CARRIZO OIL & GAS INC, S-1/A, 1997-07-22

CARRIZO OIL & GAS INC
S-1/A, 1997-07-22
CRUDE PETROLEUM & NATURAL GAS

Previous: COMPASS PLASTICS & TECHNOLOGIES INC, S-1/A, 1997-07-22

Next: MARCAM SOLUTIONS INC, 10-12G/A, 1997-07-22

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1997

REGISTRATION NO. 333-29187

================================================================================

SECURITIES AND EXCHANGE COMMISSION
---------------------

AMENDMENT NO. 1

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CARRIZO OIL & GAS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<C> <C> <C>
TEXAS 1311 76-0415919
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

CARRIZO OIL & GAS, INC.
14811 ST. MARY'S LANE, SUITE 148
HOUSTON, TEXAS 77079

(281) 496-1352

(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

S. P. JOHNSON IV
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CARRIZO OIL & GAS, INC.
14811 ST. MARY'S LANE, SUITE 148
HOUSTON, TEXAS 77079
(281) 496-1352
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
---------------------
Copies to:

<TABLE>
<S> <C>
GENE J. OSHMAN T. MARK KELLY
BAKER & BOTTS, L.L.P. VINSON & ELKINS L.L.P.
3000 ONE SHELL PLAZA 1001 FANNIN, SUITE 2500
HOUSTON, TEXAS 77002-4995 HOUSTON, TEXAS 77002-6760
(713) 229-1234 (713) 758-2222
</TABLE>

---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JULY 21, 1997

2,500,000 SHARES

[CARRIZO LOGO]

CARRIZO OIL & GAS, INC.

COMMON STOCK

($0.01 PAR VALUE)

All of the shares of Common Stock offered hereby are being sold by Carrizo
Oil & Gas, Inc. (the "Company"). The Common Stock has been approved for
inclusion on the Nasdaq National Market under the symbol "CRZO." Prior to the
Offering, there has been no public market for the Common Stock. It is currently
anticipated that the initial public offering price will be between $11.00 and
$13.00 per share. See "Underwriting" for factors to be considered in determining
the initial public offering price.

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGE 11.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
==============================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $ $ $
- --------------------------------------------------------------------------------------------------------------
Total(3)................................ $ $ $
==============================================================================================================
</TABLE>

(1) See "Underwriting" for indemnification arrangements.

(2) The estimated expenses of $ are payable by the Company.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 375,000 shares of Common Stock solely to cover
over-allotments. If this option is exercised in full, total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."

The shares of Common Stock offered hereby are being offered by the several
Underwriters, subject to prior sale and acceptance by the Underwriters and
subject to their right to reject any order in whole or in part. It is expected
that the Common Stock will be available for delivery on or about ,
1997 at the offices of Schroder & Co. Inc., New York, New York.

SCHRODER & CO. INC. JEFFERIES & COMPANY, INC.

, 1997
<PAGE> 3

[MAP SHOWING COUNTIES AND PARISHES WITH CARRIZO ACTIVITY AND A 3-D SEISMIC

VOLUME FROM ONE OF CARRIZO'S GULF COAST PROJECTS]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus (i) gives effect to the Combination Transactions (as defined
below under "-- The Combination Transactions") and the issuance of approximately
2,290,000 shares of Common Stock pursuant to such transactions, (ii) assumes
that the Underwriters' over-allotment option will not be exercised and (iii) has
been adjusted to reflect the 521-for-one split of the Common Stock effected in
June 1997. Unless otherwise indicated by the context, references herein to
"Carrizo" mean Carrizo Oil & Gas, Inc., a Texas corporation that is the issuer
of the Common Stock offered hereby, and references to the "Company" mean Carrizo
and its corporate and partnership subsidiaries and predecessors. Certain terms
used herein relating to the oil and natural gas industry are defined in the
Glossary of Certain Industry Terms included elsewhere in this Prospectus.

THE COMPANY

OVERVIEW

Carrizo is an independent oil and gas company engaged in the exploration,
development, exploitation and production of natural gas and crude oil. The
Company's operations are currently focused onshore in proven oil and gas
producing trends along the Gulf Coast, primarily in Texas and Louisiana in the
Frio, Wilcox and Vicksburg trends. The Company believes that the availability of
economic onshore 3-D seismic surveys has fundamentally changed the risk profile
of oil and gas exploration in these regions. Recognizing this change, the
Company has aggressively sought to control significant prospective acreage
blocks for targeted, proprietary, 3-D seismic surveys. As of June 30, 1997, the
Company had assembled approximately 362,000 gross acres under lease or option.

Approximately 70% of the Company's current acreage position is covered by
3-D seismic data that the Company has acquired, or is in the process of
acquiring, in its first 15 seismic surveys. The Company expects to acquire
additional 3-D seismic data during the remainder of 1997 and 1998 that will
cover substantially all of its remaining current acreage position. From the data
generated by its first seven proprietary seismic surveys, covering 200 square
miles (128,000 acres), 94 drillsites have been identified. The Company's capital
budgets for 1997 and 1998 of approximately $21.9 million and $43.8 million,
respectively, include amounts for the acquisition of additional 3-D seismic data
and for the drilling of 67 gross wells (26.9 net) in 1997 with a 40% average
working interest and the drilling of 147 gross wells (67.5 net) in 1998 with an
anticipated 46% average working interest. In addition, the Company anticipates
that as its existing 3-D seismic data is further evaluated, and 3-D seismic data
is acquired over the balance of its acreage, additional prospects will be
generated for drilling beyond 1998.

The Company's primary drilling targets have been shallow (from 4,000 to
7,000 feet), normally pressured reservoirs that generally involve moderate cost
(typically $200,000 to $500,000 per completed well) and risk. Many of these
drilling prospects also have secondary, deeper, over-pressured targets which
have greater economic potential but generally involve higher cost (typically $1
million to $2 million per completed well) and risk. The Company often seeks to
sell a portion of these deeper prospects to reduce its exploration risk and
financial exposure while still allowing the Company to retain significant upside
potential. Deeper targets have been identified in seven of the Company's 67
prospects budgeted for drilling in 1997. The Company operates the majority of
its projects through the exploratory phase but may relinquish operator status to
qualified partners in the production phase to control costs and focus resources
on the higher-value exploratory phase. As of June 30, 1997, the Company operated
66 producing oil and gas wells, which accounted for 57% of the wells in which
the Company had an interest.

1
<PAGE> 5

The Company has experienced rapid increases in reserves, production and
earnings before interest expense, income taxes, depreciation, depletion and
amortization ("EBITDA") since its inception in 1993 due to the growth of its 3-D
based drilling and development activities. From January 1, 1996 to March 31,
1997, the Company participated in the drilling of 29 gross wells (8.9 net) with
a commercial well success rate of approximately 79%. This drilling success
contributed to the Company's total proved reserves as of March 31, 1997 of
approximately 38.8 Bcfe, with a PV-10 Value of $30.4 million. From inception
through March 31, 1997, the Company's average finding and development cost was
approximately $0.47 per Mcfe. The Company's production has increased 125% from
321 MMcfe for the three months ended March 31, 1996 to 721 MMcfe for the three
months ended March 31, 1997. EBITDA has also increased significantly from
$328,000 for the three months ended March 31, 1996 to $1.1 million for the three
months ended March 31, 1997.

In addition to its core exploratory operations, the Company operates a
heavy oil project in Anderson County, Texas which, as of March 31, 1997,
contained proved reserves of approximately 3.6 MMBbls of 19 degrees API gravity
crude oil. The project produces from a depth of 500 feet and utilizes a tertiary
steam drive as an enhanced oil recovery process. During the first quarter of
1997, the Company produced 107 Bbls/d of oil from this project, which averaged a
$0.65 per Bbl premium over West Texas Intermediate crude due to the produced
oil's suitability as a lube oil feedstock.

The Company's management team has extensive energy industry experience.
S.P. Johnson IV, the Company's President and Chief Executive Officer, has 18
years of industry experience, including 15 years with Shell Oil Company where he
served in various managerial positions. The Company's technical and operating
employees have an average of 15 years of industry experience, in many cases with
major and large independent oil companies, including Shell Oil Company, Vastar
Resources, Inc., Pennzoil Company and Tenneco Inc. The Company's Board of
Directors and major shareholders include its Chairman, Steven A. Webster, who is
also Chairman and Chief Executive Officer of Falcon Drilling Company Inc., and
Paul B. Loyd, Jr., the Chairman and Chief Executive Officer of Reading & Bates
Corporation.

The Company believes that its future growth will be driven by the drilling
and development of existing identified opportunities as well as new 3-D based
prospects that are continually being identified from its growing project
portfolio. The Company intends to use the proceeds of this Offering to
accelerate its drilling and development activities, expand its prospective
acreage acquisition program and increase the number and size of, and working
interest in, additional 3-D based projects.

BUSINESS STRATEGY

The Company's business strategy is to profitably expand its reserve base,
production levels and EBITDA through the following key elements:

Aggressive Acreage and Seismic Acquisition Program. The Company seeks to
control significant prospective acreage positions in proven producing trends and
then acquire 3-D seismic data to evaluate this acreage. The Company believes
that recent technical improvements and cost reductions of onshore 3-D seismic
surveys and oil and gas drilling techniques have changed the risk/reward profile
of exploration in these regions and allow for the profitable exploration and
development of previously undetected or uneconomic drilling prospects. The
Company believes that its existing large acreage position and seismic database
will generate a significant inventory of drillsites over the next several years.

results to date of its exploration activities, the Company believes that
significant undiscovered reserves remain in this region, and the Company plans
to utilize its existing database of 3-D seismic and geologic data and its
knowledge of the region's producing fields and trends to further expand its
operations within this core region.

Leveraged Project and Drillsite Generation Program. The Company maintains a
flexible and diversified approach to project identification to increase its
exposure to projects in its core areas. The Company's project areas have been
identified by a broad network that includes contract geoscientists who have
expertise in a particular project area, the exploration teams of several
industry partners as well as the Company's internal geophysical team. This
approach has enabled the Company to increase the number and diversity of
projects from which the Company has developed its exploration program while
controlling the costs associated with these operations. Similarly, in
identifying specific drillsites within a project area, the Company's internal
exploration team has worked with outside contract geoscientists and joint
venture partners.

Prospects with Attractive Risk/Reward Balance. The Company seeks to retain
significant working interest positions in exploration prospects that fit its
risk/reward criteria. Many of the Company's exploration prospects contain both
primary targets with shallower, normally pressured reservoirs that generally
involve moderate cost and risk, as well as secondary targets that consist of
deeper, over-pressured and often larger reservoirs but involve higher cost and
risk. The Company typically retains all or the majority of its interests in the
shallow targets and often sells a portion of its interests in the deeper targets
to industry partners in order to mitigate its exploration risk and fund the
anticipated capital requirements for the retained portion of these targets. The
Company believes that this strategy affords it significant upside potential with
reduced overall risk.

The Company's ability to implement its business strategy will be subject to
numerous risks, including those described under "Dependence on Exploratory
Drilling Activities," "Volatility of Oil and Natural Gas Prices," "Ability to
Manage Growth and Achieve Business Strategy" and other captions under "Risk
Factors."

RECENT OPERATING RESULTS

During the second quarter of 1997, the Company participated in the drilling
of 21 gross wells (8.4 net), of which 18 (7.0 net) were successfully completed.
Partly as a result of this drilling activity, production volumes for the second
quarter of 1997 increased to 835.9 MMcf of natural gas and 27.2 MBbls of oil.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Operating Results."

3
<PAGE> 7

CURRENT EXPLORATORY PROJECTS

The Company is currently evaluating 32 exploration project areas. As of
June 30, 1997, the Company had an existing 3-D seismic database of 651 square
miles and was acquiring an additional 486 square miles of data (totaling 1,137
square miles of 3-D seismic data). To date, all project areas for which seismic
data has been interpreted have yielded multiple prospects and drillsites. The
Company is continuing to receive and interpret data covering these project areas
and believes that each project area has the potential for additional prospects
and drillsites. For additional information as to these project areas, see
"Business -- Significant Project Areas."

1997-1998 EXPLORATION PROGRAM

<TABLE>
<CAPTION>
SQ. MILES OF 3-D
GROSS SEISMIC DATA AT TOTAL
ACREAGE JUNE 30, 1997 1997
LEASED OR ---------------------- AND
UNDER BUDGETED 1997 1998 1998 AVERAGE
OPTION AT EXISTING FOR BUDGETED BUDGETED BUDGETED AVERAGE NET
JUNE 30, OR BEING ACQUISITION GROSS GROSS GROSS WORKING REVENUE
PROJECT AREAS 1997 ACQUIRED 1997-1998 WELLS(1) WELLS(2) WELLS INTEREST(3) INTEREST(3)
------------- --------- -------- ----------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TEXAS
Starr/Hidalgo........... 4,888 340(4) -- 12 15 27 50.0% 37.5%
Encinitas/Kelsey........ 9,110 32 -- 10 1 11 27.5% 23.0%
Buckeye................. 22,487 62 -- 16 11 27 50.0% 39.0%
La Rosa................. 8,260 22 -- -- 4 4 31.5% 23.6%
Mexican Sweetheart...... 29,421 40 -- -- 8 8 25.0% 18.8%
McFaddin Ranch.......... 5,300 15 -- 4 4 8 37.5% 28.1%
Cologne................. 25,160 40 -- -- 8 8 25.0% 18.8%
South Cabeza Creek...... 10,406 20 -- -- 4 4 52.5% 39.4%
East McFaddin........... 6,640 11 -- 1 -- 1 20.0% 16.5%
Hiawatha................ 14,985 22 -- 12 4 16 42.0% 31.5%
Western 325............. -- 320(4) -- 2(2) 5 7 50.0% 37.5%
Lance................... 17,000 30 -- 4 5 9 25.0% 19.3%
Highway 59.............. 3,947 -- 20 -- 4 4 20.0% 15.0%
Geronimo................ 66,161 107 -- 3 10 13 15.0% 11.3%
RPP Welder.............. 27,929 60 -- -- 10 10 15.0% 11.3%
Midway.................. 3,040 -- 15 -- 4 4 50.0% 37.5%
Lost Bridge............. 5,165 16 -- -- 3 3 50.0% 37.5%
Drake 202............... 12,000 -- 19 -- -- -- 100.0% 82.8%
Other (11 Areas)........ 85,827 -- 291 -- 42 42 72.5% 56.9%
LOUISIANA
North Chalkley.......... 640 -- 20 1 2 3 18.0% 14.2%
Atchafalaya............. 3,400 -- -- 1 2 3 55.4% 41.5%
Live Oak................ 350 -- -- 1 1 2 20.0% 15.0%
------- ----- --- -- --- ---
TOTAL..................... 362,116 1,137 365 67 147 214
======= ===== === == === ===
</TABLE>

- ---------------

(1) Consists of identified drillsites included in the Company's 1997 capital
budget that are fully evaluated, leased and have been or are scheduled to be
drilled during 1997, except as otherwise indicated. Of these budgeted wells,
30 had been drilled as of June 30, 1997.

(2) Consists of wells included in the Company's 1997 and 1998 capital budgets,
but as to which 3-D seismic data has either not been obtained or fully
evaluated, or for which the Company has not yet acquired leases or option
rights. The number of wells indicated is based upon statistical results of
drilling activities in 3-D project areas that the Company believes are
geologically similar.

(3) Anticipated interests based on contractual rights as of June 30, 1997.

(4) Represents non-proprietary "group shoots" in which the Company is a
participant.
4
<PAGE> 8

Although the Company has budgeted to drill the number of wells set forth in
the preceding table, there can be no assurance that these wells will be drilled
at all or within the expected time frame. In particular, budgeted wells that are
based upon statistical results of drilling activities in other project areas are
subject to greater uncertainties than wells for which drillsites have been
identified. The final determination with respect to the drilling of any budgeted
wells will be dependent upon a number of factors, including (i) the results of
exploration efforts and the acquisition, review and analysis of the seismic
data, (ii) the availability of sufficient capital resources by the Company and
the other participants for the drilling of the prospects, (iii) the approval of
the prospects by other participants after additional data has been compiled,
(iv) the economic and industry conditions at the time of drilling, including
prevailing and anticipated prices for oil and natural gas and the availability
of drilling rigs and crews, (v) the financial resources and results of the
Company, and (vi) the availability of leases on reasonable terms and permitting
for the prospect. There can be no assurance that any of the budgeted wells
identified on the preceding table will, if drilled, encounter reservoirs of
commercially productive oil or natural gas. See "Risk Factors -- Dependence on
Exploratory Drilling Activities," "-- Reserve Replacement Risk" and
" -- Uncertainty of Reserve Information and Future Net Revenue Estimates."

THE COMBINATION TRANSACTIONS

The Company currently conducts its operations through a number of
affiliated entities that will be combined in a series of transactions at the
time of the closing of the Offering (the "Combination Transactions"). As a
result of the Combination Transactions, the Company will issue approximately
2,290,000 shares of Common Stock in exchange for the equity interests in these
entities that it does not currently own. See "Certain Transactions -- The
Combination Transactions."

THE OFFERING

Common Stock offered by the
Company.......................... 2,500,000 shares

Common Stock to be outstanding
after the Offering............... 10,000,000 shares(1)

Nasdaq National Market Symbol.... CRZO

Use of proceeds.................. To accelerate the Company's exploration and
development program, to repay indebtedness
and for general corporate purposes,
including funding the acquisition of
additional acreage and 3-D seismic data.
See "Use of Proceeds."
- ---------------

(1) Assumes approximately 2,290,000 shares will be issued in connection with the
Combination Transactions. Does not include (i) approximately 250,000 shares
of Common Stock issuable pursuant to options at an exercise price per share
equal to the initial public offering price that will be granted to
directors, officers and employees of the Company concurrent with the
Offering and (ii) 222,120 shares of Common Stock issuable pursuant to
outstanding options at a weighted average exercise price of $3.60 per share
(including vested options for 72,189 shares). See "Management -- Incentive
Plan."

5
<PAGE> 9

SUMMARY COMBINED FINANCIAL AND OPERATING DATA

The financial information of the Company set forth below for the three
years ended December 31, 1996 has been derived from the audited combined
financial statements of the Company. The financial information of the Company
set forth below as of March 31, 1997 and for the three months ended March 31,
1996 and 1997 has been derived from unaudited combined financial statements of
the Company. The results of operations for the interim periods are not
necessarily indicative of a full year's operations. The following table also
sets forth certain pro forma income taxes, net income and net income per share
information. The information should be read in conjunction with
"Capitalization," "Selected Combined Financial and Operating Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the combined financial statements of the Company and the related
notes thereto included elsewhere in this Prospectus.

[CAPTION]

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -------------------
1994 1995 1996 1996 1997
------ ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Oil and natural gas revenues............... $ 596 $ 2,428 $ 5,195 $ 791 $ 1,853
Costs and expenses:
Oil and natural gas operating expenses... 518 1,814 2,384 418 557
Depreciation, depletion and
amortization.......................... 98 488 1,136 142 382
General and administrative............... 238 425 515 44 198
------ ------- ------- ------- -------
Total costs and expenses......... 854 2,727 4,035 604 1,137
------ ------- ------- ------- -------
Operating income (loss).................... (258) (299) 1,160 187 716
Interest expense (net of amounts
capitalized)............................. (7) (192) (80) (43) --
Other income............................... 6 24 20 -- --
------ ------- ------- ------- -------
Net income (loss).......................... $ (259) $ (467) $ 1,100 $ 144 $ 716
====== ======= ------- ======= -------
Pro forma income taxes(1).................. 396 258
------- -------
Pro forma net income(1).................... $ 704 $ 458
======= =======
Pro forma net income per share(1)(2)....... $ 0.09 $ 0.06
======= =======
Pro forma weighted average shares
outstanding(2)........................... 7,722 7,722
STATEMENT OF CASH FLOW DATA:
Net cash provided by (used in) operating
activities............................... $ (258) $ 406 $ 3,325 $ 486 $ 1,836
Net cash provided by (used in) investing
activities............................... (819) (6,785) (8,221) (1,353) (4,354)
Net cash provided by financing
activities............................... 1,183 6,343 6,319 867 2,525
OTHER OPERATING DATA:
EBITDA(3)(5)............................... $ (158) $ 189 $ 2,296 $ 328 $ 1,098
Operating cash flow(4)(5).................. (159) 21 2,236 285 1,098
Capital expenditures....................... 819 6,857 9,480 1,353 4,417
Debt repayments(6)......................... -- -- 2,084 -- 500
</TABLE>

6
<PAGE> 10

<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------
AS ADJUSTED
FOR THE
ACTUAL OFFERING(7)
------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $(1,758) $12,086
Property and equipment, net................................. 19,162 19,162
Total assets................................................ 23,912 38,068
Long-term debt, including current maturities................ 12,254 --
Equity...................................................... 5,407 32,060
</TABLE>

- ---------------

(1) During each of the periods presented, Carrizo and the other entities being
combined in the Combination Transactions were not required to pay federal
income taxes due to their status as partnerships or Subchapter S
corporations. The amounts shown reflect pro forma income taxes that
represent federal income taxes which would have been reported under
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," had Carrizo and such entities been tax-paying entities during the
periods presented. See Note 8 to the Company's combined financial
statements. Additionally, compensation expense for 1997 attributable to the
Company's four executive officers is expected to be approximately $476,000
($305,000 on an after-tax basis), an increase of $244,000 ($156,000 on an
after-tax basis) from 1996. See "Management -- Employment Agreements."

(2) Pro forma net income (loss) per share has been computed based on the pro
forma net income shown above, assuming the 5,210,000 currently outstanding
shares of Common Stock, the estimated 2,290,000 shares of Common Stock that
may be issued in connection with the Combination Transactions and the
currently outstanding options to purchase 222,120 shares of Common Stock
were outstanding since January 1, 1996. Supplemental pro forma net income
assuming a portion of the proceeds from the Offering was used to retire debt
(thereby reducing interest expense) would increase pro forma net income to
$755,000, or $0.10 per share, in 1996. There would be no change for the
three months ended March 31, 1997 as all interest costs incurred during the
period were capitalized.

(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, depletion and amortization.

(4) Operating cash flow represents cash flows from operating activities prior to
changes in assets and liabilities.

(5) Management of the Company believes that EBITDA and operating cash flow may
provide additional information about the Company's ability to meet its
future requirements for debt service, capital expenditures and working
capital. EBITDA and operating cash flow are financial measures commonly used
in the oil and gas industry and should not be considered in isolation or as
a substitute for net income, operating income, cash flows from operating
activities or any other measure of financial performance presented in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity. Because EBITDA excludes some, but
not all, items that affect net income and because operating cash flow
excludes changes in assets and liabilities and these measures may vary among
companies, the EBITDA and operating cash flow data presented above may not
be comparable to similarly titled measures of other companies.

(6) Debt repayments include amounts refinanced.

(7) Assumes the issuance in the Offering of 2,500,000 shares of Common Stock at
$12.00 per share and the application of the net proceeds therefrom.

7
<PAGE> 11

SUMMARY RESERVE AND OPERATING DATA

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
PRODUCTION VOLUMES:
Oil (MBbls)................................... 33 78 107 21 21
Natural gas (MMcf)............................ 5 565 1,273 196 592
Natural gas equivalent (MMcfe)................ 203 1,033 1,915 321 721
AVERAGE SALES PRICES:
Oil (per Bbl)................................. $ 17.69 $ 19.64 $ 21.54 $19.02 $ 21.50
Natural gas (per Mcf)......................... 0.88 1.60 2.27 1.97 2.35
Natural gas equivalent (per Mcfe)............. 2.94 2.36 2.71 2.44 2.57
AVERAGE COSTS (PER MCFE):
Camp Hill operating expenses.................. $ 2.64 $ 2.06 $ 3.15 $ 2.55 $ 2.80
Other operating expenses...................... 1.85 1.63 0.94 0.99 0.60
Total operating expenses............ 2.55 1.76 1.24 1.29 0.77
General and administrative expenses........... 1.17 0.41 0.27 0.14 0.27
Gross profit (loss)........................... (0.19) 0.19 1.19 1.01 1.53
ESTIMATED PROVED RESERVES (AT PERIOD END)(1):
Oil (MBbls)................................... 3,785 3,810 3,895 N/A 4,289
Natural gas (MMcf)............................ 272 5,437 12,148 N/A 13,026
Total (MMcfe)................................. 22,982 28,297 35,518 N/A 38,758
PV-10 Value (in thousands)(2)................. $ 9,677 $16,467 $46,342 N/A $30,421
Standardized Measure (in thousands)(3)........ 6,498 11,981 33,021 N/A 22,120
Oil prices used............................... $ 16.31 $ 17.64 $ 20.88 N/A $ 19.71
Natural gas prices used....................... 1.54 1.94 3.69 N/A 1.74
FINDING AND DEVELOPMENT COST (PER MCFE)(4).... $ 0.47
NUMBER OF WELLS DRILLED:
Gross......................................... -- -- 20.0 4.0 9.0
Net........................................... -- -- 4.7 1.5 4.2
</TABLE>

- ---------------

N/A -- Not available.

(1) The estimated net proved oil and natural gas reserves and the present
value of estimated future net revenues attributable thereto are based
upon (i) the reserve report (the "Ryder Scott Report") prepared by Ryder
Scott Company, independent petroleum engineers ("Ryder Scott"), and (ii)
the reserve report (the "Fairchild Report" and, collectively with the
Ryder Scott Report, the "Reserve Reports") prepared by Fairchild, Ancell
& Wells, Inc., independent petroleum engineers ("Fairchild"). Summaries
of the Reserve Reports as of March 31, 1997 are included as Annex A to
this Prospectus. All calculations of estimated net proved reserves have
been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission (the "Commission") and in accordance
with such regulations, the Reserve Reports used oil and natural gas
prices in effect at period end (as shown above) to calculate the
estimated future net revenues as of such period end. The declines in
PV-10 Value and Standardized Measure from December 31, 1996 to March 31,
1997 were primarily attributable to decreases in prices used for these
calculations at such dates for natural gas, and to a lesser extent oil,
which decreases more than offset the effect of increased volumes of
proved reserves during the period. There are numerous uncertainties
inherent in estimating quantities of proved reserves and in projecting
future rates of production and timing of development expenditures,
including many factors beyond the control of the Company. See "Risk
Factors -- Uncertainty of Reserve Information and Future Net Revenue
Estimates."

(2) Represents the estimated future net revenues attributable to the
Company's reserves giving no effect to federal or state income taxes
otherwise attributable to estimated future net revenues from the sale of
oil and natural gas and discounted at 10% per annum.

(3) Represents the present value of estimated future net revenues after
income taxes discounted at 10% per annum.

(4) Calculated as total capital expenditures from inception in 1993 to March
31, 1997 divided by reserve additions for such period.

8
<PAGE> 12

RISK FACTORS

Prospective purchasers of the Common Stock should carefully consider the
risk factors set forth below, as well as the other information contained in this
Prospectus. This Prospectus contains certain forward-looking statements. Actual
results may differ materially from those projected in the forward-looking
statements as a result of any number of factors, including the risk factors set
forth below.

DEPENDENCE ON EXPLORATORY DRILLING ACTIVITIES

The success of the Company will be materially dependent upon the success of
its exploratory drilling program, which will be funded in part with the proceeds
of the Offering. Exploratory drilling involves numerous risks, including the
risk that no commercially productive oil or natural gas reservoirs will be
encountered. The cost of drilling, completing and operating wells is often
uncertain, and drilling operations may be curtailed, delayed or canceled as a
result of a variety of factors, including unexpected drilling conditions,
pressure or irregularities in formations, equipment failures or accidents,
adverse weather conditions, compliance with governmental requirements and
shortages or delays in the availability of drilling rigs and the delivery of
equipment. Although the Company believes that its use of 3-D seismic data and
other advanced technologies should increase the probability of success of its
exploratory wells and should reduce average finding costs through elimination of
prospects that might otherwise be drilled solely on the basis of 2-D seismic
data, exploratory drilling remains a speculative activity. Even when fully
utilized and properly interpreted, 3-D seismic data and other advanced
technologies only assist geoscientists in identifying subsurface structures and
do not enable the interpreter to know whether hydrocarbons are in fact present
in such structures. In addition, the use of 3-D seismic data and other advanced
technologies requires greater predrilling expenditures than traditional drilling
strategies and the Company could incur losses as a result of such expenditures.
The Company's future drilling activities may not be successful, and if
unsuccessful, such failure will have a material adverse effect on the Company's
results of operations and financial condition. There can be no assurance that
the Company's overall drilling success rate or its drilling success rate for
activity within a particular project area will not decline. The Company may
choose not to acquire option and lease rights prior to acquiring seismic data
and, in many cases, the Company may identify a prospect or drilling location
before seeking option or lease rights in the prospect or location. Although the
Company has identified or budgeted for numerous drilling prospects, there can be
no assurance that such prospects will ever be leased or drilled (or drilled
within the scheduled or budgeted time frame) or that oil or natural gas will be
produced from any such prospects or any other prospects. In addition, prospects
may initially be identified through a number of methods, some of which do not
include interpretation of 3-D or other seismic data. Wells that are currently
included in the Company's capital budget may be based upon statistical results
of drilling activities in other 3-D project areas that the Company believes are
geologically similar, rather than on analysis of seismic or other data. Actual
drilling and results are likely to vary from such statistical results and such
variance may be material. Similarly, the Company's drilling schedule may vary
from its capital budget, and there is increased risk of such variance from the
1998 capital budget because of future uncertainties, including those described
above. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

VOLATILITY OF OIL AND NATURAL GAS PRICES

The Company's revenues, future rate of growth, results of operations,
financial condition and ability to borrow funds or obtain additional capital, as
well as the carrying value of its properties, are substantially dependent upon
prevailing prices of oil and natural gas. Historically, the markets for oil and
natural gas have been volatile, and such markets are likely to continue to be
volatile in the future. Prices for oil and natural gas are subject to wide
fluctuation in response to relatively minor changes in the supply of and demand
for oil and natural gas, market uncertainty and a variety of additional factors
that are beyond the control of the Company. These factors include the level of

9
<PAGE> 13

consumer product demand, weather conditions, domestic and foreign governmental
regulations, the price and availability of alternative fuels, political
conditions in the Middle East, the foreign supply of oil and natural gas, the
price of foreign imports and overall economic conditions. It is impossible to
predict future oil and natural gas price movements with certainty. Declines in
oil and natural gas prices may materially adversely affect the Company's
financial condition, liquidity, ability to finance planned capital expenditures
and results of operations. Lower oil and natural gas prices also may reduce the
amount of oil and natural gas that the Company can produce economically. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Marketing."

The Company periodically reviews the carrying value of its oil and natural
gas properties under the full cost accounting rules of the Commission. Under
these rules, capitalized costs of proved oil and natural gas properties may not
exceed the present value of estimated future net revenues from proved reserves,
discounted at 10%. Application of this "ceiling" test generally requires pricing
future revenue at the unescalated prices in effect as of the end of each fiscal
quarter and requires a write-down for accounting purposes if the ceiling is
exceeded, even if prices were depressed for only a short period of time. The
Company may be required to write down the carrying value of its oil and natural
gas properties when oil and natural gas prices are depressed or unusually
volatile. If a write-down is required, it would result in a charge to earnings,
but would not impact cash flow from operating activities. Once incurred, a
write-down of oil and natural gas properties is not reversible at a later date.

In order to reduce its exposure to short-term fluctuations in the price of
oil and natural gas, the Company periodically enters into hedging arrangements.
The Company's hedging arrangements apply to only a portion of its production and
provide only partial price protection against declines in oil and natural gas
prices. Such hedging arrangements may expose the Company to risk of financial
loss in certain circumstances, including instances where production is less than
expected, the Company's customers fail to purchase contracted quantities of oil
or natural gas or a sudden, unexpected event materially impacts oil or natural
gas prices. In addition, the Company's hedging arrangements limit the benefit to
the Company of increases in the price of oil and natural gas. Total natural gas
purchased and sold under swap arrangements during the years ended December 31,
1995 and 1996 was 40,000 MMbtu and 60,000 MMbtu, respectively. Losses realized
by the Company under such swap arrangements were $23,466 and $26,887 for the
years ended December 31, 1995 and 1996, respectively. The Company did not engage
in hedging prior to 1995 and did not engage in hedging during the quarter ended
March 31, 1997. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- General" and "Business -- Marketing."

RESERVE REPLACEMENT RISK

In general, the volume of production from oil and natural gas properties
declines as reserves are depleted, with the rate of decline depending on
reservoir characteristics. Except to the extent the Company conducts successful
exploration and development activities or acquires properties containing proved
reserves, or both, the proved reserves of the Company will decline as reserves
are produced. The Company's future oil and natural gas production is, therefore,
highly dependent upon its level of success in finding or acquiring additional
reserves. The business of exploring for, developing or acquiring reserves is
capital intensive. To the extent cash flow from operations is reduced and
external sources of capital become limited or unavailable, the Company's ability
to make the necessary capital investment to maintain or expand its asset base of
oil and natural gas reserves would be impaired. The failure of an operator of
the Company's wells to adequately perform operations, or such operator's breach
of the applicable agreements, could adversely impact the Company. In addition,
there can be no assurance that the Company's future exploration, development and
acquisition activities will result in additional proved reserves or that the
Company will be able to drill productive wells at acceptable costs. Furthermore,
although the Company's

10
<PAGE> 14

revenues could increase if prevailing prices for oil and natural gas increase
significantly, the Company's finding and development costs could also increase.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES

There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their estimated values, including many factors beyond the control
of the producer. The reserve data set forth in this Prospectus represent only
estimates. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and natural gas that cannot be measured in an
exact manner. Estimates of economically recoverable oil and natural gas reserves
and of future net cash flows necessarily depend upon a number of variable
factors and assumptions, such as historical production from the area compared
with production from other producing areas, the assumed effects of regulations
by governmental agencies and assumptions concerning future oil and natural gas
prices, future operating costs, severance and excise taxes, development costs
and workover and remedial costs, all of which may in fact vary considerably from
actual results. For these reasons, estimates of the economically recoverable
quantities of oil and natural gas attributable to any particular group of
properties, classifications of such reserves based on risk of recovery, and
estimates of the future net cash flows expected therefrom prepared by different
engineers or by the same engineers but at different times may vary substantially
and such reserve estimates may be subject to downward or upward adjustment based
upon such factors. Actual production, revenues and expenditures with respect to
the Company's reserves will likely vary from estimates, and such variances may
be material. In addition, the 10% discount factor, which is required by the
Commission to be used in calculating discounted future net cash flows for
reporting purposes, is not necessarily the most appropriate discount factor
based on interest rates in effect from time to time and risks associated with
the Company or the oil and natural gas industry in general. See "Business -- Oil
and Natural Gas Reserves."

OPERATING RISKS OF OIL AND NATURAL GAS OPERATIONS

The oil and natural gas business involves certain operating hazards such as
well blowouts, craterings, explosions, uncontrollable flows of oil, natural gas
or well fluids, fires, formations with abnormal pressures, pipeline ruptures or
spills, pollution, releases of toxic gas and other environmental hazards and
risks, any of which could result in substantial losses to the Company. The
availability of a ready market for the Company's oil and natural gas production
also depends on the proximity of reserves to, and the capacity of, oil and
natural gas gathering systems, pipelines and trucking or terminal facilities.
The Company delivers natural gas through gas gathering systems and gas pipelines
that it does not own. Federal and state regulation of natural gas and oil
production and transportation, tax and energy policies, changes in supply and
demand and general economic conditions all could adversely affect the Company's
ability to produce and market its oil and natural gas. In addition, the Company
may be liable for environmental damages caused by previous owners of property
purchased and leased by the Company. As a result, substantial liabilities to
third parties or governmental entities may be incurred, the payment of which
could reduce or eliminate the funds available for exploration, development or
acquisitions or result in the loss of the Company's properties. In accordance
with customary industry practices, the Company maintains insurance against some,
but not all, of such risks and losses. The Company does not carry business
interruption insurance. The Company may elect to self-insure if management
believes that the cost of insurance, although available, is excessive relative
to the risks presented. In addition, pollution and environmental risks generally
are not fully insurable. The occurrence of an event not fully covered by
insurance could have a material adverse effect on the financial condition and
results of operations of the Company. The Company participates in a substantial
percentage of its wells on a non-operated basis, which may limit the Company's
ability to control the risks associated with oil and natural gas operations. See
"Business -- Operating Hazards and Insurance."

11
<PAGE> 15

DEPENDENCE ON KEY PERSONNEL

The Company depends to a large extent on the services of certain key
management personnel, the loss of any of which could have a material adverse
effect on the Company's operations. The Company has entered into employment
agreements with each of S.P. Johnson IV (the Company's President and Chief
Executive Officer), Frank A. Wojtek (the Company's Chief Financial Officer),
George F. Canjar (the Company's Vice President of Exploration Development) and
Kendall A. Trahan (the Company's Vice President of Land) substantially as
described herein under "Management -- Employment Agreements." The Company does
not maintain key-man life insurance with respect to any of its employees.

ABILITY TO MANAGE GROWTH AND ACHIEVE BUSINESS STRATEGY

The Company has experienced significant growth in the recent past through
the expansion of its 3-D seismic data acquisition and drilling program. The
Company's rapid growth has placed, and is expected to continue to place, a
significant strain on the Company's financial, technical, operational and
administrative resources. The Company has relied in the past and expects to
continue to rely on project partners and independent contractors that have
provided the Company with seismic survey planning and management, project and
prospect generation, land acquisition, drilling and other services. At June 30,
1997, the Company had 16 full-time employees and two part-time employees. As the
Company increases the number of projects it is evaluating or in which it is
participating, there will be additional demands on the Company's financial,
technical, operational and administrative resources and continued reliance by
the Company on project partners and independent contractors, and these strains
on resources, additional demands and continued reliance may negatively affect
the Company. The Company's ability to continue its growth will depend upon a
number of factors, including its ability to obtain leases or options on
properties for 3-D seismic surveys, its ability to acquire additional 3-D
seismic data, its ability to identify and acquire new exploratory sites, its
ability to develop existing sites, its ability to continue to retain and attract
skilled personnel, its ability to maintain or enter into new relationships with
project partners and independent contractors, the results of its drilling
program, hydrocarbon prices, access to capital and other factors. Although the
Company intends to upgrade its technical, operational and administrative
resources following the Offering and to increase its ability to provide
internally certain of the services previously provided by outside sources, there
can be no assurance that it will be successful in doing so or that it will be
able to continue to maintain or enter into new relationships with project
partners and independent contractors. The failure of the Company to continue to
upgrade its technical, operational and administrative resources or the
occurrence of unexpected expansion difficulties, including difficulties in
recruiting and retaining sufficient numbers of qualified personnel to enable the
Company to expand its seismic data acquisition and drilling program, or the
reduced availability of project partners and independent contractors that have
historically provided the Company seismic survey planning and management,
project and prospect generation, land acquisition, drilling and other services,
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the Company has only limited
experience operating and managing field operations, and there can be no
assurances that the Company will be successful in doing so. Any increase in the
Company's activities as an operator will increase its exposure to operating
hazards. See "Risk Factors -- Operating Risks of Oil and Natural Gas
Operations." There can be no assurance that the Company will be successful in
achieving growth or any other aspect of its business strategy.

SIGNIFICANT CAPITAL REQUIREMENTS

The Company has experienced and expects to continue to experience
substantial working capital needs, particularly as a result of its active 3-D
seismic data acquisition and drilling program. In addition to cash generated
from operations, additional financing may be required in the future to fund the
Company's growth. No assurances can be given as to the availability or terms of
any such

12
<PAGE> 16

additional financing that may be required or that financing will continue to be
available under existing or new credit facilities. In the event such capital
resources are not available to the Company, its drilling, development and other
activities may be curtailed. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

CONTROL BY CERTAIN SHAREHOLDERS

Upon completion of the Offering and the Combination Transactions, the
Company's officers and directors will beneficially own approximately 59.3%
(57.2% if the Underwriters' over-allotment option is exercised in full) of the
outstanding shares of Common Stock. As a result, such shareholders will be in a
position to significantly influence or control the outcome of certain matters
requiring a shareholder vote, including the election of directors, the adoption
or amendment of provisions in the Company's Articles of Incorporation or Bylaws
and the approval of mergers and other significant corporate transactions. Such
ownership of Common Stock may have the effect of delaying, deferring or
preventing a change of control of the Company and may adversely affect the
voting and other rights of other shareholders. See "Security Ownership of
Certain Beneficial Owners and Management."

