e424b3
Filed pursuant to Rule 424(b)(3)
Registration No. 333-136778
Carrizo Oil & Gas, Inc.
Supplement No. 3 dated March 20, 2007
To Prospectus dated November 16, 2006
This prospectus supplement (this Supplement) is part of, and should be read in
conjunction with, the prospectus of Carrizo Oil & Gas, Inc. (the Company) dated November 16,
2006, as supplemented by Supplement No. 1 dated December 22, 2006 and Supplement No. 2 dated
January 3, 2007 (as so supplemented, the Prospectus). Unless otherwise defined herein,
capitalized terms used in this Supplement have the same meanings as in the Prospectus.
This purpose of this Supplement is to provide excerpts from our press release dated March 20,
2007 concerning financial results for the quarter and year ended December 31, 2006.
This Supplement is not complete without, and may not be delivered or used except in connection
with, the Prospectus. This Supplement is qualified by reference to the Prospectus, except to the
extent that the information in this Supplement updates and supersedes the information contained in
the Prospectus.
You should consider carefully the risk factors beginning on page 3 of the Prospectus dated
November 16, 2006 before purchasing any shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
On March 20, 2007, the Company reported the Companys financial results for the fourth quarter
and full year 2006, which included the following highlights.
Results for the Fourth Quarter 2006.
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Record Production of 3.66 Bcfe, or 39,740 Mcfe/d. |
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Revenue of $24.2 million. |
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Net Income of $4.3 million. |
Production volumes during the three months ended December 31, 2006 were 3.66 Bcfe, 34 percent
higher compared to 2.73 Bcfe during the fourth quarter of 2005. The increase was largely due to
new production contributions from the Galloway Gas Unit II, well #1 and increased production from
the Barnett Shale play. Revenues for the three months ended December 31, 2006 were $24.2 million,
as compared to $28.1 million during the quarter ended December 31, 2005. The decrease in revenues
was primarily driven by lower realized natural gas prices partially offset by higher production.
Carrizos average oil sales price increased five percent to $59.09 per barrel compared to $56.43
per barrel during the fourth quarter of 2005, while the average natural gas sales price decreased
41 percent to $6.17 per Mcf compared to $10.40 per Mcf in the fourth quarter of 2005. The above
prices exclude the cash effect of hedging activities. Prices that include the cash effect of
hedges are presented in the table below.
The Company reported net income of $4.3 million, or $0.17 and $0.16 per basic and diluted
share, respectively, for the three months ended December 31, 2006, as compared to $13.5 million, or
$0.56 and $0.54 per basic and diluted share for the same quarter during 2005.
Lease operating expenses (excluding production taxes) increased to $4.8 million during the
three months ended December 31, 2006 as compared to $2.2 million for the fourth quarter of 2005,
largely due to the increased well count of Barnett Shale wells, increased production from other
wells drilled in 2006, higher workover expense, increased ad valorem taxes and the rising costs of
oilfield services.
Depreciation, depletion and amortization expenses (DD&A) were $9.5 million during the three
months ended December 31, 2006 ($2.60 per Mcfe) as compared to $7.0 million ($2.55 per Mcfe) during
the fourth quarter of 2005. The increase in DD&A expense was due primarily to increased
production.
General and administrative expenses (G&A) decreased to $2.1 million during the three months
ended December 31, 2006 from $2.6 million during the same quarter of 2005 due largely to the
decrease in contract labor costs that were associated with our integrated software migration
project which is now largely complete.
During the fourth quarter of 2006, the Company recorded $1.4 million in bad debt expense
largely attributable to an outside operator who filed for Chapter 11 bankruptcy in fourth quarter
2006. Accordingly, the Company has reserved a majority of its receivable due from the operator for
October production and for certain cash advances on near-term drilling projects.
Non-cash stock-based compensation expense was $0.9 million ($0.6 million after tax) for the
three months ended December 31, 2006.
