Deferred income tax liabilities:Oil and gas acquisition, exploration
and development costs deducted for
tax purposes in excess of financial
statement DD&A
    
    
    26,698
    
    
    
    48,010Capitalized interest
    
    
    20,809
    
    
    
    15,335Adjustment to fair value of investment
in Pinnacle
    
    
    
    
    
    
    2,921Fair value derivative instruments
    
    
    14,659
    
    
    
    668Other
    
    
    155
    
    
    
    62,321
    
    
    
    66,934Net deferred income tax liability
    
    $
    36,023
    
    
    $
    45,997
  December 31,2008
    
    
    2007(In thousands)Current
deferred tax asset
    
    $
    
    
    
    $
    (324
    )Current
deferred tax liability
    
    
    9,103
    
    
    
    Deferred
income taxes
    
    
    26,920
    
    
    
    46,321Deferred income tax liability, net
    
    $
    36,023
    
    
    $
    45,997
  Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 F-17




---



##### 



6. LONG-TERM DEBT
  December 31,2008
    
    
    2007(In thousands)Convertible Senior Notes
    
    $
    373,750
    
    
    $
    Senior Secured Revolving Credit Facility
    
    
    159,000
    
    
    
    34,000Second Lien Credit Facility
    
    
    
    
    
    
    220,500Other
    
    
    480
    
    
    
    1533,230
    
    
    
    254,501Less: current maturities
    
    
    (173
    )
    
    
    (2,251
    )$
    533,057
    
    
    $
    252,250
 Convertible Senior Notes
    Senior Secured Revolving Credit Facility
    F-18




---



##### 



Second Lien Credit Facility
  7. COMMITMENTS AND CONTINGENCIES
    F-19




---



##### 



Amount(in thousands)2009
    
    $
    32,5752010
    
    
    33,5402011
    
    
    15,9292012
    
    
    5,8582013 and Thereafter
    
    
    21,223$
    109,125
 8. SHAREHOLDERS EQUITY AND STOCK INCENTIVE PLAN
 Shareholders Equity
  2008
    
    
    2007
    
    
    2006(In thousands)Shares outstanding at January 1
    
    
    28,009
    
    
    
    25,981
    
    
    
    24,251Common stock issued
    
    
    2,588
    
    
    
    1,800
    
    
    
    1,350Restricted stock issued, net of forfeitures
    
    
    203
    
    
    
    112
    
    
    
    278Stock options exercised
    
    
    65
    
    
    
    124
    
    
    
    102Common stock issued for property
    
    
    
    
    
    
    
    
    
    
    2Common stock repurchased and retired for
tax withholding obligation
    
    
    (5
    )
    
    
    (8
    )
    
    
    (2
    )Shares outstanding at December 31
    
    
    30,860
    
    
    
    28,009
    
    
    
    25,981
    Stock Incentive Plan
  Stock Options.
 F-20




---



##### 



Weighted-Weighted-
    
    Average
    
    AggregateAverage
    
    Remaining
    
    IntrinsicExercise
    
    Life
    
    ValueShares
    
    Prices
    
    (In years)
    
    (In millions)For the Year Ended December 31,
2006Outstanding, beginning of period
    
    
    1,025,204
    
    
    $
    5.53Granted
    
    
    
    
    
    
    Exercised
    
    
    (101,800
    )
    
    
    5.91Forfeited
    
    
    (32,335
    )
    
    
    12.63Outstanding, end of period
    
    
    891,069
    
    
    $
    5.25Exercisable, end of period
    
    
    834,799
    
    
    $
    4.65For the Year Ended December 31,
2007Outstanding, beginning of period
    
    
    891,069
    
    
    $
    5.25Granted
    
    
    
    
    
    
    Exercised
    
    
    (124,148
    )
    
    
    8.30Forfeited
    
    
    (5,000
    )
    
    
    16.35Outstanding, end of period
    
    
    761,921
    
    
    $
    4.67Exercisable, end of period
    
    
    731,808
    
    
    $
    4.23For the Year Ended December 31,
2008Outstanding, beginning of period
    
    
    761,921
    
    
    $
    4.67Granted
    
    
    Exercised
    
    
    (65,400
    )
    
    
    4.01Forfeited
    
    
    (10,667
    )
    