TECHNOLOGICAL CHANGES

The oil and gas industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies. As others use or develop new technologies, the
Company may be placed at a competitive disadvantage, and competitive pressures
may force the Company to implement such new technologies at substantial cost. In
addition, other oil and gas companies may have greater financial, technical and
personnel resources that allow them to enjoy technological advantages and may in
the future allow them to implement new technologies before the Company. There
can be no assurance that the Company will be able to respond to such competitive
pressures and implement such technologies on a timely basis or at an acceptable
cost. One or more of the technologies currently utilized by the Company or
implemented in the future may become obsolete. In such case, the Company's
business, financial condition and results of operations could be materially
adversely affected. If the Company is unable to utilize the most advanced
commercially available technology, the Company's business, financial condition
and results of operations could be materially and adversely affected. See
"Business -- Competition."

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

Oil and natural gas operations are subject to various federal, state and
local government regulations which may be changed from time to time in response
to economic or political conditions. Matters subject to regulation include
discharge permits for drilling operations, drilling bonds, reports concerning
operations, the spacing of wells, unitization and pooling of properties and
taxation. From time to time, regulatory agencies have imposed price controls and
limitations on production by restricting the rate of flow of oil and natural gas
wells below actual production capacity in order to conserve supplies of oil and
natural gas. The Company is also subject to changing and extensive tax laws, the
effects of which cannot be predicted. Legal requirements are frequently changed
and subject to interpretation, and the Company is unable to predict the ultimate
cost of compliance with these requirements or their effect on its operations. No
assurance can be given that existing laws or regulations, as currently
interpreted or reinterpreted in the future, or future laws or regulations will
not materially adversely affect the Company's results of operations and
financial condition. The development, production, handling, storage,
transportation and disposal of oil and natural gas, by-products thereof and
other substances and materials produced or used in connection with oil and
natural gas operations are subject to federal, state and local laws and
regulations primarily relating to protection of human health and the
environment. The discharge of oil, natural gas, or pollutants into the air, soil
or water may give rise to significant liabilities on the part of the Company to
the

13
<PAGE> 17

government and third parties and may require the Company to incur substantial
costs of remediation. See "Business -- Regulation."

COMPETITION

The Company encounters competition from other oil and natural gas companies
in all areas of its operations, including the acquisition of exploratory
prospects and proven properties. The Company's competitors include major
integrated oil and natural gas companies and numerous independent oil and
natural gas companies, individuals and drilling and income programs. Many of its
competitors are large, well-established companies with substantially larger
operating staffs and greater capital resources than those of the Company and
which, in many instances, have been engaged in the oil and natural gas business
for a much longer time than the Company. Such companies may be able to pay more
for exploratory prospects and productive oil and natural gas properties and may
be able to define, evaluate, bid for and purchase a greater number of properties
and prospects than the Company's financial or human resources permit. The
Company's ability to explore for oil and natural gas prospects and to acquire
additional properties in the future will be dependent upon its ability to
conduct its operations, to evaluate and select suitable properties and to
consummate transactions in this highly competitive environment. See
"Business -- Competition."

LIMITED OPERATING HISTORY AND HISTORICAL OPERATING LOSSES

The Company commenced its operations in September 1993 and has only a
limited operating history. Potential investors, therefore, have limited
historical financial and operating information upon which to base an evaluation
of the Company's performance and an investment in shares of Common Stock. For
example, the producing wells within exploration projects in which the Company is
participating have been on production only for a short period of time.
Therefore, estimations with respect to the proved reserves and level of future
production attributable to these wells are difficult to determine and there can
be no assurance as to the volume of recoverable reserves that will be realized
from such wells. The Company's prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in the
early stages of their development. The Company incurred net losses in 1994 and
1995 of $258,509 and $466,610, respectively. The development of the Company's
business and its participation in an increasingly larger number of projects have
required and will continue to require substantial expenditures. The Company's
future financial results will depend primarily on its ability to economically
locate and produce hydrocarbons in commercial quantities and on the market
prices for oil and natural gas. There can be no assurance that the Company will
achieve or sustain profitability or positive cash flows from operating
activities in the future. See "-- Significant Capital Requirements," "Selected
Combined Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Oil and Gas Reserves."

ACQUISITION RISKS

The successful acquisition of producing properties requires an assessment
of recoverable reserves, future oil and natural gas prices, operating costs,
potential environmental and other liabilities and other factors. Such
assessments are necessarily inexact and their accuracy inherently uncertain. In
connection with such an assessment, the Company performs a review of the subject
properties that it believes to be generally consistent with industry practices,
which generally includes on-site inspections and the review of reports filed
with various regulatory entities. Such a review, however, will not reveal all
existing or potential problems nor will it permit a buyer to become sufficiently
familiar with the properties to fully assess their deficiencies and
capabilities. Inspections may not always be performed on every well, and
structural and environmental problems are not necessarily observable even when
an inspection is undertaken. Even when problems are identified, the seller may
be unwilling or unable to provide effective contractual protection against all
or part of such problems. There can be no assurances that any acquisition of
property interests by the

14
<PAGE> 18

Company will be successful and, if unsuccessful, that such failure will not have
an adverse effect on the Company's future results of operations and financial
condition.

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of Common Stock in the public market
following the Offering could adversely affect the market price for the Common
Stock. The 5,210,000 shares outstanding prior to the Offering were not, and the
approximately 2,290,000 shares to be issued in the Combination Transactions will
not be, registered under the Securities Act of 1933, as amended (the "Securities
Act"), and, therefore, are not freely tradeable unless subsequently registered
under the Securities Act or exempted from such registration. At the time of the
expiration of the lock-up period described below, all of the previously
outstanding shares may be sold pursuant to the requirements of Rule 144
promulgated under the Securities Act ("Rule 144"), subject to certain volume
limitations, manner of sale and other requirements relating to the sale of
securities. Following a period of one year from the closing of this Offering,
all of such shares to be issued in the Combination Transactions may be sold
pursuant to the requirements of Rule 144, subject to certain volume limitations,
manner of sale and other requirements relating to the sale of securities. In
addition, options to purchase shares of Common Stock are issuable pursuant to
outstanding options and up to 250,000 shares of Common Stock will be issuable
pursuant to options to be granted to certain directors, officers and employees
of the Company prior to or immediately after the closing of the Offering, and
the Company anticipates that shares of Common Stock issuable upon exercise of
such options will become available for future sale in the public market pursuant
to a subsequently filed registration statement on Form S-8. In addition, the
Company will enter into a registration rights agreement with the Company's
directors and officers who will own approximately 6,292,809 shares of Common
Stock following the Combination Transactions. Pursuant to the registration
rights agreement, such persons collectively will receive demand and piggyback
registration rights that provide for the registration of the resale of such
shares at the Company's expense. The Company, its current shareholders, its
executive officers and its directors have agreed not to offer for sale, sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for shares of Common Stock for a period of
180 days after the date of this Prospectus, without the prior written consent of
the representatives of the Underwriters, subject to certain exceptions. Such
consent may be given at any time and without public notice. See
"Management -- Incentive Plan," "Shares Eligible for Future Sale" and
"Underwriting."

ABSENCE OF DIVIDENDS ON COMMON STOCK

The Company currently intends to retain any earnings for the future
operation and development of its business and does not currently anticipate
paying any dividends in the foreseeable future. Any future dividends also may be
restricted by the Company's then-existing loan agreements. See "Dividend
Policy," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Note 4 to the
Company's Financial Statements.

CERTAIN ANTI-TAKEOVER EFFECTS

The Company's Articles of Incorporation authorize the Board of Directors to
set the terms of and issue Preferred Stock without shareholder approval. The
Board of Directors could use the Preferred Stock as a means to delay, defer or
prevent a takeover attempt that a shareholder might consider to be in the
Company's best interest. In addition, certain provisions of the Texas Business
Corporation Act and the Company's Articles of Incorporation and Bylaws might
impede a takeover of the Company. See "Description of Capital Stock."

15
<PAGE> 19

NO PRIOR PUBLIC MARKET

Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between the Company and the Underwriters and may not be indicative of the price
at which the Common Stock will trade following the completion of the Offering.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The completion of the Offering
provides no assurance that an active trading market for the Common Stock will
develop or, if developed, that it will be sustained. The market price of the
Common Stock could also be subject to significant fluctuation and may be
influenced by many factors, including variations in results of operations,
variations in oil and natural gas prices, investor perceptions of the Company
and the oil and natural gas industry and general economic and other conditions.

DILUTION

Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the net tangible book value of their stock of $8.79 per
share (assuming an initial public offering price of $12.00 per share). See
"Dilution."

16
<PAGE> 20

USE OF PROCEEDS

The net proceeds to the Company from the Offering at an assumed initial
public offering price of $12.00 per share are estimated to be approximately
$26.7 million ($30.9 million if the Underwriters' over-allotment option is
exercised in full). The Company intends to use a portion of the net proceeds to
repay approximately $16.1 million of indebtedness outstanding as of the date of
this Prospectus under the Company's revolving credit facilities that currently
bear interest at rates ranging from 9.3% to 10.5% and mature in June 1998 and
approximately $3.2 million of promissory notes outstanding as of the date of
this Prospectus to certain of the Company's directors and officers that
currently bear interest at 8.5% and are due on the earlier of (i) April or July
1998 or (ii) the closing of the Offering. The remainder of the net proceeds will
be used to accelerate the Company's exploration and development program and for
general corporate purposes, including funding additional acreage and 3-D seismic
acquisitions. The indebtedness incurred under both the Company's revolving
credit facilities and such promissory notes was used primarily for its
exploration, development and acquisition activities and to provide working
capital. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

DIVIDEND POLICY

The Company has not paid any dividends in the past and does not intend to
pay cash dividends on its Common Stock in the foreseeable future. The Company
currently intends to retain any earnings for the future operation and
development of its business, including exploration, development and acquisition
activities. Following the Offering, the Company expects to enter into an
amendment to its Secured Revolving Line of Credit with Compass Bank (the
"Company Credit Facility"). Under the proposed terms of the facility, the
Company's ability to pay dividends will be restricted. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

17
<PAGE> 21

DILUTION

As of March 31, 1997, the pro forma net tangible book value of the Company
would have been approximately $5.4 million, or approximately $0.72 per share of
Common Stock, after giving pro forma effect to the issuance of approximately
2,290,000 shares of Common Stock in connection with the Combination Transactions
as if such transactions had been completed at such date. Net tangible book value
per share represents the amount of the Company's tangible book value (total book
value of tangible assets less total liabilities) divided by the total number of
shares of Common Stock outstanding. After further giving effect to the receipt
of the estimated net proceeds from the Offering (net of estimated underwriting
discounts and offering expenses) at an assumed initial public offering price of
$12.00 per share, the adjusted pro forma net tangible book value of the Common
Stock outstanding at March 31, 1997 would have been $3.21 per share,
representing an immediate increase in net tangible book value of $2.49 per share
to existing shareholders and an immediate dilution of $8.79 per share (the
difference between the assumed initial public offering price and the net
tangible book value per share after the Offering) to persons purchasing Common
Stock at the assumed initial public offering price. The following table
illustrates such per share dilution:

<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share before the
Offering............................................... $0.72
Increase in pro forma net tangible book value per share
attributable to sale of Common Stock in the Offering... 2.49
-----
Adjusted pro forma net tangible book value per share after
giving effect to the Offering............................. 3.21
------
Dilution in net tangible book value to the purchasers of
Common Stock in the Offering.............................. $ 8.79
======
</TABLE>

The following table sets forth, on a pro forma basis to give effect to the
Combination Transactions as of March 31, 1997, differences between the number of
shares of Common Stock to be acquired or to be acquired from the Company by
existing shareholders and by investors purchasing shares in the Offering, the
total price paid or to be paid and the average price per share paid or to be
paid by existing shareholders and investors purchasing shares in the Offering
(based upon an assumed initial public offering price per share of $12.00).

<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION(2)
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders......... 7,500,000 75% $ 5,296,000 15% $ 0.71
New investors................. 2,500,000 25% 30,000,000 85% 12.00
---------- ---- ----------- ----
Total............... 10,000,000 100% $35,296,000 100%
========== ==== =========== ====
</TABLE>

- ---------------

(1) Does not include (i) approximately 250,000 shares of Common Stock issuable
pursuant to options at an exercise price per share equal to the initial
public offering price that will be granted to directors, officers and
employees of the Company upon completion of the Offering and (ii) 222,120
shares of Common Stock issuable pursuant to outstanding options at a
weighted average exercise price of $3.60 per share (including vested options
for 72,189 shares). The exercise of such stock options at a price below the
initial public offering price will be dilutive to new investors. See
"Management -- Incentive Plan."

(2) Total consideration paid by existing shareholders represents the aggregate
of (i) in the case of the current shareholders of Carrizo, the amounts paid
by such shareholders to the Company for their Common Stock and (ii) in the
case of persons receiving Common Stock in the Combination Transactions, the
book value at March 31, 1997 of the allocable portion of the net assets and
liabilities received by the Company in the Combination Transactions.

18
<PAGE> 22

CAPITALIZATION

The following table gives effect to the 521-for-one split of the Common
Stock effected in June 1997 and sets forth the Company's cash and cash
equivalents and capitalization as of March 31, 1997 as follows: (i) on a
historical basis, (ii) pro forma after giving effect to the issuance of
approximately 2,290,000 shares of Common Stock in connection with the
Combination Transactions and (iii) pro forma as adjusted to give effect to the
sale of 2,500,000 shares of Common Stock in the Offering at an assumed initial
public offering price of $12.00 per share and the application of the estimated
net proceeds therefrom. This table should be read in conjunction with the
Combined Financial Statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------
PRO FORMA
AS ADJUSTED PRO FORMA
FOR THE AS ADJUSTED
COMBINATION FOR THE
ACTUAL TRANSACTIONS OFFERING
------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 1,500 $ 1,500 $15,656
======= ======= =======

Long-term debt.............................................. $12,254 $12,254 --
Shareholders' equity(1):
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; none outstanding........................... -- -- --
Common stock, $0.01 par value, 40,000,000 shares
authorized; 5,210,000 shares issued and outstanding;
7,500,000 shares issued and outstanding pro forma;
10,000,000 shares issued and outstanding pro forma as
adjusted............................................... -- 75 100
Additional paid-in capital................................ 4,356 4,281 30,909
Retained earnings......................................... 1,051 1,051 1,051
------- ------- -------
Total shareholders' equity........................... 5,407 5,407 32,060
------- ------- -------
Total capitalization.............................. $17,661 $17,661 $32,060
======= ======= =======
</TABLE>

- ---------------

(1) Does not include (i) approximately 250,000 of Common Stock issuable pursuant
to options at an exercise price per share equal to the initial public
offering price in the Offering that will be granted to directors, officers
and employees of the Company upon completion of the Offering and (ii)
222,120 shares of Common Stock issuable pursuant to outstanding options at a
weighted average exercise price of $3.60 per share (including vested options
for 72,189 shares).

19
<PAGE> 23

SELECTED COMBINED FINANCIAL AND OPERATING DATA

The financial information of the Company set forth below for the period
from inception of operations (September 24, 1993) through December 31, 1993, and
for the three years ended December 31, 1996, has been derived from the audited
combined financial statements of the Company. The financial information of the
Company set forth below as of March 31, 1997 and for the three months ended
March 31, 1996 and 1997 has been derived from the unaudited combined financial
statements of the Company. The results of operations for the interim periods are
not necessarily indicative of a full year's operations. The following table also
sets forth certain pro forma income taxes, net income and net income per share
information. The information should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited combined financial statements of the
Company and the related notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION OF
OPERATIONS
(SEPTEMBER 24, THREE MONTHS ENDED
1993) THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------------- -------------------
1993 1994 1995 1996 1996 1997
-------------- ------- ------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Oil and natural gas
revenues.................... $ 5 $ 596 $ 2,428 $ 5,195 $ 791 $ 1,853
Costs and expenses:
Oil and natural gas
operating expenses....... 20 518 1,814 2,384 418 557
Depreciation, depletion and
amortization............. 1 98 488 1,136 142 382
General and
administrative........... 24 238 425 515 44 198
----- ------- ------- ------- ------- -------
Total costs and
expenses.......... 45 854 2,727 4,035 604 1,137
----- ------- ------- ------- ------- -------
Operating income (loss)....... (40) (258) (299) 1,160 187 716
Interest expense (net of
amounts capitalized)........ -- (7) (192) (80) (43) --
Other income.................. -- 6 24 20 -- --
----- ------- ------- ------- ------- -------
Net income (loss)............. $ (40) $ (259) $ (467) $ 1,100 $ 144 $ 716
===== ======= ======= ------- ======= -------
Pro forma income taxes(1)..... 396 258
------- -------
Pro forma net income(1)....... $ 704 $ 458
======= =======
Pro forma net income per
share(1)(2)................. $ 0.09 $ 0.06
======= =======
Pro forma weighted average
shares outstanding(2)....... 7,722 7,722
STATEMENTS OF CASH FLOW DATA:
Net cash provided by (used in)
operating activities........ $ 12 $ (258) $ 406 $ 3,325 $ 486 $ 1,836
Net cash provided by (used in)
investing activities........ (118) (819) (6,785) (8,221) (1,353) (4,354)
Net cash provided by financing
activities.................. 106 1,183 6,343 6,319 867 2,525
OTHER OPERATING DATA:
EBITDA(3)(5).................. $ (41) $ (158) $ 189 $ 2,296 $ 328 $ 1,098
Operating cash flow(4)(5)..... (41) (159) 21 2,236 285 1,098
Capital expenditures.......... 113 819 6,857 9,480 1,353 4,417
Debt repayments(6)............ -- -- -- 2,084 -- 500
</TABLE>

20
<PAGE> 24

<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
---------------------
AS
AS OF DECEMBER 31, ADJUSTED
-------------------------------- FOR THE
1993 1994 1995 1996 ACTUAL OFFERING(7)
---- ------ ------ ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $(52) $ 152 $ (265) $(1,025) $(1,758) $12,086
Property and equipment, net......... 113 803 6,960 15,206 19,162 19,162
Total assets........................ 130 1,057 7,645 18,869 23,912 38,068
Long-term debt, including current
maturities........................ -- 533 3,480 9,684 12,254 --
Equity.............................. 65 452 3,381 4,596 5,407 32,060
</TABLE>

- ---------------

(2) Pro forma net income (loss) per share has been computed based on the pro
forma net income shown above, and assuming the 5,210,000 currently
outstanding shares of Common Stock, the estimated 2,290,000 shares of Common
Stock that may be issued in connection with the Combination Transactions and
the currently outstanding options to purchase 222,120 shares of Common Stock
were outstanding since January 1, 1996. Supplemental pro forma net income
assuming a portion of the proceeds from the Offering was used to retire debt
(thereby reducing interest expense) would increase pro forma net income to
$755,000, or $0.10 per share, in 1996. There would be no change for the
three months ended March 31, 1997 as all interest costs incurred during the
period were capitalized.

(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, depletion and amortization.

(4) Operating cash flow represents cash flows from operating activities prior to
changes in assets and liabilities.

(6) Debt repayments include amounts refinanced.

(7) Assumes the issuance in the Offering of 2,500,000 shares of Common Stock at
$12.00 per share and the application of the net proceeds therefrom.

21
<PAGE> 25

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL OVERVIEW

The Company began operations in September 1993 and initially focused on the
acquisition of producing properties. As a result of the increasing availability
of economic onshore 3-D seismic surveys, the Company began to obtain 3-D seismic
data and options to lease substantial acreage in 1995 and began to drill its 3-D
based prospects in 1996. The Company drilled 20 wells in 1996 and 30 wells
through the six months ended June 30, 1997. The Company expects such increases
to continue and has budgeted to drill a total of 67 gross wells (26.9 net) in
1997 and 147 gross wells (67.5 net) in 1998. As a result, depreciation,
depletion and amortization, oil and gas operating expenses and production are
expected to increase. The Company has typically retained the majority of its
interests in shallow, normally pressured prospects and sold a portion of its
interests in deeper, over-pressured prospects.

The Company uses the full-cost method of accounting for its oil and gas
properties. Under this method, all acquisition, exploration and development
costs, including any general and administrative costs that are directly
attributable to the Company's acquisition, exploration and development
activities, are capitalized in a "full-cost pool" as incurred. The Company
records depletion of its full-cost pool using the unit-of-production method. To
the extent that such capitalized costs in the full-cost pool (net of
depreciation, depletion and amortization and related deferred taxes) exceed the
present value (using a 10% discount rate) of estimated future net after-tax cash
flows from proved oil and gas reserves, such excess costs are charged to
operations. The Company has not been required to make any such write-downs. Once
incurred, a write-down of oil and gas properties is not reversible at a later
date.

The Company has primarily grown through the internal development of
properties within its exploration project areas, although the Company acquired
properties with existing production in the Camp Hill Project in late 1993, the
Encinitas Project in early 1995 and the La Rosa Project in 1996. The Company
made these acquisitions through the use of limited partnerships with Carrizo or
Carrizo Production, Inc. as the general partner. However, as operations have
expanded, the Company has increasingly funded its activities through bank
borrowings and cash flow from operations in order to retain a greater portion of
the interests it develops.

The combined financial statements set forth elsewhere in this Prospectus
are prepared on the basis of a combination of Carrizo and the entities that are
a party to the Combination Transactions. Carrizo and the entities being combined
with it in the Combination Transactions were not required to pay federal income
taxes due to their status as partnerships or Subchapter S corporations, which
are not subject to federal income taxation. Instead, taxes for such periods were
paid by the shareholders and partners of such entities. On May 16, 1997, Carrizo
terminated its status as an S corporation and thereafter became subject to
federal income taxes. Upon the consummation of the Combination Transactions, the
Company will be required to record its deferred taxes, if any, in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Giving pro forma effect to the Combination Transactions, for the
12 months ended December 31, 1996 and the three months ended March 31, 1997, pro
forma income taxes were $396,000 and $258,000, respectively.

RECENT OPERATING RESULTS

During the second quarter of 1997, the Company participated in the drilling
of 21 gross wells (8.4 net), of which 18 (7.0 net) were successfully completed,
as compared to the Company's participation in the drilling of nine gross wells
(3.0 net), of which seven were successfully completed, during the first quarter
of 1997. Oil and natural gas revenues for the second quarter of 1997 increased
24% to approximately $2.3 million from approximately $1.9 million for the first

22
<PAGE> 26

quarter of 1997. Production volumes for natural gas during the second quarter of
1997 increased 41% to 835.9 MMcf from 592.3 MMcf for the first quarter of 1997.
Average gas prices in the second quarter of 1997 decreased 9% to $2.15 per Mcf
from $2.35 per Mcf in the first quarter of 1997. Production volumes for oil
during the second quarter of 1997 increased 27% to 27.2 MBbls from 21.4 MBbls
for the first quarter of 1997. Average oil prices in the second quarter of 1997
decreased 14% to $18.46 per Bbl from $21.50 per Bbl in the first quarter of
1997.

The Company is in the process of preparing its operating results for the
second quarter of 1997. Although the information is not yet complete, the
preliminary information for the quarter indicates that (i) oil and natural gas
operating expenses increased in absolute terms, but decreased as a percentage of
production, (ii) depreciation, depletion and amortization expense increased in
absolute terms, but remained relatively constant as a percentage of production
and (iii) general and administrative expenses increased in absolute terms and
increased slightly as a percentage of production, in each case as compared to
the first quarter of 1997.

RESULTS OF OPERATIONS

Three Months Ended March 31, 1997 Compared to the Three Months Ended March 31,
1996

Oil and natural gas revenues for the three months ended March 31, 1997
increased 134% to $1.9 million from $791,000 for the same period in 1996.
Production volumes for natural gas during the three months ended March 31, 1997
increased 202% to 592.3 MMcf from 195.9 MMcf for the same period in 1996.
Average gas prices increased 19% to $2.35 per Mcf in the first quarter of 1997
from $1.97 per Mcf in the same period in 1996. Production volumes for oil in the
first quarter of 1997 were flat at 21.4 MBbls from 21.3 MBbls for the same
period in 1996 as reduced production at the Camp Hill Project (resulting from
reduced steam injection levels because of high fuel gas prices) offset increases
in production elsewhere. Average oil prices increased 13% to $21.50 per barrel
in the first quarter of 1997 from $19.02 per barrel in the same period in 1996.
The increase in natural gas production was due primarily to production from new
wells drilled and completed in the second half of 1996 and early 1997, as well
as the acquisition of the La Rosa properties in 1996, which were fully onstream
for the first quarter of 1997.

The following table summarizes production volumes, average sales prices and
operating revenues for the Company's oil and natural gas operations for the
three months ended March 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 PERIOD COMPARED TO
MARCH 31, 1996 PERIOD
--------------------- -----------------------
1996 1997 INCREASE % INCREASE
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Production volumes
Oil and condensate (MBbls)........... 21.3 21.4 0.1 --
Natural gas (MMcf)................... 195.9 592.3 396.4 202%
Average sales prices(1)
Oil and condensate (per Bbl)......... $ 19.02 $ 21.50 $ 2.48 13%
Natural gas (per Mcf)................ 1.97 2.35 0.38 19%
Operating revenues
Oil and condensate................... $405,189 $ 459,975 $ 54,786 14%
Natural gas.......................... 385,324 1,393,195 1,007,871 262%
-------- ---------- ----------
Total........................ $790,513 $1,853,170 $1,062,657 134%
======== ========== ==========
</TABLE>

- ---------------

(1) Including impact of hedging.

Oil and natural gas operating expenses for the three months ended March 31,
1997 increased 32% to $557,000 from $418,000 for the same period in 1996. Oil
and natural gas operating expenses increased primarily due to increased
production as described above, which was offset by a

23
<PAGE> 27

decrease in operating expenses per equivalent unit to $0.77 per Mcfe in the
first quarter of 1997 from $1.29 per Mcfe in the same period in 1996. The per
unit cost decreased as a result of increased production of natural gas which had
lower per unit operating costs.

Depreciation, depletion and amortization ("DD&A") expense for the three
months ended March 31, 1997 increased 170% to $382,000 from $142,000 for the
same period in 1996. This increase was due to increased production and a 20%
increase in the 1997 depletion rate to $0.53 per Mcfe from $0.44 per Mcfe in the
three months ended March 31, 1996, as a result of increased drilling and related
seismic costs.

General and administrative expense for the three months ended March 31,
1997 increased 347% to $198,000 from $44,000 for the same period in 1996, as a
result of increases in the number of employees and related benefits, plus
increased office space.

Interest expense for the three months ended March 31, 1997 increased 77% to
$188,000 from $107,000 in the same period in 1996. Increases in interest expense
were due to increased debt levels in late 1996 and early 1997. Capitalized
interest increased to $188,000 in the first quarter of 1997 from $64,000 in the
first quarter of 1996 as a result of increased levels of exploration activity
and higher levels of unevaluated property. All interest expense during the first
quarter of 1997 was capitalized.

Net income for the three months ended March 31, 1997 increased to $716,000
from $144,000 for the same period in 1996, as a result of the factors described
above.

Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995

Oil and natural gas revenues for 1996 increased 114% to $5.2 million from
$2.4 million in 1995. Production volumes for natural gas in 1996 increased 125%
to 1,272.5 MMcf from 565.3 MMcf in 1995. Average natural gas prices increased
42% to $2.27 per Mcf in 1996 from $1.60 per Mcf in 1995. Production volumes for
oil in 1996 increased 38% to 107.3 MBbls from 77.6 MBbls in 1995. Average oil
prices increased 10% to $21.54 per barrel in 1996 from $19.64 per barrel in
1995. The increase in oil and natural gas production was due primarily to new
wells being successfully drilled and completed during 1996, along with
recompletions of existing wells. Also contributing to the increase in oil and
gas revenues from 1995 to 1996 was the acquisition of the La Rosa properties.

The following table summarizes production volumes, average sales prices and
operating revenues for the Company's oil and natural gas operations for the
years ended December 31, 1995 and 1996:

<TABLE>
<CAPTION>
1996 PERIOD COMPARED TO
DECEMBER 31, 1995 PERIOD
----------------------- -----------------------
1995 1996 INCREASE % INCREASE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Production volumes
Oil and condensate (MBbls)......... 77.6 107.3 29.7 38%
Natural gas (MMcf)................. 565.3 1,272.5 707.2 125%
Average sales prices(1)
Oil and condensate (per Bbl)....... $ 19.64 $ 21.54 $ 1.90 10%
Natural gas (per Mcf).............. 1.60 2.27 0.67 42%
Operating revenues
Oil and condensate................. $1,524,002 $2,310,798 $ 786,796 52%
Natural gas........................ 904,046 2,883,911 1,979,865 219%
---------- ---------- ----------
Total...................... $2,428,048 $5,194,709 $2,766,661 114%
========== ========== ==========
</TABLE>

- ---------------

(1) Including impact of hedging.

24
<PAGE> 28

Oil and natural gas operating expenses for 1996 increased 31% to $2.4
million from $1.8 million in 1995. Oil and natural gas operating expenses
increased due to increased production generated from new oil and gas wells
drilled and completed since December 31, 1995, as well as the acquisitions of
the La Rosa and Encinitas properties. Operating expenses per equivalent unit in
1996 decreased to $1.24 per Mcfe from $1.76 per Mcfe in 1995. The per unit cost
decreased as a result of increased production of natural gas which had lower per
unit operating costs.

DD&A expense for 1996 increased 133% to $1.1 million from $488,000 in 1995.
This increase was due to the increase in oil and gas production as well as a 25%
increase in the depletion rate (to $0.59 per Mcfe in 1996 from $0.47 per Mcfe in
1995). The increased depletion rate was primarily caused by increased
exploration expenditures attributable to 3-D seismic surveys performed for new
wells drilled and completed since December 31, 1995.

General and administrative expense for 1996 increased 21% to $515,000 from
$425,000 for 1995 due primarily to an increase in salary expense as a result of
the addition of new employees.

Interest expense for 1996 decreased 59% to $80,000 from $192,000 in 1995.
This decrease was primarily due to the increase in interest capitalized
consistent with increases in capital expenditures.

Net income for 1996 increased to $1.1 million from a loss of $467,000 in
1995 as a result of the factors described above.

Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994

Oil and natural gas revenues for 1995 increased 307% to $2.4 million from
$597,000 in 1994. Production volumes for natural gas for 1995 increased to 565.3
MMcf from 5.4 MMcf in 1994. Average gas prices increased 81% to $1.60 per Mcf in
1995 from $0.88 per Mcf in 1994. Production volumes for oil for 1995 increased
135% to 77.6 MBbls from 33 MBbls in 1994. Average oil prices increased 11% to
$19.64 per barrel in 1995 from $17.69 per barrel in 1994. Oil and natural gas
revenues were significantly impacted by the acquisition of the Encinitas
properties, which added 579 MMcfe of production.

The following table summarizes production volumes, average sales prices and
operating revenues for the Company's oil and natural gas operations for the
years ended December 31, 1994 and 1995:

<TABLE>
<CAPTION>
1995 PERIOD COMPARED TO
DECEMBER 31, 1994 PERIOD
--------------------- -----------------------
1994 1995 INCREASE % INCREASE
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Production volumes
Oil and condensate (MBbls)......... 33.0 77.6 44.6 135%
Natural gas (MMcf)................. 5.4 565.3 559.9 *
Average sales prices (1)
Oil and condensate (per Bbl)....... $ 17.69 $ 19.64 $ 1.95 11%
Natural gas (per Mcf).............. 0.88 1.60 0.72 81%
Operating revenues
Oil and condensate................. $591,975 $1,524,002 $ 932,027 157%
Natural gas........................ 4,758 904,046 899,288 *
-------- ---------- ----------
Total...................... $596,733 $2,428,048 $1,831,315 307%
======== ========== ==========
</TABLE>

- ---------------

* Not meaningful.

(1) Including impact of hedging.

Oil and gas operating expenses increased 250% to $1.8 million from $518,000
in 1994. The increase was primarily attributable to increased operating expenses
of approximately $964,000 on the Encinitas properties. Operating expenses per
equivalent unit in 1995 decreased to $1.76 per

25
<PAGE> 29

Mcfe from $2.55 per Mcfe in 1994. The per unit cost decreased as a result of
increased production of natural gas which had lower per unit operating costs.

DD&A expense increased 397% to $488,000 from $98,000 in 1994 as a result of
increased production with a relatively flat depletion rate ($0.47 per Mcfe in
1995 from $0.48 per Mcfe in 1994).

General and administrative expense increased 79% to $425,000 from $237,000
in 1994, primarily as a result of the hiring of additional engineering staff and
other employees as well as salary increases for existing employees.

Interest expense increased to $192,000 from $7,000 in 1994. This increase
in 1995 was due to the additional debt incurred to finance the acquisition of
the Encinitas properties. The increase in the weighted average outstanding debt
balance and effective interest rate was due to the additional debt incurred
which bore interest at a bank's prime rate plus 2.75%.

The Company incurred a net loss in 1995 of $467,000, compared to a net loss
of $259,000 in 1994, as a result of the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity have included funds generated by
operations, equity capital contributions and borrowings, primarily under
Carrizo's Secured Reducing Revolving Line of Credit (the "Carrizo Credit
Facility") with Compass Bank ("Compass"). A portion of the proceeds from this
Offering will be used to repay the amounts outstanding under the Carrizo Credit
Facility, the Encinitas Credit Facility (defined below) and the notes from
certain of the Company's directors and officers. Following the Offering, the
Encinitas Credit Facility and the director and officer loans will be terminated,
and the Company expects to enter into an amendment to the Carrizo Credit
Facility, whereupon it will become the Company Credit Facility, as described
below under "-- Financing Arrangements."

Cash flows (used in) provided by operations were $(258,000), $406,000, $3.3
million and $1.8 million in 1994, 1995, 1996 and the three months ended March
31, 1997, respectively. The increase in cash flows provided by operations in
1996 as compared to 1995, and 1995 as compared to 1994, was due primarily to
increased revenues from production.

The Company has budgeted capital expenditures in 1997 of approximately
$21.9 million, $12.6 million of which is expected to be used to fund 3-D seismic
surveys and land acquisitions and $9.3 million of which is expected to be used
for drilling activities in the Company's project areas. The Company has budgeted
capital expenditures in 1998 of approximately $43.8 million. The Company expects
to drill approximately 67 gross wells (26.9 net) in 1997 and has budgeted for
approximately 147 gross wells (67.5 net) in 1998. The actual amounts of capital
expenditures and number of wells drilled may differ significantly from such
estimates. See "Business -- Significant Project Areas." In addition to its
existing leased acreage, as of June 30, 1996, the Company has acquired various
3-D seismic options that will allow it to lease up to approximately 286,000
gross undeveloped acres (103,000 net) if determined by 3-D seismic data to be
prospective for drilling.

The Company has continued to reinvest a substantial portion of its cash
flows into increasing its 3-D prospect portfolio, improving its 3-D seismic
interpretation technology and funding its drilling program. Oil and gas capital
expenditures were $800,000, $6.6 million, $9.1 million and $4.3 million in 1994,
1995, 1996 and the three months ended March 31, 1997, respectively. The
Company's drilling efforts resulted in the successful completion of 16 gross
wells (3.8 net) in 1996 that increased the Company's net reserves by 4.3 Bcf of
gas and 70 MBbls of oil at March 31, 1997.

The Company's revenues, profitability, future growth and ability to borrow
funds or obtain additional capital, and the carrying value of its properties,
are substantially dependent on prevailing prices of oil and natural gas. It is
impossible to predict future oil and natural gas price movements with certainty.
Declines in prices received for oil and natural gas may have an adverse effect
on the

26
<PAGE> 30

Company's financial condition, liquidity, ability to finance capital
expenditures and results of operations. Lower prices may also impact the amount
of reserves that can be produced economically by the Company.

Due to the instability of oil and natural gas prices, in 1995 the Company
began utilizing, from time to time, certain hedging instruments (e.g., NYMEX
futures contracts) for a portion of its oil and gas production to achieve a more
predictable cash flow, as well as to reduce the exposure to price fluctuations.
The Company's hedging arrangements apply to only a portion of its production,
provide only partial price protection against declines in oil and natural gas
prices and limit potential gains from future increases in prices. Such hedging
arrangements may expose the Company to risk of financial loss in certain
circumstances, including instances where production is less than expected, the
Company's customers fail to purchase contracted quantities of oil or natural gas
or a sudden unexpected event materially impacts oil or natural gas prices. The
Company accounts for all these transactions as hedging activities and,
accordingly, gains and losses from hedging activities are included in oil and
gas revenues during the period the hedged transactions occur. Historically,
gains and losses from hedging activities have not been material. The Company
expects that the amount of hedges that it has in place will vary from time to
time. The Company had no outstanding hedge positions as of December 31, 1996 or
March 31, 1997.

The Company has experienced and expects to continue to experience
substantial working capital requirements primarily due to the Company's active
exploration and development programs and, to a much lesser extent, its
technology enhancement programs. While the Company believes that the net
proceeds from this Offering, cash flow from operations and borrowings under the
Company Credit Facility should allow the Company to implement its present
business strategy during 1997 and 1998, additional financing may be required in
the future to fund the Company's growth, development and exploration program and
continued technological enhancement. In the event such capital resources are not
available to the Company, its exploration and other activities may be curtailed.

FINANCING ARRANGEMENTS

Following the closing of this Offering, the Company expects to enter into
the Company Credit Facility, which will provide for a maximum loan amount of $25
million, subject to borrowing base limitations. Under the new facility, the
principal outstanding will be due and payable upon maturity in June 1999 with
interest due monthly. The interest rate for borrowings will be calculated at a
floating rate based on the Compass index rate or LIBOR plus 2%. The Company's
obligations will be secured by certain of its oil and gas properties and cash or
cash equivalents included in the borrowing base.

Under the Company Credit Facility, Compass, in its sole discretion, will
make semiannual borrowing base determinations based upon the proved oil and
natural gas properties of the Company. Compass may redetermine the borrowing
base and the monthly borrowing base reduction at any time and from time to time.
The Company may also request borrowing base redeterminations in addition to
their required semiannual reviews at the Company's cost.

The Company will be subject to certain covenants under the terms of the
Company Credit Facility, including but not limited to, (a) maintenance of
specified tangible net worth and (b) maintenance of a ratio of quarterly cash
flow (net income plus depreciation and other noncash charges, less noncash
income) to quarterly debt service (payments made for principal in connection
with the credit facility plus payments made for principal other than in
connection with such credit facility) of no less than 1.25 to 1.00. The Company
Credit Facility will also place restrictions on, among other things, (i)
incurring additional indebtedness, loans and liens, (ii) changing the nature of
business or business structure, (iii) selling assets and (iv) paying dividends.

The foregoing description of the Company Credit Facility is based upon the
terms of a commitment letter with the lender. The Company Credit Facility will
be subject to the negotiation of

27
<PAGE> 31

documentation acceptable to the parties and the completion of the Offering with
net cash proceeds of at least $20 million. There can be no assurance that the
Company will enter into any final agreement with the terms described, or at all.

In December 1996, Carrizo entered into the Carrizo Credit Facility with
Compass, which provides for a revolving credit commitment amount of $8.0
million, subject to borrowing base limitations, and a term loan of $7.0 million.
Under the Carrizo Credit Facility, the principal outstanding is due and payable
upon maturity in June 1998 with interest due monthly. At June 30, 1997, the
borrowing base was $7.9 million and borrowings outstanding were $6.9 million.
The interest rate for borrowings is calculated at a floating rate based on a
published prime rate plus .75% with respect to the revolving portion of this
facility and a published rate plus 2.00% with respect to the term loan portion
of this facility. Carrizo's obligations under this facility are secured by
substantially all of its oil and natural gas properties. Individually and
collectively, Paul B. Loyd, Jr., Frank A. Wojtek, Steven A. Webster, Douglas
A.P. Hamilton and S.P. Johnson IV are guarantors of Carrizo's obligations under
the Carrizo Credit Facility. In addition, certain shares of Common Stock owned
by current shareholders are pledged to Compass as security for borrowings under
the Carrizo Credit Facility. The provisions of the Carrizo Credit Facility
regarding borrowing base determinations and restrictive covenants are
substantially the same as those described above with respect to the Company
Credit Facility (except that at Carrizo's option, the borrowing base
determinations may be based on a percentage of the market value of securities
pledged to the bank in addition to the proved oil and natural gas properties of
Carrizo). The Company will use a portion of the proceeds of the Offering to
repay all outstanding indebtedness under the Carrizo Credit Facility. Upon such
repayment, this facility will be amended to become the Company Credit Facility
and such guarantees and pledges will be released.