The net gain on derivatives was $4.4 million during the three months ended December 31, 2006,
comprised of (1) $1.5 million ($1.0 million after tax) for the unrealized mark-to-market, non-cash
gain on derivatives ($2.4 million gain on oil and gas derivatives and $0.9 million loss on interest
rate swaps) and (2) $2.9 million gain for cash settled derivatives ($2.0 million gain on oil and
gas derivatives, $0.3 million gain on interest rate swaps and $0.6 million gain on the sell down of
the interest rate swaps as a result of the amendment to the Companys second lien credit facility
in December 2006).
Interest expense, net of amounts capitalized, was $2.6 million for the three months ended
December 31, 2006 compared to $2.2 million for the three months ended December 31, 2005. The
increase is primarily attributable to the borrowings under the Companys senior secured credit
facility beginning in May 2006.
Results for the Year Ended 2006.
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Record production of 11.7 Bcfe. |
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Record revenue of $82.9 million. |
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Record Net Income of $18.2 million. |
Production volumes for the year ended December 31, 2006 were a record 11.7 Bcfe, 22 percent
higher compared to 9.6 Bcfe during the same period of 2005. Revenues for the year ended December
31, 2006 were $82.9 million, an increase of 6.1 percent from 2005 revenues of $78.2 million. The
increase in revenues was primarily driven by higher production. Carrizos average natural gas
sales price for 2006 decreased 17 percent to $6.56 compared to $7.91 per Mcf in 2005, and the
average oil sales price for 2006 increased 13 percent to $63.62 per barrel from $56.36 per barrel
in 2005. The above prices exclude the cash effect of hedging activities. Prices that include cash
effect of hedges are presented in the table below.
The Company reported net income of $18.2 million, or $0.74 and $0.71 per basic and diluted
share, respectively, for the year ended December 31, 2006, as compared to $10.6 million, or $0.45
and $0.44 per basic and diluted share for the same period during 2005.
2
Lease operating expenses (excluding production taxes) increased to $13.0 million during the
year ended 2006 as compared to $6.3 million for the same period of 2005 largely due to the
increased well count of Barnett Shale wells, increased production, higher workover expenses, rising
costs of oilfield services and higher ad valorem taxes.
Depreciation, depletion and amortization expenses (DD&A) were $31.1 million for 2006 ($2.66
per Mcfe) as compared to $21.4 million ($2.22 per Mcfe) during the same period of 2005. The
increase in DD&A expense was due to increased production and an increase in the DD&A rate primarily
due to additions to the proved property cost base.
General and administrative expenses (G&A) increased to $10.6 million during 2006 from $8.8
million during 2005. The increase in G&A was due primarily to higher incentive compensation and
base salary costs of $0.1 million; increased contract labor costs of $1.1 million to cover certain
accounting staff vacancies and to support the continued phase-in of our new integrated software
system; and $0.2 million in higher audit fees primarily related to the Companys 2005 financial
restatement for mark-to-market accounting of derivatives.
Non-cash stock-based compensation expense was $2.9 million ($1.9 million after tax) for the
year ended December 31, 2006 compared to $2.5 million for the prior year.
The net gain on derivatives was $16.5 million for the year ended December 31, 2006, comprised
of (1) $9.3 million ($6.0 million after tax) for the unrealized mark-to-market, non-cash gain on
derivatives ($9.9 million gain on oil and gas derivatives and $0.6 million loss on interest rate
swaps) and (2) $7.2 million for realized derivative gains ($5.6 million gain for oil and gas
derivatives, $1.0 million gain on interest rate swaps and $0.6 million gain on the sell down of the
interest rate swaps as a result of the amendment to the Companys second lien credit facility in
December 2006).
Loss on the early extinguishment of debt was $0.3 million ($0.2 million after tax) in
connection with the Companys refinancing of its first lien credit facility in May 2006. The
Companys borrowing base availability under its senior secured credit facility was $65.0 million
with $41.0 million drawn and outstanding at December 31, 2006.