    
    6.72Outstanding, end of period
    
    
    685,854
    
    
    $
    4.71
    
    
    
    3.0
    
    
    $
    7.0Exercisable, end of period
    
    
    685,854
    
    
    $
    4.71
    
    
    
    3.0
    
    
    $
    7.0
  Restricted Stock Shares.
 Weighted-Shares/
    
    
    AverageUnits
    
    
    PriceUnvested restricted stock shares at December 31, 2005
    
    
    87,585
    
    
    $
    15.98Granted
    
    
    303,968
    
    
    
    27.42Vested
    
    
    (38,812
    )
    
    
    17.35Forfeited
    
    
    (26,532
    )
    
    
    23.31Unvested restricted stock shares at December 31, 2006
    
    
    326,209
    
    
    
    25.87Granted
    
    
    132,719
    
    
    
    40.26Vested
    
    
    (86,199
    )
    
    
    25.13Forfeited
    
    
    (20,880
    )
    
    
    31.21Unvested restricted stock shares at December 31, 2007
    
    
    351,849
    
    
    
    31.15Granted
    
    
    215,469
    
    
    
    35.43Vested
    
    
    (217,113
    )
    
    
    28.65Forfeited
    
    
    (8,507
    )
    
    
    42.00Unvested restricted stock shares at December 31, 2008
    
    
    341,698
    
    
    $
    34.93
 F-21




---



##### 



9. RELATED-PARTY TRANSACTIONS
 Marcellus Shale Joint Venture.
       Avista Land Bank Agreement
 F-22




---



##### 



Other Transactions.
 Year Ended December 31,2008
    
    2007
    
    2006(In millions)Basic Energy Services
    
    $
    0.4
    
    
    $
    0.2
    
    
    $
    0.5Grey Wolf Drilling
    
    
    7.1
    
    
    
    6.8
    
    
    
    6.7Brigham Exploration(1)
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.6
    ) 2Quantum Geophysical Inc.
    
    
    
    
    
    
    
    
    
    
    0.2Hercules Offshore, L.L.C.
    
    
    3.2
    
    
    
    
    
    
    
    
 
 (1)
    
    At the end of the first quarter of 2007, Mr. Webster resigned from the Board of
Directors of Goodrich Petroleum and Brigham Exploration. As such, these companies are no
longer deemed related parties after the first quarter of 2007.(2)
    
    Includes $1.2 million of net revenues related to wells operated by Brigham
Exploration and $0.6 million of net revenues related to wells operated by the Company.      F-23




---



##### 



10. DERIVATIVE FINANCIAL INSTRUMENTS
   Year Ended December 31,2008
    
    
    2007
    
    
    2006(In millions)Realized gain (loss)Natural gas and oil derivatives
    
    $
    0.6
    
    
    $
    5.8
    
    
    $
    6.8Interest rate swaps
    
    
    (1.2
    )
    
    
    0.2
    
    
    
    1.0Gain (loss) on interest rate
swap sell down
    
    
    (3.3
    )
    
    
    
    
    
    
    0.6(3.9
    )
    
    
    6.0
    
    
    
    8.4Unrealized gain (loss)Natural gas and oil derivatives
    
    
    38.6
    
    
    
    (4.6
    )
    
    
    8.7Interest rate swaps
    
    
    2.8
    
    
    
    (2.8
    )
    
    
    (0.6
    )41.4
    
    
    
    (7.4
    )
    
    
    8.1Net Gain (Loss) on Derivatives
    
    $
    37.5
    
    
    $
    (1.4
    )
    
    $
    16.5
  Natural Gas Swaps
    
    Natural Gas Collars
    
    Basis Differential Swaps(2)Average
    
    
    
    
    
    Average
    
    AverageQuarter
    
    MMbtu
    
    Fixed Price(1)
    
    MMBtu
    
    Floor Price(1)
    
    Ceiling Price(1)
    
    MMBtu
    
    PriceFirst Quarter 2009
    
    
    2,803,000
    
    
    $
    6.13
    
    
    
    2,520,000
    
    
    $
    7.37
    
    
    $
    9.10
    
    
    
    310,000
    
    
    $
    0.31Second Quarter 2009
    
    
    1,547,000
    
    
    
    5.40
    
    
    