In June 1996, Encinitas Partners Ltd. ("Encinitas") entered into the
Secured Reducing Revolving Line of Credit (the "Encinitas Credit Facility") with
Compass, which provides for a commitment amount equal to the borrowing base.
Under the Encinitas Credit Facility, the principal outstanding is due and
payable upon maturity in June 1998 with interest due monthly. At March 31, 1997,
the borrowing base under the Encinitas Credit Facility was $2.4 million, of
which $2.1 million was outstanding and $224,000 was reserved for outstanding
letters of credit. The interest rate for borrowings is calculated at a floating
rate based on a published prime rate plus .75%. Encinitas' obligations under
this facility are secured by substantially all of its oil and natural gas
properties. The provisions of the Encinitas Credit Facility regarding borrowing
base determinations and restrictive covenants are substantially the same as
those described above with respect to the Company Credit Facility. The Company
will use a portion of the proceeds of the Offering to repay all outstanding
indebtedness under the Encinitas Credit Facility. Upon such repayment, this
facility will be terminated.

Necessary waivers effective as of December 31, 1996 were received from
Compass to decrease the tangible net worth requirement (Encinitas Facility) and
to permit Carrizo (under the Carrizo Credit Facility) to advance funds to one of
the affiliated entities for exploration expenditures.

In January 1995, the Company entered into a loan agreement with Texas
Commerce Bank, National Association ("TCB") for the acquisition and development
of oil and gas properties by Encinitas Partners Ltd. Borrowings under the loan
facility, which totaled $2.1 million and bore interest at the prime rate as
specified by TCB plus 2.75%, were repaid with borrowings under the Encinitas
Credit Facility, and this loan facility was terminated. As additional
consideration, the Company assigned to TCB a 1% royalty interest in the
Encinitas/Kelsey properties.

In addition to borrowings under the credit facilities described above, the
Company had outstanding borrowings from certain directors and officers of the
Company totaling $1.4 million, $2.8 million and $2.9 million at December 31,
1995 and 1996 and March 31, 1997, respectively. See "Certain Transactions."
These loans bear interest at TCB's prime rate and are due on the earlier of (i)
April or July 1998 or (ii) the closing of the Offering. The Company will use a
portion of the

28
<PAGE> 32

proceeds of the Offering to prepay all outstanding borrowings from its
shareholders and does not expect to continue such arrangements with its
shareholders following the Offering.

EFFECTS OF INFLATION AND CHANGES IN PRICE

The Company's results of operations and cash flows are affected by changing
oil and gas prices. If the price of oil and gas increases (decreases), there
could be a corresponding increase (decrease) in the operating cost that the
Company is required to bear for operations, as well as an increase (decrease) in
revenues. Inflation has had a minimal effect on the Company.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board issued SFAS No. 121
regarding accounting for the impairment of long-lived assets. The Company
adopted SFAS No. 121 effective January 1, 1996. However, its provisions are not
applicable to the Company's oil and gas properties as they are accounted for
under the full-cost method of accounting.

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, which is a new standard of accounting for stock-based compensation that
establishes a fair value method of accounting for awards granted after December
31, 1995 under stock compensation plans. SFAS No. 123 encourages, but does not
require, companies to adopt the fair value method of accounting in place of the
existing method of accounting for stock-based compensation, whereupon
compensation, costs are recognized only in situations where stock compensation
plans award intrinsic value to recipients at the date of grant.

The Company has elected not to adopt the fair value accounting of SFAS No.
123 and will account for any plans under APB Opinion No. 25, under which no
compensation costs have been recognized. The Company has reported the impact of
SFAS No. 123 on a pro forma basis as allowed under the pronouncement. See Note 6
of the notes to combined financial statements.

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 regarding earnings per share. SFAS No. 128 cannot be adopted until December
15, 1997; however, pro forma disclosures are allowed to minimize the impact of
year-end adoption. As a result of the noncomplex nature of the Company's capital
structure and treatment of all stock options as outstanding for all periods
pursuant to Staff Accounting Bulletin No. 83, SFAS No. 128 would have no current
impact on the pro forma calculation of earnings per share.

29
<PAGE> 33

BUSINESS

OVERVIEW

The Company has experienced rapid increases in reserves, production and
EBITDA since its inception in 1993 due to the growth of its 3-D based drilling
and development activities. From January 1, 1996 to March 31, 1997, the Company
participated in the drilling of 29 gross wells (8.9 net) with a commercial well
success rate of approximately 79%. This drilling success contributed to the
Company's total proved reserves as of March 31, 1997 of approximately 38.7 Bcfe,
with a PV-10 Value of $30.4 million. From inception through March 31, 1997, the
Company's average finding and development cost was approximately $0.47 per Mcfe.
The Company's production has increased 125% from 321 MMcfe for the three months
ended March 31, 1996 to 721 MMcfe for the three months ended March 31, 1997.
EBITDA has also increased significantly from $328,000 for the three months ended
March 31, 1996 to $1.1 million for the three months ended March 31, 1997.

30
<PAGE> 34

The Company's management team has extensive energy industry experience.
S.P. Johnson IV, the Company's President and Chief Executive Officer, has 18
years of industry experience, including 15 years with Shell Oil Company where he
served in various managerial positions. The Company's technical and operating
employees have an average of 15 years of industry experience, in many cases with
major and large independent oil companies, including Shell Oil Company, Vastar
Resources, Inc., Pennzoil Company and Tenneco Inc. The Company's Board of
Directors and major shareholders include its Chairman, Steven A. Webster who is
also Chairman and Chief Executive Officer of Falcon Drilling Company Inc., and
Paul B. Loyd, Jr., the Chairman and Chief Executive Officer of Reading & Bates
Corporation.

The address of the Company's principal executive office is 14811 St. Mary's
Lane, Suite 148, Houston, Texas 77079 and its telephone number is (281)
496-1352.

BUSINESS STRATEGY

The Company's business strategy is to profitably expand its reserve base,
production levels and EBITDA through the following key elements:

Focused Exploration. The Company intends to maintain its exploration focus
primarily in the onshore Gulf Coast region, which it believes offers numerous
advantages, including: (i) geologic trends that are prone to the accumulation of
significant oil and gas reserves in multiple target zones, (ii) a large number
of over-looked or under-exploited drilling prospects, (iii) familiarity of the
Company's personnel with the geology of the region, (iv) established
relationships with other regional participants and (v) availability of pipeline
and operating infrastructure. Based on the results to date of its exploration
activities, the Company believes that significant undiscovered reserves remain
in this region, and the Company plans to utilize its existing database of 3-D
seismic and geologic data and its knowledge of the region's producing fields and
trends to further expand its operations within this core region.

31
<PAGE> 35

industry partners as well as the Company's internal geophysical team. This
approach has enabled the Company to increase the number and diversity of
projects from which the Company has developed its exploration program while
controlling the costs associated with these operations. Similarly, in
identifying specific drillsites within a project area, the Company's internal
exploration team has worked with outside contract geoscientists and joint
venture partners.

EXPLORATION APPROACH

The Company generally seeks to rapidly accumulate large amounts of 3-D
seismic data along prolific, producing trends of the onshore Gulf Coast after
obtaining options to lease areas covered by the data. The Company then uses this
data to identify or evaluate prospects before drilling the prospects that fit
its risk/reward criteria. The Company typically seeks to explore in locations
within its core areas of expertise that it believes have (i) numerous
accumulations of normally pressured reserves at shallow depths and in geologic
traps that are difficult to define without the interpretation of 3-D seismic
data and (ii) the potential for large accumulations of deeper, over-pressured
reserves.

As a result of the increased availability of economic onshore 3-D seismic
surveys and the improvement and increased affordability of data interpretation
technologies, the Company has relied almost exclusively on the interpretation of
3-D seismic data in its exploration strategy. The Company generally does not
invest any substantial portion of the costs for an exploration well without
first interpreting 3-D seismic data. The principal advantage of 3-D seismic data
over traditional 2-D seismic analysis is that it affords the geoscientist the
ability to interpret a three dimensional cube of data representing a specific
project area as compared to interpreting between widely separated two
dimensional vertical profiles. As a consequence, the geoscientist is able to
more fully and accurately evaluate prospective areas, improving the probability
of drilling commercially successful wells in both exploratory and development
drilling. The use of 3-D seismic allows the geoscientist to identify and use
areas of irregular sand geometry to augment or replace structural interpretation
in the identification of potential hydrocarbon accumulations. Additionally,
detailed analysis and correlation of the 3-D seismic response to lithology and
contained fluids assist geoscientists in identifying and prioritizing drilling
targets. Because 3-D analysis is completed over an entire target area cube,
shallow, intermediate and deep objectives can be analyzed. Additionally, the
more precise structural definition allowed by 3-D seismic data combined with
integration of available well and production data assists in the positioning of
new development wells.

The Company has sought to obtain large volumes of 3-D seismic data either
by participating in large seismic data acquisition programs either alone or
pursuant to joint venture arrangements with other energy companies, or through
"group shoots" in which the Company shares the costs and results of seismic
surveys. By participating in joint ventures and group shoots, the Company is
able to share the up-front costs of seismic data acquisition and interpretation,
thereby enabling it to

32
<PAGE> 36

participate in a larger number of projects and diversify exploration costs and
risks. Substantially all of the Company's operations are conducted through joint
operations with industry participants. The Company is currently actively
involved in 32 project areas, and following the Offering, intends to further
increase the number and size of seismic data acquisition projects in which it
participates to accelerate its exploration activities.

The Company's primary strategy for acreage acquisition is to obtain leasing
options covering large geographic areas in connection with 3-D seismic surveys.
Prior to conducting proprietary surveys, the Company typically seeks to acquire
seismic permits that include options to lease the acreage, thereby ensuring the
price and availability of leases on drilling prospects that may result upon
completing a successful seismic data acquisition program over a project area.
The Company generally attempts to obtain these options covering at least 80% of
the project area for these proprietary surveys. The size of these surveys has
ranged from 10 to 70 square miles. When the Company participates in 3-D group
shoots, it generally seeks prospective leases as quickly as possible following
interpretation of the survey. In connection with some group shoots in which the
Company believes that competition for acreage may be especially strong, the
Company may seek to obtain lease options or leases in prospective areas prior to
the receipt or interpretation of 3-D seismic data.

The Company maintains a flexible and diversified approach to project
identification by focusing on the estimated financial results of a project area
rather than limiting its focus to any one method or source for obtaining leads
for new project areas. The Company's current project areas resulted from leads
developed by its project generation network that includes small, independent
"prospect generators," the Company's joint venture partners and the Company's
internal staff. The Company believes that it has been able to increase the
number of potential projects and reduce its costs through the use of these
outside sources of project generation. Similarly, in identifying specific
drillsites from within a project area, the Company has relied upon outside
contract geoscientists and joint venture partners who have worked with the
Company's own geoscientists. Currently, over 20 geoscientists from this network
are devoting some or all of their time to identifying project areas or
evaluating drillsites in which the Company expects to have an interest.
Similarly, the Company also utilizes outside independent landmen with expertise
in a particular project area. This outsourcing strategy has enabled the Company
to control costs without maintaining a large internal land and exploration
department.

OPERATING APPROACH

The Company's management team has extensive experience in the development
and management of projects along the Texas and Louisiana Gulf Coast. The Company
believes that the experience of its management in the development of 3-D
projects in its core operating areas is a competitive advantage for the Company.
The Company's technical and operating employees have an average of 15 years of
industry experience, in many cases with major and large independent oil
companies, including Shell Oil Company, Vastar Resources, Inc., Pennzoil Company
and Tenneco Inc.

The Company generally seeks to obtain lease operator status and control
over field operations, and in particular seeks to control decisions regarding
3-D survey design parameters and drilling and completion methods. In some cases,
the Company may thereafter relinquish its operator status in order to
concentrate its resources on exploration activities, especially if the Company
has had successful prior experience with an industry partner acting as operator.
The Company currently operates 66 producing oil and natural gas wells, which
range in depth from 450 feet to greater than 6,500 feet.

The Company emphasizes preplanning in project development to lower capital
and operational costs and to efficiently integrate potential well locations into
the existing and planned infrastructure, including gathering systems and other
surface facilities. In constructing surface facilities, the

33
<PAGE> 37

Company seeks to use reliable, high quality, used equipment in place of new
equipment to achieve cost savings. The Company also seeks to minimize cycle time
from drilling to hook-up of wells, thereby accelerating cash flow and improving
ultimate project economics.

The Company seeks to use advanced production techniques to exploit and
expand its reserve base. Following the discovery of proved reserves, the Company
typically continues to evaluate its producing properties through the use of 3-D
seismic data to locate undrained fault blocks and identify new drilling
prospects and performs further reserve analysis and geological field studies
using computer aided exploration techniques. The Company seeks to integrate its
3-D seismic data with reservoir characterization and management systems through
the use of geophysical workstations which are compatible with industry standard
reservoir simulation programs.

34
<PAGE> 38

SIGNIFICANT PROJECT AREAS

1997-1998 EXPLORATION PROGRAM

<TABLE>
<CAPTION>
SQ. MILES OF 3-D
SEISMIC DATA AT
GROSS JUNE 30, 1997
ACREAGE ---------------------- TOTAL 1997
LEASED OR BUDGETED 1997 1998 AND 1998 AVERAGE
UNDER EXISTING FOR BUDGETED BUDGETED BUDGETED AVERAGE NET
OPTION AT OR BEING ACQUISITION GROSS GROSS GROSS WORKING REVENUE
PROJECT AREAS JUNE 30, 1997 ACQUIRED 1997-1998 WELLS(1) WELLS(2) WELLS INTEREST(3) INTEREST(3)
------------- ------------- -------- ----------- -------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TEXAS
Starr/Hidalgo.......... 4,888 340(4) -- 12 15 27 50.0% 37.5%
Encinitas/Kelsey....... 9,110 32 -- 10 1 11 27.5% 23.0%
Buckeye................ 22,487 62 -- 16 11 27 50.0% 39.0%
La Rosa................ 8,260 22 -- -- 4 4 31.5% 23.6%
Mexican Sweetheart..... 29,421 40 -- -- 8 8 25.0% 18.8%
McFaddin Ranch......... 5,300 15 -- 4 4 8 37.5% 28.1%
Cologne................ 25,160 40 -- -- 8 8 25.0% 18.8%
South Cabeza Creek..... 10,406 20 -- -- 4 4 52.5% 39.4%
East McFaddin.......... 6,640 11 -- 1 -- 1 20.0% 16.5%
Hiawatha............... 14,985 22 -- 12 4 16 42.0% 31.5%
Western 325............ -- 320(4) -- 2(2) 5 7 50.0% 37.5%
Lance.................. 17,000 30 -- 4 5 9 25.0% 19.3%
Highway 59............. 3,947 -- 20 -- 4 4 20.0% 15.0%
Geronimo............... 66,161 107 -- 3 10 13 15.0% 11.3%
RPP Welder............. 27,929 60 -- -- 10 10 15.0% 11.3%
Midway................. 3,040 -- 15 -- 4 4 50.0% 37.5%
Lost Bridge............ 5,165 16 -- -- 3 3 50.0% 37.5%
Drake 202.............. 12,000 -- 19 -- -- -- 100.0% 82.8%
Other (11 Areas)....... 85,827 -- 291 -- 42 42 72.5% 56.9%
LOUISIANA
North Chalkley......... 640 -- 20 1 2 3 18.0% 14.2%
Atchafalaya............ 3,400 -- -- 1 2 3 55.4% 41.5%
Live Oak............... 350 -- -- 1 1 2 20.0% 15.0%
------- ----- --- -- --- ---
TOTAL........... 362,116 1,137 365 67 147 214
======= ===== === == === ===
</TABLE>

- ---------------

(3) Anticipated interests based on contractual rights as of June 30, 1997.

(4) Represents non-proprietary "group shoots" in which the Company is a
participant.

35
<PAGE> 39

Set forth below are descriptions of the Company's key project areas where
it is actively exploring for potential oil and natural gas prospects and in some
cases currently has production. The 3-D surveys the Company is using to analyze
its project areas range from regional, non-proprietary "group shoots" to single
field proprietary surveys. The Company has, in many cases, participated in these
project areas with industry partners to share the up-front costs associated with
obtaining option arrangements with landowners, seismic data acquisition and
related data interpretation, to mitigate its exploration risk and to increase
the number of projects in which it is able to participate.

Although the Company is currently pursuing prospects within the project
areas described below, and has budgeted to drill the number of wells set forth
in the preceding table, there can be no assurance that these prospects will be
drilled at all or within the expected time frame. In particular, budgeted wells
that are based upon statistical results of drilling activities in other project
areas are subject to greater uncertainties than wells for which drillsites have
been identified. The final determination with respect to the drilling of any
identified drillsites or budgeted wells will be dependent on a number of
factors, including (i) the results of exploration efforts and the acquisition,
review and analysis of the seismic data, (ii) the availability of sufficient
capital resources by the Company and the other participants for the drilling of
the prospects, (iii) the approval of the prospects by other participants after
additional data has been compiled, (iv) the economic and industry conditions at
the time of drilling, including prevailing and anticipated prices for oil and
natural gas and the availability of drilling rigs and crews, (v) the financial
resources and results of the Company and (vi) the availability of leases on
reasonable terms and permitting for the prospect. There can be no assurance that
these projects can be successfully developed or that the identified drillsites
or budgeted wells discussed will, if drilled, encounter reservoirs of
commercially productive oil or natural gas. The reserve data set forth below is
based upon the Reserve Reports. There are numerous uncertainties in estimating
quantities of proved reserves, including many factors beyond the control of the
Company. See "Risk Factors -- Dependence on Exploratory Drilling Activities,"
"-- Reserve Replacement Risk" and "-- Uncertainty of Reserve Information and
Future Net Revenue Estimates."

TEXAS

Starr/Hidalgo Project Area: Frio and Vicksburg Formations

The Starr/Hidalgo Project Area is located in Starr and Hidalgo Counties,
Texas in the Frio and Vicksburg formations. The Company and a partner licensed
approximately 340 square miles of non-proprietary 3-D seismic data that was
delivered during August 1995 and June 1996. Sixty-four prospects have been
identified in the shallow Frio trend and the deeper, structurally complex
Vicksburg trend, as well as two large prospects in the relatively unexplored
Eocene trend. The Company and its partner have leases covering 4,888 acres in
this project area and currently control 18 of these prospects (10 Frio, seven
Vicksburg and one Eocene). The Company sold a portion of its interest in four of
the deeper and riskier Vicksburg prospects to industry partners. During the
quarter ended June 30, 1997, the Company's share of production from wells in
this project area was approximately 47 Bbls/d of oil and 4.1 MMcf/d of natural
gas. As of June 30, 1997, the Company and its partners have drilled a total of
15 wells in this project area, resulting in 12 producing wells. The estimated
proved reserves net to the Company for this project area was 19.0 MBbls of oil
and 2.5 Bcf of natural gas at March 31, 1997. The Company and its partners have
identified 12 locations that have been or are scheduled to be drilled during
1997. The Company believes that continuing interpretation and seismic processing
of the Starr/Hidalgo Project Area 3-D seismic data will result in additional
prospects and drilling locations.

Encinitas/Kelsey Project Area: Frio and Vicksburg Formations

The Encinitas/Kelsey Project Area is located in Brooks County, Texas in the
Frio and Vicksburg formations. The Company acquired an interest in leases
covering 9,110 acres in this area in

36
<PAGE> 40

December 1994 to re-develop the property. Upon acquisition of its interests in
this project area, the Company undertook a comprehensive petrophysical study and
acquired a 32 square mile 3-D seismic survey. This effort has resulted in the
identification of numerous Frio and Vicksburg prospects. At March 31, 1997, the
Company had estimated proved reserves net to the Company of 106.4 MBbls of oil
and 2.1 Bcf of natural gas for this project area. During the quarter ended June
30, 1997, the Company's share of production from wells in this project area was
184 Bbls/d of oil and 2.6 MMcf/d of natural gas. As of June 30, 1997, the
Company and its partners have drilled a total of ten wells resulting in nine
producing wells. The Company and its partners have identified 10 locations that
have been or are scheduled to be drilled in 1997, with the possibility of
additional follow-up drilling in 1998.

Buckeye Project Area: Wilcox, Hockley, Pettus and Yegua Formations

The Buckeye Project Area is located in Live Oak County, Texas. The Company
and its partner currently hold 1,280 acres under lease and 21,207 acres under
option and have acquired an approximately 22 square mile 3-D seismic survey over
the first 12,000 optioned acres. A 3-D seismic survey over the other 9,000 acres
under option is currently being acquired. The exploration objectives for the
Buckeye Project Area are the shallow zones of the Hockley, Pettus and Yegua
formations and the deep zones of the expanded Upper Wilcox formation. The data
for the first phase was received from processing in April 1997 and initial
interpretation has generated 16 shallow prospects. Eight of these prospects have
been drilled with seven successful completions. The remaining eight prospects
are planned to be drilled in the second half of 1997.

La Rosa Project Area: Frio Formation

The La Rosa Project Area is located in Refugio County, Texas over a
producing field leasehold of 3,700 acres. The area covers Frio
barrier/strandplain sands productive down to 8,200 feet. Data is currently being
processed from a 3-D seismic survey over 22 square miles that was conducted by
the Company during the first quarter of 1997. The Company will attempt to use
the 3-D seismic data to identify shallow objectives, delineate reservoir
compartments for drilling of bypassed reserves and identify flank prospects and
deeper prospects in the Vicksburg trend. The Company's leases cover 3,700 acres
and its seismic options cover 4,560 acres in this project area.

Mexican Sweetheart Project Area: Frio Formation

The Mexican Sweetheart Project Area is located in southwestern Jackson
County, Texas in the Frio producing trend. A secondary objective for this
project area may be the shallow Miocene trend and the Yegua and Wilcox trends.
The area is directly south of successful 3-D seismic projects conducted by the
Company's partners in this project and covers historical field discoveries. The
Company has planned and directed a 40 square mile 3-D seismic survey covering
the project area, and field operations were initiated in March 1997. The Company
will seek to use the 3-D seismic data to identify shallow objectives, delineate
reservoir compartments for drilling of bypassed reserves and identify flank
prospects and deeper, higher risk prospects in the Yegua and Upper Wilcox
trends, which the Company would seek to explore on a carried basis with an
industry partner. The Company's leases cover 676 acres and its seismic options
cover 28,745 acres in this project area.

McFaddin Ranch Project Area: Miocene and Frio Formations

The McFaddin Ranch Project Area is located in Victoria County, Texas in the
Miocene and Frio formations. Data is currently being interpreted from a 15
square mile 3-D seismic survey conducted in the first quarter of 1997. The
Company will seek to use the 3-D seismic data to delineate a prospect identified
through subsurface geological work and interpretation of 2-D seismic data. This
project area is immediately northwest of the East McFaddin Field Project Area.
The Company has

37
<PAGE> 41

identified and budgeted to drill four prospects in this project area during
1997. The Company's seismic options in this project area cover approximately
5,300 acres.

Cologne Project Area: Frio Formation

The Cologne Project Area is located in Goliad and Victoria Counties, Texas
in the Frio formation. A secondary objective for this project area may be the
Yegua and Wilcox formations. The area covers several historical field
discoveries. A 40 square mile 3-D seismic survey has been shot over the project
area and is currently being interpreted. The Company will seek to use the 3-D
seismic data to identify shallow opportunities, to delineate any reservoir
compartments for drilling of bypassed reserves and seek to identify flank
prospects and deeper, higher risk, prospects in the Yegua and Upper Wilcox
formations. The Company's leases cover 4,160 acres and its seismic options cover
21,000 acres in this project area.

South Cabeza Creek Project Area: Frio Formation to Lower Wilcox Sands

The South Cabeza Creek Project Area is located in Goliad County, Texas in
an area having significant production in the shallow Frio and lower Wilcox
trends. The Company is currently in the process of acquiring seismic options and
leases for a proposed 20 square mile 3-D seismic shoot in the project area that
is currently scheduled to begin in the third quarter of 1997. The Company
intends to use the 3-D seismic data to identify potential Frio, Vicksburg and
Yegua opportunities and to verify and optimize a Wilcox prospect. The Company
currently has 906 acres under lease and 9,500 acres under seismic option in this
project area.

East McFaddin Project Area: Frio Formation

The East McFaddin Project Area is located in Victoria County, Texas. In
1995, the Company obtained a 20% working interest in 4,680 acres under lease and
1,760 acres under seismic option by funding an approximately 11 square mile 3-D
seismic survey in the project area. During the quarter ended March 31, 1997, the
Company's share of production from wells in this project area was 18 Bbls/d of
oil and 0.5 MMcf/d of natural gas. As of June 30, 1997, the Company and its
partners had drilled a total of five wells resulting in two producing wells. At
March 31, 1997, this project area had estimated proved reserves net to the
Company of 2.3 MBbls of oil and 0.6 Bcf of gas. The Company and its partners
have identified one additional location scheduled to be drilled in 1997, with
the possibility of additional follow-up drilling in 1998.

Hiawatha Project Area: Pettus and Yegua Formations

The Hiawatha Project Area is located in Duval County, Texas and covers
existing producing fields originally developed in the 1940s, with the most
recent drilling in the 1970s. In August 1996, the Company and its partners
acquired an approximately 22 square mile 3-D seismic survey and currently hold
leases covering 1,985 acres and seismic options covering 13,000 acres in the
project area. During the quarter ended June 30, 1997, the Company's share of
production from wells in this project area was 30 Bbls/d of oil and 0.7 MMcf/d
of natural gas. As of June 30, 1997, the Company and its partners have drilled a
total of 12 wells resulting in eight producing wells. This project area had
estimated proved reserves net to the Company of 28.2 MBbls of oil and 0.5 Bcf of
natural gas at March 31, 1997. The Company and its partners have identified 12
locations that have been or are scheduled to be drilled in 1997, with the
possibility of additional follow-up drilling depending on the results of the
scheduled drilling.

Western 325 Project Area: Wilcox and Jackson-Yegua Formations

The Western 325 Project Area is located in Webb and Duval Counties, Texas
in the Wilcox and Jackson-Yegua formations. The Company and a partner have
joined others in underwriting a non-proprietary 3-D seismic data shoot covering
approximately 320 square miles in the project area.

38
<PAGE> 42

Multiple prospects have been identified from data covering approximately 50
square miles that was delivered in April 1997. The remainder of the data is
currently expected to be delivered in the third quarter of 1997 and in 1998. The
Company has budgeted to drill two wells in this project area during the second
half of 1997. The Company believes that experience gained in the Starr/Hidalgo
Project Area may assist in exploration efforts in the Western 325 Project Area.

Lance Project Area: Frio Formation

The Lance Project Area is located in Bee County, Texas in an area of
prolific shallow Frio production. The primary exploration objectives in this
project area are the Frio/Vicksburg trends, with secondary objectives in the
deeper Vicksburg, Jackson and Yegua formations. The Company is currently
interpreting data from a 30 square mile 3-D seismic survey completed in the
second half of 1996. The Company will seek to use the 3-D seismic data to
delineate reservoir compartments for drilling of bypassed Frio reserves as well
as to identify flank and deeper Vicksburg prospects. The Company has scheduled
to drill four prospects in this project area during 1997. The Company's seismic
options in this project area cover an aggregate of approximately 17,000 acres.

Highway 59 Project Area: Frio, Yegua and Wilcox Formations

The Highway 59 Project Area is located in Fort Bend and Wharton Counties,
Texas in an area of several historical field discoveries and production in the
Frio and Yegua formations and in the highly competitive Wharton County Wilcox
trend. A survey design has been completed for a 20 square mile 3-D seismic
survey in the project area, and field work is expected to begin during the third
quarter of 1997. The Company and two large independent industry partners will
seek to use the 3-D seismic data to identify shallow opportunities and to
delineate Yegua and Wilcox prospects identified through the interpretation of
2-D seismic data. The Company's leases in this project area currently cover
3,947 acres.

Geronimo Project Area: Frio Formation

The Geronimo Project Area is located in San Patricio County, Texas in an
area of predominantly Frio production. Numerous fault systems run through the
area, particularly in the basal Frio and Vicksburg formations. A 67 square mile
3-D seismic survey was conducted in 1996, with the initial interpretation of
data generating five prospects. The Company has scheduled to drill three of
these prospects during 1997, with possible follow-up development anticipated in
1998. A northeast extension of the initial 3-D seismic survey covering an
additional 40 square miles is currently being acquired. The Company's leases
cover 10,278 acres and its seismic options cover 55,883 acres in this project
area.

RPP Welder Project Area: Frio and Vicksburg Formations

The RPP Welder Project Area is located in San Patricio and Refugio
Counties, Texas in an area of predominantly upper Frio production and is
adjacent to the Geronimo, Midway and LaRosa Project Areas. Numerous fault
systems run through the area, particularly at the relatively unexplored basal
Frio and Vicksburg levels. The primary producing formations in this area have
historically been Miocene and upper Frio oil objectives. Field operations for a
60 square mile 3-D seismic survey commenced during the second quarter of 1997.
The Company's leases cover 1,127 acres and its options cover 26,802 acres in
this project area.

Midway Project Area: Frio Formation

The Midway Project Area is located in San Patricio County, Texas in an area
of predominantly Frio production. The area is a southwest extension of the
Geronimo Project Area and includes the Company's producing properties from the
Midway Field along with contiguous leases and seismic option areas. The Company
has designed a 15 square mile 3-D seismic survey in this project area,

39
<PAGE> 43

and field operations are planned to commence in the third quarter of 1997. The
Company's leases cover 2,400 acres and its options cover 640 acres in this
project area.

Lost Bridge Project Area: Frio, Yegua and Wilcox Formations

The Lost Bridge Project Area is located in northern Jackson County, Texas
in the Frio, Yegua and Wilcox formations. The area covers several historical
field discoveries and recent Wilcox production. The Company expects to begin
work in the third quarter of 1997 on a 16 square mile 3-D seismic survey. The
Company will seek to use the 3-D seismic data to delineate a Yegua prospect
identified with 2-D seismic data, identify shallow opportunities and image the
deeper Wilcox trend. The Company's strategy is to drill any Yegua prospects and
sell a portion of its interest in any Wilcox prospects while retaining a carried
interest. The Company is currently acquiring seismic options in the project area
and has 850 acres under lease and 4,315 acres under option to date.

Drake 202 Project Area: Frio and Vicksburg Formations

The Drake 202 Project Area is located in Bee County, Texas adjacent to the
Lance Project Area. Primary exploration objectives for this project area are the
Frio and Vicksburg formations, as well as deeper, higher risk prospects in the
Yegua formation. In this project area, the Company's seismic options cover
12,000 acres. A 19 square mile 3-D seismic survey is budgeted for late 1997.

LOUISIANA

North Chalkley Project Area: Miogyp Sand

The North Chalkley Project Area is located in Calcasieu and Cameron
Parishes, Louisiana in an area of production from the Miogyp sand trend. The
exploration objective of this project area is a prospect identified through the
interpretation of 2-D seismic data in the third Camerina and Miogyp sands. The
Company's leases in this project area cover an aggregate of approximately 640
acres. The Company sold a portion of its interest in the project area to two
large independent oil and natural gas companies for cash and retained an 18%
working interest, of which 15.5% will be carried to casing point on the first
well that is currently being drilled. Depending on well results, the Company
expects that it and its partners would conduct a 20 square mile 3-D seismic
survey of the area.

Atchafalaya Project Area: Cib Op-C Sand

The Atchafalaya Project Area is located in Atchafalaya Bay in Louisiana. In
1991, a well was drilled in this fault block resulting in a field discovery at
approximately 17,500 feet. The Company and its partners control 3,400 acres in
this project area under a farm-in agreement and two state leases. The farm-in
agreement requires the commencement of the drilling of an initial well by
September 30, 1997. The Company's partners have access to 20 square miles of 3-D
seismic data covering this project area. As of March 31, 1997, the Company's net
estimated proved reserves in this project area were 308 MBbls of oil and 5.8 Bcf
of natural gas, all of which are undeveloped. The Company plans to drill one
well in this project area with a barge rig during the remainder of 1997. The
Company plans to sell a significant portion of its interests in this project
area.

Live Oak Project Area: Chris II Sand

The Live Oak Project Area is located in Vermillion Parish, Louisiana. In
1996, the Company and its partners acquired access to a 20 square mile 3-D
seismic survey. The Company promoted its interest in the project area to two
independents and will pay 11% of the well costs for 20% of the working interest.
The Company's leases in this project area cover an aggregate of approximately
350 acres. One well is scheduled to be drilled in the third quarter of 1997.

40
<PAGE> 44

OTHER PROJECT AREAS

In addition to the project areas described above, the Company has 11
additional project areas in the early stages of development. These project areas
are located in the onshore Texas Gulf Coast region, with the primary exploration
objectives being the Frio and Yegua formations, as well as one project area in
the Cotton Valley Lime Reef trend. The Company is in the process of acquiring
interests with respect to most of these project areas and has acquired leases
and seismic options covering approximately 85,827 acres to date. 3-D seismic
surveys covering an aggregate of approximately 291 square miles are budgeted for
acquisition during 1997 and 1998. Any drilling in these project areas is not
expected to be completed any earlier than 1998.

SIGNIFICANT DEVELOPMENT PROJECT -- Camp Hill

The Company owns interests in and operates six leases totaling 282 acres in
the Camp Hill field in Anderson County, Texas. During the quarter ended March
31, 1997, the project produced 107 Bbls/d of 19 degrees API gravity oil. The
project produces from a depth of 500 feet and utilizes a tertiary steam drive as
an enhanced oil recovery process. Although efficient at maximizing oil recovery,
the steam drive process is relatively expensive to operate because natural gas
is burned to create the steam injectant. Lifting costs during the first quarter
of 1997 averaged $16.80 per barrel ($2.80 per Mcfe). Because profitability
increases when natural gas prices drop relative to oil prices, the project is a
natural hedge against decreases in natural gas prices relative to oil prices.
The crude oil produced, although viscous, commands a higher price (an average
premium of $.65 per barrel during the first quarter of 1997) than West Texas
intermediate crude due to its suitability as a lube oil feedstock. As of March
31, 1997, the Company had 3.6 MMBbls of oil of proved reserves in this project,
with 0.9 MMBbls of oil currently developed. The Company anticipates that it will
drill additional wells and increase steam injection to develop the proved
undeveloped reserves in this project, with the timing and amount of expenditures
depending on the relative prices of oil and natural gas. The Company has an
average working interest of 92.5% in its leases in this field and an average net
revenue interest of 74.0%.

OIL AND NATURAL GAS RESERVES

The following table sets forth estimated net proved oil and natural gas
reserves of the Company and the PV-10 Value of such reserves as of March 31,
1997. The reserve data and the present value as of March 31, 1997 were prepared
by Ryder Scott and Fairchild. For further information concerning Ryder Scott's
and Fairchild's estimate of the proved reserves of the Company at March 31,
1997, see the Reserve Reports included as Annex A to this Prospectus. The PV-10
Value was prepared using constant prices as of the calculation date, discounted
at 10% per annum on a pretax basis, and is not intended to represent the current
market value of the estimated oil and natural gas reserves owned by the Company.
For further information concerning the present value of future net revenue from
these proved reserves, see Note 9 of Notes to Financial Statements. Also see
"Risk Factors -- Uncertainty of Reserve Information and Future Net Revenue
Estimates."

<TABLE>
<CAPTION>
PROVED RESERVES(1)
--------------------------------------------
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Oil and condensate (MBbls)................... 1,225 3,063 4,289
Natural gas (MMcf)........................... 6,405 6,621 13,026
Total proved reserves (MMcfe)................ 13,757 25,001 38,758
PV-10 Value(2)............................... $15,344 $15,076 $30,421
</TABLE>

- ---------------

(1) The Reserve Reports as of March 31, 1997 do not include reserves for five
wells completed as of March 31. In addition, 18 wells were completed from
March 31, 1997 through June 30, 1997. See "-- Drilling Activity."

41
<PAGE> 45

(2) The PV-10 Value as of March 31, 1997 was determined by using the March 31,
1997 weighted average sales prices of $19.71 per Bbl of oil and $1.74 per
Mcf of natural gas. The decline in PV-10 Value from December 31, 1996 to
March 31, 1997 was primarily attributable to decreases in prices used for
these calculations at such dates for natural gas (from $3.69 per Mcf to
$1.74 per Mcf), and to a lesser extent oil (from $20.88 per Bbl to $19.71
per Bbl), which decreases more than offset the effect of increased volumes
of proved reserves during the period.

There are numerous uncertainties inherent in estimating quantities of
proved oil and natural gas reserves and in projecting future rates of production
and timing of development expenditures, including many factors beyond the
control of the producer. The reserve data set forth herein represents estimates
only. Reserve engineering is a subjective process of estimating underground
accumulations of oil and natural gas that cannot be measured in an exact way,
and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment. As
a result, estimates made by different engineers often vary from one another. In
addition, results of drilling, testing and production subsequent to the date of
an estimate may justify revision of such estimates, and such revisions may be
material. Accordingly, reserve estimates are generally different from the
quantities of oil and natural gas that are ultimately recovered. Furthermore,
the estimated future net revenues from proved reserves and the present value
thereof are based upon certain assumptions, including future prices, production
levels and costs, that may not prove correct.

No estimates of proved reserves comparable to those included herein have
been included in reports to any federal agency other than the Commission.

In accordance with Commission regulations, the Reserve Reports used oil and
natural gas prices in effect at March 31, 1997. The prices used in calculating
the estimated future net revenue attributable to proved reserves do not
necessarily reflect market prices for oil and natural gas production subsequent
to March 31, 1997. There can be no assurance that all of the proved reserves
will be produced and sold within the periods indicated, that the assumed prices
will actually be realized for such production or that existing contracts will be
honored or judicially enforced.

42
<PAGE> 46

VOLUMES, PRICES AND OIL & GAS OPERATING EXPENSE

The following table sets forth certain information regarding the production
volumes of, average sales prices received for and average production costs
associated with the Company's sales of oil and natural gas for the periods
indicated.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
---------------------------- ENDED
1994 1995 1996 MARCH 31, 1997
------ ------ ------ --------------
<S> <C> <C> <C> <C>
PRODUCTION VOLUMES
Oil (MBbls).................................... 33 78 107 21
Natural gas (MMcf)............................. 5 565 1,273 592
Natural gas equivalent (MMcfe)................. 203 1,033 1,915 721
AVERAGE SALES PRICES
Oil (per Bbl).................................. $17.69 $19.64 $21.54 $21.50
Natural gas (per Mcf).......................... 0.88 1.60 2.27 2.35
Natural gas equivalent (per Mcfe).............. 2.94 2.36 2.71 2.57
AVERAGE COSTS (PER MCFE)
Camp Hill operating expenses................... $ 2.64 $ 2.06 $ 3.15 $ 2.80
Other operating expenses....................... 1.85 1.63 0.94 0.60
Total operating expenses(1).......... 2.55 1.76 1.24 0.77
</TABLE>

- ---------------

(1) Includes direct lifting costs (labor, repairs and maintenance, materials and
supplies), workover costs and the administrative costs of production
offices, insurance and property and severance taxes.

FINDING AND DEVELOPMENT COSTS

From inception through March 31, 1997, the Company has incurred total gross
development, exploration and acquisition costs of approximately $20.0 million.
Total exploration, development and acquisition activities from inception through
March 31, 1997 have resulted in the addition of approximately 42.4 Bcfe, net to
the Company's interest, of proved reserves at an average finding and development
cost of $0.47 per Mcfe.

The Company's finding and development costs have historically fluctuated on
a year-to-year basis. Finding and development costs, as measured annually, may
not be indicative of the Company's ability to economically replace oil and
natural gas reserves because the recognition of costs may not necessarily
coincide with the addition of proved reserves.