Interest expense, net of amounts capitalized, was $9.1 million for the year ended December 31,
2006 compared to $5.2 million for the same period in 2005. The increase was attributable to the
higher debt level following the Companys July 2005 refinancing and to borrowings under the
Companys senior secured credit facility beginning in May 2006.
Statements in this Supplement, including but not limited to those relating to the Companys or
managements intentions, beliefs, expectations, hopes, projections, assessment of risks,
estimations, plans or predictions for the future, including high potential wells, potential effects
or timing, cash flow, the expected timing of drilling of additional wells, and other statements
that are not historical facts are forward looking statements that are based on current
expectations. Although the Company believes that its expectations are based on reasonable
assumptions, it can give no assurance that these expectations will prove correct. Important
factors that could cause actual results to differ materially from those in the forward looking
statements include the results and dependence on exploratory drilling activities, operating risks,
oil and gas price levels, land issues, availability of equipment, weather and other risks described
in the Companys Form 10-K/A for the year ended December 31, 2005 and its other filings with the
Securities and Exchange Commission.
3
CARRIZO OIL & GAS, INC.
STATEMENTS OF OPERATIONS
(unaudited)
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THREE MONTHS ENDED |
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YEAR ENDED |
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DECEMBER 31, |
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DECEMBER 31, |
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2006 |
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2005 |
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2006 |
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2005 |
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Oil and natural gas revenues |
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$ |
24,218,311 |
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$ |
28,113,229 |
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$ |
82,945,234 |
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$ |
78,155,286 |
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Costs and expenses: |
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Lease operating expenses |
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4,762,486 |
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2,183,394 |
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12,956,496 |
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6,337,168 |
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Production tax |
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|
684,792 |
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1,184,865 |
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3,470,338 |
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4,100,067 |
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Depreciation, depletion and amortization |
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9,498,613 |
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6,983,562 |
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31,128,925 |
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21,374,051 |
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General and administrative expenses |
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2,124,393 |
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2,556,567 |
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10,594,460 |
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8,789,003 |
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Bad debt expense |
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1,385,911 |
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1,385,911 |
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Accretion expense related to asset retirement obligations |
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259,605 |
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17,531 |
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496,774 |
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70,121 |
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Stock-based compensation expense |
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930,755 |
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(491,506 |
) |
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2,929,620 |
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2,453,598 |
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Total costs and expenses |
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19,646,555 |
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12,434,413 |
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62,962,524 |
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43,124,008 |
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Operating income |
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4,571,756 |
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15,678,816 |
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19,982,710 |
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35,031,278 |
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Mark-to-market gain (loss) on derivatives, net |
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1,523,184 |
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7,883,849 |
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9,257,035 |
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(3,610,346 |
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Realized gain (loss) on derivatives, net |
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2,847,342 |
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(1,583,660 |
) |
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7,200,577 |
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(2,272,579 |
) |
Gain on asset retirement obligation |
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196,476 |
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196,476 |
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Equity in income (loss) on Pinnacle Gas Resources, Inc. |
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631,496 |
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34,914 |
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(2,541,935 |
) |
Loss on extinguishment of debt |
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(294,094 |
) |
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(3,721,021 |
) |
Other income and expenses, net |
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29,203 |
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(165,126 |
) |
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231,517 |
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(457,169 |
) |
Interest income |
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126,211 |
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383,743 |
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969,176 |
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904,407 |
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Interest expense, net of amounts capitalized |
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(2,577,496 |
) |
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(2,249,393 |
) |
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(9,095,923 |
) |
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(5,198,852 |
) |
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Income before income taxes |
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6,716,676 |
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20,579,725 |
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28,482,388 |
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18,133,783 |
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Income tax expense (benefit) |
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2,440,675 |
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7,047,839 |
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10,233,752 |
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7,500,332 |
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Net income available to common shares |
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$ |
4,276,001 |
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$ |
13,531,886 |
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$ |
18,248,636 |
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$ |
10,633,451 |
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Basic net income per common share |
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$ |
0.17 |
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$ |
0.56 |
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$ |
0.74 |
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$ |
0.45 |
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Diluted net income per common share |
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$ |
0.16 |
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$ |
0.54 |
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$ |
0.71 |
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$ |
0.44 |
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Basic weighted average common shares outstanding |
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25,650,503 |
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24,251,430 |
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24,826,673 |
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23,491,976 |
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Diluted weighted average common shares outstanding |
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26,433,762 |
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25,047,409 |
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25,564,502 |
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24,361,453 |
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(A) |
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Interest expense, net of amounts capitalized, consists of the following: |
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Gross interest expense |
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$ |
(5,318,540 |
) |
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$ |
(4,198,011 |
) |
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$ |
(19,070,792 |
) |
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$ |
(11,043,498 |
) |
Capitalized interest |
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2,741,044 |
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1,948,618 |
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9,974,869 |
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5,844,646 |
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(more)
CARRIZO OIL & GAS, INC.