    2,548,000
    
    
    
    7.12
    
    
    
    8.85
    
    
    
    
    
    
    
    Third Quarter 2009
    
    
    
    
    
    
    
    
    
    
    2,576,000
    
    
    
    7.16
    
    
    
    8.88
    
    
    
    920,000
    
    
    
    0.31Fourth Quarter 2009
    
    
    
    
    
    
    
    
    
    
    2,576,000
    
    
    
    7.17
    
    
    
    8.90
    
    
    
    
    
    
    
    First Quarter 2010
    
    
    
    
    
    
    
    
    
    
    1,620,000
    
    
    
    7.92
    
    
    
    9.63
    
    
    
    
    
    
    
    Second Quarter 2010
    
    
    
    
    
    
    
    
    
    
    1,638,000
    
    
    
    7.18
    
    
    
    8.89
    
    
    
    
    
    
    
    Third Quarter 2010
    
    
    
    
    
    
    
    
    
    
    1,656,000
    
    
    
    7.35
    
    
    
    9.06
    
    
    
    
    
    
    
    Fourth Quarter 2010
    
    
    
    
    
    
    
    
    
    
    1,656,000
    
    
    
    7.45
    
    
    
    9.16
    
    
    
    
    
    
    
    First Quarter 2011
    
    
    
    
    
    
    
    
    
    
    450,000
    
    
    
    9.70
    
    
    
    11.70
    
    
    
    
    
    
    
    Second Quarter 2011
    
    
    
    
    
    
    
    
    
    
    455,000
    
    
    
    8.25
    
    
    
    10.25
    
    
    
    
    
    
    
    Third Quarter 2011
    
    
    
    
    
    
    
    
    
    
    460,000
    
    
    
    8.65
    
    
    
    10.65
    
    
    
    
    
    
    
    Fourth Quarter 2011
    
    
    
    
    
    
    
    
    
    
    460,000
    
    
    
    8.85
    
    
    
    10.85
    
    
    
    
    
    
    
    First Quarter 2012
    
    
    
    
    
    
    
    
    
    
    455,000
    
    
    
    9.55
    
    
    
    11.55
    
    
    
    
    
    
    
    Second Quarter 2012
    
    
    
    
    
    
    
    
    
    
    455,000
    
    
    
    8.35
    
    
    
    10.35
    
    
    
    
    
    
    
    TOTAL
    
    
    4,350,000
    
    
    
    
    
    
    
    19,525,000
    
    
    
    
    
    
    
    
    
    
    
    1,230,000
 F-24




---



##### 



Oil CollarsAverage
    
    AverageQuarter
    
    Bbls
    
    FloorPrice(3)
    
    Ceiling Price(3)First Quarter 2009
    
    
    9,000
    
    
    $
    131.65
    
    
    $
    151.65Second Quarter 2009
    
    
    9,100
    
    
    
    131.40
    
    
    
    151.40Third Quarter 2009
    
    
    9,200
    
    
    
    130.85
    
    
    
    150.85Fourth Quarter 2009
    
    
    9,200
    
    
    
    130.35
    
    
    
    150.35TOTAL
    
    
    36,500
 
 (1)
    
    Based on Houston Ship Channel (HSC) and WAHA spot prices.(2)
    
    Basis differential swaps cover the price differential for natural gas between NYMEX and HSC.(3)
    
    Based on West Texas intermediate index prices.     11. FAIR VALUE MEASUREMENTS
 Fair Value
Measurements
 Effective Date of FASB Statement No. 157,
    F-25




---



##### 



Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(in thousands)Assets:Investment in Pinnacle Gas Resources, Inc.
    
    $
    751
    
    
    $
    
    
    
    $
    
    
    
    $
    751Oil and natural gas derivatives
    
    
    
    
    
    
    38,667
    
    
    
    
    
    
    
    38,667Total
    
    $
    751
    
    
    $
    38,667
    
    
    $
    
    
    
    $
    39,418
  The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of SFAS No. 115
 12.
    