DEVELOPMENT, EXPLORATION AND ACQUISITION CAPITAL EXPENDITURES

The following table sets forth certain information regarding the gross
costs incurred in the purchase of proved and unproved properties and in
development and exploration activities.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------ ENDED
1994 1995 1996 MARCH 31, 1997
---- ------ ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Acquisition costs
Unproved prospects............................. $ -- $ 317 $ 51 $ 11
Proved properties.............................. 329 3,588 1,908 --
Exploration...................................... 280 2,364 4,724 3,550
Development...................................... 177 209 1,956 549
---- ------ ------ ------
Total costs incurred(1)................ $786 $6,478 $8,639 $4,110
==== ====== ====== ======
</TABLE>

- ---------------

(1) Excludes capitalized interest on unproved properties of $117,288 and
$422,493 for the years ended December 31, 1995 and 1996, respectively.

43
<PAGE> 47

DRILLING ACTIVITY

The following table sets forth the drilling activity of the Company for the
years ended December 31, 1994, 1995 and 1996 and the three months ended March
31,1997. In the table, "gross" refers to the total wells in which the Company
has a working interest and "net" refers to gross wells multiplied by the
Company's working interest therein. As shown below, the Company's drilling
activity from January 1, 1994 to March 31, 1997 has resulted in a commercial
success rate of approximately 79%.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------- MARCH 31,
1994 1995 1996 1997
------------- ------------- ------------ ------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory Wells
Productive.................. -- -- -- -- 16 3.8 7 2.1
Nonproductive............... -- -- -- -- 4 0.9 2 0.9
---- ---- ---- ---- -- --- -- ---
Total............... -- -- -- -- 20 4.7 9 3.0
==== ==== ==== ==== == === == ===
Development Wells
Productive.................. -- -- -- -- -- -- -- --
Nonproductive............... -- -- -- -- -- -- -- --
---- ---- ---- ---- -- --- -- ---
Total............... -- -- -- -- -- -- -- --
==== ==== ==== ==== == === == ===
</TABLE>

From March 31, 1997 to June 30, 1997, the Company drilled 20 gross
productive exploratory wells (8.1 net), of which 17 were successfully completed,
and one gross productive development well (0.27 net) that was successfully
completed. As of June 30, 1997, the Company was drilling or evaluating six gross
exploratory wells (2.5 net) and no gross development wells.

PRODUCTIVE WELLS

The following table sets forth the number of productive oil and natural gas
wells in which the Company owned an interest as of March 31, 1997.

<TABLE>
<CAPTION>
COMPANY-
OPERATED OTHER TOTAL
------------ ------------ ------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Oil............................................... 56 56.0 23 5.0 79 61.0
Natural gas....................................... 10 6.9 26 7.3 36 14.2
-- ---- -- ---- --- ----
Total................................... 66 62.9 49 12.3 115 75.2
== ==== == ==== === ====
</TABLE>

ACREAGE DATA

The following table sets forth certain information regarding the Company's
developed and undeveloped lease acreage as of March 31, 1997. Developed acres
refers to acreage within producing units and undeveloped acres refers to acreage
that has not been placed in producing units. Leases covering substantially all
of the undeveloped acreage in the following table will expire within the next
three years. In general, the Company's leases will continue past their primary
terms if oil or natural gas in commercial quantities is being produced from a
well on such leases.

<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
ACREAGE ACREAGE TOTAL
-------------- --------------- ---------------
GROSS NET GROSS NET GROSS NET
------ ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Louisiana............................... 0 0 4,390 3,217 4,390 3,217
Texas................................... 29,643 9,979 32,972 9,945 62,615 19,924
------ ----- ------ ------ ------ ------
Total......................... 29,643 9,979 37,362 13,162 67,005 23,141
====== ===== ====== ====== ====== ======
</TABLE>

44
<PAGE> 48

The table does not include leases covering 8,634 gross acres (4,317 net)
acquired between March 31, 1997 and June 30, 1997. In addition, the table does
not include 286,000 gross acres (103,000 net) that the Company has a right to
acquire pursuant to various seismic option agreements at June 30, 1997. Under
the terms of its option agreements, the Company typically has the right for a
period of one year, subject to extensions, to exercise its option to lease the
acreage at predetermined terms. The Company's lease agreements generally
terminate if wells have not been drilled on the acreage within a period of three
years.

MARKETING

The Company's production is marketed to third parties consistent with
industry practices. Typically, oil is sold at the wellhead at field-posted
prices plus a bonus and natural gas is sold under contract at a negotiated price
based upon factors normally considered in the industry, such as distance from
the well to the pipeline, well pressure, estimated reserves, quality of natural
gas and prevailing supply/demand conditions.

The Company's marketing objective is to receive the highest possible
wellhead price for its product. The Company is aided by the presence of multiple
outlets near its production in the Texas and Louisiana Gulf Coast. The Company
takes an active role in determining the available pipeline alternatives for each
property based upon historical pricing, capacity, pressure, market
relationships, seasonal variances and long-term viability.

There are a variety of factors which affect the market for oil and natural
gas, including the extent of domestic production and imports of oil and natural
gas, the proximity and capacity of natural gas pipelines and other
transportation facilities, demand for oil and natural gas, the marketing of
competitive fuels and the effects of state and federal regulations on oil and
natural gas production and sales. The Company has not experienced any
difficulties in marketing its oil and natural gas. The oil and natural gas
industry also competes with other industries in supplying the energy and fuel
requirements of industrial, commercial and individual customers.

The Company from time to time markets its own production where feasible
with a combination of market-sensitive pricing and forward-fixed pricing.
Forward pricing is utilized to take advantage of anomalies in the futures market
and to hedge a portion of the Company's production deliverability at prices
exceeding forecast. All of such hedging transactions provide for financial
rather than physical settlement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General Overview."

Despite the measures taken by the Company to attempt to control price risk,
the Company remains subject to price fluctuations for natural gas sold in the
spot market due primarily to seasonality of demand and other factors beyond the
Company's control. Domestic oil prices generally follow worldwide oil prices,
which are subject to price fluctuations resulting from changes in world supply
and demand. The Company continues to evaluate the potential for reducing these
risks by entering into, and expects to enter into, additional hedge transactions
in future years. In addition, the Company may also close out any portion of
hedges that may exist from time to time as determined to be appropriate by
management. As of March 31, 1997, there were no existing hedge positions. Total
natural gas purchased and sold under swap arrangements during the years ended
December 31, 1995 and 1996 were 40,000 MMbtu and 60,000 MMbtu, respectively.
Gains and losses realized by the Company under such swap arrangements were
$23,466 and $26,887 for the years ended December 31, 1995 and 1996,
respectively. The Company did not engage in hedging prior to 1995 and did not
engage in hedging during the quarter ended March 31, 1997.

COMPETITION

45
<PAGE> 49

independent oil and natural gas companies, individuals and drilling and income
programs. Many of its competitors are large, well-established companies with
substantially larger operating staffs and greater capital resources than those
of the Company and which, in many instances, have been engaged in the oil and
natural gas business for a much longer time than the Company. Such companies may
be able to pay more for exploratory prospects and productive oil and natural gas
properties and may be able to identify, evaluate, bid for and purchase a greater
number of properties and prospects than the Company's financial or human
resources permit. In addition, such companies may be able to expend greater
resources on the existing and changing technologies that the Company believes
are and will be increasingly important to the current and future success of oil
and natural gas companies. The Company's ability to explore for oil and natural
gas prospects and to acquire additional properties in the future will be
dependent upon its ability to conduct its operations, to evaluate and select
suitable properties and to consummate transactions in this highly competitive
environment. The Company believes that its exploration, drilling and production
capabilities and the experience of its management generally enable it to compete
effectively. Many of the Company's competitors, however, have financial
resources and exploration and development budgets that are substantially greater
than those of the Company, which may adversely affect the Company's ability to
compete with these companies.

REGULATION

The availability of a ready market for oil and gas production depends upon
numerous factors beyond the Company's control. These factors include regulation
of oil and natural gas production, federal and state regulations governing
environmental quality and pollution control, state limits on allowable rates of
production by well or proration unit, the amount of oil and natural gas
available for sale, the availability of adequate pipeline and other
transportation and processing facilities and the marketing of competitive fuels.
For example, a productive natural gas well may be "shut-in" because of an
oversupply of natural gas or lack of an available natural gas pipeline in the
areas in which the Company may conduct operations. State and federal regulations
generally are intended to prevent waste of oil and natural gas, protect rights
to produce oil and natural gas between owners in a common reservoir, control the
amount of oil and natural gas produced by assigning allowable rates of
production and control contamination of the environment. Pipelines are subject
to the jurisdiction of various federal, state and local agencies. The following
discussion summarizes the regulation of the United States oil and gas industry.
The Company believes that it is in substantial compliance with such statutes,
rules, regulations and governmental orders, although there can be no assurance
that this is or will remain the case. The following discussion is not intended
to constitute a complete discussion of the various statutes, rules, regulations
and governmental orders to which the Company's operations may be subject.

Regulation of Oil and Natural Gas Exploration and Production. The Company's
operations are subject to various types of regulation at the federal, state and
local levels. Such regulation includes requiring permits for the drilling of
wells, maintaining bonding requirements in order to drill or operate wells and
regulating the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are drilled in, the
plugging and abandoning of wells and the disposal of fluids used in connection
with operations. The Company's operations are also subject to various
conservation laws and regulations. These include the regulation of the size of
drilling and spacing units or proration units and the density of wells which may
be drilled in and the unitization or pooling of oil and gas properties. In this
regard, some states allow the forced pooling or integration of tracts to
facilitate exploration while other states rely primarily or exclusively on
voluntary pooling of lands and leases. In areas where pooling is voluntary, it
may be more difficult to form units, and therefore, more difficult to develop a
project if the operator owns less than 100% of the leasehold. In addition, state
conservation laws establish maximum rates of production from oil and natural gas
wells, generally prohibit the venting or flaring of natural gas and impose
certain requirements regarding the ratability of production. The effect of these
regulations may limit the amount of oil and natural gas the Company can produce
from its

46
<PAGE> 50

wells and may limit the number of wells or the locations at which the Company
can drill. The regulatory burden on the oil and gas industry increases the
Company's costs of doing business and, consequently, affects its profitability.
Inasmuch as such laws and regulations are frequently expanded, amended and
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such regulations.

Regulation of Sales and Transportation of Natural Gas. Historically, the
transportation and sale for resale of natural gas in interstate commerce have
been regulated pursuant to the Natural Gas Act of 1938 (the "NGA"), the Natural
Gas Policy Act of 1978 (the "NGPA") and the regulations promulgated thereunder
by the Federal Energy Regulatory Commission (the "FERC"). Maximum selling prices
of certain categories of natural gas sold in "first sales," whether sold in
interstate or intrastate commerce, were regulated pursuant to the NGPA. The
Natural Gas Wellhead Decontrol Act (the "Decontrol Act") removed, as of not
later than January 1, 1993, all remaining federal price controls from natural
gas sold in "first sales." The FERC's jurisdiction over natural gas
transportation was unaffected by the Decontrol Act. While sales by producers of
natural gas and all sales of crude oil, condensate and natural gas liquids can
currently be made at market prices, Congress could reenact price controls in the
future.

The Company's sales of natural gas are affected by the availability, terms
and cost of transportation. The price and terms for access to pipeline
transportation are subject to extensive regulation. In recent years, the FERC
has undertaken various initiatives to increase competition within the natural
gas industry. As a result of initiatives like FERC Order 636, issued in April
1992, the interstate natural gas transportation and marketing system has been
substantially restructured to remove various barriers and practices that
historically limited non-pipeline natural gas sellers, including producers, from
effectively competing with interstate pipelines for sales to local distribution
companies and large industrial and commercial customers. The most significant
provisions of Order No. 636 require that interstate pipelines provide
transportation separate or "unbundled" from their sales service, and require
that pipelines provide firm and interruptible transportation service on an open
access basis that is equal for all natural gas supplies. In many instances, the
result of Order No. 636 and related initiatives have been to substantially
reduce or eliminate the interstate pipelines' traditional role as wholesalers of
natural gas in favor of providing only storage and transportation services.

The FERC has announced several important transportation-related policy
statements and proposed rule changes, including a statement of policy and a
request for comments concerning alternatives to its traditional cost-of-service
ratemaking methodology to establish the rates interstate pipelines may charge
for their services. A number of pipelines have obtained FERC authorization to
charge negotiated rates as one such alternative. In February 1997, the FERC
announced a broad inquiry into issues facing the natural gas industry to assist
the FERC in establishing regulatory goals and priorities in the post-Order No.
636 environment. Similarly, the Texas Railroad Commission has been reviewing
changes to its regulations governing transportation and gathering services
provided by intrastate pipelines and gatherers. While the changes being
considered by these federal and state regulators would affect the Company only
indirectly, they are intended to further enhance competition in natural gas
markets.

The Company owns certain natural gas pipelines that it believes meet the
standards the FERC has used to establish a pipeline's status as a gatherer not
subject to FERC jurisdiction under the NGA. State regulation of gathering
facilities generally includes various safety, environmental, and in some
circumstances, nondiscriminatory take requirements, but does not generally
entail rate regulation. Natural gas gathering may receive greater regulatory
scrutiny at both state and federal levels in the post-Order No. 636 environment.

The Company cannot predict what further action the FERC or state regulators
will take on these matters; however, the Company does not believe that it will
be affected by any action taken materially differently than other natural gas
producers with which it competes.

47
<PAGE> 51

Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, the FERC, state commissions and the
courts. The natural gas industry historically has been very heavily regulated;
therefore, there is no assurance that the less stringent regulatory approach
recently pursued by the FERC and Congress will continue.

Oil Price Controls and Transportation Rates. Sales of crude oil, condensate
and gas liquids by the Company are not currently regulated and are made at
market prices. The price the Company receives from the sale of these products
may be affected by the cost of transporting the products to market. Effective
January 1995, the FERC implemented regulations establishing an indexing system
under which oil pipelines will be able to change their transportation rates,
subject to prescribed ceiling limits. The indexing system generally indexes such
rates to inflation, subject to certain conditions and limitations. The Company
is not able at this time to predict the effects of these regulations, if any, on
the transportation costs associated with oil production from the Company's oil
producing operations.

Environmental Regulations. The Company's operations are subject to numerous
laws and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. Public interest in the
protection of the environment has increased dramatically in recent years. The
trend of more expansive and stricter environmental legislation and regulations
could continue. To the extent laws are enacted or other governmental action is
taken that restricts drilling or imposes environmental protection requirements
that result in increased costs to the oil and gas industry in general, the
business and prospects of the Company could be adversely affected.

The Company generates wastes that may be subject to the federal Resource
Conservation and Recovery Act ("RCRA") and comparable state statutes. The U.S.
Environmental Protection Agency ("EPA") and various state agencies have limited
the approved methods of disposal for certain hazardous and nonhazardous wastes.
Furthermore, certain wastes generated by the Company's oil and natural gas
operations that are currently exempt from treatment as "hazardous wastes" may in
the future be designated as "hazardous wastes," and therefore be subject to more
rigorous and costly operating and disposal requirements.

The Company currently owns or leases numerous properties that for many
years have been used for the exploration and production of oil and gas. Although
the Company believes that it has utilized good operating and waste disposal
practices, prior owners and operators of these properties may not have utilized
similar practices, and hydrocarbons or other wastes may have been disposed of or
released on or under the properties owned or leased by the Company or on or
under locations where such wastes have been taken for disposal. In addition,
many of these properties have been operated by third parties whose treatment and
disposal or release of hydrocarbons or other wastes was not under the Company's
control. These properties and the wastes disposed thereon may be subject to the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
RCRA and analogous state laws as well as state laws governing the management of
oil and gas wastes. Under such laws, the Company could be required to remove or
remediate previously disposed wastes (including wastes disposed of or released
by prior owners or operators) or property contamination (including groundwater
contamination) or to perform remedial plugging operations to prevent future
contamination.

The Company's operations may be subject to the Clean Air Act ("CAA") and
comparable state and local requirements. Amendments to the CAA were adopted in
1990 and contain provisions that may result in the gradual imposition of certain
pollution control requirements with respect to air emissions from the operations
of the Company. The EPA and states have been developing regulations to implement
these requirements. The Company may be required to incur certain capital
expenditures in the next several years for air pollution control equipment in
connection with maintaining or obtaining operating permits and approvals
addressing other air emission-related

48
<PAGE> 52

issues. However, the Company does not believe its operations will be materially
adversely affected by any such requirements.

Federal regulations require certain owners or operators of facilities that
store or otherwise handle oil, such as the Company, to prepare and implement
spill prevention, control, countermeasure ("SPCC") and response plans relating
to the possible discharge of oil into surface waters. The Company has
acknowledged the need for SPCC plans at certain of its properties and believes
that it will be able to develop and implement these plans in the near future.
The Oil Pollution Act of 1990, ("OPA") contains numerous requirements relating
to the prevention of and response to oil spills into waters of the United
States. The OPA subjects owners of facilities to strict joint and several
liability for all containment and cleanup costs and certain other damages
arising from a spill, including, but not limited to, the costs of responding to
a release of oil to surface waters. The OPA also requires owners and operators
of offshore facilities that could be the source of an oil spill into federal or
state waters, including wetlands, to post a bond, letter of credit or other form
of financial assurance in amounts ranging from $10 million in specified state
waters to $35 million in federal outer continental shelf waters, subject to
later increase to as much as $150 million if a formal risk assessment indicates
that the increase is warranted, to cover costs that could be incurred by
governmental authorities in responding to an oil spill. Noncompliance with OPA
may result in varying civil and criminal penalties and liabilities. Operations
of the Company are also subject to the federal Clean Water Act ("CWA") and
analogous state laws. In accordance with the CWA, the state of Louisiana has
issued regulations prohibiting discharges of produced water in state coastal
waters effective July 1, 1997. The Company plans to drill a well in Louisiana
coastal waters. Assuming that production from the planned well is feasible, the
Company will be obligated to comply with these regulations. Pursuant to other
requirements of the CWA, the EPA has adopted regulations concerning discharges
of storm water runoff. This program requires covered facilities to obtain
individual permits, participate in a group permit or seek coverage under an EPA
general permit. While certain of its properties may require permits for
discharges of storm water runoff, the Company believes that it will be able to
obtain, or be included under, such permits, where necessary, and make minor
modifications to existing facilities and operations that would not have a
material effect on the Company. Like OPA, the CWA and analogous state laws
relating to the control of water pollution provide varying civil and criminal
penalties and liabilities for releases of petroleum or its derivatives into
surface waters or into the ground.

CERCLA, also known as the "Superfund" law, and similar state laws impose
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These persons include
the owner or operator of the disposal site or sites where the release occurred
and companies that disposed or arranged for the disposal of the hazardous
substances found at the site. Persons who are or were responsible for releases
of hazardous substances under CERCLA may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources, and it is
not uncommon for neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by the hazardous
substances released into the environment.

The Company also is subject to a variety of federal, state and local
permitting and registration requirements relating to protection of the
environment. Management believes that the Company is in substantial compliance
with current applicable environmental laws and regulations and that continued
compliance with existing requirements will not have a material adverse effect on
the Company.

OPERATING HAZARDS AND INSURANCE

The oil and natural gas business involves a variety of operating risks,
including the risk of fire, explosion, blow-out, pipe failure, casing collapse,
abnormally pressured formations and environmental hazards such as oil spills,
gas leaks, ruptures and discharges of toxic gases, the occurrence

49
<PAGE> 53

of any of which could result in substantial losses to the Company due to injury
or loss of life, severe damage to or destruction of property, natural resources
and equipment, pollution or other environmental damage, cleanup
responsibilities, regulatory investigation and penalties and suspension of
operations.

In accordance with customary industry practice, the Company maintains
insurance against some, but not all, of the risks described above. The Company's
insurance does not cover business interruption or protect against loss of
revenues. There can be no assurance that any insurance obtained by the Company
will be adequate to cover any losses or liabilities. The Company cannot predict
the continued availability of insurance or the availability of insurance at
premium levels that justify its purchase. The occurrence of a significant event
not fully insured or indemnified against could materially and adversely affect
the Company's financial condition and operations.

TITLE TO PROPERTIES

The Company believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and
natural gas industry. The Company's properties are subject to customary royalty
interests, liens incident to operating agreements, liens for current taxes and
other burdens which the Company believes do not materially interfere with the
use of or affect the value of such properties. As is customary in the industry
in the case of undeveloped properties, little investigation of record title is
made at the time of acquisition (other than a preliminary review of local
records). Investigations, including a title opinion of local counsel, are
generally made before commencement of drilling operations. The Company's
revolving credit facilities are secured by substantially all of its oil and
natural gas properties.

EMPLOYEES

At June 30, 1997, the Company had 16 full-time employees, including two
geoscientists and three engineers, and two part-time employees. As drilling and
production activities increase, the Company intends to hire additional
technical, operational and administrative personnel as appropriate. The Company
believes that its relationships with its employees are good. In order to
optimize prospect generation and development, the Company utilizes the services
of independent consultants and contractors to perform various professional
services, particularly in the areas of 3-D seismic data mapping, acquisition of
leases and lease options, construction, design, well site surveillance,
permitting and environmental assessment. Field and on-site production operation
services, such as pumping, maintenance, dispatching, inspection and testing, are
generally provided by independent contractors. The Company believes that this
use of third party service providers has enhanced its ability to contain general
and administrative expenses, which averaged $0.27 per Mcfe for the first quarter
of 1997.

LEGAL PROCEEDINGS

From time to time the Company is a party to various legal proceedings
arising in the ordinary course of business. The Company is not currently a party
to any litigation that it believes could have a material adverse effect on the
financial position of the Company.

50
<PAGE> 54

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to
executive officers and directors of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
S.P. Johnson IV................ 41 President, Chief Executive Officer and Director
Frank A. Wojtek................ 41 Chief Financial Officer, Vice President, Secretary,
Treasurer and Director
George F. Canjar............... 39 Vice President of Exploration Development
Kendall A. Trahan.............. 46 Vice President of Land
Steven A. Webster.............. 45 Chairman of the Board
Douglas A.P. Hamilton.......... 50 Director
Paul B. Loyd, Jr. ............. 51 Director
</TABLE>

Set forth below is a description of the backgrounds of each of the
executive officers and directors of the Company:

S.P. Johnson IV has served as the President, Chief Executive Officer and a
director of the Company since December 1993. Prior to that he worked 15 years
for Shell Oil Company. His managerial positions included Operations
Superintendent, Manager of Planning and Finance and Manager of Development
Engineering. Mr. Johnson is a Registered Petroleum Engineer and has a B.S. in
Mechanical Engineering from the University of Colorado.

Frank A. Wojtek has served as the Chief Financial Officer, Vice President,
Secretary, Treasurer and a director of the Company since 1993. In addition,
since 1992 Mr. Wojtek has been the Assistant to the Chairman of the Board of
Reading & Bates Corporation ("Reading & Bates") (an offshore drilling company).
Mr. Wojtek also holds the positions of Vice President and Secretary/Treasurer
for Loyd and Associates, Inc. (a private financial consulting and investment
banking firm). Following the Offering, Mr. Wojtek will serve full time as the
Company's Chief Financial Officer. Mr. Wojtek has held the positions of Vice
President and Chief Financial Officer of Griffin-Alexander Drilling Company from
1984 to 1987, Treasurer of Chiles-Alexander International Inc. from 1987 to 1989
and Vice President and Chief Financial Officer of India Offshore Inc. from 1989
to 1992, all of which are companies in the offshore drilling industry. Mr.
Wojtek is a Certified Public Accountant and holds a B.B.A. in Accounting from
the University of Texas.

George F. Canjar has been head of the Company's exploration activities
since joining the Company in July 1996 and was elected Vice President of
Exploration Development in June 1997. Prior thereto he worked for over 15 years
for Shell Oil Company and its overseas affiliates where he held various
technical and managerial positions, including Technical Manager-Geology &
Petrophysics, Section Head Geology & Seismology and Team Leader for numerous
integrated production, development, exploration and project execution groups.
Mr. Canjar is a Registered Petroleum Engineer, Registered Geologist and has a
B.S. in Geological Engineering from the Colorado School of Mines.

Kendall A. Trahan has been head of the Company's land activities since
joining the Company in March 1997 and was elected Vice President of Land of the
Company in June 1997. From 1994 to February 1997, he served as a Director of
Joint Ventures Onshore Gulf Coast for Vastar Resources, Inc. From 1982 to 1994,
he worked as an Area Landman and then a Division Landman and Director of
Business Development for Arco Oil & Gas Company. Prior to that, Mr. Trahan
served as a Staff Landman for Amerada Hess Corporation and as an independent
landman. He is a Certified Professional Landman and holds a B.S. degree from the
University of Southwestern Louisiana.

51
<PAGE> 55

Steven A. Webster has been the Chairman of the Board of the Company since
June 1997 and has been a director of the Company since 1993. Mr. Webster has
been Chairman and Chief Executive Officer of Falcon Drilling Company Inc.
("Falcon"), an offshore drilling company, and its predecessor companies since
1988. Mr. Webster is also a director of DI Industries, Inc. (an onshore drilling
company) and Crown Resources Corporation (a precious metals mining company). He
is a trust manager of Camden Property Trust (a real estate investment trust).
Mr. Webster holds an M.B.A. degree from Harvard Business School.

Douglas A.P. Hamilton has been a director of the Company since 1993 and of
Falcon Drilling Company, Inc. since 1992. Mr. Hamilton has since 1979 been the
President of Anatar Investments, Inc., a diversified investment capital firm
with active investments in oil and gas and offshore contract drilling. Mr.
Hamilton has a degree from the University of North Carolina and completed the
PMD program at Harvard Business School.

Paul B. Loyd, Jr. has been a Director of the Company since 1993. Mr. Loyd
has been Chairman of the Board and Chief Executive Officer of Reading & Bates
since 1991 and President of Reading & Bates since 1993. Mr. Loyd has been
President of Loyd & Associates, Inc., a financial consulting firm, since 1989.
Mr. Loyd was Chief Executive Officer and a director of Chiles-Alexander
International, Inc. from 1987 to 1989, President and a director of
Griffin-Alexander Drilling Company, from 1984 to 1987, and prior to that, a
director and Chief Financial Officer of Houston Offshore International, all of
which are companies in the offshore drilling industry. Mr. Loyd is also a
director of Wainoco Oil Corporation. Mr. Loyd served as President of the Company
from its inception in September 1993 until December 1993. Mr. Loyd holds an
M.B.A. degree from Harvard Business School.

On July 10, 1997, Falcon and Reading & Bates announced that they had
entered into an agreement to merge the two companies, and that Mr. Loyd would be
the Chairman of the Board and Mr. Webster would be the President and Chief
Executive Officer of the combined company.

Officers are elected annually by the Board of Directors and serve at the
discretion of the Board. The Company's Board of Directors is currently composed
of five directors, two of whom are employees of the Company. All of the current
directors serve until the next annual shareholders' meeting or until their
successors have been duly elected and qualified. The Board of Directors will
have two standing committees: the Audit Committee (which will consist of Messrs.
Wojtek, Hamilton and Loyd) and the Compensation Committee (which will consist of
Messrs. Webster, Hamilton and Loyd).

DIRECTOR COMPENSATION

Directors who are employees of the Company are not entitled to receive
additional compensation for serving as directors. Following the Offering, each
director who is not an employee of the Company or a subsidiary (a "Non-employee
Director") will receive an annual retainer of $7,500. All directors will be
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board or Board committees and for other expenses incurred in their capacity as
directors. In addition, Nonemployee Directors will receive options for the
purchase of Common Stock pursuant to the Incentive Plan of the Company (the
"Incentive Plan"). See "-- Incentive Plan."

OFFICER AND DIRECTOR INDEMNIFICATION

The Company's Bylaws provide for the indemnification of its officers and
directors, and the advancement to them of expenses in connection with
proceedings and claims, to the fullest extent permitted by the Texas Business
Corporation Act. The Company has also entered into indemnification agreements
with each of its directors and certain of its officers that contractually
provide for indemnification and expense advancement and include related
provisions meant to facilitate the indemnitee's receipt of such benefits. In
addition, the Company expects to purchase directors' and officers' liability
insurance policies for its directors and officers in the future. The Bylaws and
such

52
<PAGE> 56

agreements with directors and officers provide for indemnification for amounts
(i) in respect of the deductibles for such insurance policies, (ii) that exceed
the liability limits of such insurance policies and (iii) that are available,
were available or which become available to the Company or which are generally
available to companies comparable to the Company but which the officers or
directors of the Company determine is inadvisable for the Company to purchase,
given the cost involved of the Company. Such indemnification may be made even
though directors and officers would not otherwise be entitled to indemnification
under other provisions of the Bylaws or such agreements.

EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning the
compensation provided by the Company to its President and Chief Executive
Officer during the year ended December 31, 1996 (the "Named Executive Officer").
No other executive officer of the Company received combined salary and bonus
from the Company that exceeded $100,000 during such year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
--------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
--------------------------- -------- --------
<S> <C> <C>
S. P. Johnson IV............................................ $180,000 --
President and Chief Executive Officer
</TABLE>

- ---------------

(1) The Named Executive Officer did not receive any annual compensation not
properly categorized as salary or bonus, except for certain perquisites and
other personal benefits which are not shown because the aggregate amount of
such compensation, if any, for the named executive officer during the fiscal
year did not exceed the lesser of $50,000 or 10% of total salary and bonus
reported for such executive officer.

No options were granted to the Named Executive Officer in 1996, and the
Named Executive Officer did not exercise any stock options during 1996. The
Company has no outstanding stock appreciation rights, shares of restricted stock
or long-term incentive plans. See "-- Incentive Plan" below for information
regarding the Incentive Plan, which the Company expects to adopt prior to
completion of the Offering.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with each of Mr. S. P.
Johnson IV and Mr. Frank A. Wojtek which provides for an annual base salary in
an amount not less than $180,000 in the case of Mr. Johnson and $150,000 in the
case of Mr. Wojtek (but Mr. Wojtek's salary will not begin until he commences
full time employment with the Company). Upon completion of this Offering, Mr.
Johnson and Mr. Wojtek will also each receive option grants, pursuant to the
Incentive Plan, to purchase 100,000 and 40,000 shares of Common Stock,
respectively, at the price to the public set forth on the cover page of this
Prospectus. See "-- Incentive Plan."

The Company and Mr. Kendall Trahan entered into a two-year employment
agreement in March 1997, pursuant to which Mr. Trahan served as the Company's
Vice President of Land at an annual salary of $135,000. The Company recently has
entered into a new employment agreement which provides for an annual base salary
in an amount not less than $135,000. The new agreement continues and revises a
previously granted stock option, such that he has the option to purchase up to
83,295 shares of the Company's Common Stock at an aggregate exercise price of
$300,000. These options vest according to a two-year vesting schedule.

The Company and Mr. George Canjar entered into a three-year employment
agreement in July 1996, pursuant to which Mr. Canjar served as the Company's
Manager of Exploration Development at an annual salary of $126,000. The Company
recently has entered into a new employment

53
<PAGE> 57

agreement with Mr. Canjar which provides for an annual base salary in an amount
not less than $126,000. The agreement includes a provision that entitles Mr.
Canjar to an undivided 0.5% overriding royalty interest, proportionately reduced
to the Company's working interest, in all oil, gas and other minerals that may
be produced and saved from prospects generated by Mr. Canjar. The new agreement
continues and revises a previously granted stock option, such that he has the
option to purchase up to 138,825 shares of the Company's Common Stock at an
aggregate exercise price of $500,000. These options vest according to a two-year
vesting schedule.

Each of the employment agreements of Mr. Johnson, Mr. Wojtek, Mr. Trahan
and Mr. Canjar has an initial three-year term provided that at the end of the
second year of such initial term and on every day thereafter, the term of each
such employment agreement will automatically be extended for one day, such that
the remaining term of the agreement shall never be less than one year. Under
each agreement both the Company and the employee may terminate the employee's
employment at any time. Upon termination of employment on account of disability
or if employment is terminated by the Company for any reason (except under
certain limited circumstances defined as "for cause" in the agreement), or if
employment is terminated either (x) by the employee subsequent to a change of
control (as defined and including certain terminations prior to a change of
control if caused by a person involved in precipitating a change of control) or
(y) by reason of death during a sixty day period following the elapse of one
year after such a change of control ("window period") or with good reason (as
defined), under the agreement the employee will generally be entitled to (i) an
immediate lump sum cash payment equal to 150% (375% if termination occurs after
a change of control) of his annual base salary that would have been payable for
the remainder of the term of the applicable agreement discounted at 6%, (ii)
continued participation in all the Company's welfare benefit plans and continued
life insurance and medical benefits coverage and (iii) the immediate vesting of
any stock options or restricted stock previously granted to such employee and
outstanding as of the time immediately prior to the date of his termination, or
a cash payment in lieu thereof. If employment terminates due to death of the
employee and other than in a window period, the Company will pay a sum equal to
the amount of the employee's annual base salary for the remaining term of the
agreement, reduced by the amount payable under any life insurance policies to
the extent that such amounts are attributable to premiums paid by the Company.
The salaries in each of these agreements are subject to periodic review and
provide for increases consistent with increases in base salary generally awarded
to other executives of the Company. Each agreement entitles the employee to
participate in all of the Company's incentive, savings, retirement and welfare
benefit plans in which other executive officers of the Company participate. The
agreements each provide for an annual bonus in an amount comparable to the
annual bonus of other Company executives, taking into account the individual's
position and responsibilities.

INCENTIVE PLAN

Prior to the completion of the Offering, the Company expects to adopt the
Incentive Plan. The objectives of the Incentive Plan are to (i) attract and
retain the services of key employees, qualified independent directors and
qualified consultants and other independent contractors and (ii) encourage the
sense of proprietorship in and stimulate the active interest of those persons in
the development and financial success of the Company by making awards ("Awards")
designed to provide participants in the Incentive Plan with proprietary interest
in the growth and performance of the Company.

The Company plans to reserve 1,000,000 shares of Common Stock for use in
connection with the Incentive Plan. Persons eligible for Awards are (i)
employees holding positions of responsibility with the Company or any of its
subsidiaries and whose performance can have a significant effect on the success
of the Company, (ii) Nonemployee Directors and (iii) certain nonemployed
consultants and other independent contractors providing, or who will provide,
services to the Company or any of its subsidiaries.

54
<PAGE> 58

The Compensation Committee of the Company's Board of Directors (the
"Committee") will administer the Incentive Plan. With respect to Awards to
employees and independent contractors, the Committee has the exclusive power to
administer the Incentive Plan, to take all actions specifically contemplated
thereby or necessary or appropriate in connection with the administration
thereof, to interpret the Incentive Plan and to adopt such rules, regulations
and guidelines for carrying out its purposes as the Committee may deem necessary
or proper in keeping with the objectives of such plan. With respect to Awards to
employees and independent contractors, the Committee may, in its discretion,
among other things, extend or accelerate the exercisability of, accelerate the
vesting of or eliminate or make less restrictive any restrictions contained in
any Award, waive any restriction or other provision of the Incentive Plan or in
any Award or otherwise amend or modify any Award in any manner that is either
(i) not adverse to that participant holding the Award or (ii) consented to by
that participant. The Committee also may delegate to the chief executive officer
and other senior officers of the Company its duties under the Incentive Plan.

The Board of Directors may amend, modify, suspend or terminate the
Incentive Plan for the purpose of addressing any changes in legal requirements
or for any other lawful purpose, except that (i) no amendment or alteration that
would adversely affect the rights of any participant under any Award previously
granted to such participant shall be made without the consent of such
participant and (ii) no amendment or alteration shall be effective prior to its
approval by the shareholders of the Company to the extent such approval is then
required pursuant to Rule 16b-3 in order to preserve the applicability of any
exemption provided by such rule to any Award then outstanding (unless the holder
of such Award consents) or to the extent shareholder approval is otherwise
required by applicable legal requirements. The Board of Directors may make
certain adjustments in the event of any subdivision, split or consolidation of
outstanding shares of Common Stock, any declaration of a stock dividend payable
in shares of Common Stock, any recapitalization or capital reorganization of the
Company, any consolidation or merger of the Company with another corporation or
entity, any adoption by the Company of any plan of exchange affecting the Common
Stock or any distribution to holders of Common Stock of securities or property
(other than normal cash dividends).

Awards to employees and independent contractors may be in the form of (i)
rights to purchase a specified number of shares of Common Stock at a specified
price ("Options"), (ii) rights to receive a payment, in cash or Common Stock,
equal to the fair market value or other specified value of a number of shares of
Common Stock on the rights exercise date over a specified strike price, (iii)
grants of restricted or unrestricted Common Stock or units denominated in Common
Stock, (iv) grants denominated in cash and (v) grants denominated in cash,
Common Stock, units denominated in Common Stock or any other property which are
made subject to the attainment of one or more performance goals ("Performance
Awards"). An Option may be either an incentive stock option ("ISO") that
qualifies, or a nonqualified stock option ("NSO") that does not qualify, with
the requirements of Section 422 of the Code; provided, that independent
contractors cannot be awarded ISOs. The Committee will determine the employees
and independent contractors to receive Awards and the terms, conditions and
limitations applicable to each such Award, which conditions may, but need not,
include continuous service with the Company, achievement of specific business
objectives, attainment of specified growth rates, increases in specified indices
or other comparable measures of performance. Performance Awards may include more
than one performance goal, and a performance goal may be based on one or more
business criteria applicable to the grantee, the Company as a whole or one or
more of the Company's business units and may include any of the following:
increased revenue, net income, stock price, market share, earnings per share,
return on equity or assets or decrease in costs.

On the date the Offering closes, Options under the Incentive Plan will be
granted to approximately 10 employees of the Company to purchase a total of
approximately 220,000 shares of Common Stock at an exercise price per share
equal to the initial public offering price per share set forth on the cover page
of this Prospectus. These awards include options to be granted to

55
<PAGE> 59

Messrs. Johnson and Wojtek to purchase 100,000 and 40,000 shares of Common
Stock, respectively. All such options will have a term of ten years and become
exercisable in cumulative annual increments of one-third of the total number of
shares of Common Stock subject thereto, beginning on the first anniversary of
the date of grant.

On the date the Offering closes, each of the current Nonemployee Directors,
Messrs. Webster, Hamilton and Loyd, automatically will be granted NSOs to
purchase 10,000 shares of Common Stock. In addition, on the first business day
following the date on which each annual meeting of the Company's shareholders is
held, each Nonemployee Director then serving will automatically be granted NSOs
to purchase 2,500 shares of Common Stock. Any person who first becomes a
Nonemployee Director on or after the date the Offering closes automatically will
be granted, on the date of his or her election, NSOs to purchase 10,000 shares
of Common Stock. Each NSO granted to Nonemployee Directors will (i) have a
ten-year term, (ii) have an exercise price per share equal to the fair market
value of a Common Stock share on the date of grant (the initial public offering
price in the case of NSOs granted on the closing of the Offering) and (iii)
become exercisable in cumulative annual increments of one-third of the total
number of shares of Common Stock subject thereto, beginning on the first
anniversary of the date of grant. If a Nonemployee Director resigns from the
Board without the consent of a majority of the other directors, such director's
NSOs may be exercised only to the extent they were exercisable on the
resignation date.

The foregoing description summarizes the principal terms and conditions of
the Incentive Plan, does not purport to be complete and is qualified in its
entirety by reference to the Incentive Plan, a copy of which has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In June 1997, the Company established a Compensation Committee. In the
past, matters with respect to the compensation of executive officers of the
Company were determined by the nonemployee members of the Board of Directors, as
a whole.