CONDENSED BALANCE SHEETS
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12/31/06 |
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12/31/05 |
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(unaudited) |
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ASSETS: |
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Cash and cash equivalents |
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$ |
5,407,502 |
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$ |
28,724,993 |
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Fair value of derivative financial instruments |
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5,737,056 |
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Other current assets |
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29,912,455 |
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31,459,236 |
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Property and equipment, net |
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445,447,054 |
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314,074,507 |
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Other assets |
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5,519,325 |
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6,156,559 |
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Investment in Pinnacle Gas Resources, Inc. |
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2,771,266 |
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2,687,199 |
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TOTAL ASSETS |
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$ |
494,794,658 |
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$ |
383,102,494 |
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LIABILITIES AND EQUITY: |
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Accounts payable and accrued liabilities |
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$ |
54,554,607 |
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$ |
46,778,992 |
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Fair value of derivative financial instruments |
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1,563,059 |
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Current maturities of long-term debt |
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1,507,931 |
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1,534,989 |
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Long-term notes payable |
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187,250,744 |
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147,759,355 |
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Deferred income taxes |
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33,832,471 |
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24,550,569 |
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Other liabilities |
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4,462,001 |
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5,530,801 |
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Equity |
|
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213,186,904 |
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155,384,729 |
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TOTAL LIABILITIES AND EQUITY |
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$ |
494,794,658 |
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$ |
383,102,494 |
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Income tax expense for the
year ended December 31, 2006 and 2005 includes a $9,828,973 and
$7,236,502, respectively, provision for deferred income taxes and a
$404,779 and $263,830, respectively, provision for currently payable
franchise taxes.
(more)
CARRIZO
OIL & GAS, INC.
PRODUCTION VOLUMES AND PRICES
(unaudited)
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Production volumes- |
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Oil and condensate (Bbls) |
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75,882 |
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|
55,809 |
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|
254,901 |
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|
234,287 |
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Natural gas (Mcf) |
|
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3,200,801 |
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|
2,399,239 |
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|
10,176,091 |
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|
8,206,457 |
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Natural gas equivalent (Mcfe) |
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|
3,656,093 |
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|
|
2,734,093 |
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|
|
11,705,497 |
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|
9,612,179 |
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Average sales prices-
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Oil and condensate (per Bbl) |
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$ |
59.09 |
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$ |
56.43 |
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$ |
63.62 |
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$ |
56.36 |
|
Oil and condensate (per Bbl) with hedge impact |
|
$ |
59.15 |
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$ |
56.43 |
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|
$ |
63.21 |
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$ |
55.94 |
|
Natural gas (per Mcf) |
|
$ |
6.17 |
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|
$ |
10.40 |
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$ |
6.56 |
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|
$ |
7.91 |
|
Natural gas (per Mcf) with hedge impact |
|
$ |
6.76 |
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$ |
9.74 |
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|
$ |
7.11 |
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|
$ |
7.65 |
|
Natural gas equivalent (per Mcfe) |
|
$ |
6.62 |
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$ |
10.28 |
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|
$ |
7.09 |
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$ |
8.13 |
|
# # #