    SUPPLEMENTARY FINANCIAL INFORMATION ON OIL AND NATURAL GAS EXPLORATION, DEVELOPMENT AND
PRODUCTION ACTIVITIES (UNAUDITED)
 Disclosures
About Oil and Gas Producing Activities.
 Costs Incurred
  Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)Property acquisition costsUnproved
    
    $
    271,618
    
    
    $
    54,467
    
    
    $
    48,409Proved
    
    
    
    
    
    
    
    
    
    
    Exploration costs
    
    
    235,382
    
    
    
    144,402
    
    
    
    104,473Development costs
    
    
    49,626
    
    
    
    30,562
    
    
    
    37,889Asset retirement obligation
    
    
    630
    
    
    
    1,961
    
    
    
    299Total costs incurred(1)
    
    $
    557,256
    
    
    $
    231,392
    
    
    $
    191,070
 
 (1)
    
    Excludes capitalized interest on unproved properties of $14.4 million, $11.7 million
and $10.0 million for the years ended December 31, 2008, 2007 and 2006, respectively, and
includes capitalized overhead of $7.8 million, $4.5 million and $3.5 million for the years
ended December 31, 2008, 2007 and 2006, respectively. Oil And Natural Gas Reserves
   F-26




---



##### 



Millions of Cubic Feetof Natural Gasat December 31,2008
    
    2007
    
    2006Proved developed and undeveloped reserves Beginning of year
    
    
    248,433
    
    
    
    166,798
    
    
    
    103,058Purchase of oil and natural gas properties
in place
    
    
    
    
    
    
    
    
    
    
    Discoveries and extensions
    
    
    146,189
    
    
    
    131,836
    
    
    
    91,090Revisions
    
    
    21,661
    
    
    
    (34,017
    )
    
    
    (11,026
    )Sales of oil and gas properties in place
    
    
    
    
    
    
    (142
    )
    
    
    (6,148
    )Production
    
    
    (23,547
    )
    
    
    (16,042
    )
    
    
    (10,176
    )End of year
    
    
    392,736
    
    
    
    248,433
    
    
    
    166,798Proved developed reserves at beginning of year
    
    
    122,598
    
    
    
    73,912
    
    
    
    44,681Proved developed reserves at end of year
    
    
    216,229
    
    
    
    122,598
    
    
    
    73,912
 Thousands of Barrels ofOil, Condensate andNatural Gas Liquidsat December 31,2008
    
    2007
    
    2006Proved developed and undeveloped reserves Beginning of year
    
    
    16,531
    
    
    
    7,195
    
    
    
    7,925Purchase of oil and natural gas properties in place
    
    
    
    
    
    
    796
    
    
    
    Discoveries and extensions
    
    
    2,088
    
    
    
    3,536
    
    
    
    359Revisions
    
    
    36
    
    
    
    5,245
    
    
    
    (823
    )Sales of oil and gas properties in place
    
    
    
    
    
    
    
    
    
    
    (11
    )Production
    
    
    (347
    )
    
    
    (241
    )
    
    
    (255
    )End of year
    
    
    18,308
    
    
    
    16,531
    
    
    
    7,195Proved developed reserves at beginning of year
    
    
    6,536
    
    
    
    1,638
    
    
    
    1,343Proved developed reserves at end of year
    
    
    7,869
    
    
    
    6,536
    
    
    
    1,638
  Standardized Measure
  F-27




---



##### 



Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)Future cash inflows
    
    $
    2,501,460
    
    
    $
    2,663,281
    
    
    $
    1,356,118Future oil and natural gas operating expenses
    
    
    868,027
    
    
    
    618,479
    
    
    
    350,076Future development costs
    
    
    315,837
    
    
    
    277,070
    
    
    
    193,245Future income tax expenses
    
    
    407,897
    
    
    
    394,569
    
    
    
    202,685Future net cash flows
    
    
    909,699
    
    
    
    1,373,163
    
    
    
    610,112Less 10% annual discount for estimating timing of
cash flows
    
    
    468,445
    
    
    
    710,793
    
    
    
    311,401Standard measure of discounted future net cash flows
    
    $
    441,254
    
    
    $
    662,370
    
    
    $
    298,711
   Change in Standardized Measure
  Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)Changes due to current-year operations Sales of oil and natural gas, net of oil
and natural gas operating expenses
    
    $
    (171,944
    )
    
    $
    (101,127
    )
    
    $
    (72,077
    )Extensions and discoveries
    
    
    228,037
    
    
    
    340,503
    
    
    