56
<PAGE> 60

CERTAIN TRANSACTIONS

THE COMBINATION TRANSACTIONS

The Company currently conducts its operations through a number of
affiliated entities that will be combined in the Combination Transactions.
Carrizo conducts oil and natural gas operations directly with industry partners
and through certain affiliated partnerships as described below. Prior to
completion of the Offering, the shareholders of the Company are Steven A.
Webster, S.P. Johnson IV, Frank A. Wojtek, Douglas A.P. Hamilton and Paul B.
Loyd, Jr. (the "Founders"), each of whom is an officer and/or a director of the
Company, and DAPHAM Partnership L.P., the limited partner of which is a
charitable remainder trust of which the beneficiaries include Mr. Hamilton and
his wife and children. Carrizo Production, Inc. is a corporation that is owned
by the Founders. The officers and directors of Carrizo Production, Inc. also
serve in the same capacity for Carrizo. Carrizo Production, Inc. is the general
partner of and holds a 1.42% before payout/28.82% after payout interest in
Encinitas Partners Ltd. The remaining partnership interests in Encinitas
Partners Ltd. are held by limited partners, including the Founders. Carrizo
holds a 50% general partner interest in La Rosa Partners Ltd. The remaining 50%
interest in La Rosa Partners Ltd. is held by the Founders (other than Mr.
Wojtek) as limited partners. Carrizo is the general partner and holds a 13.33%
before payout/31.67% after payout interest in Carrizo Partners Ltd.; the
remaining partnership interests in Carrizo Partners Ltd. are held by limited
partner investors that include S.P. Johnson IV who as a special limited partner
is entitled to a 0.001% prepayout and 25% after payout interest. Carrizo owns a
50% general partner interest in Placedo Partners Ltd., and Carrizo Partners Ltd.
holds the remaining 50% limited partner interest in Placedo Partners Ltd.
Encinitas Partners Ltd. owns the Company's interest in the Encinitas/Kelsey
Project, the Midway Project and the East McFaddin Project. Carrizo Partners Ltd.
owns the Company's interest in the Camp Hill Project as well as a 50% interest
in Placedo Partners Ltd. La Rosa Partners Ltd. owns the Company's interest in
the La Rosa Project. Placedo Partners Ltd. owns an interest in the Placedo
Project (which includes two producing leases in Victoria County, Texas and for
which the Company has budgeted for the drilling of one well in 1998). Carrizo
Production, Inc. owns the general partner interest in Encinitas Partners Ltd.
All of the Company's other assets are owned by Carrizo Oil & Gas, Inc. The
operations of all of these entities have been managed through the same
management team.

The Combination Transactions will include the following: (i) Carrizo
Production, Inc. will be merged into Carrizo (the "Carrizo Production Merger"),
and the outstanding shares of capital stock of Carrizo Production, Inc. will be
converted into an aggregate of 343,000 shares of Common Stock; (ii) Carrizo will
acquire Encinitas Partners Ltd. in two steps: (a) Carrizo will acquire the
Founder's limited partner interests in Encinitas Partners Ltd. for an aggregate
consideration of 468,533 shares of Common Stock (the "Founder's Purchase
Transaction") and (b) Encinitas Partners Ltd. will be merged into Carrizo (the
"Encinitas Merger"), and the outstanding partnership interests in Encinitas
Partners Ltd. will be converted into an aggregate of 860,699 shares of Common
Stock; (iii) La Rosa Partners Ltd. will be merged into Carrizo (the "La Rosa
Merger"), and the outstanding partnership interests in La Rosa Partners Ltd.
will be converted into an aggregate of 48,750 shares of Common Stock; and (iv)
Carrizo Partners Ltd. will be merged into Carrizo (the "Carrizo Partners
Merger"), and the outstanding partnership interests in Carrizo Partners Ltd.
will be converted into an aggregate of 569,068 shares of Common Stock. As a
result of the Carrizo Partners Merger, Carrizo will own all of the partnership
interests in Placedo Partners Ltd. Each of the Combination Transactions will
close concurrently with the closing of the Offering. The determination of the
number of shares of Common Stock that would be issued to the various parties in
the Combination Transactions was made by management of the Company based upon
the following four valuation criteria for the assets attributable to each party:
(i) PV-10 Values of proved reserves; (ii) estimates of discounted net asset
values that gave effect to all assets (rather than proved reserves only) for all
of management's then proposed projects; (iii) projected 1997 cash flows; and
(iv) projected 1998 cash flows.

57
<PAGE> 61

An aggregate of 2,290,000 shares of Common Stock will be issued in
connection with the Combination Transactions. Mr. Webster will receive 77,175
shares of Common Stock in the Carrizo Production Merger, 132,721 shares of
Common Stock in the Founder's Purchase Transaction and 14,610 shares of Common
Stock in the La Rosa Merger, and Cerrito Partners, of which Mr. Webster is a
general partner, will receive 31,126 shares of Common Stock in the Encinitas
Merger. Mr. Johnson will receive 34,300 shares of Common Stock in the Carrizo
Production Merger, 46,075 shares of Common Stock in the Founder's Purchase
Transaction, 4,870 shares of Common Stock in the La Rosa Merger and 176,841
shares of Common Stock in the Carrizo Partners Merger. Mr. Wojtek will receive
77,175 shares of Common Stock in the Carrizo Production Merger and 24,296 shares
of Common Stock in the Founder's Purchase Transaction. Mr. Hamilton will receive
77,175 shares of Common Stock in the Carrizo Production Merger, 132,721 shares
of Common Stock in the Founder's Purchase Transaction and 14,610 shares of
Common Stock in the La Rosa Merger. Mr. Loyd will receive 77,175 shares of
Common Stock in the Carrizo Production Merger, 132,721 shares of Common Stock in
the Founder's Purchase Transaction and 14,610 shares of Common Stock in the La
Rosa Merger.

MASTER TECHNICAL SERVICES AGREEMENT

In August 1996, the Company entered into the Master Technical Services
Agreement (the "MTS Agreement") with Reading & Bates Development Co. ("R&B
Development"), which is a subsidiary of Reading & Bates. Paul B. Loyd, Jr., a
director of the Company, is the Chairman of the Board, Chief Executive Officer
and President and a director of Reading & Bates. Under the MTS Agreement, the
Company provides certain engineering and technical services to R&B Development
in connection with R&B Development's technical service, procurement and
construction projects in offshore drilling and floating production, and the
Company is paid an amount generally equal to the salaries of its personnel that
provide such services, pro rata based on the amount of time that is spent
providing such services. The Company was paid $117,726 for services provided
during 1996 under the MTS Agreement, has continued to perform services under the
contract in 1997 and expects to continue to perform services under the contract
following the Offering. The MTS Agreement may generally be terminated by either
party upon five days prior written notice to the other party.

AMOUNTS OWED BY THE COMPANY TO CERTAIN OFFICERS AND DIRECTORS

Between December 1993 and December 1996, Carrizo issued promissory notes to
certain officers and directors of the Company, in consideration of funds
advanced to Carrizo by such officers and directors to assist Carrizo in its
operations. Each of such promissory notes is payable at the earlier of (i) April
or July 1998 or (ii) the closing of the Offering and bears interest equal to the
Texas Commerce Bank, N.A. prime rate. The outstanding aggregate balance,
including accrued interest, of the notes payable to Paul B. Loyd, Jr. was, as of
December 31, 1994, 1995 and 1996, respectively, $67,000, $371,000 and $776,000.
The outstanding aggregate balance, including accrued interest, of the notes
payable to Steven A. Webster was, as of December 31, 1994, 1995 and 1996,
respectively, $63,000, $370,000 and $772,000. The outstanding aggregate balance,
including accrued interest, of the notes payable to Frank A. Wojtek was, as of
December 31, 1994, 1995 and 1996, respectively, $67,000, $345,000 and $711,000.
The outstanding aggregate balance, including accrued interest, of the notes
payable to Douglas A.P. Hamilton was, as of December 31, 1994, 1995 and 1996,
respectively, $73,000, $371,000 and $775,000. The outstanding aggregate balance,
including accrued interest, of the notes payable to S.P. Johnson IV was, as of
December 31, 1994 and 1995, respectively, $27,000 and $15,000. The Company
borrowed $1.8 million from Douglas A. P. Hamilton on May 31, 1997. The Company
used the proceeds of this loan to make principal repayment on such promissory
notes in the amount of $600,000 to each of Messrs. Loyd and Wojtek on May 31,
1997 and to Mr. Webster on June 3, 1997. As of June 30, 1997, the total
principal owed on such promissory notes was $116,000 to Paul B. Loyd, Jr.;
$116,000 to Steven A. Webster; $59,000 to Frank A. Wojtek and $2,516,000 to
Douglas A.P. Hamilton. As of June 30, 1997,

58
<PAGE> 62

the remaining amounts due on such promissory notes, including accrued interest,
are as follows: $201,000 to Paul B. Loyd, Jr.; $198,000 to Steven A. Webster;
$134,000 to Frank A. Wojtek and $2,518,000 to Douglas A.P. Hamilton.

In addition, between February 1997 and March 1997, La Rosa Partners, Ltd.
issued promissory notes in favor of certain officers and directors of the
Company, in consideration of funds advanced to La Rosa Partners, Ltd. by such
officers and directors to assist La Rosa Partners, Ltd. in its operations. Each
of such promissory notes is payable on demand and bears interest equal to the
TCB prime rate. As of June 30, 1997, the total principal owed on such promissory
notes is $30,000 to Paul B. Loyd, Jr.; $30,000 to Steven A. Webster; $15,000 to
Frank A. Wojtek and $30,000 to Douglas A. P. Hamilton. As of June 30, 1997, the
remaining amounts due on such promissory notes, including accrued interest, are
as follows: $31,000 to Paul B. Loyd, Jr.; $31,000 to Steven A. Webster; $15,000
to Frank A. Wojtek and $31,000 to Douglas A.P. Hamilton.

The Company intends to repay Carrizo's and La Rosa Partners Ltd.'s
indebtedness to such officers and directors of the Company evidenced by the
above-referenced promissory notes from the proceeds of the Offering. The Company
does not intend to incur any further indebtedness to, or make any loans to, any
of its executive officers, directors or other affiliates following the
completion of the Offering.

FINANCIAL/ACCOUNTING SERVICES AGREEMENT

In March 1994, the Company entered into the Financial/Accounting Services
Agreement (the "Services Agreement"), effective as of December 1, 1993, with
Loyd & Associates, Inc. ("Loyd & Associates"), a private financial consulting
and investment banking firm. Paul B. Loyd, Jr. serves as President and owns
92.5% of the stock of Loyd & Associates, and Frank A. Wojtek serves as Vice
President and Secretary/Treasurer and owns 7.5% of the stock of Loyd &
Associates. Under the Services Agreement, Loyd & Associates provides, on an
as-needed basis and at market rates, financial consulting, accounting and
administrative services to the Company, Carrizo Partners Ltd. and Placedo
Partners Ltd. The Services Agreement also provides for reimbursement to Loyd &
Associates of certain expenses. Total payments for services rendered were
$43,500 in 1994, $60,000 in 1995 and $60,000 in 1996. The Services Agreement
will terminate at the closing of the Offering. In addition to serving as Vice
President and Secretary/Treasurer of Loyd & Associates, Mr. Wojtek serves as
Assistant to the Chairman of the Board of Reading & Bates. Following the
Offering, Mr. Wojtek will serve full time as the Company's Chief Financial
Officer, Vice President and Secretary.

AGREEMENTS WITH THE COMPANY'S CURRENT SHAREHOLDERS

From the date of its formation until shortly prior to the closing of the
Offering, Carrizo Production, Inc. will be, and from the date of its formation
until May 16, 1997 Carrizo was, an S corporation for federal income tax
purposes. The Company has entered into tax indemnification agreements with the
Founders that provide for, among other things, the indemnification of the
Founders for any losses or liabilities with respect to any additional taxes
(including interest, penalties and legal fees) resulting from Carrizo's and
Carrizo Production, Inc.'s operations during the period in which each was an S
Corporation. The Company also has entered into a registration rights agreement
with the current shareholders of the Company as described under "Shares Eligible
for Future Sale."

59
<PAGE> 63

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to beneficial
ownership of the Common Stock both after giving effect to the Combination
Transactions but before giving effect to the Offering and after giving effect to
the Combination Transactions and the Offering by: (i) all persons who will be
the beneficial owner of 5% or more of the outstanding Common Stock; (ii) each
director; (iii) each executive officer of the Company; and (iv) all officers and
directors of the Company as a group, assuming in each case, the issuance of an
aggregate of 2,290,000 shares of Common Stock to all parties to the Combination
Transactions.

<TABLE>
<CAPTION>
COMMON
STOCK
BENEFICIALLY PERCENT OF COMMON
OWNED STOCK BENEFICIALLY
FOLLOWING THE OWNED FOLLOWING THE
COMBINATION COMBINATION
TRANSACTIONS TRANSACTIONS
------------- ---------------------
PRIOR TO
NUMBER OF THE AFTER THE
NAME(1) SHARES OFFERING OFFERING
------- ------------- -------- ---------
<S> <C> <C> <C>
S.P. Johnson IV(2)......................................... 783,085 10.4% 7.8%
Frank A. Wojtek(3)......................................... 1,273,721 17.0% 12.7%
George Canjar(4)........................................... 83,295 1.1% *
Ken Trahan(5).............................................. 33,318 * *
Steven A. Webster(6)....................................... 1,427,882 19.0% 14.3%
Douglas A.P. Hamilton(7)................................... 1,000,796 13.3% 10.0%
Paul B. Loyd, Jr.(8)....................................... 1,396,756 18.6% 14.0%
All directors and executive officers as a group (7
persons)(9).............................................. 5,998,853 78.8% 59.3%
Kenneth Huff(10)........................................... 441,695 5.9% 4.4%
</TABLE>

- ---------------

* Less than one percent.

(1) Except as otherwise noted and pursuant to applicable community property
laws, each shareholder has sole voting and investment power with respect to
the shares beneficially owned. The business address of each director and
executive officer is c/o Carrizo Oil & Gas, Inc., 14811 St. Mary's Lane,
Suite 148, Houston, Texas 77079.

(2) Shares shown represent (i) 521,000 shares of Common Stock currently owned,
(ii) 34,300 shares of Common Stock to be acquired through the Carrizo
Production Merger, (iii) 46,075 shares of Common Stock to be acquired
through the Founder's Purchase Transaction, (iv) 4,870 shares of Common
Stock to be acquired through the La Rosa Merger and (v) 176,840 shares of
Common Stock to be acquired through the Carrizo Partners Merger.

(3) Shares shown represent (i) 1,172,250 shares of Common Stock currently
owned, (ii) 77,175 shares of Common Stock to be acquired through the
Carrizo Production Merger and (iii) 24,296 shares of Common Stock to be
acquired through the Founder's Purchase Transaction.

(4) Shares shown represent 83,295 shares of Common Stock to be acquired
pursuant to stock options that are immediately exercisable or exercisable
within 60 days of the date of this Prospectus.

(5) Shares shown represent 33,318 shares of Common Stock to be acquired
pursuant to stock options that are immediately exercisable or exercisable
within 60 days of the date of this Prospectus.

(6) Shares shown represent (i) 1,172,250 shares of Common Stock currently
owned, (ii) 77,175 shares of Common Stock to be acquired through the
Carrizo Production Merger, (iii) 132,721 shares of Common Stock to be
acquired through the Founder's Purchase Transaction by Mr. Webster and
31,126 shares of Common Stock to be acquired through the Encinitas

60
<PAGE> 64

Merger by Cerrito Partners, of which Mr. Webster is a general partner and
shares voting and dispositive power with the other general partners, and
(iv) 14,610 shares of Common Stock to be acquired through the La Rosa
Merger. Mr. Webster may be deemed a beneficial owner of the shares of
Common Stock to be acquired through the Encinitas Merger by Cerrito
Partners. Mr. Webster disclaims such beneficial ownership.

(7) Shares shown represent (i) 776,290 shares of Common Stock currently owned
by Mr. Hamilton, (ii) 77,175 shares of Common Stock to be acquired through
the Carrizo Production Merger, (iii) 132,721 shares of Common Stock to be
acquired through the Founder's Purchase Transaction and (iv) 14,610 shares
of Common Stock to be acquired through the La Rosa Merger.

(8) Shares shown represent (i) 1,172,250 shares of Common Stock currently
owned, (ii) 77,175 shares of Common Stock to be acquired through the
Carrizo Production Merger, (iii) 132,721 shares of Common Stock to be
acquired through the Founder's Purchase Transaction and (iv) 14,610 shares
of Common Stock to be acquired through the La Rosa Merger.

(9) Shares shown include 116,613 shares of Common Stock to be acquired pursuant
to stock options that are immediately exercisable or exercisable within 60
days of the date of this Prospectus.

(10) Shares shown represent (i) 395,960 shares of Common Stock currently owned
by DAPHAM Partnership L.P., of which the general partner is Mr. Huff and
the limited partner is a charitable remainder trust, of which Mr. Hamilton
and his wife and children are among the beneficiaries, (ii) 15,564 shares
of Common Stock to be acquired through the Encinitas Merger and (iii)
30,171 shares of Common Stock to be acquired through the Carrizo Partners
Merger. The business address of Mr. Huff is 9256 N. Pelham Parkway,
Milwaukee, Wisconsin 53217.

61
<PAGE> 65

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock. Following consummation of
the Offering and the Combination Transactions, there will be approximately
10,000,000 shares of Common Stock outstanding (assuming the over-allotment
option is not exercised and the issuance of approximately 2,290,000 shares of
Common Stock in the Combination Transactions), and no shares of Preferred Stock
will be outstanding.

The following description of certain provisions of the Company's Amended
and Restated Articles of Incorporation (the "Articles of Incorporation") and the
Company's Amended and Restated Bylaws (the "Bylaws") are necessarily general and
do not purport to be complete and are qualified in their entirety by reference
to the Articles of Incorporation and Bylaws, which are included as exhibits to
the Registration Statement of which this Prospectus is a part. The Company was
organized in September 1993 and is a Texas corporation.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share with respect to
all matters required by law to be submitted to shareholders of the Company.
Holders of Common Stock have no preemptive rights to purchase or subscribe for
securities of the Company, and the Common Stock is not convertible or subject to
redemption by the Company.

Subject to the rights of the holders of any class of capital stock of the
Company having any preference or priority over the Common Stock, none of which
will be outstanding upon completion of the Offering, the holders of the Common
Stock are entitled to dividends in such amounts as may be declared by the Board
of Directors of the Company from time to time out of funds legally available for
such payments and, in the event of liquidation, dissolution or winding up of the
Company, to share ratably in any assets of the Company remaining after payment
in full of all creditors and provisions for any liquidation preferences on any
outstanding stock ranking prior to the Common Stock.

American Securities Transfer & Trust, Inc. is the registrar and transfer
agent for the Common Stock.

PREFERRED STOCK

The Board of Directors, without further action by the shareholders, is
authorized to issue up to 10 million shares of Preferred Stock in one or more
series and to fix and determine as to any series all the relative rights and
preferences of shares in such series, including, without limitation,
preferences, limitations or relative rights with respect to such series. The
Company has no present intention to issue any Preferred Stock, but may determine
to do so in the future.

The issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could adversely affect the voting power of the Common
Stock, discourage an unsolicited acquisition proposal or make it more difficult
for a third party to gain control of the Company. For instance, the issuance of
a series of Preferred Stock might impede a business combination by including
class voting rights that would enable the holder to block such a transaction, or
facilitate a business combination by including voting rights that would provide
a required percentage vote of the shareholders. In addition, under certain
circumstances, the issuance of Preferred Stock could adversely affect the voting
power of the holders of the Common Stock. Although the Board of Directors is
required to make any determination to issue such stock based on its judgment as
to the best interests of the shareholders of the Company, the Board of Directors
could act in a manner that would discourage an acquisition attempt or other
transaction that some, or a majority, of the shareholders might believe to be in
their best interests or in which shareholders might receive a premium for their
stock over the then market price of such stock. The Board of Directors does not
at

62
<PAGE> 66

present intend to seek shareholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the rules of the Nasdaq
National Market.

SPECIAL MEETINGS

Special Meetings of the shareholders of the Company may be called by the
chairman of the board, the president, the Board of Directors or by shareholders
holding not less than 50% of the outstanding voting stock of the Company.

VOTING

Holders of Common Stock are entitled to cast one vote per share on matters
submitted to a vote of shareholders and do not have cumulative voting rights.
Each director will be elected annually. Because the Common Stock does not have
cumulative voting rights, the holders of more than 50% of the shares may, if
they choose to do so, elect all of the directors and, in that event, the holders
of the remaining shares will not be able to elect any directors. See "Risk
Factors -- Control by Principal Shareholders."

Subject to any additional voting rights that may be granted to holders of
future classes or series of stock, the Company's Articles of Incorporation
and/or Texas law requires the affirmative vote of holders of 66 2/3% of the
outstanding shares entitled to vote thereon to approve any merger, consolidation
or share exchange, any disposition of the assets of the Company or any
dissolution of the Company and requires the affirmative vote of holders of a
majority of the outstanding shares entitled to vote thereon to approve any
amendment to the Articles of Incorporation or any other matter for which a
shareholder vote is required by the Texas Business Corporation Act. If any class
or series of shares is entitled to vote as a class with regard to the
above-described events, the vote required will be the affirmative vote of the
holders of a majority of the outstanding shares within each class or series of
shares entitled to vote thereon as a class and at least a majority of the
outstanding shares of capital stock otherwise entitled to vote thereon.

Approval of any other matter not described above that is submitted to the
shareholders requires the affirmative vote of the holders of a majority of the
shares of Common Stock entitled to vote on, and that voted for or against or
expressly abstained with respect to, that matter at a meeting at which a quorum
is present. The holders of a majority of the shares entitled to vote will
constitute a quorum at meetings of shareholders.

The Company's Bylaws provide that shareholders who wish to nominate
directors or to bring business before a shareholders' meeting must notify the
Company and provide certain pertinent information at least 80 days before the
meeting date (or within ten days after public announcement pursuant to the
Bylaws of the meeting date, if the meeting date has not been publicly announced
at least 90 days in advance).

The Company's Articles of Incorporation and Bylaws provide that following
the Offering no director may be removed from office, except for cause and upon
the affirmative vote of the holders of a majority of the outstanding shares of
all capital stock of the Company entitled to vote generally in the election of
the Company's directors. The following constitute "cause": (i) such director has
been convicted, or is granted immunity to testify where another has been
convicted, of a felony; (ii) such director has been found to be grossly
negligent or guilty of willful misconduct in the performance of duties to the
Company by a court or by the affirmative vote of a majority of all other
directors; (iii) such director is adjudicated mentally incompetent; or (iv) such
director has been found by a court or by the affirmative vote of a majority of
all other directors to have breached his duty of loyalty to the Company or its
shareholders or to have engaged in a transaction with the Company from which
such director derived an improper personal benefit.

63
<PAGE> 67

BUSINESS COMBINATION LAW

The Company will be subject to Part Thirteen (the "Business Combination
Law") of the Texas Business Corporation Act, which takes effect September 1,
1997. In general, the Business Combination Law prevents an "affiliated
shareholder" (defined generally as a person that is or was within the preceding
three-year period the beneficial owner of 20% or more of a corporation's
outstanding voting shares) or its affiliates or associates from entering into or
engaging in a "business combination" (defined generally to include (i) mergers
or share exchanges, (ii) dispositions of assets having an aggregate value equal
to 10% or more of the market value of the assets or of the outstanding common
stock or representing 10% or more of the earning power or net income of the
corporation, (iii) certain issuances or transactions by the corporation that
would increase the affiliated shareholder's number of shares of the corporation,
(iv) certain liquidations or dissolutions, and (v) the receipt of tax,
guarantee, loan or other financial benefits by an affiliated shareholder other
than proportionately as a shareholder of the corporation) with an "issuing
public corporation" (defined generally as a Texas corporation with 100 or more
shareholders, any voting shares registered under the Securities Exchange Act of
1934 or any voting shares qualified for trading in a national market system)
during the three-year period immediately following the affiliated shareholder's
acquisition of shares unless (a) before the date such person became an
affiliated shareholder, the board of directors of the issuing public corporation
approves the business combination or the acquisition of shares made by the
affiliated shareholder on such date or (b) not less than six months after the
date such person became an affiliated shareholder, the business combination is
approved by the affirmative vote of holders of at least two-thirds of the
issuing public corporation's outstanding voting shares not beneficially owned by
the affiliated shareholder or its affiliates or associates. The Business
Combination Law does not apply to a business combination of an issuing public
corporation that elects not be governed thereby through either its original
articles of incorporation or bylaws or by an amendment thereof. The Company's
original articles and bylaws do not so provide, nor does the Company currently
intend to make any such amendments. As a result of the approval of the Board of
Directors of the acquisition of shares by the current shareholders of the
Company, none of Steven A. Webster, Douglas A. P. Hamilton, Paul B. Loyd, Jr. or
Frank A. Wojtek (those shareholders of the Company owning 20% or more of the
outstanding voting shares prior to the Combination Transactions and the
Offering) will be subject to the restrictions imposed on affiliated shareholders
by the Business Combination Law.

LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION ARRANGEMENTS

The Articles of Incorporation of the Company contain a provision that
limits the liability of the Company's directors as permitted by the Texas
Business Corporation Act. The provision eliminates the personal liability of a
director to the Company and its shareholders for monetary damages for an act or
omission in the director's capacity as a director. The provision does not change
the liability of a director for breach of his duty of loyalty to the Company or
to shareholders, acts or omissions not in good faith that involve intentional
misconduct or a knowing violation of law, an act or omission for which the
liability of a director is expressly provided for by an applicable statute, or
in respect of any transaction from which a director received an improper
personal benefit. Pursuant to the Articles of Incorporation, the liability of
directors will be further limited or eliminated without action by shareholders
if Texas law is amended to further limit or eliminate the personal liability of
directors.

The Company's Bylaws provide for the indemnification of its officers and
directors, and the advancement to them of expenses in connection with
proceedings and claims, to the fullest extent permitted by the Texas Business
Corporation Act. The Company has also entered into indemnification agreements
with each of its directors and certain of its officers that contractually
provide for indemnification and expense advancement and include related
provisions meant to facilitate the indemnitee's receipt of such benefits. In
addition, the Company may purchase directors' and officers' liability insurance
policies for its directors and officers in the future. The Bylaws and such
agreements with directors and officers provide for indemnification for amounts
(i) in respect of the

64
<PAGE> 68

deductibles for such insurance policies, (ii) that exceed the liability limits
of such insurance policies and (iii) that are available, were available or
become available to the Company or are generally available to companies
comparable to the Company but which the officers or directors of the Company
determine is inadvisable for the Company to purchase, given the cost involved of
the Company. Such indemnification may be made even though directors and officers
would not otherwise be entitled to indemnification under other provisions of the
Bylaws or such agreements.

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Combination Transactions and the Offering,
approximately 10,000,000 shares of Common Stock will be outstanding. The shares
of Common Stock sold in the Offering will be registered under the Securities Act
and will be freely tradeable without restriction or further registration under
the Securities Act, except for certain manner of sale, volume limitations and
other restrictions with respect to any shares purchased in the Offering by an
affiliate of the Company (a "Company Affiliate"), which will be subject to the
resale limitations of Rule 144 (not including the holding period requirement)
under the Securities Act. Under Rule 144 under the Securities Act, a person is
an affiliate of an entity if such person directly or indirectly controls or is
controlled by or is under common control with such entity and may include
certain officers and directors, principal shareholders and certain other
shareholders with special relationships. All of the remaining 7,500,000 shares
that will be outstanding following the Offering will be owned by officers and
directors of the Company and other participants in the Combination Transactions
and will constitute "restricted securities" within the meaning of Rule 144. Such
shares may not be resold in a public distribution except pursuant to an
effective registration statement under the Securities Act or an applicable
exemption from registration, including pursuant to Rule 144. This Prospectus may
not be used in connection with any resale of shares of Common Stock acquired in
the Offering by Company Affiliates or in the Combination Transactions.

In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of Common Stock are aggregated), including persons who may
be deemed "affiliates" of the Company, would be entitled to sell within any
three-month period a number of shares of Common Stock that does not exceed the
greater of (i) 1% of the then-outstanding shares of Common Stock (i.e.,
approximately 100,000 shares immediately after consummation of the Offering) and
(ii) the average weekly trading volume during the four calendar weeks preceding
the date on which notice of the sale is filed with the Commission. Sales under
Rule 144 are also subject to certain provisions as to the manner of sale (which
provision is proposed to be eliminated), notice requirements and the
availability of current public information about the Company. In addition, under
Rule 144(k), if a period of at least two years has elapsed since the later of
the date restricted securities were acquired from the Company or the date they
were acquired from an affiliate of the Company, a shareholder who is not an
affiliate of the Company at the time of sale and who has not been an affiliate
for at least three months prior to the sale would be entitled to sell shares of
Common Stock in the public market immediately without compliance with the
foregoing requirements under Rule 144. Rule 144 does not require the same person
to have held the securities for the applicable periods. The foregoing summary of
Rule 144 is not intended to be a complete description thereof.

The Company currently has outstanding options to purchase 222,120 shares of
Common Stock (72,189 of which are vested) and will grant options to purchase
250,000 shares (none of which will be vested) as of the closing of the Offering
under the Incentive Plan. Such shares for which the vested portion of
outstanding options may be exercised may generally be sold in reliance on the
resale provisions of Rule 701. In general, any employee or consultant to the
Company who purchased shares pursuant to a written compensatory plan or contract
entered into prior to the Company's initial public offering is entitled to rely
on the resale provisions of Rule 701, which permit non-affiliates to sell their
Rule 701 shares without having to comply with the public information,

65
<PAGE> 69

holding period, volume limitation or notice provisions of Rule 144, and permit
affiliates to sell their Rule 701 shares without having to comply with the Rule
144 holding period restrictions, in each case commencing 90 days after the date
of this Prospectus. The holders of vested outstanding options to purchase 72,189
shares could exercise these options and could then sell such shares in
compliance with Rule 701. Holders of all options granted prior to the Offering
have agreed not to sell the shares of Common Stock for a period of 180 days
following the date of the final prospectus for the Offering.

The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Long-Term Incentive Plan. Shares of
Common Stock issued pursuant to such plan generally will be available for sale
in the open market by holders who are not Company Affiliates and, subject to the
volume and other limitations of Rule 144, by holders who are Company Affiliates.

The Company, its executive officers, its directors and its current
shareholders have agreed not to offer for sale, sell, or otherwise dispose of
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock for a period of 180 days after the date
of this Prospectus, without the prior written consent of the representatives of
the Underwriters, subject to certain exceptions. See "Underwriting."

Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made of the effect, if any, that sales of Common
Stock or the availability of shares for sale will have on the market price
prevailing from time to time. Following the Offering, sales of substantial
amounts of Common Stock in the public market or otherwise, or the perception
that such sales could occur, could adversely affect the prevailing market price
for the Common Stock.

REGISTRATION RIGHTS OF CURRENT SHAREHOLDERS

The Registration Rights Agreement dated as of June 6, 1997 among the
Company and its current shareholders provides registration rights with respect
to the Common Stock currently outstanding as well as shares issued in the
Combination Transactions or otherwise purchased from the Company (the
"Registrable Securities"). Shareholders owning not less than 51% of the then-
outstanding shares of Registrable Securities may demand that the Company effect
a registration under the Securities Act for the sale of not less than 5% of the
shares of Registrable Securities then outstanding. The Company's current
shareholders also have limited rights to require the Company to include their
shares of Common Stock in connection with registered offerings by the Company.
All of the Founders have agreed to waive these registration rights in connection
with the Offering. The Company may generally be required to effect three demand
registrations (provided that no such registration may occur six months after the
closing of the Offering) and three additional demand registrations for certain
offerings registered on SEC Form S-3, subject to certain conditions and
limitations. The registration rights will terminate as to any holder of
Registrable Securities at the later of (i) one year after the closing of the
Offering or (ii) at such time as such holder may sell under Rule 144 in a
three-month period all Registrable Securities then held by such holder. The
Company's current shareholders may not exercise their registration rights with
respect to any shares received in the Combination Transaction for a period of at
least one year following the effective date of the registration statement of
which this Prospectus is a part.

Registration of shares under the Securities Act would result in such shares
becoming freely tradeable without restriction under the Securities Act (except
for shares purchased by affiliates of the Company) immediately upon the
effectiveness of such registration.

66
<PAGE> 70

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting
Agreement, the Underwriters named below, for whom Schroder & Co. Inc. and
Jefferies & Company, Inc. are acting as Representatives (the "Representatives"),
have severally agreed to purchase from the Company an aggregate of 2,500,000
shares of Common Stock. The number of shares of Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Schroder & Co. Inc..........................................
Jefferies & Company, Inc....................................

---------
Total............................................. 2,500,000
=========
</TABLE>

The Underwriting Agreement provides that the Underwriters' obligation to
pay for and accept delivery of the shares of Common Stock offered hereby is
subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all such shares, excluding shares covered by the
over-allotment option, if any are purchased. The Underwriters have informed the
Company that no sales of Common Stock will be confirmed to discretionary
accounts.

The Company has been advised by the Underwriters that they propose
initially to offer the Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price, less a concession not in excess of $ per share. The Underwriters
may allow and such dealers may reallow a concession not in excess of $
per share to certain other brokers and dealers. After the Offering, the public
offering price, the concession and reallowances to dealers and other selling
terms may be changed by the Underwriters.

The Company has granted to the Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 375,000
additional shares of Common Stock to cover over-allotments, if any, at the same
price per share to be paid by the Underwriters for the other shares of Common
Stock offered hereby. If the Underwriters purchase any such additional shares
pursuant to the over-allotment option, each Underwriter will be committed,
subject to certain conditions, to purchase a number of the additional shares of
Common Stock proportionate to such Underwriter's initial commitment.

The Company, its directors and executive officers, and each of its current
shareholders have agreed with the Representatives, for a period of 180 days
after the date of this Prospectus, not to issue, sell, offer to sell, grant any
options for the sale of, or otherwise dispose of any shares of Common Stock or
any rights to purchase shares of Common Stock (other than stock issued or
options granted pursuant to the Company's stock incentive plans, the Company's
stock options outstanding on the date of this Prospectus, acquisitions in which
the shares issued remain subject to a comparable lock-up agreement, the
Combination Transactions, intra-family transfers and transfers for estate
planning purposes), without the prior written consent of Schroder & Co. Inc. See
"Shares Eligible for Future Sale."

The Company has agreed to indemnify the Underwriters against certain
liabilities that they may incur in connection with the sale of the Common Stock,
including liabilities arising under the

67
<PAGE> 71

Securities Act, and to contribute to payments that the Underwriters may be
required to make with respect thereto.

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation between the Company and the Representatives. Among other factors
considered in determining the public offering price will be prevailing market
and economic conditions, revenues and earnings of the Company, the state of the
Company's business operations, an assessment of the Company's management and
consideration of the above factors in relation to market valuation of companies
in related businesses and other factors deemed relevant. There can be no
assurance, however, that the prices at which the Common Stock will sell in the
public market after the Offering will not be lower than the public offering
price.

In order to facilitate the Offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the Offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the Offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization or otherwise. Any of these activities may stabilize or maintain
the market price of the Common Stock above independent market levels. The
Underwriters are not required to engage in these activities, and may end any of
these activities at any time.

The Common Stock has been approved for inclusion on the Nasdaq National
Market under the symbol "CRZO."

LEGAL MATTERS

Certain legal matters in connection with the shares of Common Stock offered
hereby are being passed upon for the Company by Baker & Botts, L.L.P., Houston,
Texas, and for the Underwriters by Vinson & Elkins L.L.P., Houston, Texas.

EXPERTS

The audited combined financial statements included in this Prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated by their report with respect
thereto, and is included herein in reliance upon the authority of said firm as
experts in giving said report.

The letter reports of Ryder Scott and Fairchild included as Annex A to this
Prospectus and certain information with respect to the Company's oil and natural
gas reserves derived therefrom have been included herein in reliance upon such
firms as experts with respect to such matters.

68
<PAGE> 72

ADDITIONAL INFORMATION

The Company has not previously been subject to the reporting requirements
of the Exchange Act. The Company has filed a Registration Statement under the
Securities Act with the Commission with respect to the Offering. This
Prospectus, filed as a part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement or the exhibits and
schedules thereto in accordance with the rules and regulations of the
Commission, and reference is hereby made to such omitted information. Statements
made in this Prospectus concerning any document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to such exhibit for a complete statement of its provisions.
The Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, at the public reference facilities of the Commission
at its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and its regional offices at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of all or any portion of
the Registration Statement can be obtained at prescribed rates from the Public
Reference Section of the Commission at its principal office at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The Commission
maintains an Internet web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission (http://www.sec.gov).

69
<PAGE> 73

GLOSSARY OF CERTAIN INDUSTRY TERMS

The definitions set forth below shall apply to the indicated terms as used
in this Prospectus. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.

After payout. With respect to an oil or gas interest in a property, refers
to the time period after which the costs to drill and equip a well have been
recovered.

Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.

Bbls/d. Stock tank barrels per day.

Bcf. Billion cubic feet.

Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.

Before payout. With respect to an oil or gas interest in a property, refers
to the time period before which the costs to drill and equip a well have been
recovered.

Btu or British Thermal Unit. The quantity of heat required to raise the
temperature of one pound of water by one degree Fahrenheit.

Completion. The installation of permanent equipment for the production of
oil or gas or, in the case of a dry hole, the reporting of abandonment to the
appropriate agency.

Developed acreage. The number of acres which are allocated or assignable to
producing wells or wells capable of production.

Development well. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.

Dry hole or well. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production exceed
production expenses and taxes.

Exploratory well. A well drilled to find and produce oil or gas reserves
not classified as proved, to find a new reservoir in a field previously found to
be productive of oil or gas in another reservoir or to extend a known reservoir.

Farm-in or farm-out. An agreement whereunder the owner of a working
interest in an oil and natural gas lease assigns the working interest or a
portion thereof to another party who desires to drill on the leased acreage.
Generally, the assignee is required to drill one or more wells in order to earn
its interest in the acreage. The assignor usually retains a royalty or
reversionary interest in the lease. The interest received by an assignee is a
"farm-in" while the interest transferred by the assignor is a "farm-out."

Field. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.

Finding costs. Costs associated with acquiring and developing proved oil
and natural gas reserves which are capitalized by the Company pursuant to
generally accepted accounting principles, including all costs involved in
acquiring acreage, geological and geophysical work and the cost of drilling and
completing wells.

Gross acres or gross wells. The total acres or wells, as the case may be,
in which a working interest is owned.

MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.

70
<PAGE> 74

MBbls/d. One thousand barrels of crude oil or other liquid hydrocarbons per
day.

Mcf. One thousand cubic feet.

Mcf/d. One thousand cubic feet per day.

Mcfe. One thousand cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.

MMBbls. One million barrels of crude oil or other liquid hydrocarbons.

MMBtu. One million British Thermal Units.

MMcf. One million cubic feet.

MMcf/d. One million cubic feet per day.

MMcfe. One million cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids,
which approximates the relative energy content of crude oil, condensate and
natural gas liquids as compared to natural gas. Prices have historically been
higher or substantially higher for crude oil than natural gas on an energy
equivalent basis.

Net acres or net wells. The sum of the fractional working interests owned
in gross acres or gross wells.

Normally pressured reservoirs. Reservoirs with a formation-fluid pressure
equivalent to 0.465 psi per foot of depth from the surface. For example, if the
formation pressure is 4,650 psi at 10,000 feet, then the pressure is considered
to be normal.

Over-pressured reservoirs. Reservoirs subject to abnormally high pressure
as a result of certain types of subsurface formations.

Petrophysical study. Study of rock and fluid properties based on well log
and core analysis.

Present value. When used with respect to oil and natural gas reserves, the
estimated future gross revenue to be generated from the production of proved
reserves, net of estimated production and future development costs, using prices
and costs in effect as of the date indicated, without giving effect to
nonproperty-related expenses such as general and administrative expenses, debt
service and future income tax expense or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.

Productive well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.

Proved developed nonproducing reserves. Proved developed reserves expected
to be recovered from zones behind casing in existing wells.

Proved developed producing reserves. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and able to produce to market.

Proved developed reserves. Proved reserves that can be expected to be
recovered from existing wells with existing equipment and operating methods.

Proved reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.

Proved undeveloped location. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.