    139,657Purchases of oil and gas properties
    
    
    
    
    
    
    20,625
    
    
    
    Changes due to revisions in standardized
variablesPrices and operating expenses
    
    
    (371,924
    )
    
    
    142,126
    
    
    
    (71,814
    )Income taxes
    
    
    22,307
    
    
    
    (89,158
    )
    
    
    16,422Future development costs, net
    
    
    11,052
    
    
    
    57,126
    
    
    
    64,166Revision of quantities
    
    
    44,643
    
    
    
    (7,614
    )
    
    
    (43,362
    )Sales of reserves in place
    
    
    
    
    
    
    (351
    )
    
    
    (15,518
    )Accretion of discount
    
    
    83,931
    
    
    
    38,718
    
    
    
    40,423Production rates, timing and other
    
    
    (67,218
    )
    
    
    (37,189
    )
    
    
    (58,527
    )Net change
    
    
    (221,116
    )
    
    
    363,659
    
    
    
    (630
    )Beginning of year
    
    
    662,370
    
    
    
    298,711
    
    
    
    299,341End of year
    
    $
    441,254
    
    
    $
    662,370
    
    
    $
    298,711
  13. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
  F-28




---



##### 



2008
    
    First
    
    
    Second
    
    
    Third
    
    
    Fourth(In thousands, except per share amounts)Revenues
    
    $
    53,560
    
    
    $
    67,388
    
    
    
    58,527
    
    
    $
    37,202Costs and expenses, net
    
    
    58,856
    
    
    $
    80,010
    
    
    
    (7,672
    )
    
    
    103,422Net income (loss)
    
    $
    (5,296
    )
    
    $
    (12,622
    )
    
    $
    66,199
    
    
    $
    (66,220
    )Basic net income
(loss) per share
    
    $
    (0.18
    )
    
    $
    (0.42
    )
    
    $
    2.18
    
    
    $
    (2.17
    )Diluted net income
(loss) per share
    
    $
    (0.18
    )
    
    $
    (0.42
    )
    
    $
    2.14
    
    
    $
    (2.17
    )
 2007
    
    First
    
    
    Second
    
    
    Third
    
    
    Fourth(In thousands, except per share amounts)Revenues
    
    $
    22,612
    
    
    $
    32,891
    
    
    $
    30,305
    
    
    $
    39,981Costs and expenses, net
    
    
    25,157
    
    
    
    24,754
    
    
    
    26,072
    
    
    
    34,337Net income (loss)
    
    $
    (2,545
    )
    
    $
    8,137
    
    
    $
    4,233
    
    
    $
    5,644Basic net income
(loss) per share
    
    $
    (0.10
    )
    
    $
    0.32
    
    
    $
    0.16
    
    
    $
    0.20Diluted net income
(loss) per share
    
    $
    (0.10
    )
    
    $
    0.31
    
    
    $
    0.16
    
    
    $
    0.20
 F-29




---



##### 



SIGNATURES
  CARRIZO OIL & GAS, INC.By:
    /s/ Paul F. BolingPaul F. BolingChief Financial Officer, Vice President,
Secretary and Treasurer   Name
    
    Capacity
    
    Date/s/ S. P. Johnson IV

S. P. Johnson IV
    
    President, Chief Executive
Officer and Director
(Principal
Executive Officer)
    
    March 13, 2009/s/ Paul F. Boling

Paul F. Boling
    
    Chief Financial Officer, Vice
President, Secretary and
Treasurer (Principal
Financial
Officer and Principal
Accounting Officer)
    
    March 13, 2009/s/ Steven A. Webster

Steven A. Webster
    
    Chairman of the Board
    
    March 13, 2009/s/ Thomas L. Carter, Jr.

Thomas L. Carter, Jr.
    
    Director
    
    March 13, 2009/s/ Paul B. Loyd, Jr.

Paul B. Loyd, Jr.
    
    Director
    
    March 13, 2009/s/ F. Gardner Parker

F. Gardner Parker
    
    Director
    
    March 13, 2009/s/ Roger A. Ramsey

Roger A. Ramsey
    
    Director
    
    March 13, 2009/s/ Frank A. Wojtek

Frank A. Wojtek
    
    Director
    
    March 13, 2009
 F-30