71
<PAGE> 75

CARRIZO OIL & GAS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Carrizo Oil & Gas, Inc., and Affiliated Entities --
Report of Independent Public Accountants.................. F-2
Combined Balance Sheets, December 31, 1995 and 1996, and
March 31, 1997......................................... F-3
Combined Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996, and the Three Months
Ended March 31, 1996 and 1997.......................... F-4
Combined Statements of Equity for the Years Ended December
31, 1994, 1995 and 1996, and the Three Months Ended
March 31, 1997......................................... F-5
Combined Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996, and the Three Months
Ended March 31, 1996 and 1997.......................... F-6
Notes to Combined Financial Statements.................... F-7
</TABLE>

F-1
<PAGE> 76

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and
Board of Directors of
Carrizo Oil & Gas, Inc.:

We have audited the accompanying combined balance sheets of Carrizo Oil &
Gas, Inc. (a Texas corporation), and affiliated entities identified in Note 1
(collectively, the Company) as of December 31, 1995 and 1996, and the related
combined statements of operations, equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Company as of
December 31, 1995 and 1996, and the combined results of their operations and
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
June 5, 1997

F-2
<PAGE> 77

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------- MARCH 31,
1995 1996 1997
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 69,536 $ 1,492,603 $ 1,500,493
Accounts receivable, trade............ 357,956 1,654,032 2,283,104
Accounts receivable, joint interest
owners............................. -- 82,296 295,394
Accounts receivable from related
parties............................ -- 79,578 55,598
Other current assets.................. 15,794 15,472 57,924
---------- ----------- -----------
Total current assets.......... 443,286 3,323,981 4,192,513

PROPERTY AND EQUIPMENT, net (full-cost
method of accounting for oil and gas
properties)........................... 6,959,513 15,205,587 19,162,276

OTHER ASSETS............................ 242,099 339,789 557,506
---------- ----------- -----------
$7,644,898 $18,869,357 $23,912,295
========== =========== ===========

LIABILITIES AND EQUITY

CURRENT LIABILITIES:
Accounts payable, trade............... $ 646,238 $ 4,326,299 $ 5,928,520
Other current liabilities............. 62,315 22,976 22,125
---------- ----------- -----------
Total current liabilities..... 708,553 4,349,275 5,950,645
NOTES PAYABLE TO RELATED PARTIES........ 1,396,196 2,773,935 2,878,935
LONG-TERM DEBT.......................... 2,083,684 6,910,000 9,375,000
OTHER LONG-TERM LIABILITIES............. 75,366 240,197 301,213
COMMITMENTS AND CONTINGENCIES (Note 5)
EQUITY:
Capital (at June 4, 1997; 10,000,000
authorized shares of Preferred
Stock with none outstanding,
40,000,000 authorized shares of
Common Stock, $0.01 par value, with
5,210,000 shares issued and
outstanding)....................... 4,146,000 4,261,000 4,915,678
Retained earnings (deficit)........... (764,901) 334,950 1,050,566
Deferred compensation................. -- -- (559,742)
---------- ----------- -----------
3,381,099 4,595,950 5,406,502
---------- ----------- -----------
$7,644,898 $18,869,357 $23,912,295
========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-3
<PAGE> 78

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OIL AND NATURAL GAS REVENUES............ $ 596,733 $2,428,048 $5,194,709 $790,513 $1,853,170
COSTS AND EXPENSES:
Oil and natural gas operating expenses
(exclusive of depreciation shown
separately below).................. 518,022 1,813,406 2,384,145 417,728 557,464
Depreciation, depletion and
amortization....................... 98,262 487,949 1,135,797 141,674 382,475
General and administrative............ 237,460 425,198 514,644 44,194 197,615
--------- ---------- ---------- -------- ----------
Total costs and
expenses.................... 853,744 2,726,553 4,034,586 603,596 1,137,554
--------- ---------- ---------- -------- ----------
OPERATING INCOME (LOSS)................. (257,011) (298,505) 1,160,123 186,917 715,616
OTHER INCOME AND EXPENSES:
Interest expense...................... -- (274,585) (312,409) (76,480) (146,447)
Interest expense, related
parties............................ (7,263) (35,059) (189,881) (30,306) (42,051)
Capitalized interest.................. -- 117,288 422,493 64,216 188,498
Other income.......................... 5,765 24,251 19,525 -- --
--------- ---------- ---------- -------- ----------
NET INCOME (LOSS)....................... $(258,509) $ (466,610) $1,099,851 $144,347 $ 715,616
========= ========== ========
UNAUDITED:
PRO FORMA INCOME TAXES.................. 395,946 257,622
---------- ----------
NET INCOME (after pro forma income
taxes)................................ $ 703,905 $ 457,994
========== ==========
PRO FORMA PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE (Note 2)........... $ 0.09 $ 0.06
========== ==========
PRO FORMA WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING (Note 2).... 7,722,120 7,722,120
========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-4
<PAGE> 79

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

COMBINED STATEMENTS OF EQUITY

<TABLE>
<CAPTION>
RETAINED
EARNINGS DEFERRED TOTAL
CAPITAL (DEFICIT) COMPENSATION EQUITY
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993.............. $ 100,000 $ (39,782) $ -- $ 60,218
Net loss.............................. -- (258,509) -- (258,509)
Capital contributions................. 650,000 -- -- 650,000
---------- ---------- --------- ----------
BALANCE, December 31, 1994.............. 750,000 (298,291) -- 451,709
Net loss.............................. -- (466,610) -- (466,610)
Capital contributions................. 3,500,000 -- -- 3,500,000
Distributions......................... (104,000) -- -- (104,000)
---------- ---------- --------- ----------
BALANCE, December 31, 1995.............. 4,146,000 (764,901) -- 3,381,099
Net income............................ -- 1,099,851 -- 1,099,851
Capital contributions................. 450,000 -- -- 450,000
Distributions......................... (335,000) -- -- (335,000)
---------- ---------- --------- ----------
BALANCE, December 31, 1996.............. 4,261,000 334,950 -- 4,595,950
UNAUDITED:
Net income............................ -- 715,616 -- 715,616
Distributions......................... (45,000) -- -- (45,000)
Deferred compensation related to
certain stock options.............. 699,678 -- (699,678) --
Compensation related to certain stock
options............................ -- -- 139,936 139,936
---------- ---------- --------- ----------
BALANCE, March 31, 1997................. $4,915,678 $1,050,566 $(559,742) $5,406,502
========== ========== ========= ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-5
<PAGE> 80

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------- -----------------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $ (258,509) $ (466,610) $ 1,099,851 $ 144,347 $ 715,616
Adjustment to reconcile net income
(loss) to net cash provided by
(used in) operating activities --
Depreciation, depletion and
amortization................. 98,262 487,949 1,135,797 141,674 382,475
Changes in assets and liabilities --
Accounts receivable............... (100,090) (245,365) (1,457,950) (158,401) (818,190)
Other current assets.............. 9,296 (9,433) 322 2,334 (42,452)
Accounts payable, trade........... 38,215 518,166 2,422,257 341,309 1,538,883
Interest payable to related
parties and other current
liabilities..................... (45,003) 120,946 125,164 14,545 60,165
---------- ---------- ----------- ----------- -----------
Net cash provided by (used
in) operating activities... (257,829) 405,653 3,325,441 485,808 1,836,497
---------- ---------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- accrual
basis............................. (818,775) (6,857,057) (9,479,561) (1,353,233) (4,416,945)
Adjustment to cash basis............. -- 71,664 1,258,132 -- 63,338
---------- ---------- ----------- ----------- -----------
Net cash used in investing
activities................. (818,775) (6,785,393) (8,221,429) (1,353,233) (4,353,607)
---------- ---------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt......... -- 2,083,684 6,910,000 194,733 2,965,000
Debt repayments...................... -- -- (2,083,684) -- (500,000)
Proceeds from related party notes
payable........................... 532,500 863,696 1,377,739 222,643 105,000
Contributions........................ 650,000 3,500,000 450,000 450,000 --
Distributions........................ -- (104,000) (335,000) -- (45,000)
---------- ---------- ----------- ----------- -----------
Net cash provided by
financing activities....... 1,182,500 6,343,380 6,319,055 867,376 2,525,000
---------- ---------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS..................... 105,896 (36,360) 1,423,067 (49) 7,890
CASH AND CASH EQUIVALENTS, beginning of
year................................. -- 105,896 69,536 69,536 1,492,603
---------- ---------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
year................................. $ 105,896 $ 69,536 $ 1,492,603 $ 69,487 $ 1,500,493
========== ========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest (net of
amounts capitalized).............. $ -- $ 122,471 $ -- $ -- $ --
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-6
<PAGE> 81

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION, COMBINATION AND NATURE OF OPERATIONS:

The Combination

Carrizo Oil & Gas, Inc. (Carrizo, a Texas corporation) was formed in 1993
and will be the surviving entity upon the completion of a series of combination
transactions (the Combination). The Combination will include the following
transactions: (a) Carrizo Production, Inc. (a Texas corporation and an
affiliated entity with ownership identical to Carrizo) will be merged into
Carrizo and the outstanding shares of capital stock of Carrizo Production, Inc.
will be exchanged for an aggregate of 343,000 shares of common stock of Carrizo
(the Common Stock); (b) Carrizo will acquire Encinitas Partners Ltd. (a Texas
limited partnership of which Carrizo Production, Inc. serves as the general
partner) as follows: Carrizo will acquire from the current shareholders who
serve as directors of Carrizo (the Founders) their limited partner interests in
Encinitas Partners Ltd. for an aggregate consideration of 468,533 shares of
Common Stock and, on the same date, Encinitas Partners Ltd. will be merged into
Carrizo and the outstanding limited partner interests in Encinitas Partners Ltd.
will be exchanged for an aggregate of 860,699 shares of Common Stock; (c) La
Rosa Partners Ltd. (a Texas limited partnership of which Carrizo serves as the
general partner) will be merged into Carrizo and the outstanding limited partner
interests in La Rosa Partners Ltd. will be exchanged for an aggregate of 48,700
shares of Common Stock; and (d) Carrizo Partners Ltd. (a Texas limited
partnership of which Carrizo serves as the general partner) will be merged into
Carrizo and the outstanding limited partner interests in Carrizo Partners Ltd.
will be exchanged for an aggregate of 569,068 shares of Common Stock. Carrizo
plans to complete each of the above transactions concurrently with the
consummation of an initial public offering of its Common Stock (see Note 8).

Principles of Combination

The accompanying combined financial statements include the accounts of
Carrizo, Carrizo Production, Inc., and the combined interests of the
aforementioned limited partnerships, all of which share common ownership and
management (collectively, the Company). Upon completion of the transactions
described above, the combination will be accounted for as a reorganization of
entities as prescribed by Securities and Exchange Commission (SEC) Staff
Accounting Bulletin 47 because of the high degree of common ownership among, and
the common control of, the combining entities. Accordingly, the accompanying
combined accounts have been prepared using the historical costs and results of
operations of the affiliated entities. There were no significant differences in
accounting methods or their application among the combining entities. All
intercompany balances have been eliminated.

Nature of Operations

The Company is an independent energy company engaged in the exploration,
development, exploitation and production of oil and natural gas. The Company's
operations are focused on Texas and Louisiana Gulf Coast trends, primarily the
Frio, Wilcox and Vicksburg trends. The Company has acquired or is in the process
of acquiring 1,097 square miles of 3-D seismic data. Additionally, the Company
has assembled approximately 322,000 gross acres under lease or option.
Consistent with other companies in the energy industry, the Company is subject
to certain risks, including volatility of oil and natural gas prices,
uncertainty of reserve information, operating risks of oil and natural gas
operations, and significant requirements for capital.

F-7
<PAGE> 82

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Oil and Natural Gas Properties

Investments in oil and natural gas properties are accounted for using the
full-cost method of accounting. All costs directly associated with the
acquisition, exploration and development of oil and natural gas properties are
capitalized. Such costs include lease acquisitions, seismic surveys, and
drilling and completion equipment. No general and administrative costs have been
capitalized at December 31, 1994, 1995 or 1996. During the three-months ended
March 31, 1997, the Company capitalized $139,936 of deferred compensation
related to stock options granted to personnel directly associated with
exploration activities.(See Note 6.)

Oil and natural gas properties are amortized based on the
unit-of-production method using estimates of proved reserve quantities.
Investments in unproved properties are not amortized until proved reserves
associated with the projects can be determined or until impairment occurs.
Unevaluated properties were evaluated for impairment on a property-by-property
basis annually through 1995 and quarterly beginning in 1996. If the results of
an assessment indicate that the properties are impaired, the amount of
impairment is added to the proved oil and natural gas property costs to be
amortized. The amortizable base includes estimated future development costs and,
where significant, dismantlement, restoration and abandonment costs, net of
estimated salvage values. The depletion rate per thousand cubic feet equivalent
(Mcfe) for 1994, 1995, 1996 and the three months ended March 31, 1997, was
$0.48, $0.47, $0.59 and $0.53, respectively.

Dispositions of oil and gas properties are accounted for as adjustments to
capitalized costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and proved
reserves. Through March 31, 1997, there have been no dispositions of oil and gas
properties.

The net capitalized costs of proved oil and gas properties are subject to a
"ceiling test," which limits such costs to the estimated present value,
discounted at a 10 percent interest rate, of future net cash flows from proved
reserves, based on current economic and operating conditions. If net capitalized
costs exceed this limit, the excess is charged to operations through
depreciation, depletion and amortization. For the accompanying reporting
periods, no write-down of the Company's oil and natural gas assets was
necessary.

Depreciation of other property and equipment is provided using the
straight-line method based on estimated useful lives ranging from five to 10
years.

Financing Costs

Offering costs of $211,575 through March 31, 1997 have been deferred and
are anticipated to be applied against stock offering proceeds (see Note 8).
Long-term debt financing costs of $47,194 are capitalized as deferred assets and
are being amortized over the term of the loans.

Statements of Cash Flows

For statement of cash flow purposes, all highly liquid investments with
original maturities of three months or less are considered to be cash
equivalents.

Financial Instruments

The Company's financial instruments consist of cash, receivables, payables
and long-term debt. The carrying amount of cash, receivables and payables
approximates fair value because of the

F-8
<PAGE> 83

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

short-term nature of these items. The carrying amount of long-term debt
approximates fair value as the individual borrowings bear interest at floating
market interest rates.

Hedging Activities

The Company periodically enters into hedging arrangements to manage price
risks related to oil and natural gas sales and not for speculative purposes. The
Company's hedging arrangements apply only to a portion of its production,
provide only partial price protection against declines in oil and natural gas
prices and limit potential gains from future increases in prices. For financial
reporting purposes, gains and losses related to hedging are recognized as income
when the hedged transaction occurs. Historically, gains and losses from hedging
activities have not been material. Total oil and natural gas hedged in 1995 and
1996 was 9,000 Bbls and 3,000 Bbls, respectively, and 40,000 MMBtu and 60,000
MMBtu, respectively. There was no hedging activity during 1994. The Company had
no outstanding hedged positions as of December 31, 1996, or March 31, 1997.

Income Taxes

Carrizo and the combined affiliated entities either have elected to be
treated as S Corporations under the Internal Revenue Code or are otherwise not
taxed as entities for federal income tax purposes. The taxable income or loss is
therefore allocated to the equity owners of Carrizo and the combined affiliated
entities. Accordingly, no provision was made for income taxes in the
accompanying combined historical financial statements. (See Note 8.)

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates. Significant
estimates include depreciation, depletion and amortization of proved oil and
natural gas properties. Oil and natural gas reserve estimates, which are the
basis for unit-of-production depletion and the ceiling test, are inherently
imprecise and are expected to change as future information becomes available.

Concentration of Credit Risk

Substantially all of the Company's accounts receivable result from oil and
natural gas sales or joint interest billings to third parties in the oil and
natural gas industry. This concentration of customers and joint interest owners
may impact the Company's overall credit risk in that these entities may be
similarly affected by changes in economic and other conditions. Historically,
the Company has not experienced credit losses on such receivables.

Recently Issued Accounting Pronouncements

F-9
<PAGE> 84

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

nature of the Company's capital structure and treatment of all stock options as
outstanding for all periods pursuant to Staff Accounting Bulletin No. 83, SFAS
No. 128 would have no current impact on the pro forma calculation of earnings
per share.

Interim Financial Data (Unaudited)

The unaudited financial statements as of March 31, 1997, and for the
three-month periods ended March 31, 1996 and 1997, and all related footnote
information for these periods have been prepared on the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and results of operations and cash flows in
accordance with generally accepted accounting principles.

Earnings Per Share

Historical earnings per share have been omitted from the combined
statements of operations since such information is not meaningful and the
historically combined company is not a separate legal entity with a singular
capital structure. Pro forma earnings per share is presented using the weighted
average number of common shares outstanding after giving effect to the
Combination (7,500,000 shares). All common stock options have been treated as
outstanding for all periods presented (222,120 shares), as required by SEC Staff
Accounting Bulletin No. 83.

3. PROPERTY AND EQUIPMENT:

At December 31, 1995 and 1996, and March 31, 1997, property and equipment
consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Proved oil and natural gas properties........ $4,813,440 $ 9,217,027 $10,550,738
Unproved oil and natural gas properties...... 2,680,876 7,455,698 10,416,676
Other equipment.............................. -- 62,073 106,548
---------- ----------- -----------
Total property and equipment....... 7,494,316 16,734,798 21,073,962
Accumulated depreciation, depletion and
amortization............................... (534,803) (1,529,211) (1,911,686)
---------- ----------- -----------
Property and equipment, net.................. $6,959,513 $15,205,587 $19,162,276
========== =========== ===========
</TABLE>

Oil and natural gas properties not subject to amortization consist of the
cost of undeveloped leaseholds, undesignated seismic costs, exploratory wells in
progress, and secondary recovery projects before the assignment of proved
reserves. These costs are reviewed periodically by management for impairment,
with the impairment provision included in the cost of oil and natural gas
properties subject to amortization. Factors considered by management in its
impairment assessment include drilling results by the Company and other
operators, the terms of oil and natural gas leases not held by production,
production response to secondary recovery activities and available funds for
exploration and development. Of the $7,455,698 of unproved property costs at
December 31, 1996 being excluded from the amortizable base, $2,680,876 and
$4,774,822 were incurred in 1995 and 1996, respectively. The Company expects it
will complete its evaluation of the properties representing the majority of
these costs within the next three years.

F-10
<PAGE> 85

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

4. LONG-TERM DEBT:

In January 1995, the Company entered into a loan agreement with Texas
Commerce Bank (TCB) in the amount of $1,800,000 for the acquisition of the
Encinitas oil and gas properties. This loan was amended on February 18, 1995, to
provide funds for the development of those properties. Borrowings under this
agreement, which totaled $2,083,684 at December 31, 1995, and bore interest at
the prime rate as specified by TCB plus 2.75 percent, were repaid with
borrowings under the Encinitas Facility (defined below), and this loan facility
was terminated in 1996. As additional consideration, the Company assigned a 1
percent royalty interest in the Encinitas/Kelsey properties to TCB.

In June 1996, the Company entered into a $10 million revolving credit
facility with Compass Bank (the Encinitas Facility). Proceeds from this facility
were used to pay off the existing loan from TCB as well as fund exploration and
development activities. The facility is subject to a borrowing base calculation
and had a commitment of $3,350,000 at December 31, 1996, and $2,634,000 at March
31, 1997. The facility is also available for letters of credit, one of which has
been issued for $224,000. The Encinitas Facility is secured by the interests in
oil and natural gas properties owned by Encinitas Partners, Ltd., and bears
interest at the prime rate as defined by Compass Bank plus .75 percent, and the
borrowings must be repaid by June 1, 1998. At December 31, 1996, and March 31,
1997, borrowings under the Encinitas Facility totaled $2,910,000 and $2,410,000,
respectively. At December 31, 1996, $216,000 was available to the Company for
future borrowings. No additional amounts were available for borrowing at March
31, 1997. The weighted average interest rate under the Encinitas Facility for
1996 was 9 percent.

In December 1996, Carrizo entered into a separate $25 million revolving
credit facility with Compass Bank (the Carrizo Facility), which is subject to a
borrowing base determination, and total commitment was $6 million and
approximately $7.2 million at December 31, 1996, and March 31, 1997,
respectively. Interest on this facility is the prime rate as defined by Compass
Bank plus .75 percent, and the borrowings must be repaid by June 1, 1998.

Proceeds from this facility have been used to provide working capital for
exploration and development activity. Substantially all of Carrizo's oil and
natural gas property and equipment is pledged as collateral under this facility.
At December 31, 1996, and March 31, 1997, borrowings under this facility totaled
$4 million and $6,965,000, respectively, with an additional $2 million and
approximately $250,000, respectively, available for future borrowings. The
weighted average interest rate for 1996 on the Carrizo Facility was 9 percent.

Encinitas Partners, Ltd., and Carrizo are each subject to certain covenants
under the terms of the Encinitas Facility and the Carrizo Facility,
respectively, including but not limited to (a) maintenance of specified tangible
net worth and (b) maintenance of a ratio of quarterly cash flow (net income plus
depreciation and other noncash expenses, less noncash net income) to quarterly
debt service (payments made for principal in connection with each credit
facility plus payments made for principal other than in connection with such
credit facility) of no less than 1.25 to 1.00. The credit facilities also place
restrictions on, among other things, (a) incurring additional indebtedness,
guaranties, loans and liens, (b) changing the nature of business or business
structure and (c) selling assets. Necessary waivers effective as of December 31,
1996, were received from Compass Bank to decrease the Encinitas Facility
tangible net worth requirement and to permit Carrizo (under the Carrizo
Facility) to advance funds to one of the affiliated entities for exploration
expenditures.

The Company also had outstanding borrowings from certain shareholders
totaling $1,396,196, $2,773,935 and $2,878,935 at December 31, 1995 and 1996,
and March 31, 1997, respectively.

F-11
<PAGE> 86

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

These loans bore interest at the TCB prime rate, and repayment of the funds and
interest is due in April 1998. Accrued interest on shareholder borrowings is
included in other long-term liabilities.

At December 31, 1995 and 1996, and at March 31, 1997, notes payable and
long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to shareholders (due April,
1998)................................... $1,396,196 $2,773,935 $ 2,878,935
Notes payable to TCB...................... 2,083,684 -- --
$10 million revolving credit facility (due
June 1, 1998)........................... -- 2,910,000 2,410,000
$25 million revolving credit facility (due
June 1, 1998)........................... -- 4,000,000 6,965,000
---------- ---------- -----------
$3,479,880 $9,683,935 $12,253,935
========== ========== ===========
</TABLE>

5. COMMITMENTS AND CONTINGENCIES:

The Company is, from time to time, party to certain legal actions and
claims arising in the ordinary course of business. While the outcome of these
events cannot be predicted with certainty, management does not expect these
matters to have a materially adverse effect on the financial position or results
of operations of the Company.

At December 31, 1996, Carrizo was obligated under a noncancelable operating
lease for office space. Rent expense for the years ended December 31, 1994, 1995
and 1996, was $5,400, $7,600 and $14,900, respectively. Following is a schedule
of the remaining future minimum lease payments under this lease:

6. EQUITY:

On July 19, 1996, and March 1, 1997, the Company entered into separate
stock option agreements with two executives of Carrizo whereby such employees
were granted the option to purchase 138,825 shares and 83,295 shares of Carrizo
common stock, respectively, at an exercise price of $3.60 per share. The options
vest ratably through August 1, 1998, and March 1, 1999, respectively.

The Company did not record any compensation expense related to the July,
1996 options because the related exercise price was at or above the estimated
fair value of Carrizo's Common Stock at the time such options were granted. In
connection with a planned initial public offering (see Note 8), the Company has
recorded deferred compensation related to the March 1997 stock option agreement,
as additional paid-in capital and an offsetting contra-equity account. Such
compensation accrual is based on the difference between the option price ($3.60)
and the fair value of Carrizo's common stock when such options were granted
(using the $12.00 per share estimate of the initial public offering common stock
price as an estimate of fair value). Such deferred compensation is

F-12
<PAGE> 87

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

recognized in the period in which the options vest, which resulted in $139,936
being recorded in the three-month period ended March 31, 1997.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123. SFAS No. 123 is a new standard
of accounting for stock-based compensation and establishes a fair value method
of accounting for awards granted under stock compensation plans. SFAS No. 123
encourages, but does not require, companies to adopt the fair value method of
accounting in place of the existing method of accounting for stock-based
compensation whereupon compensation costs are recognized only in situations
where stock compensation plans award intrinsic value to recipients at the date
of grant. Companies that do not adopt the fair value method of accounting
prescribed in SFAS No. 123 must, nonetheless, make annual pro forma disclosures
of the estimated effects on net income and earnings per share in their year-end
1996 financial statements as if the fair value method had been used for grants
after December 31, 1994. Had compensation cost for the options granted in July,
1996 been determined consistent with SFAS 123, the Company's reported 1996 net
income and pro forma earnings per share would have been adjusted to the
following pro forma amounts:

<TABLE>
<S> <C> <C>
Net Income..................... As reported $1,099,851
Pro forma $1,038,490
EPS............................ As reported (pro forma) $ 0.14
Pro forma $ 0.13
</TABLE>

The fair value of these options is estimated on the date of grant using the
Black-Scholes option pricing model, with the following assumptions: risk-free
interest rate of 6.82%, expected dividend yield of 0%, expected life of 10
years, and expected volatility of 30%.

7. RELATED-PARTY TRANSACTIONS:

In August 1996, the Company entered into the Master Technical Services
Agreement (the MTS Agreement) with Reading & Bates Development Co. (R&B), which
is a subsidiary of Reading & Bates Corporation. Paul Loyd, a member of the board
of the Company, is the chairman of the board, president, chief executive officer
and a director of Reading & Bates Corporation. Under the MTS Agreement, certain
employees of the Company provide engineering and technical services to R&B at
market rates in connection with R&B's technical service, procurement and
construction projects in offshore drilling and floating production. The Company
provided $117,726 in services under this agreement in 1996.

The Company has an agreement with Loyd & Associates Inc., which is owned by
Paul Loyd, a director of Carrizo, and Frank Wojtek, vice president, chief
financial officer and a director of Carrizo, to provide certain financial
consulting and administrative services at market rates to the Company. Payments
are made monthly and total payments to Loyd & Associates Inc. for services
rendered were $43,500, $60,000 and $60,000 in 1994, 1995 and 1996, respectively.
These expenditures were included in general and administrative expenses for each
year.

8. SUBSEQUENT EVENTS (UNAUDITED):

Carrizo and its affiliated entities are anticipated to be combined in a
series of transactions concurrent with the consummation of an initial public
offering of common stock. As a result of the Combination, Carrizo will issue
approximately 2,290,000 shares of common stock for the equity interests that it
does not already own in these entities.

F-13
<PAGE> 88

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Carrizo anticipates filing a registration statement on Form S-1 in June
1997 for the sale of 2,500,000 shares of common stock. The net proceeds from
this sale at an assumed initial public offering price of $12.00 per share are
estimated to be approximately $26.7 million. Carrizo intends to use a portion of
the net proceeds to repay indebtedness outstanding under the revolving credit
facilities and promissory notes to certain of the Company's directors and
officers. The remainder of the net proceeds will be used to accelerate the
Company's exploration and development program and for general corporate
purposes. Following the completion of the initial public offering, the Company
expects to enter into a new credit facility and the Encinitas Facility and
Carrizo Facility will be terminated.

On June 4, 1997, the board of directors authorized a 521-for-1 split of the
Company's stock and increased the number of authorized shares to 40 million
shares of common stock and 10 million shares of preferred stock. All share
amounts presented in these combined financial statements are presented on a
retroactive, post-split basis.

On May 16, 1997, Carrizo terminated its status as an S corporation and
thereafter became subject to federal income taxes. In accordance with SFAS No.
109, "Accounting for Income Taxes", the Company will be required to establish a
deferred tax liability in the second quarter of 1997 and is currently in process
of determining such amount. Additionally, the Company has entered into tax
indemnification agreements with the founders of the Company pertaining to
periods in which the Company was an S Corporation.

9. SUPPLEMENTARY FINANCIAL INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT
AND PRODUCTION ACTIVITIES (UNAUDITED):

The following disclosures provide unaudited information required by SFAS
No. 69, "Disclosures About Oil and Gas Producing Activities."

Costs Incurred

Costs incurred in oil and natural gas property acquisition, exploration and
development activities are summarized below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Property acquisition costs --
Unproved................................... $ -- $ 316,820 $ 50,720
Proved..................................... 329,146 3,588,173 1,907,890
Exploration cost............................. 280,001 2,364,056 4,724,102
Development costs............................ 177,285 208,696 1,955,917
-------- ---------- ----------
Total costs incurred(1)............ $786,432 $6,477,745 $8,638,629
======== ========== ==========
</TABLE>

- ---------------

(1) Excludes capitalized interest on unproved properties of $117,288 and
$422,493 for the years ended December 31, 1995 and 1996, respectively.

Oil and Natural Gas Reserves

Proved reserves are estimated quantities of oil and natural gas which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are

F-14
<PAGE> 89

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

proved reserves that can reasonably be expected to be recovered through existing
wells with existing equipment and operating methods.

Proved oil and natural gas reserve quantities at December 31, 1996, and the
related discounted future net cash flows before income taxes are based on
estimates prepared by Ryder Scott Company and Fairchild, Ancell & Wells, Inc.,
independent petroleum engineers. Such estimates have been prepared in accordance
with guidelines established by the Securities and Exchange Commission. Amounts
at December 31, 1994 and 1995, and for the periods then ended were rolled back
from December 31, 1996, balances, ignoring the impact of revisions of estimates
during those periods, if any.

The Company's net ownership interests in estimated quantities of proved oil
and natural gas reserves and changes in net proved reserves, all of which are
located in the continental United States, are summarized below:

<TABLE>
<CAPTION>
BARRELS OF
OIL, CONDENSATE AND
NATURAL GAS LIQUIDS
-----------------------------------
AT DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Proved developed and undeveloped reserves --
Beginning of year............................ 3,750,000 3,785,000 3,810,000
Purchases of oil and gas properties.......... 68,000 103,000 12,000
Extensions and discoveries................... -- -- 180,000
Production................................... (33,000) (78,000) (107,000)
--------- --------- ---------
End of year.................................... 3,785,000 3,810,000 3,895,000
========= ========= =========
Proved developed reserves at end of year....... 1,085,000 1,100,000 1,048,000
========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
THOUSANDS OF CUBIC FEET OF
NATURAL GAS
----------------------------------
AT DECEMBER 31,
----------------------------------
1994 1995 1996
------- --------- ----------
<S> <C> <C> <C>
Proved developed and undeveloped reserves --
Beginning of year............................ 277,000 272,000 5,437,000
Purchases of oil and gas properties.......... -- 5,730,000 338,000
Extensions and discoveries................... -- -- 7,646,000
Production................................... (5,000) (565,000) (1,273,000)
------- --------- ----------
End of year.................................... 272,000 5,437,000 12,148,000
======= ========= ==========
Proved developed reserves at end of year....... -- 3,810,000 8,110,000
======= ========= ==========
</TABLE>

F-15
<PAGE> 90

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Standardized Measure

The standardized measure of discounted future net cash flows relating to
the Company's ownership interests in proved oil and natural gas reserves as of
year-end is shown below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Future cash inflows...................... $61,727,000 $77,739,000 $126,155,000
Future oil and natural gas operating
expenses.............................. 40,576,000 43,529,000 47,675,000
Future development costs................. 7,711,000 7,918,000 9,375,000
Future income tax expenses............... 4,415,000 7,163,000 19,864,000
----------- ----------- ------------
Future net cash flows.................... 9,025,000 19,129,000 49,241,000
10% annual discount for estimating timing
of cash flows......................... 2,527,000 7,148,000 16,220,000
----------- ----------- ------------
Standardized measure of discounted future
net cash flows........................ $ 6,498,000 $11,981,000 $ 33,021,000
=========== =========== ============
</TABLE>

Future cash flows are computed by applying year-end prices of oil and
natural gas to year-end quantities of proved oil and natural gas reserves.
Prices used in computing year end 1996 future cash flows were $20.88 and $3.69
for oil and natural gas, respectively. Such prices declined significantly in the
first quarter of 1997. Future operating expenses and development costs are
computed primarily by the Company's petroleum engineers by estimating the
expenditures to be incurred in developing and producing the Company's proved oil
and natural gas reserves at the end of the year, based on the year-end costs and
assuming continuation of existing economic conditions.

Future income taxes are based on year-end statutory rates, adjusted for tax
basis and applicable tax credits. A discount factor of 10 percent was used to
reflect the timing of future net cash flows. The standardized measure of
discounted future net cash flows is not intended to represent the replacement
cost or fair market value of the Company's oil and natural gas properties. An
estimate of fair value would also take into account, among other things, the
recovery of reserves not presently classified as proved, anticipated future
changes in prices and costs, and a discount factor more representative of the
time value of money and the risks inherent in reserve estimates.

F-16
<PAGE> 91

CARRIZO OIL & GAS, INC. AND AFFILIATED ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Change in Standardized Measure

Changes in the standardized measure of future net cash flows relating to
proved oil and natural gas reserves are summarized below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Changes due to current-year operations --
Sales of oil and natural gas, net of oil
and natural gas operating expenses..... $ (79,000) $ (614,000) $(2,811,000)
Extensions and discoveries................ - - 19,641,000
Purchases of oil and gas properties....... 104,000 2,770,000 2,079,000
Changes due to revisions in standardized
variables-
Prices and operating expenses............. 6,761,000 6,343,000 9,781,000
Income taxes.............................. (2,785,000) (1,307,000) (8,834,000)
Estimated future development costs........ - - (670,000)
Accretion of discount..................... 131,000 968,000 1,647,000
Production rates (timing) and other....... 1,449,000 (2,677,000) 207,000
----------- ----------- -----------
Net change.................................. 5,581,000 5,483,000 21,040,000
Beginning of year........................... 917,000 6,498,000 11,981,000
----------- ----------- -----------
End of year................................. $ 6,498,000 $11,981,000 $33,021,000
=========== =========== ===========
</TABLE>

Sales of oil and natural gas, net of oil and natural gas operating
expenses, are based on historical pretax results. Sales of oil and natural gas
properties, extensions and discoveries, purchases of minerals in place and the
changes due to revisions in standardized variables are reported on a pretax
discounted basis, while the accretion of discount is presented on an after-tax
basis.

F-17
<PAGE> 92
ANNEX A

[RYDER SCOTT COMPANY LETTERHEAD]

June 9, 1997

Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079

Gentlemen:

At your request, we have prepared an estimate of the reserves, future
production, and income attributable to certain leasehold interests of Carrizo
Oil & Gas, Inc. (Carrizo) as of March 31, 1997. The subject properties are
located in the states of Louisiana and Texas. The income data were estimated
using the Securities and Exchange Commission (SEC) guidelines for future price
and cost parameters.

The estimated reserves and future income amounts presented in this report
are related to hydrocarbon prices. March 1997 hydrocarbon prices were used in
the preparation of this report as required by SEC guidelines; however, actual
future prices may vary significantly from these prices. Therefore, volumes of
reserves actually recovered and amounts of income actually received may differ
significantly from the estimated quantities presented in this report. The
results of this study are summarized below.

SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold Interests of
CARRIZO OIL & GAS, INC.
As of March 31, 1997
-------------------------------------------------

<TABLE>
<CAPTION>
Proved
--------------------------------------------------------------------------------------
Developed Total
------------------------------------------
Producing Non-Producing Undeveloped Proved
------------------ -------------------- ------------------- ----------------
<S> <C> <C> <C> <C>
NET REMAINING RESERVES
Oil/Condensate - Barrels 126,049 15,876 322,180 464,105
Plant Products - Barrels 78,040 76,981 40,875 195,896
Gas - MMCF 4,394 2,011 6,621 13,026

INCOME DATA
Future Gross Revenue $10,022,455 $4,204,793 $18,145,781 $32,373,029
Deductions 1,909,546 1,106,379 5,738,842 8,754,767
----------- ---------- ----------- -----------
Future Net Income (FNI) $ 8,112,909 $3,098,414 $12,406,939 $23,618,262

Discounted FNI @ 10% $ 6,852,037 $1,933,074 $ 7,593,621 $16,378,732
</TABLE>

Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas
volumes are sales gas expressed in millions of cubic feet (MMCF) at the
official temperature and pressure bases of the areas in which the gas reserves
are located.

<PAGE> 93
Carrizo Oil & Gas, Inc.
June 9, 1997
Page 2

The future gross revenue is after the deduction of production taxes. The
deductions are comprised of the normal direct costs of operating the wells, ad
valorem taxes, recompletion costs, and development costs. The future net income
is before the deduction of state and federal income taxes and general
administrative overhead, and has not been adjusted for outstanding loans that
may exist nor does it include any adjustment for cash on hand or undistributed
income. No attempt was made to quantify or otherwise account for any
accumulated gas production imbalances that may exist. Gas reserves account for
approximately 66 percent and liquid hydrocarbon reserves account for the
remaining 34 percent of total future gross revenue from proved reserves.

RESERVES INCLUDED IN THIS REPORT

The proved reserves included herein conform to the definition as set forth
in the Securities and Exchange Commission's Regulation S-X Part 210.4-10 (a) as
clarified by subsequent Commission Staff Accounting Bulletins. The definition
of proved reserves is included in the section entitled "Definitions of
Reserves" which is attached with this report.

The proved developed non-producing reserves included herein are comprised
of the behind pipe category. The various reserve status categories are defined
in the section entitled "Reserve Status Categories" which is attached with this
report.

ESTIMATES OF RESERVES

In general, the reserves included herein were predominantly estimated by
the volumetric method due to the limited production history of the wells
considered in this study. However, performance methods were used in certain
cases where characteristics of the data indicated this method was more
appropriate in our opinion. The reserves estimated by the performance method
utilized extrapolations of various historical data in those cases where such
data were definitive. Reserves were estimated by the volumetric method in those
cases where there were inadequate historical performance data to establish a
definitive trend or where the use of production performance data as a basis for
the reserve estimates was considered to be inappropriate.

FUTURE PRODUCTION RATES

Initial production rates are based on the current producing rates for
those wells now on production. Test data and other related information were
used to estimate the anticipated initial production rates for those wells or
locations which are not currently producing. If no production decline trend has
been established, future production rates were held constant, or adjusted for
the effects of curtailment where appropriate, until a decline in ability to
produce was anticipated. An estimated rate of decline was then applied to
depletion of the reserves. If a decline trend has been established, this trend
was used as the basis for estimating future production rates. For reserves not
yet on production, sales were estimated to commence at an anticipated date
furnished by Carrizo.

In general, we estimate that future gas production rates limited by
allowables or marketing conditions will continue to be the same as the average
rate for the latest available 12 months of actual production until such time
that the well or wells are incapable of producing at this

<PAGE> 94

Carrizo Oil & Gas, Inc.
June 9, 1997
Page 3

rate. The well or wells were then projected to decline at their decreasing
delivery capacity rate. Our general policy on estimates of future gas
production rates is adjusted when necessary to reflect actual gas market
conditions in specific cases.

The future production rates from wells now on production may be more or
less than estimated because of changes in market demand or allowables set by
regulatory bodies. Wells or locations which are not currently producing may
start producing earlier or later than anticipated in our estimates of their
future production rates.

HYDROCARBON PRICES

Carrizo furnished us with prices in effect at March 31, 1997 and these
prices were held constant except for known and determinable escalations.
Product prices which were actually used for each property reflect adjustment
for gravity, quality, local conditions, and/or distance from market. In
accordance with Securities and Exchange Commission guidelines, changes in
liquid and gas prices subsequent to March 31, 1997 were not taken into account
in this report. Future prices used in this report are discussed in more detail
in the section entitled "Hydrocarbon Pricing Parameters" which is attached with
this report.

COSTS

Operating costs for the leases and wells in this report are based on the
operating expense reports of Carrizo and include only those costs directly
applicable to the leases or wells. When applicable, the operating costs include
a portion of general and administrative costs allocated directly to the leases
and wells under terms of operating agreements. No deduction was made for
indirect costs such as general administration and overhead expenses, loan
repayments, interest expenses, and exploration and development prepayments that
are not charged directly to the leases or wells.

Development costs were furnished to us by Carrizo and are based on
authorizations for expenditure for the proposed work or actual costs for
similar projects. At the request of Carrizo, their estimate of zero abandonment
costs after salvage value was used in this report. Ryder Scott has not
performed a detailed study of the abandonment costs nor the salvage value and
makes no warranty for Carrizo's estimate.

Current costs were held constant throughout the life of the properties.

GENERAL

While it may reasonably be anticipated that the future prices received for
the sale of production and the operating costs and other costs relating to such
production may also increase or decrease from existing levels, such changes
were, in accordance with rules adopted by the SEC, omitted from consideration
in making this evaluation.

The estimates of reserves presented herein were based upon a detailed
study of the properties in which Carrizo owns an interest; however, we have not
made any field examination of the properties. No consideration was given in
this report to potential environmental liabilities which may exist nor were any
costs included for potential liability to restore and clean up damages, if any,
caused by past operating practices. Carrizo has informed us that they have
furnished us all of the accounts, records, geological and engineering data, and
reports and other data required for this investigation.

<PAGE> 95

Carrizo Oil & Gas, Inc.
June 9, 1997
Page 4

The ownership interests, prices, and other factual data furnished by Carrizo
were accepted without independent verification. The estimates presented in this
report are based on data available through March 1997.

Neither we nor any of our employees have any interest in the subject
properties and neither the employment to make this study nor the compensation
is contingent on our estimates of reserves and future income for the subject
properties.

This report was prepared for the exclusive use and sole benefit of Carrizo
Oil & Gas, Inc. The data, work papers, and maps used in this report are
available for examination by authorized parties in our offices. Please contact
us if we can be of further service.

Very truly yours,

RYDER SCOTT COMPANY
PETROLEUM ENGINEERS

/s/ MICHAEL F. STELL

Michael F. Stell, P.E.
Petroleum Engineer

MFS/sw

Approved:

/s/ DON P. ROESLE
- -------------------------------------
Don P. Roesle, P.E.
Senior Vice President

<PAGE> 96

DEFINITIONS OF RESERVES

PROVED RESERVES (SEC DEFINITION)

Proved reserves of crude oil, condensate, natural gas, and natural gas
liquids are estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable in the future from
known reservoirs under existing operating conditions, i.e., prices and costs as
of the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalation based on future conditions.

Reservoirs are considered proved if economic producibility is supported by
either actual production or conclusive formation test. In certain instances,
proved reserves are assigned on the basis of a combination of core analysis and
electrical and other type logs which indicate the reservoirs are analogous to
reservoirs in the same field which are producing or have demonstrated the
ability to produce on a formation test. The area of a reservoir considered
proved includes (1) that portion delineated by drilling and defined by fluid
contacts, if any, and (2) the adjoining portions not yet drilled that can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of data on fluid contacts, the
lowest known structural occurrence of hydrocarbons controls the lower proved
limit of the reservoir.

Reserves that can be produced economically through the application of
improved recovery techniques are included in the proved classification when
these qualifications are met: (1) successful testing by a pilot project or the
operation of an installed program in the reservoir provides support for the
engineering analysis on which the project or program was based, and (2) it is
reasonably certain the project will proceed. Improved recovery includes all
methods for supplementing natural reservoir forces and energy, or otherwise
increasing ultimate recovery from a reservoir, including (1) pressure
maintenance, (2) cycling, and (3) secondary recovery in its original sense.
Improved recovery also includes the enhanced recovery methods of thermal,
chemical flooding, and the use of miscible and immiscible displacement fluids.

Proved natural gas reserves are comprised of non-associated, associated
and dissolved gas. An appropriate reduction in gas reserves has been made for
the expected removal of natural gas liquids, for lease and plant fuel, and for
the exclusion of non-hydrocarbon gases if they occur in significant quantities
and are removed prior to sale. Estimates of proved reserves do not include
crude oil, natural gas, or natural gas liquids being held in underground or
surface storage.

Proved reserves are estimates of hydrocarbons to be recovered from a given
date forward. They may be revised as hydrocarbons are produced and additional
data become available.

<PAGE> 97

RESERVE STATUS CATEGORIES

Reserve status categories define the development and producing status of
wells and/or reservoirs.

PROVED DEVELOPED (SEC DEFINITION)

Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the application
of fluid injection or other improved recovery techniques for supplementing the
natural forces and mechanisms of primary recovery should be included as "proved
developed reserves" only after testing by a pilot project or after the
operation of an installed program has confirmed through production response
that increased recovery will be achieved.

Developed reserves may be subcategorized as producing or non-producing
using the SPE/SPEE Definitions:

Producing
Producing reserves are expected to be recovered from completion intervals
open at the time of the estimate and producing. Improved recovery reserves
are considered to be producing only after an improved recovery project is
in operation.

Non-Producing
Non-producing reserves include shut-in and behind pipe reserves. Shut-in
reserves are expected to be recovered from completion intervals open at the
time of the estimate, but which had not started producing, or were shut-in
for market conditions or pipeline connection, or were not capable of
production for mechanical reasons, and the time when sales will start is
uncertain. Behind pipe reserves are expected to be recovered from zones
behind casing in existing wells, which will require additional completion
work or a future recompletion prior to the start of production.

PROVED UNDEVELOPED (SEC DEFINITION)

Proved undeveloped oil and gas reserves are reserves that are expected to
be recovered from new wells on undrilled acreage, or from existing wells where
a relatively major expenditure is required for recompletion. Reserves on
undrilled acreage shall be limited to those drilling units offsetting
productive units that are reasonably certain of production when drilled. Proved
reserves for other undrilled units can be claimed only where it can be
demonstrated with reasonable certainty that there is continuity of production
from the existing productive formation. Estimates for proved undeveloped
reserves are attributable to any acreage for which an application of fluid
injection or other improved technique is contemplated, only when such
techniques have been proved effective by actual tests in the area and in the
same reservoir.

<PAGE> 98

HYDROCARBON PRICING PARAMETERS

SECURITIES AND EXCHANGE COMMISSION PARAMETERS

OIL AND CONDENSATE

Carrizo furnished us with oil and condensate prices in effect at March 31,
1997 and these prices were held constant to depletion of the properties. In
accordance with Securities and Exchange Commission guidelines, changes in
liquid prices subsequent to March 31, 1997 were not considered in this report.

PLANT PRODUCTS

Carrizo furnished us with plant product prices in effect at March 31, 1997
and these prices were held constant to depletion of the properties.

GAS

Carrizo furnished us with gas prices in effect at March 31, 1997 and with
its forecasts of future gas prices which take into account SEC guidelines,
current spot market prices, contract prices, and fixed and determinable price
escalations where applicable. In accordance with SEC guidelines, the future gas
prices used in this report make no allowances for future gas price increases
which may occur as a result of inflation nor do they make any allowance for
seasonal variations in gas prices which may cause future yearly average gas
prices to be somewhat lower than March 31, 1997 gas prices. For gas sold under
contract, the contract gas price including fixed and determinable escalations,
exclusive of inflation adjustments, was used until the contract expires and
then was adjusted to the current market price for the area and held at this
adjusted price to depletion of the reserves.

<PAGE> 99

[FAIRCHILD, ANCELL & WELLS, INC. LETTERHEAD]

June 4, 1997

Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079

Re: Reserves Evaluation to the Interests of Carrizo Oil & Gas, Inc.
Heavy Oil Properties, Anderson County, Texas

Gentlemen:

Fairchild, Ancell & Wells, Inc. (FAW) has performed an engineering evaluation
to estimate proved reserves and future cash flows from heavy oil (steamflood)
properties to the interests of Carrizo Oil & Gas, Inc. in Anderson County,
Texas. This evaluation was authorized by Mr. S.P. Johnson IV, President of
Carrizo Oil & Gas, Inc. (Carrizo). Projections of the anticipated future annual
oil production and future cash flows have also been prepared utilizing property
development schedules provided by Carrizo. The reserves and future cash flows
to the evaluated interests were based on economic parameters and operating
conditions considered applicable and are pursuant to the financial reporting
requirements of the Securities and Exchange Commission (SEC).

The results of the study are summarized below.

ESTIMATED PROVED RESERVES AND FUTURE CASH FLOWS
CAMP HILL FIELD ANDERSON COUNTY, TEXAS
TO THE INTERESTS OF CARRIZO OIL & GAS, INC.

EFFECTIVE 3/31/97

<TABLE>
<CAPTION>
Future
Cash Flows (M$)
Net --------------------------------------
Reserves Mbbls Undiscounted Discounted at 10%
-------------- ------------ -----------------
<S> <C> <C> <C>
Proved Producing 928.4 8,270.8 6,559.3

Proved Undeveloped 2,700.2 13,242.6 7,482.7

Total Proved 3,628.6 21,513.4 14,042.0
</TABLE>

<PAGE> 100

Carrizo Oil & Gas, Inc. Page 2
June 4, 1997

FUTURE CASH FLOW -
TOTAL PROJECT BY YEAR

<TABLE>
<CAPTION>
Future
Cash Flows (M$)
-----------------------------------
Discounted
Year Undiscounted at 10%
--- ------------ ----------
<S> <C> <C> <C>
1997 262.8 250.6
1998 2,541.9 2,203.3
1999 4,067.4 3,205.0
2000 2,809.9 2,012.9
2001 2,906.3 1,892.6
2002 3,044.9 1,802.6
2003 2,255.9 1,214.1
2004 2,426.3 1,187.1
2005 979.2 435.5
2006 218.9 88.5

TOTAL 21,513.4 14,042.0
</TABLE>

The estimated reserves and future cash flows shown in this report are for
proved developed producing and proved undeveloped reserves. Our estimates do
not include any value which might be attributed to interests in undeveloped
acreage beyond those tracts for which reserves have been assigned.

In performance of this evaluation, we have relied upon information furnished by
Carrizo with respect to property interests owned, production from such
properties, current costs of operation and development, current prices for
production, agreements relating to current and future operations and sale of
production. With respect to the technical files supplied by Carrizo, we have
accepted the authenticity and sufficiency of the data contained therein.

Future cash flow is presented after deducting production taxes and after
deducting future capital costs and operating expenses, but before consideration
of Federal income taxes. The future cash flow has been discounted at an annual
rate of 10 percent to determine its "present worth." The present worth is shown
to indicate the effect of time on the value of money and should not be
construed as being the fair market value of the properties Our estimates of
future revenue do not include any salvage value for the lease and well
equipment nor the costs of abandoning the properties.

Fairchild, Ancell & Wells, Inc. expresses no opinion as to the fair market
value of the evaluated properties.

<PAGE> 101
Carrizo Oil & Gas, Inc. Page 3
June 4, 1997

The reserves included in this report are estimates only and should not be
construed as being exact quantities. They may or may not be actually recovered,
and if recovered, the revenues therefrom and the actual costs related thereto
could be more or less than the estimated amounts. Because of governmental
policies and uncertainties of supply and demand, the actual sales rates and the
prices actually received for the reserves along with the costs incurred in
recovering such reserves may vary from those assumptions included in this
report. Also, estimates of reserves may increase or decrease as a result of
future operations.

In evaluating the information at our disposal concerning this report, we have
excluded from our consideration all matters as to which legal or accounting,
rather than engineering, interpretation may be controlling. As in all aspects
of oil and gas evaluation, there are uncertainties inherent in the
interpretation of engineering data and, therefore, our conclusions necessarily
represent only informed professional judgments.

The titles to the properties have not been examined by Fairchild, Ancell &
Wells, Inc. nor has the actual degree or type of interest owned been
independently confirmed. We are independent petroleum engineers and geologists;
we do not own an interest in these properties and are not employed on a
contingent basis. Basic geologic and field performance data together with our
engineering work sheets are maintained on file in our office and are available
for review.

It has been a pleasure to serve you by preparing this engineering evaluation.

Yours very truly,

/s/ FAIRCHILD, ANCELL & WELLS, INC.

Fairchild, Ancell & Wells, Inc.

<PAGE> 102

======================================================

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 9
Use of Proceeds...................... 17
Dividend Policy...................... 17
Dilution............................. 18
Capitalization....................... 19
Selected Combined Financial and
Operating Data..................... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................. 30
Management........................... 51
Certain Transactions................. 57
Security Ownership of Certain
Beneficial Owners and Management.. 60
Description of Capital Stock......... 62
Shares Eligible for Future Sale...... 65
Underwriting......................... 67
Legal Matters........................ 68
Experts.............................. 68
Additional Information............... 69
Glossary of Certain Industry Terms... 70
Index to Financial Statements........ F-1
Letters of Petroleum Engineers....... A-1
</TABLE>

---------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

======================================================

2,500,000 SHARES

[CARRIZO LOGO]

CARRIZO OIL & GAS, INC.

COMMON STOCK
($0.01 PAR VALUE)

SCHRODER & CO. INC.

JEFFERIES & COMPANY, INC.

, 1997

======================================================
<PAGE> 103

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the estimated expenses (other than underwriting discounts
and commission) of the issuance and distribution of the securities being
registered, all of which shall be paid by the Company:

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 11,326
NASD Filing Fee............................................. 4,238
Nasdaq National Market Fees................................. 42,500
Printing Expenses........................................... 100,000
Legal Fees and Expenses..................................... 390,000
Accountants' Fees and Expenses.............................. 400,000
Blue Sky Fees and Expenses.................................. 15,000
Transfer Agent and Registrar Fees........................... 12,000
Miscellaneous Expenses...................................... 224,936
----------
Total............................................. $1,200,000
==========
</TABLE>

- ---------------

* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article 2.02-1 of the Texas Business Corporation Act provides that a
corporation may indemnify any director or officer who was, is or is threatened
to be made a named defendant or respondent in a proceeding because he is or was
a director or officer, provided that the director or officer (i) conducted
himself in good faith, (ii) reasonably believed (a) in the case of conduct in
his official capacity, that his conduct was in the corporation's best interests
or (b) in all other cases, that his conduct was at least not opposed to the
corporation's best interests and (iii) in the case of any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. Subject to certain
exceptions, a director or officer may not be indemnified if the person is found
liable to the corporation or if the person is found liable on the basis that he
improperly received a personal benefit. Under Texas law, reasonable expenses
incurred by a director or officer may be paid or reimbursed by the corporation
in advance of a final disposition of the proceeding after the corporation
receives a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification and
a written undertaking by or on behalf of the director or officer to repay the
amount if it is ultimately determined that the director or officer is not
entitled to indemnification by the corporation. Texas law requires a corporation
to indemnify an officer or director against reasonable expenses incurred in
connection with the proceeding in which he is named defendant or respondent
because he is or was a director or officer if he is wholly successful in defense
of the proceeding.

Texas law also permits a corporation to purchase and maintain insurance or
another arrangement on behalf of any person who is or was a director or officer
against any liability asserted against him and incurred by him in such a
capacity or arising out of his status as such a person, whether or not the
corporation would have the power to indemnify him against that liability under
Article 2.02-1.

The Company's Bylaws provide for the indemnification of its officers and
directors, and the advancement to them of expenses in connection with
proceedings and claims, to the fullest extent permitted by the Texas Business
corporation Act, the Company has also entered into indemnification agreements
with each of its directors and certain of its officers that contractually
provide for indemnification and expense advancement and include related
provisions meant to facilitate the indemnitee' receipt of such benefits. These
provisions cover, among other things: (i) specification

II-1
<PAGE> 104

of the method of determining entitlement to indemnification and the selection of
independent counsel that will in some cases make such determination, (ii)
specification of certain time periods by which certain payments or
determinations must be made and actions must be taken and (iii) the
establishment of certain presumptions in favor of an indemnitee. The benefits of
certain of these provisions are available to an indemnitee only if there has
been a change in control (as defined). In addition, the Company may purchase
directors' and officers' liability insurance policies for its directors and
officers in the future. The Bylaws and such agreements with directors and
officers provide for indemnification for amounts (1) in respect of the
deductibles for such insurance policies, (2) that exceed the liability limits of
such insurance policies and (3) that are available, were available or which
become available to the Company but which the officers or directors of the
Company determine is inadvisable for the Company to purchase, given the cost
involved of the Company. Such indemnification may be made even though directors
and officers would not otherwise be entitled to indemnification under other
provisions of the Bylaws or such agreements.

The above discussion of Article 2.02-1 of the Texas Business Corporation
Act and of the Company's Bylaws is not intended to be exhaustive and is
respectively qualified in its entirety by such statute and the Bylaws.

Reference is made to the form of the Underwriting Agreement, filed as
Exhibit 1.1 hereto, which contains provisions for indemnification of the
Company, its directors, officers and any controlling persons by the Underwriters
against certain liabilities for information furnished by the Underwriters.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Carrizo Oil & Gas, Inc. has not sold any securities, registered or
otherwise, within the past three years, except as set forth below.

Carrizo Oil & Gas, Inc. has granted to employees options to purchase
222,120 shares of Common Stock. Such transaction was exempt from the
registration requirements of the Securities Act by virtue of Rule 701
thereunder.

Carrizo Oil & Gas, Inc. expects to sell approximately 2,290,000 shares of
Common Stock in the Combination Transactions. Such transaction is exempt from
the registration requirements of the Securities Act by virtue of Section 4(2)
thereof as a transaction not involving any public offering.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
*1.1 -- Form of Underwriting Agreement.
+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 June 6, 1997.
+3.1 -- Amended and Restated Articles of Incorporation of the
Company.
+3.2 -- Amended and Restated Bylaws of the Company.
4.1 -- Form of certificate representing Common Stock.
+4.2 -- Secured Reducing Revolving Line of Credit by and between
Encinitas Partners Ltd. And Compass Bank dated June 26,
1996.
+4.3 -- First Amendment to Loan Agreement by and between
Encinitas Partners Ltd. and Compass Bank dated December
6, 1996.
+4.4 -- Secured Reducing Revolving Line of Credit by and between
the Company and Compass Bank dated December 6, 1996.
</TABLE>

II-2
<PAGE> 105

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+4.5 -- First Amendment to Loan Agreement by and between the
Company and Compass Bank dated April 4, 1997.
+4.6 -- Second Amendment to Loan Agreement by and between the
Company and Compass Bank dated May 15, 1997.
4.7 -- Third Amendment to Loan Agreement by and between the
Company and Compass Bank dated June 26, 1997.
4.8 -- Fourth Amendment to Loan Agreement by and between the
Company and Compass Bank dated June 27, 1997
-- The Company is a party to several debt instruments under
which the total amount of securities authorized does not
exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. Pursuant to
paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, the
Company agrees to furnish a copy of such instruments to
the Commission upon request.
5.1 -- Opinion of Baker & Botts, L.L.P.
10.1 -- Incentive Plan of the Company.
10.2 -- Employment Agreement between the Company and S. P.
Johnson IV.
10.3 -- Employment Agreement between the Company and Frank A.
Wojtek.
10.4 -- Employment Agreement between the Company and Kendall A.
Trahan.
10.5 -- Employment Agreement between the Company and George
Canjar.
+10.6 -- Form of Indemnification Agreement between the Company and
each of its directors and executive officers.
+10.7 -- Registration Rights Agreement by and among the Company,
Paul B. Loyd, Jr., Steven A. Webster, S. P. Johnson IV,
Douglas A. P. Hamilton and Frank A. Wojtek dated as of
June 6, 1997.
10.8 -- S Corporation Tax Allocation, Payment and Indemnification
Agreement among the Company and Messrs. Loyd, Webster,
Johnson, Hamilton and Wojtek.
10.9 -- S Corporation Tax Allocation, Payment and Indemnification
Agreement among Carrizo Production, Inc. and Messrs.
Loyd, Webster, Johnson, Hamilton and Wojtek.
+21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
+23.2 -- Consent of Ryder Scott Company.
+23.3 -- Consent of Fairchild, Ancell & Wells, Inc.
23.4 -- Consent of Baker & Botts, L.L.P. (included in Exhibit
5.1).
+24.1 -- Power of Attorney (included on the signature page of this
Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>

- ---------------

* To be filed by amendment.

+ Previously filed.

(b) Financial Statement Schedules.

Schedule I -- Condensed Financial Information of Registrant

All other schedules are omitted because they are not applicable or because
the required information is contained in the financial statements or notes
thereto included in this Registration Statement.

II-3
<PAGE> 106

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates representing the shares of Common Stock offered hereby in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes that:

(1) For the purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-4
<PAGE> 107

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON,
STATE OF TEXAS, ON THE 21ST DAY OF JULY, 1997.

CARRIZO OIL & GAS, INC.

By: /s/ S. P. JOHNSON IV
----------------------------------
S. P. Johnson IV
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on July 21, 1997.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ S. P. JOHNSON IV President, Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
S. P. Johnson IV

/s/ FRANK A. WOJTEK Chief Financial Officer, Vice President,
- ----------------------------------------------------- Secretary, Treasurer and Director (Principal
Frank A. Wojtek Financial Officer and Principal Accounting
Officer)

* Chairman of the Board
- -----------------------------------------------------
Steven A. Webster

* Director
- -----------------------------------------------------
Douglas A. P. Hamilton

* Director
- -----------------------------------------------------
Paul B. Loyd, Jr.

*By /s/ FRANK A. WOJTEK
------------------------------------------------
Frank A. Wojtek
Attorney-in-Fact
</TABLE>

II-5
<PAGE> 108

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
+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 June 6, 1997.
+3.1 -- Amended and Restated Articles of Incorporation of the
Company.
+3.2 -- Amended and Restated Bylaws of the Company.
4.1 -- Form of certificate representing Common Stock.
+4.2 -- Secured Reducing Revolving Line of Credit by and between
Encinitas Partners Ltd. And Compass Bank dated June 26,
1996.
+4.3 -- First Amendment to Loan Agreement by and between
Encinitas Partners Ltd. and Compass Bank dated December
6, 1996.
+4.4 -- Secured Reducing Revolving Line of Credit by and between
the Company and Compass Bank dated December 6, 1996.
+4.5 -- First Amendment to Loan Agreement by and between the
Company and Compass Bank dated April 4, 1997.
+4.6 -- Second Amendment to Loan Agreement by and between the
Company and Compass Bank dated May 15, 1997.
4.7 -- Third Amendment to Loan Agreement by and between the
Company and Compass Bank dated June 26, 1997.
4.8 -- Fourth Amendment to Loan Agreement by and between the
Company and Compass Bank dated June 27, 1997
-- The Company is a party to several debt instruments under
which the total amount of securities authorized does not
exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. Pursuant to
paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, the
Company agrees to furnish a copy of such instruments to
the Commission upon request.
5.1 -- Opinion of Baker & Botts, L.L.P.
10.1 -- Incentive Plan of the Company.
10.2 -- Employment Agreement between the Company and S. P.
Johnson IV.
10.3 -- Employment Agreement between the Company and Frank A.
Wojtek.
10.4 -- Employment Agreement between the Company and Kendall A.
Trahan.
10.5 -- Employment Agreement between the Company and George
Canjar.
+10.6 -- Form of Indemnification Agreement between the Company and
each of its directors and executive officers.
+10.7 -- Registration Rights Agreement by and among the Company,
Paul B. Loyd, Jr., Steven A. Webster, S. P. Johnson IV,
Douglas A. P. Hamilton and Frank A. Wojtek dated as of
June 6, 1997.
10.8 -- S Corporation Tax Allocation, Payment and Indemnification
Agreement among the Company and Messrs. Loyd, Webster,
Johnson, Hamilton and Wojtek.
10.9 -- S Corporation Tax Allocation, Payment and Indemnification
Agreement among Carrizo Production, Inc. and Messrs.
Loyd, Webster, Johnson, Hamilton and Wojtek.
+21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
+23.2 -- Consent of Ryder Scott Company.
+23.3 -- Consent of Fairchild, Ancell & Wells, Inc.
</TABLE>

<PAGE> 109

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.4 -- Consent of Baker & Botts, L.L.P. (included in Exhibit
5.1).
+24.1 -- Power of Attorney (included on the signature page of this
Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>

- ---------------

* To be filed by amendment.

+ Previously filed.

<PAGE> 1
Exhibit 4.1

[LOGO OF CARRIZO OIL & GAS, INC. APPEARS HERE]
NUMBER SHARES

Organized Under the Laws of the State of Texas

CUSIP 144577 10 3
SEE REVERSE
FOR CERTAIN DEFINITIONS

THIS CERTIFIES THAT

Is The Owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.01
PER SHARE, OF

CARRIZO OIL & GAS, INC.

transferable only on the books of the Corporation in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent and
Registrar.

WITNESS, the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.

Dated:

<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Frank A. Wojtek [Corporate seal of /s/ S.P. Johnson IV
- ----------------------------- Carrizo Oil & Gas, Inc. ---------------------------
Frank A. Wojtek appears here] S.P. Johnson IV
Secretary President

</TABLE>

COUNTERSIGNED AND REGISTERED:
American Securities Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201

By__________________________________________________________________
Transfer Agent & Registrar Authorized Signature
<PAGE> 2
CARRIZO OIL & GAS, INC.

A full statement of all the designations, preferences, limitations and
relative rights of shares of each class or series of stock of the Corporation,
to the extent they have been fixed and determined and the authority of the
Board of Directors to for and determine the designations, preferences,
limitations and relative rights of subsequent series of stock, is set forth in
the Corporation's Amended and Restated Articles of Incorporation and/or in
resolutions, if any, of the Board of Directors of the Corporation fixing and
determining the designations, preferences, limitations and relative rights of
series of stock, copies of which are on file in the office of the Secretary of
State of the State of Texas. Preemptive rights of shareholders to acquire
unissued or treasury shares are denied and a full statement thereof is set
forth in the Corporation's Amended and Restated Articles of Incorporation on
file in the office of the Secretary of State of the State of Texas. The
Corporation will furnish a copy of such Amended and Restated Articles of
Incorporation or resolutions, if any, to the record holder of this certificate
without charge on written request to the Corporation as its principal place of
business or registered office.

The following abbreviations when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM -as tenants in common UNIF GIFT MIN ACT--.........Custodian..........
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act..........................
in common (State)

Additional abbreviations may also be used though not in the above list.
_________________________________________________________________________________________________________________________

For Value Received, _____________________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

_________________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

_________________________________________________________________________________________________________________________

__________________________________________________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

______________________________________________________________________________________________________ attorney-in-fact
to transfer the said stock on the books of the within-named Corporation, with full power of substitution in the premises.

Dated: _________________________

________________________________________________________________________________________________

_______________________________________________________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.

Signature(s) Guaranteed:

__________________________________

The signature(s) must be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant to
S.E.C. Rule 17Ad-15.

</TABLE>

<PAGE> 1

EXHIBIT 4.7

THIRD AMENDMENT
TO
LOAN AGREEMENT
BY AND BETWEEN CARRIZO OIL & GAS, INC.
AND COMPASS BANK

This Third Amendment to the Loan Agreement (this "Third Amendment") by
and between CARRIZO OIL & GAS, INC., a Texas corporation (the "Borrower"), and
COMPASS BANK, a Texas chartered bank (the "Bank"), is entered into on this 26th
day of June 1997, and shall be effective as of that date for all purposes.

W I T N E S S E T H:

Borrower and Bank entered into a Loan Agreement dated December 6,
1996, as amended by First Amendment thereto dated April 4, 1997, and Second
Amendment thereto dated May 15, 1997 (collectively, the "Loan Agreement").
Capitalized terms used, but not defined, herein shall have the meanings
prescribed therefor in the Loan Agreement.

Borrower has requested that Bank consent to certain modifications to
the subordinated indebtedness described on Schedule 3.11 attached to the Loan
Agreement and to the substitution by one of the Guarantors of certain new
collateral in place of part of the existing collateral securing his Guaranty,
and Bank has agreed to grant such consent according to the terms set forth
herein, which shall be incorporated into the Loan Agreement.

NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Borrower and Bank, and each intending
to be legally bound hereby, the parties agree as follows:

I. Specific Amendments to Loan Agreement.

Article I is hereby amended by adding, replacing or amending
the following definitions therein:

"Hamilton Stock Pledge" means that certain Stock Pledge
Agreement dated April 4, 1997, between Douglas A.P. Hamilton,
as Debtor, and the Bank, as Secured Party.

"Hamilton Subordination Agreement" means that certain
Subordination Agreement dated December 5, 1996, among the
Bank, Borrower, and Douglas A.P. Hamilton.

1
<PAGE> 2
"Third Amendment" means the Third Amendment to this Agreement
executed by Borrower and Bank on June ____, 1997.

Section 3.11 is hereby amended by adding the following text at
the end of such section:

On or about May 31, 1997, Douglas A.P. Hamilton advanced an
additional $1,800,000.00 loan to Borrower, increasing the
amount of indebtedness reflected on page 3.11-6 of Schedule
3.11 originally attached hereto, and the Borrower used such
funds prior to the date of the Third Amendment to repay
$600,000.00, each, of the indebtedness owed to Paul B. Loyd,
Jr., Steven A. Webster, and Frank A. Wojtek, as reflected on
pages 3.11-3, 3.11-5, and 3.11-4, respectively, of Schedule
3.11 originally attached hereto. Each of such pages of
Schedule 3.11 are deemed to be modified as of the date of the
Third Amendment and replaced with the corresponding numbered
pages attached as Exhibit "A" to the Third Amendment.
Contemporaneously with the Bank's execution of the Third
Amendment, the Bank, the Borrower, and Mr. Hamilton shall have
entered into an amendment of the Hamilton Subordination
Agreement, in form and substance acceptable to the Bank,
providing that the Hamilton Subordination Agreement covers
such increased indebtedness owed by Borrower to Mr. Hamilton.

Section 3.17 is hereby amended by adding the following text at
the end of such section:

Douglas A.P. Hamilton has previously executed and delivered
for the benefit of the Bank, as Secured Party, that certain
Pledge Agreement (Certificate of Deposit) dated February 21,
1997 (the "CD Pledge"). Contemporaneously with the Bank's
execution of the Third Amendment, the Bank and Mr. Hamilton
shall have entered into an additional Stock Pledge Agreement,
in form substantially similar to the Hamilton Stock Pledge,
pursuant to which Mr. Hamilton pledges to the Bank 20,000
shares of Falcon Drilling Company, Inc. stock, whereupon the
Bank shall contemporaneously release and terminate the CD
Pledge.

Section 3.20(h) (ii) is hereby amended by adding the following
text at the end of such section:

As of June 5, 1997, there was a stock split of the shares that
constituted the original collateral under the Hamilton Stock
Pledge. As the result of such stock split, the number of
shares of stock constituting such collateral was multiplied by
a factor of 521, from 2,250 to 1,172,250 (hereinafter called
the "Pledged Shares"). As of the date of the Third Amendment,
Douglas A.P. Hamilton has transferred to a charitable trust
395,960 Pledged Shares covered by the Hamilton Stock Pledge.
Contemporaneously with the Bank's execution of the Third
Amendment, the Bank

2
<PAGE> 3
and Mr. Hamilton shall have entered into an amendment to the
Hamilton Stock Pledge, in form and substance acceptable to the
Bank, providing for a release of 395,960 Pledged Shares and
adding as part of the Collateral covered thereby other
Eligible Marketable securities approved by the Bank.

II. Certain Waivers and Consents. The Bank hereby grants the
following waivers or consents:

A. The Bank consents to Douglas A.P. Hamilton's May 31, 1997 loan
to the Borrower in the amount of $1,800,000.00, and the
Borrower's payment prior to the date of this Third Amendment
of $600,000.00, each, to the payees in those certain notes
described on pages 3.11-3, 3.11-4, and 3.11-5 of Schedule 3.11
of the Loan Agreement, and to the extent that the terms of the
Loan Agreement or any subordination agreement previously
executed pursuant to Section 3.11 of the Loan Agreement would
have been breached solely as the result of the transactions
described in this paragraph II.A., the Bank hereby waives such
breach.

B. The Bank consents to Douglas A.P. Hamilton's transfer to a
charitable trust of 395,960 Pledged Shares covered by the
Hamilton Stock Pledge (the "Transfer of Pledged Stock"), and
to the extent that the terms of the Loan Agreement or the
Hamilton Stock Pledge would have been breached solely as the
result of such Transfer of Pledged Stock, the Bank hereby
waives such breach.

The waivers and consents set forth above are limited solely to the
transactions and events expressly described herein, and the Bank shall have no
obligation to grant any broader or additional consents or waivers, nor shall
the waivers and consents granted herein constitute any evidence of a course of
dealing between Borrower and the Bank, or any of the Guarantors, with respect
to any future requests for waivers or consents.

III. Reaffirmation of Representations and Warranties. To induce
Bank to enter into this Third Amendment, Borrower hereby reaffirms, as of the
date hereof, its representations and warranties contained in Article IV of the
Loan Agreement and in all other documents executed pursuant thereto, and
additionally represents and warrants as follows:

A. The execution and delivery of this Third Amendment and the
performance by Borrower of its obligations under this Third
Amendment are within Borrower's power, have been duly
authorized by all necessary corporate action, have received
all necessary governmental approval (if any shall be
required), and do not and will not contravene or conflict with
any provision of law or of the charter or by-laws of Borrower
or of any agreement binding upon Borrower.

B. The Loan Agreement, as amended by this Third Amendment,
represents the legal, valid and binding obligations of
Borrower, enforceable against Borrower in

3
<PAGE> 4
accordance with its terms, subject as to enforcement only to
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights
generally.

C. No Event of Default or Unmatured Event of Default has occurred
and is continuing as of the date hereof.

IV. Defined Terms. Except as amended hereby, terms used herein
that are defined in the Loan Agreement shall have the same meanings herein.

V. Reaffirmation of Loan Agreement. This Third Amendment shall
be deemed to be an amendment to the Loan Agreement, and the Loan Agreement, as
further amended hereby, is hereby ratified, approved and confirmed in each and
every respect. All references to the Loan Agreement herein and in any other
document, instrument, agreement or writing shall hereafter be deemed to refer
to the Loan Agreement as amended hereby.

VI. Entire Agreement. The Loan Agreement, as hereby further
amended, embodies the entire agreement between Borrower and Bank and supersedes
all prior proposals, agreements and understandings relating to the subject
matter hereof. Borrower certifies that it is relying on no representation,
warranty, covenant or agreement except for those set forth in the Loan
Agreement as hereby further amended and the other documents previously executed
or executed of even date herewith.

VII. Governing Law. THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. This Third Amendment has been entered
into in Harris County, Texas, and it shall be performable for all purposes in
Harris County, Texas. Courts within the State of Texas shall have jurisdiction
over any and all disputes between Borrower and Bank, whether in law or equity,
including, but not limited to, any and all disputes arising out of or relating
to this Third Amendment or any other Loan Document; and venue in any such
dispute whether in federal or state court shall be laid in Harris County,
Texas.

VIII. Severability. Whenever possible each provision of this Third
Amendment shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Third Amendment shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Third Amendment.

IX. Execution in Counterparts. This Third Amendment may be
executed in any number of counterparts and by the different parties on separate
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
instrument, and any signed counterpart shall be deemed delivered by the party
executing such counterpart if sent to any other party hereto by electronic
facsimile transmission.

4
<PAGE> 5
X. Section Captions. Section captions used in this Third
Amendment are for convenience of reference only, and shall not affect the
construction of this Third Amendment.

XI. Successors and Assigns. This Third Amendment shall be binding
upon Borrower and Bank and their respective successors and assigns, and shall
inure to the benefit of Borrower and Bank, and the successors and assigns of
Bank.

XII. Non-Application of Chapter 15 of Texas Credit Codes. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil
Statutes, Article 5069-15) are specifically declared by the parties hereto not
to be applicable to the Loan Agreement as hereby further amended or any of the
other Loan Documents or to the transactions contemplated hereby.

XIII. Notice. THIS THIRD AMENDMENT TOGETHER WITH THE LOAN
AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed as of the day and year first above written.

BANK BORROWER

COMPASS BANK CARRIZO OIL & GAS, INC.

By: /s/ KATHLEEN J. BOWEN By: /s/ FRANK A. WOJTEK
-------------------------------- --------------------------------
Kathleen J. Bowen Frank A. Wojtek
Vice President Vice President

5
<PAGE> 6
Schedules and Exhibits

The schedules and exhibits have been intentionally omitted
herefrom. The Company will furnish supplementally a copy of any or all of such
omitted schedules and exhibits to the Commission upon request.

<PAGE> 1
EXHIBIT 4.8

FOURTH AMENDMENT
TO
LOAN AGREEMENT
BY AND BETWEEN CARRIZO OIL & GAS, INC.
AND COMPASS BANK

This Fourth Amendment to the Loan Agreement (this "Fourth Amendment")
by and between CARRIZO OIL & GAS, INC., a Texas corporation (the "Borrower"),
and COMPASS BANK, a Texas chartered bank (the "Bank"), is entered into on this
27th day of June 1997 and shall be effective as of that date for all purposes.

W I T N E S S E T H:

Borrower and Bank entered into a Loan Agreement dated December 6,
1996, as amended by First Amendment thereto dated April 4, 1997, Second
Amendment thereto dated May 15, 1997, and Third Amendment thereto dated June
26, 1997 (collectively, the "Loan Agreement"). Capitalized terms used, but not
defined, herein shall have the meanings prescribed therefor in the Loan
Agreement.

Borrower has requested that Bank increase the principal amount of the
Term Loan to $7,000,000.00, and Bank has agreed to do so according to the terms
set forth herein, which shall be incorporated into the Loan Agreement.

I. Specific Amendments to Loan Agreement.

Article I is hereby amended by adding, replacing or amending the
following definitions therein:

"Fourth Amendment" means the Fourth Amendment to this
Agreement executed by Borrower and Bank on June 27, 1997.

"Term Loan" means that certain $7,000,000.00 term loan made or
to be made by Bank to Borrower pursuant to Section 2.15 hereof.

1
<PAGE> 2
"Term Note" means the amended and restated term note in the
original face amount of $7,000,000.00 dated June 27, 1997, made by
Borrower payable to the order of Bank, in substantially the form
attached to the Fourth Amendment as Exhibit "A," together with all
deferrals, renewals, extensions, amendments, modifications or
rearrangements thereof, which promissory note shall evidence the
advances to Borrower by Bank pursuant to Section 2.15 hereof.

Section 2.15 is hereby amended by adding the following text at
the end of such section:

Within one (1) business day after Borrower has satisfied the
conditions set forth in Section 3.22, and provided Borrower is not
then in default of any of the other terms, conditions, representations
or warranties contained in this Agreement, Bank shall make a single
advance to Borrower in the amount of $1,000,000.00, such that the
resulting outstanding principal balance of the Term Loan shall then be
$7,000,000.00.

Section 2.18 is hereby amended by replacing the sum,
"$60,000.00" that appears in the last line thereof with the sum, "$70,000.00."

Article III is hereby amended to add the following Section
3.22:

3.22 Conditions Precedent in Connection With the Fourth
Amendment. The obligation of Bank to make the additional advance
pursuant to Section 2.15 that increases the principal balance of the
Term Loan from $6,000,000.00 to $7,000,000.00 is subject to
satisfaction of the following conditions precedent:

(a) Receipt of Term Note, Fourth Amendment and
Certificate of Compliance. Bank shall have received the Term Note,
multiple counterparts of the Fourth Amendment, as requested by Bank,
and the Certificate of Compliance duly executed by an authorized
officer for Borrower.

(b) Accuracy of Representations and Warranties and No
Event of Default. The representations and warranties contained in
Article IV of this Agreement shall be true and correct in all material
respects on the date of the making of such Term Loan with the same
effect as though such representations and warranties had been made on
such date; and no Event of Default shall have occurred and be
continuing or will have occurred at the completion of the making of
such Loan.

(c) Legal Matters Satisfactory to Special Counsel to
Bank. All legal matters incident to the consummation of the
transactions contemplated by the Fourth Amendment shall be
satisfactory to the firm of Hutcheson & Grundy, L.L.P., special
counsel for Bank.

2
<PAGE> 3
(d) No Material Adverse Change. No material adverse
change shall have occurred since the date of this Agreement in the
condition, financial or otherwise, of Borrower or the Guarantors.

(e) Facility Fee. Bank shall have received an additional
facility fee in the amount of $10,000.00.

Section 5.27 is hereby amended in its entirety to read as
follows:

5.27 Liquidity of Certain Guarantors. Borrower shall
cause each of the Guarantors Hamilton, Loyd, and Webster to deliver to
Bank on or before October 15, 1997, a Certificate of Liquidity in the
form attached as Exhibit "B" to the Fourth Amendment, certifying the
value of such Guarantor's Liquid Assets effective as of September 30,
1997.

Section 7.01(j) is hereby amended in its entirety to read as
follows:

(j) Borrower shall fail to cause each of the Guarantors
identified in Section 5.27 to deliver a Certificate of Liquidity of
such Guarantor by the date specified in such section, or any such
Certificate of Liquidity shall be false or misleading in any material
respect or shall disclose that such Guarantor owns Liquid Assets
valued at less than $3,000,000.00.

II. Reaffirmation of Representations and Warranties. To induce
Bank to enter into this Fourth Amendment, Borrower and each Guarantor hereby
reaffirms, as of the date hereof, its representations and warranties contained
in Article IV of the Loan Agreement and in all other documents executed
pursuant thereto, and additionally represents and warrants as follows:

A. The execution and delivery of this Fourth Amendment and the
performance by Borrower and each Guarantor of its obligations
under this Fourth Amendment are within Borrower's and each
Guarantor's power, have been duly authorized by all necessary
corporate action, have received all necessary governmental
approval (if any shall be required), and do not and will not
contravene or conflict with any provision of law or of the
charter or by-laws of Borrower or any Guarantor or of any
agreement binding upon Borrower or any Guarantor.

B. The Loan Agreement as amended by this Fourth Amendment
represents the legal, valid and binding obligations of
Borrower and each Guarantor, enforceable against each in
accordance with their respective terms subject as to
enforcement only to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally.

C. No Event of Default or Unmatured Event of Default has occurred
and is continuing as of the date hereof.

3
<PAGE> 4
III. Defined Terms. Except as amended hereby, terms used herein
that are defined in the Loan Agreement shall have the same meanings herein.

IV. Reaffirmation of Loan Agreement. This Fourth Amendment shall
be deemed to be an amendment to the Loan Agreement, and the Loan Agreement, as
further amended hereby, is hereby ratified, approved and confirmed in each and
every respect. All references to the Loan Agreement herein and in any other
document, instrument, agreement or writing shall hereafter be deemed to refer
to the Loan Agreement as amended hereby.

V. Entire Agreement. The Loan Agreement, as hereby further
amended, embodies the entire agreement between Borrower, the Guarantors and
Bank and supersedes all prior proposals, agreements and understandings relating
to the subject matter hereof. Borrower and each Guarantor certifies that it is
relying on no representation, warranty, covenant or agreement except for those
set forth in the Loan Agreement as hereby further amended and the other
documents previously executed or executed of even date herewith.

VI. Governing Law. THIS FOURTH AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. This Fourth Amendment has been entered
into in Harris County, Texas, and it shall be performable for all purposes in
Harris County, Texas. Courts within the State of Texas shall have jurisdiction
over any and all disputes between Borrower and Bank, whether in law or equity,
including, but not limited to, any and all disputes arising out of or relating
to this Fourth Amendment or any other Loan Document; and venue in any such
dispute whether in federal or state court shall be laid in Harris County,
Texas.

VII. Severability. Whenever possible each provision of this Fourth
Amendment shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Fourth Amendment shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Fourth Amendment.

VIII. Execution in Counterparts. This Fourth Amendment may be
executed in any number of counterparts and by the different parties on separate
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
instrument, and any signed counterpart shall be deemed delivered by the party
executing such counterpart if sent to any other party hereto by electronic
facsimile transmission.

IX. Section Captions. Section captions used in this Fourth
Amendment are for convenience of reference only, and shall not affect the
construction of this Fourth Amendment.

X. Successors and Assigns. This Fourth Amendment shall be
binding upon Borrower, each Guarantor and Bank and their respective successors
and assigns, and shall inure to the benefit of Borrower, each Guarantor and
Bank, and the respective successors and assigns of Bank.

4
<PAGE> 5
XI. Non-Application of Chapter 15 of Texas Credit Codes. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil
Statutes, Article 5069-15) are specifically declared by the parties hereto not
to be applicable to the Loan Agreement as hereby further amended or any of the
other Loan Documents or to the transactions contemplated hereby.

XII. Notice. THIS FOURTH AMENDMENT TOGETHER WITH THE LOAN
AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be duly executed as of the day and year first above written.

BANK BORROWER

COMPASS BANK CARRIZO OIL & GAS, INC.

By: /s/ KATHLEEN J. BOWEN By: /s/ FRANK A. WOJTEK
------------------------------ ----------------------------------
Kathleen J. Bowen Frank A. Wojtek
Vice President Vice President

5
<PAGE> 6
Schedules and Exhibits

<PAGE> 1
Exhibit 5.1

[Letterhead of Baker & Botts, L.L.P.]

July 21, 1997

Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane
Suite 148
Houston, Texas 77079

Ladies and Gentlemen:

As set forth in the Registration Statement on Form S-1,
Registration No. 333-29187 (the "Registration Statement"), filed by Carrizo Oil
& Gas, Inc., a Texas corporation (the "Company"), with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, relating to
2,500,000 shares (the "Shares") of the Company's common stock, par value $0.01
per share ("Common Stock"), together with 375,000 additional shares of Common
Stock (the "Additional Shares") subject to the underwriters' over-allotment
option as described in the Registration Statement, certain legal matters in
connection with the Shares and the Additional Shares are being passed upon for
you by us. At your request, this opinion of counsel is being furnished to you
for filing as Exhibit 5.1 to the Registration Statement.

We understand that the Shares and any Additional Shares are
to be sold pursuant to the terms of an Underwriting Agreement (the
"Underwriting Agreement") in substantially the form to be filed as Exhibit 1.1
to the Registration Statement.

In our capacity as your counsel in the connection referred to
above, we have examined the Amended and Restated Articles of Incorporation and
the Amended and Restated Bylaws of the Company, each as amended to date, the
originals, or copies certified or otherwise identified, of corporate records of
the Company, including minute books of the Company as furnished to us by the
Company, certificates of public officials and of representatives of the
Company, statutes and other instruments and documents as a basis for the
opinions hereinafter expressed. In giving such opinions, we have relied upon
certificates of officers of the Company with respect to the accuracy of the
material factual matters contained in such certificates.

<PAGE> 2

Carrizo Oil & Gas, Inc. -2- July 21, 1997

On the basis of the foregoing, and subject to the
assumptions, limitations and qualifications set forth herein, we are of the
opinion that:

1. The Company is a corporation duly incorporated under
the laws of the State of Texas.

2. When offered as described in the Registration
Statement, and upon (a) the taking of action by the duly authorized
Pricing Committee of the Board of Directors of the Company to approve
the Underwriting Agreement and (b) the sale of the Shares and any
Additional Shares in accordance with the terms and provisions of the
Underwriting Agreement and as described in the Registration Statement,
the Shares and any Additional Shares will be duly authorized by all
necessary corporate action on the part of the Company, validly issued,
fully paid and nonassessable.

The opinions set forth above are limited in all respects to
the laws of the State of Texas and federal securities laws, each as in effect
on the date hereof.

We hereby consent to the filing of this opinion as Exhibit
5.1 to the Registration Statement and to the reference to us under "Legal
Matters" in the prospectus forming a part of the Registration Statement.

Very truly yours,

BAKER & BOTTS, L.L.P.

<PAGE> 1
EXHIBIT 10.1

INCENTIVE PLAN

CARRIZO OIL & GAS, INC.

1. Plan. This Incentive Plan of Carrizo Oil & Gas, Inc.
(the "Plan") was adopted by Carrizo Oil & Gas, Inc. to reward certain corporate
officers and key employees of Carrizo Oil & Gas, Inc. and certain independent
consultants by enabling them to acquire shares of common stock of Carrizo Oil &
Gas, Inc.

2. Objectives. This Plan is designed to attract and
retain key employees of the Company and its Subsidiaries (as hereinafter
defined), to attract and retain qualified directors of the Company, to attract
and retain consultants and other independent contractors, to encourage the
sense of proprietorship of such employees, directors and independent
contractors and to stimulate the active interest of such persons in the
development and financial success of the Company and its Subsidiaries. These
objectives are to be accomplished by making Awards (as hereinafter defined)
under this Plan and thereby providing Participants (as hereinafter defined)
with a proprietary interest in the growth and performance of the Company and
its Subsidiaries.

3. Definitions. As used herein, the terms set forth
below shall have the following respective meanings:

"Annual Director Award Date" means, for each year beginning on
or after the IPO Closing Date, the first business day of the month next
succeeding the date upon which the annual meeting of stockholders of the
Company is held in such year.

"Authorized Officer" means the Chairman of the Board or the
Chief Executive Officer of the Company (or any other senior officer of the
Company to whom either of them shall delegate the authority to execute any
Award Agreement).

"Award" means an Employee Award, a Director Award or an
Independent Contractor Award.

"Award Agreement" means any Employee Award Agreement, Director
Award Agreement or Independent Contractor Award Agreement.

"Board" means the Board of Directors of the Company.

"Cash Award" means an award denominated in cash.

-1-
<PAGE> 2
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.

"Committee" means the Compensation Committee of the Board or
such other committee of the Board as is designated by the Board to administer
the Plan.

"Common Stock" means the Common Stock, par value $.01 per
share, of the Company.

"Company" means Carrizo Oil & Gas, Inc., a Texas corporation.

"Director" means an individual serving as a member of the
Board.

"Director Award" means the grant of a Director Option.

"Director Award Agreement" means a written agreement between
the Company and a Participant who is a Nonemployee Director setting forth the
terms, conditions and limitations applicable to a Director Award.

"Disability" means, with respect to a Nonemployee Director,
the inability to perform the duties of a Director for a continuous period of
more than three months by reason of any medically determinable physical or
mental impairment.

"Dividend Equivalents" means, with respect to shares of
Restricted Stock that are to be issued at the end of the Restriction Period,
an amount equal to all dividends and other distributions (or the economic
equivalent thereof) that are payable to stockholders of record during the
Restriction Period on a like number of shares of Common Stock.

"Employee" means an employee of the Company or any of its
Subsidiaries and an individual who has agreed to become an Employee of the
Company or any of its Subsidiaries and is expected to become such an Employee
within the following six months.

"Employee Award" means the grant of any Option, SAR, Stock
Award, Cash Award or Performance Award, whether granted singly, in combination
or in tandem, to a Participant who is an Employee pursuant to such applicable
terms, conditions and limitations as the Committee may establish in order to
fulfill the objectives of the Plan.

"Employee Award Agreement" means a written agreement between
the Company and a Participant who is an Employee setting forth the terms,
conditions and limitations applicable to an Employee Award.

"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.

-2-
<PAGE> 3
"Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price per
share of Common Stock on the consolidated transaction reporting system for the
principal national securities exchange on which shares of Common Stock are
listed on that date, or, if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so reported,
(ii) if shares of Common Stock are not so listed but are quoted on the Nasdaq
National Market, the mean between the highest and lowest sales price per share
of Common Stock reported by the Nasdaq National Market on that date, or, if
there shall have been no such sale so reported on that date, on the last
preceding date on which such a sale was so reported, (iii) if the Common Stock
is not so listed or quoted, the mean between the closing bid and asked price on
that date, or, if there are no quotations available for such date, on the last
preceding date on which such quotations shall be available, as reported by the
Nasdaq Stock Market, or, if not reported by the Nasdaq Stock Market, by the
National Quotation Bureau Incorporated or (iv) if shares of Common Stock are
not publicly traded, the most recent value determined by an independent
appraiser appointed by the Company for such purpose; provided that,
notwithstanding the foregoing, "Fair Market Value" in the case of any Award
made in connection with the IPO, means the price per share to the public of the
Common Stock in the IPO, as set forth in the final prospectus relating to the
IPO.

"Incentive Option" means an Option that is intended to comply
with the requirements set forth in Section 422 of the Code.

"Independent Contractor" means a person providing services to
the Company or any of its Subsidiaries except an Employee or Nonemployee
Director.

"Independent Contractor Award" means the grant of any
Nonqualified Stock Option, SAR, Stock Award, Cash Award or Performance Award,
whether granted singly, in combination or in tandem, to a Participant who is an
Independent Contractor pursuant to such applicable terms, conditions and
limitations as the Committee may establish in order to fulfill the objectives
of the Plan.

"Independent Contractor Award Agreement" means a written
agreement between the Company and a Participant who is an Independent
Contractor setting forth the terms, conditions and limitations applicable to an
Independent Contractor Award.

"IPO" means the first time a registration statement filed
under the Securities Act of 1933 and respecting an underwritten primary
offering by the Company of shares of Common Stock is declared effective under
that Act and the shares registered by that registration statement are issued
and sold by the Company (otherwise than pursuant to the exercise of any
overallotment option).

"IPO Closing Date" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.

-3-
<PAGE> 4
"Nonemployee Director" has the meaning set forth in paragraph
4(b) hereof.

"Nonqualified Stock Option" means an Option that is not an
Incentive Option.

"Option" means a right to purchase a specified number of
shares of Common Stock at a specified price.

"Participant" means an Employee, Director or Independent
Contractor to whom an Award has been made under this Plan.

"Performance Award" means an award made pursuant to this Plan
to a Participant who is an Employee or Independent Contractor who is subject to
the attainment of one or more Performance Goals.

"Performance Goal" means a standard established by the
Committee, to determine in whole or in part whether a Performance Award shall
be earned.

"Restricted Stock" means any Common Stock that is restricted
or subject to forfeiture provisions.

"Restriction Period" means a period of time beginning as of
the date upon which an Award of Restricted Stock is made pursuant to this Plan
and ending as of the date upon which the Common Stock subject to such Award is
no longer restricted or subject to forfeiture provisions.

"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act, or any successor rule.

"SAR" means a right to receive a payment, in cash or Common
Stock, equal to the excess of the Fair Market Value or other specified
valuation of a specified number of shares of Common Stock on the date the right
is exercised over a specified strike price, in each case, as determined by the
Committee.

"Stock Award" means an award in the form of shares of Common
Stock or units denominated in shares of Common Stock.

"Subsidiary" means (i) in the case of a corporation, any
corporation of which the Company directly or indirectly owns shares
representing more than 50% of the combined voting power of the shares of all
classes or series of capital stock of such corporation which have the right to
vote generally on matters submitted to a vote of the stockholders of such
corporation and (ii) in the case of a partnership or other business entity not
organized as a corporation, any such business entity of which the Company
directly or indirectly owns more than 50% of the voting, capital or profits
interests (whether in the form of partnership interests, membership interests
or otherwise).

-4-
<PAGE> 5

4. Eligibility.

(a) Employees. Key Employees eligible for Employee
Awards under this Plan are those who hold positions of responsibility
and whose performance, in the judgment of the Committee, can have a
significant effect on the success of the Company and its Subsidiaries.

(b) Directors. Directors eligible for Director Awards
under this Plan are those who are not employees of the Company or any
of its Subsidiaries ("Nonemployee Directors").

(c) Independent Contractors. Independent Contractors
eligible for Independent Contractor Awards under this Plan are those
Independent Contractors providing services to, or who will provide
services to, the Company or any of its Subsidiaries.

5. Common Stock Available for Awards. Subject to the
provisions of paragraph 15 hereof, there shall be available for Awards under
this Plan granted wholly or partly in Common Stock (including rights or options
that may be exercised for or settled in Common Stock) an aggregate of 1,000,000
shares of Common Stock, all of which shall be available for Incentive Options.
The number of shares of Common Stock that are the subject of Awards under this
Plan, that are forfeited or terminated, expire unexercised, are settled in cash
in lieu of Common Stock or in a manner such that all or some of the shares
covered by an Award are not issued to a Participant or are exchanged for Awards
that do not involve Common Stock, shall again immediately become available for
Awards hereunder. The Committee may from time to time adopt and observe such
procedures concerning the counting of shares against the Plan maximum as it may
deem appropriate. The Board and the appropriate officers of the Company shall
from time to time take whatever actions are necessary to file any required
documents with governmental authorities, stock exchanges and transaction
reporting systems to ensure that shares of Common Stock are available for
issuance pursuant to Awards.

6. Administration.

(a) This Plan, as it applies to Participants who are
Employees or Independent Contractors but not with respect to
Participants who are Nonemployee Directors, shall be administered by
the Committee. To the extent required in order for Employee Awards to
be exempt from Section 16 of the Exchange Act by virtue of the
provisions of Rule 16b-3, the Committee shall consist of at least two
members of the Board who meet the requirements of the definition of
"non-employee director" set forth in Rule 16b-3(b)(3)(i) promulgated
under the Exchange Act.

-5-
<PAGE> 6
(b) Subject to the provisions hereof, insofar as this
Plan relates to the Employee Awards or Independent Contractor Awards,
the Committee shall have full and exclusive power and authority to
administer this Plan and to take all actions that are specifically
contemplated hereby or are necessary or appropriate in connection with
the administration hereof. Insofar as this Plan relates to Employee
Awards or Independent Contractor Awards, the Committee shall also have
full and exclusive power to interpret this Plan and to adopt such
rules, regulations and guidelines for carrying out this Plan as it may
deem necessary or proper, all of which powers shall be exercised in
the best interests of the Company and in keeping with the objectives
of this Plan. The Committee may, in its discretion, provide for the
extension of the exercisability of an Employee Award or Independent
Contractor Award, accelerate the vesting or exercisability of an
Employee Award or Independent Contractor Award, eliminate or make less
restrictive any restrictions contained in an Employee Award or
Independent Contractor Award, waive any restriction or other provision
of this Plan (insofar as such provision relates to Employee Awards or
to Independent Contractor Awards) or an Employee Award or Independent
Contractor Award or otherwise amend or modify an Employee Award or
Independent Contractor Award in any manner that is either (i) not
adverse to the Participant to whom such Employee Award or Independent
Contractor Award was granted or (ii) consented to by such Participant.
The Committee may make an award to an individual who it expects to
become an Employee of the Company or any of its Subsidiaries within
the next six months, with such award being subject to the individual's
actually becoming an Employee within such time period, and subject to
such other terms and conditions as may be established by the
Committee. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in this Plan or in any
Employee Award or Independent Contractor Award in the manner and to
the extent the Committee deems necessary or desirable to further the
Plan purposes. Any decision of the Committee in the interpretation
and administration of this Plan shall lie within its sole and absolute
discretion and shall be final, conclusive and binding on all parties
concerned.

(c) No member of the Committee or officer of the Company
to whom the Committee has delegated authority in accordance with the
provisions of paragraph 7 of this Plan shall be liable for anything
done or omitted to be done by him or her, by any member of the
Committee or by any officer of the Company in connection with the
performance of any duties under this Plan, except for his or her own
willful misconduct or as expressly provided by statute.

7. Delegation of Authority. The Committee may delegate
to the Chief Executive Officer and to other senior officers of the Company its
duties under this Plan pursuant to such conditions or limitations as the
Committee may establish, except that the Committee may not delegate to any
person the authority to grant Awards to, or take other action with respect to,
Participants who are subject to Section 16 of the Exchange Act.

-6-
<PAGE> 7
8. Employee and Independent Contractor Awards.

(a) The Committee shall determine the type or types of
Employee Awards to be made under this Plan and shall designate from
time to time the Employees who are to be the recipients of such
Awards. Each Employee Award may be embodied in an Employee Award
Agreement, which shall contain such terms, conditions and limitations
as shall be determined by the Committee in its sole discretion and
shall be signed by the Participant to whom the Employee Award is made
and by an Authorized Officer for and on behalf of the Company.
Employee Awards may consist of those listed in this paragraph 8(a)
hereof and may be granted singly, in combination or in tandem.
Employee Awards may also be made in combination or in tandem with, in
replacement of, or as alternatives to, grants or rights under this
Plan or any other employee plan of the Company or any of its
Subsidiaries, including the plan of any acquired entity. An Employee
Award may provide for the grant or issuance of additional, replacement
or alternative Employee Awards upon the occurrence of specified
events, including the exercise of the original Employee Award granted
to a Participant. All or part of an Employee Award may be subject to
conditions established by the Committee, which may include, but are
not limited to, continuous service with the Company and its
Subsidiaries, achievement of specific business objectives, increases
in specified indices, attainment of specified growth rates and other
comparable measurements of performance. Upon the termination of
employment by a Participant who is an Employee, any unexercised,
deferred, unvested or unpaid Employee Awards shall be treated as set
forth in the applicable Employee Award Agreement.

(i) Stock Option. An Employee Award may be in
the form of an Option. An Option awarded pursuant to this
Plan may consist of an Incentive Option or a Nonqualified
Option. The price at which shares of Common Stock may be
purchased upon the exercise of an Incentive Option shall be
not less than the Fair Market Value of the Common Stock on the
date of grant. The price at which shares of Common Stock may
be purchased upon the exercise of a Nonqualified Option shall
be not less than the Fair Market Value of the Common Stock on
the date of grant. Subject to the foregoing provisions, the
terms, conditions and limitations applicable to any Options
awarded pursuant to this Plan, including the term of any
Options and the date or dates upon which they become
exercisable, shall be determined by the Committee.

(ii) Stock Appreciation Right. An Employee Award
may be in the form of an SAR. The terms, conditions and
limitations applicable to any SARs awarded pursuant to this
Plan, including the term of any SARs and the date or dates
upon which they become exercisable, shall be determined by the
Committee.

-7-
<PAGE> 8
(iii) Stock Award. An Employee Award may be in the
form of a Stock Award. The terms, conditions and limitations
applicable to any Stock Awards granted pursuant to this Plan
shall be determined by the Committee.

(iv) Cash Award. An Employee Award may be in the
form of a Cash Award. The terms, conditions and limitations
applicable to any Cash Awards granted pursuant to this Plan
shall be determined by the Committee.

(v) Performance Award. Without limiting the type
or number of Employee Awards that may be made under the other
provisions of this Plan, an Employee Award may be in the form
of a Performance Award. A Performance Award shall be paid,
vested or otherwise deliverable solely on account of the
attainment of one or more pre-established, objective
Performance Goals established by the Committee prior to the
earlier to occur of (x) 90 days after the commencement of the
period of service to which the Performance Goal relates and
(y) the lapse of 25% of the period of service (as scheduled in
good faith at the time the goal is established), and in any
event while the outcome is substantially uncertain. A
Performance Goal is objective if a third party having
knowledge of the relevant facts could determine whether the
goal is met. Such a Performance Goal may be based on one or
more business criteria that apply to the individual, one or
more business units of the Company, or the Company as a whole,
and may include one or more of the following: increased
revenue, net income, stock price, market share, earnings per
share, return on equity, return on assets or decrease in
costs. Unless otherwise stated, such a Performance Goal need
not be based upon an increase or positive result under a
particular business criterion and could include, for example,
maintaining the status quo or limiting economic losses
(measured, in each case, by reference to specific business
criteria). In interpreting Plan provisions applicable to
Performance Goals and Performance Awards, it is the intent of
the Plan to conform with the standards of Section 162(m) of
the Code and Treasury Regulation Section 1.162- 27(e)(2)(i),
and the Committee in establishing such goals and interpreting
the Plan shall be guided by such provisions. Prior to the
payment of any compensation based on the achievement of
Performance Goals, the Committee must certify in writing that
applicable Performance Goals and any of the material terms
thereof were, in fact, satisfied. Subject to the foregoing
provisions, the terms, conditions and limitations applicable
to any Performance Awards made pursuant to this Plan shall be
determined by the Committee.

(b) Notwithstanding anything to the contrary contained in
this Plan, the following limitations shall apply to any Employee
Awards made hereunder:

-8-
<PAGE> 9
(i) no Participant may be granted, during any
one-year period, Employee Awards consisting of Options or SARs
that are exercisable for more than 250,000 shares of Common
Stock;

(ii) no Participant may be granted, during any
one-year period, Stock Awards covering or relating to more
than 50,000 shares of Common Stock (the limitation set forth
in this clause (ii), together with the limitation set forth in
clause (i) above, being hereinafter collectively referred to
as the "Stock Based Awards Limitations"); and

(iii) no Participant may be granted Employee Awards
consisting of cash or in any other form permitted under this
Plan (other than Employee Awards consisting of Options or SARs
or otherwise consisting of shares of Common Stock or units
denominated in such shares) in respect of any one-year period
having a value determined on the date of grant in excess of
$500,000.

(c) The Committee shall have the sole responsibility and
authority to determine the type or types of Independent Contractor
Awards to be made under this Plan and may make any such Awards as
could be made to an Employee, other than Incentive Options.

9. Director Awards. Each Nonemployee Director of the
Company shall be granted Director Awards in accordance with this paragraph 9
and subject to the applicable terms, conditions and limitations set forth in
this Plan and the applicable Director Award Agreement. Notwithstanding
anything to the contrary contained herein, Director Awards shall not be made in
any year in which a sufficient number of shares of Common Stock are not
available to make such Awards under this Plan.

(a) Initial Director Options. On the IPO Closing Date,
each Nonemployee Director shall be automatically awarded a Director
Option on 10,000 shares of Common Stock.

(b) Other Director Options. Effective upon the IPO
Closing Date, on the date of his or her first appointment or election
to the Board of Directors, a Nonemployee Director shall automatically
be granted a Director Option that provides for the purchase of 10,000
shares of Common Stock. In addition, on each Annual Director Award
Date, each Nonemployee Director shall automatically be granted a
Director Option that provides for the purchase of 2,500 shares of
Common Stock.

(c) Terms. Each Director Option shall have a term of ten
years from the date of grant, notwithstanding any earlier termination
of the status of the holder as a Nonemployee Director. The purchase
price of each share of Common Stock subject to a Director Option shall
be equal to the Fair Market Value of the Common Stock on the date of
grant. All

-9-
<PAGE> 10
Director Options shall vest and become exercisable in increments of
one-third of the total number of shares of Common Stock that are
subject thereto (rounded up to the nearest whole number) on the first
and second anniversaries of the date of grant and of all remaining
shares of Common Stock that are subject thereto on the third
anniversary of the date of grant. All unvested Director Options
shall be forfeited if the Nonemployee Director resigns as a Director
without the consent of a majority of the other Directors.

(d) Agreements. Any Award of Director Options shall be
embodied in a Director Award Agreement, which shall contain the terms,
conditions and limitations set forth above and shall be signed by the
Participant to whom the Director Options are granted and by an
Authorized Officer for and on behalf of the Company.

10. Payment of Awards.

(a) General. Payment of Employee Awards or Independent
Contractor Awards may be made in the form of cash or Common Stock, or
a combination thereof, and may include such restrictions as the
Committee shall determine, including, in the case of Common Stock,
restrictions on transfer and forfeiture provisions. If payment of an
Employee Award or Independent Contractor Award is made in the form of
Restricted Stock, the applicable Award Agreement relating to such
shares shall specify whether they are to be issued at the beginning or
end of the Restriction Period. In the event that shares of Restricted
Stock are to be issued at the beginning of the Restriction Period, the
certificates evidencing such shares (to the extent that such shares
are so evidenced) shall contain appropriate legends and restrictions
that describe the terms and conditions of the restrictions applicable
thereto. In the event that shares of Restricted Stock are to be
issued at the end of the Restricted Period, the right to receive such
shares shall be evidenced by book entry registration or in such other
manner as the Committee may determine.

(b) Deferral. With the approval of the Committee,
amounts payable in respect of Employee Awards or Independent
Contractor Awards may be deferred and paid either in the form of
installments or as a lump-sum payment. The Committee may permit
selected Participants to elect to defer payments of some or all types
of Employee Awards or Independent Contractor Awards in accordance with
procedures established by the Committee. Any deferred payment of an
Employee Award or Independent Contractor Award, whether elected by the
Participant or specified by the Award Agreement or by the Committee,
may be forfeited if and to the extent that the Award Agreement so
provides.

(c) Dividends and Interest. Rights to dividends or
Dividend Equivalents may be extended to and made part of any Employee
Award or Independent Contractor Award consisting of shares of Common
Stock or units denominated in shares of Common Stock, subject to such
terms, conditions and restrictions as the Committee may establish.
The Committee may also establish rules and procedures for the
crediting of interest on deferred

-10-
<PAGE> 11
cash payments and Dividend Equivalents for Employee Awards or
Independent Contractor Awards consisting of shares of Common Stock or
units denominated in shares of Common Stock.

(d) Substitution of Awards. At the discretion of the
Committee, a Participant who is an Employee or Independent Contractor
may be offered an election to substitute an Employee Award or
Independent Contractor Award for another Employee Award or Independent
Contractor Award or Employee Awards or Independent Contractor Awards
of the same or different type.

11. Stock Option Exercise. The price at which shares of
Common Stock may be purchased under an Option shall be paid in full at the time
of exercise in cash or, if elected by the optionee, the optionee may purchase
such shares by means of tendering Common Stock or surrendering another Award,
including Restricted Stock or Director Restricted Stock, valued at Fair Market
Value on the date of exercise, or any combination thereof. The Committee shall
determine acceptable methods for Participants who are Employees or Independent
Contractors to tender Common Stock or other Employee Awards or Independent
Contractor Awards; provided that any Common Stock that is or was the subject of
an Employee Award or Independent Contractor Award may be so tendered only if it
has been held by the Participant for six months. The Committee may provide for
procedures to permit the exercise or purchase of such Awards by use of the
proceeds to be received from the sale of Common Stock issuable pursuant to an
Employee Award or Independent Contractor Award. Unless otherwise provided in
the applicable Award Agreement, in the event shares of Restricted Stock are
tendered as consideration for the exercise of an Option, a number of the shares
issued upon the exercise of the Option, equal to the number of shares of
Restricted Stock or Director Restricted Stock used as consideration therefor,
shall be subject to the same restrictions as the Restricted Stock or Director
Restricted Stock so submitted as well as any additional restrictions that may
be imposed by the Committee.

12. Taxes. The Company shall have the right to deduct
applicable taxes from any Employee Award payment and withhold, at the time of
delivery or vesting of cash or shares of Common Stock under this Plan, an
appropriate amount of cash or number of shares of Common Stock or a combination
thereof for payment of taxes required by law or to take such other action as
may be necessary in the opinion of the Company to satisfy all obligations for
withholding of such taxes. The Committee may also permit withholding to be
satisfied by the transfer to the Company of shares of Common Stock theretofore
owned by the holder of the Employee Award with respect to which withholding is
required. If shares of Common Stock are used to satisfy tax withholding, such
shares shall be valued based on the Fair Market Value when the tax withholding
is required to be made. The Committee may provide for loans, on either a short
term or demand basis, from the Company to a Participant who is an Employee or
Independent Contractor to permit the payment of taxes required by law.

-11-
<PAGE> 12
13. Amendment, Modification, Suspension or Termination.
The Board may amend, modify, suspend or terminate this Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other
purpose permitted by law, except that (i) no amendment or alteration that would
adversely affect the rights of any Participant under any Award previously
granted to such Participant shall be made without the consent of such
Participant and (ii) no amendment or alteration shall be effective prior to its
approval by the stockholders of the Company to the extent such approval is
then required pursuant to Rule 16b-3 in order to preserve the applicability of
any exemption provided by such rule to any Award then outstanding (unless the
holder of such Award consents) or to the extent stockholder approval is
otherwise required by applicable legal requirements.

14. Assignability. Unless otherwise determined by the
Committee and provided in the Award Agreement, no Award or any other benefit
under this Plan constituting a derivative security within the meaning of Rule
16a-1(c) under the Exchange Act shall be assignable or otherwise transferable
except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder. The
Committee may prescribe and include in applicable Award Agreements other
restrictions on transfer. Any attempted assignment of an Award or any other
benefit under this Plan in violation of this paragraph 14 shall be null and
void.

15. Adjustments.

(a) The existence of outstanding Awards shall not affect
in any manner the right or power of the Company or its stockholders to
make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the capital stock of the Company
or its business or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock
(whether or not such issue is prior to, on a parity with or junior to
the Common Stock) or the dissolution or liquidation of the Company, or
any sale or transfer of all or any part of its assets or business, or
any other corporate act or proceeding of any kind, whether or not of a
character similar to that of the acts or proceedings enumerated above.

(b) In the event of any subdivision or consolidation of
outstanding shares of Common Stock, declaration of a dividend payable
in shares of Common Stock or other stock split, then, except with
respect to the Existing Options, (i) the number of shares of Common
Stock reserved under this Plan, (ii) the number of shares of Common
Stock covered by outstanding Awards in the form of Common Stock or
units denominated in Common Stock, (iii) the exercise or other price
in respect of such Awards, (iv) the appropriate Fair Market Value and
other price determinations for such Awards, (v) the number of shares
of Common Stock covered by Director Options automatically granted
pursuant to paragraph 9 hereof and (vi) the Stock Based Awards
Limitations shall each be proportionately adjusted by the Board to
reflect such transaction. In the event of any other recapitalization
or capital reorganization

-12-
<PAGE> 13
of the Company, any consolidation or merger of the Company with
another corporation or entity, the adoption by the Company of any plan
of exchange affecting the Common Stock or any distribution to holders
of Common Stock of securities or property (other than normal cash
dividends or dividends payable in Common Stock), the Board shall make
appropriate adjustments to (i) the number of shares of Common Stock
covered by Awards in the form of Common Stock or units denominated in
Common Stock, (ii) the exercise or other price in respect of such
Awards, (iii) the appropriate Fair Market Value and other price
determinations for such Awards, (iv) the number of shares of Common
Stock covered by Director Options automatically granted pursuant to
paragraph 9 hereof and (v) the Stock Based Awards Limitations to give
effect to such transaction shall each be proportionately adjusted by
the Board to reflect such transaction; provided that such adjustments
shall only be such as are necessary to maintain the proportionate
interest of the holders of the Awards and preserve, without exceeding,
the value of such Awards. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Board shall be authorized to issue
or assume Awards by means of substitution of new Awards, as
appropriate, for previously issued Awards or to assume previously
issued Awards as part of such adjustment.

16. Restrictions. No Common Stock or other form of
payment shall be issued with respect to any Award unless the Company shall be
satisfied based on the advice of its counsel that such issuance will be in
compliance with applicable federal and state securities laws. It is the intent
of the Company that grants of Awards under this Plan comply with Rule 16b-3
with respect to persons subject to Section 16 of the Exchange Act unless
otherwise provided herein or in an Award Agreement, that any ambiguities or
inconsistencies in the construction of such an Award or this Plan be
interpreted to give effect to such intention. Certificates evidencing shares
of Common Stock delivered under this Plan (to the extent that such shares are
so evidenced) may be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Securities and Exchange Commission, any
securities exchange or transaction reporting system upon which the Common Stock
is then listed or to which it is admitted for quotation and any applicable
federal or state securities law. The Committee may cause a legend or legends
to be placed upon such certificates (if any) to make appropriate reference to
such restrictions.

17. Unfunded Plan. Insofar as it provides for Awards of
cash, Common Stock or rights thereto, this Plan shall be unfunded. Although
bookkeeping accounts may be established with respect to Participants who are
entitled to cash, Common Stock or rights thereto under this Plan, any such
accounts shall be used merely as a bookkeeping convenience. The Company shall
not be required to segregate any assets that may at any time be represented by
cash, Common Stock or rights thereto, nor shall this Plan be construed as
providing for such segregation, nor shall the Company, the Board or the
Committee be deemed to be a trustee of any cash, Common Stock or rights thereto
to be granted under this Plan. Any liability or obligation of the Company to
any Participant with respect to an Award of cash, Common Stock or rights
thereto under this Plan shall

-13-
<PAGE> 14
be based solely upon any contractual obligations that may be created by this
Plan and any Award Agreement, and no such liability or obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company nor the Board nor the Committee
shall be required to give any security or bond for the performance of any
obligation that may be created by this Plan.

18. Governing Law. This Plan and all determinations made
and actions taken pursuant hereto, to the extent not otherwise governed by
mandatory provisions of the Code or the securities laws of the United States,
shall be governed by and construed in accordance with the laws of the State of
Texas.

19. Effectiveness. The Plan as established by resolution
of the Board shall be effective as set forth herein as of the IPO Closing Date.

-14-

<PAGE> 1
EXHIBIT 10.2

EMPLOYMENT AGREEMENT

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment Period . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Terms of Employment . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Position and Duties . . . . . . . . . . . . . . . . . . . . . 1
(b) Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 2
(i) Base Salary . . . . . . . . . . . . . . . . . . . . . . 2
(ii) Annual Bonus . . . . . . . . . . . . . . . . . . . . . 2
(iii) Incentive, Savings and Retirement Plans . . . . . . . . 2
(iv) Welfare Benefit Plans . . . . . . . . . . . . . . . . . 3
(v) Expenses . . . . . . . . . . . . . . . . . . . . . . . 3
(vi) Fringe Benefits and Perquisites . . . . . . . . . . . . 3
(vii) Office and Support Staff . . . . . . . . . . . . . . . 3
(viii) Vacation . . . . . . . . . . . . . . . . . . . . . . . 3
(ix) Stock Option Grant . . . . . . . . . . . . . . . . . . 3
3. Termination of Employment . . . . . . . . . . . . . . . . . . . . . . 4
(a) Death or Disability . . . . . . . . . . . . . . . . . . . . . 4
(b) Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Good Reason; Window Period . . . . . . . . . . . . . . . . . . 5
(d) Notice of Termination . . . . . . . . . . . . . . . . . . . . 6
(e) Date of Termination . . . . . . . . . . . . . . . . . . . . . 6
4. Obligations of the Company upon Termination . . . . . . . . . . . . . 6
(a) Disability, Good Reason or During a Window
Period; Other than for Cause . . . . . . . . . . . . . . . . . 6
(b) Death (except during a Window Period) . . . . . . . . . . . . 9
(c) Cause; Other than for Disability, Good
Reason or During a Window Period . . . . . . . . . . . . . . . 9
5. Non-exclusivity of Rights . . . . . . . . . . . . . . . . . . . . . . 10
6. Full Settlement; Resolution of Disputes . . . . . . . . . . . . . . . 10
7. Certain Additional Payments by the Company . . . . . . . . . . . . . 11
8. Confidential Information . . . . . . . . . . . . . . . . . . . . . . 13
9. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10. Covenant Not to Compete . . . . . . . . . . . . . . . . . . . . . . . 18
11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>

-i-

<PAGE> 3

EMPLOYMENT AGREEMENT

This AGREEMENT (the "Agreement") by and between Carrizo Oil &
Gas, Inc., a Texas corporation (the "Company"), and S. P. Johnson, IV (the
"Executive"), dated as of the 13th day of June, 1997 and to be effective as of
the Agreement Effective Date (as defined herein).

In entering into this Agreement, the Board of Directors of the
Company (the "Board") desires to provide the Executive with substantial
incentives to serve the Company as one of its senior executives performing at
the highest level of leadership and stewardship, without distraction or concern
over minimum compensation, benefits or tenure, to manage the Company's future
growth and development, and maximize the returns to the Company's stockholders.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1. Employment Period. As of the Agreement Effective Date
(hereinafter defined), the Company hereby agrees to employ the Executive and
the Executive hereby agrees to accept employment with the Company, in
accordance with, and subject to, the terms and provisions of this Agreement,
for the period (the "Employment Period") commencing on the Agreement Effective
Date and ending on the third anniversary of the Agreement Effective Date;
provided, on the second anniversary of the Agreement Effective Date and on each
day thereafter, the Employment Period shall automatically be extended for an
additional one day without any further action by either the Company or the
Executive, it being the intention of the parties that there shall be
continuously a remaining term of not less than one year's duration of the
Employment Period until an event has occurred as described in, or one of the
parties shall have made an appropriate election pursuant to, the provisions of
Section 3.

2. Terms of Employment.

(a) Position and Duties.

(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in
all material respects with the most significant of those held, exercised
and assigned on the Agreement Effective Date, which shall in any event
include status as President and member of the Board of Directors of the
Company, and (B) the Executive's services shall be performed within the
Houston, Texas metropolitan area.

1
<PAGE> 4
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period, it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so long
as such activities do not interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed that to the
extent that any such activities have been conducted by the Executive
prior to the Agreement Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Agreement Effective Date shall not thereafter
be deemed to interfere with the performance of the Executive's
responsibilities to the Company.

(b) Compensation.

(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary equal to the base salary in effect
immediately prior to the Agreement Effective Date ("Annual Base
Salary"), which shall be paid on a semimonthly basis. During the
Employment Period, the Annual Base Salary shall be reviewed at least
annually and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base salary
generally awarded in the ordinary course of business to executives of
the Company and its affiliated companies. Any increase in Annual Base
Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term "Annual Base Salary," as utilized
in this Agreement, shall refer to Annual Base Salary as so increased.
As used in this Agreement, the term "affiliated companies" shall
include, when used with reference to the Company, any company controlled
by, controlling or under common control with the Company.

(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive may be awarded, for each fiscal year or portion thereof during
the Employment Period, an Annual Bonus (the "Annual Bonus"), in an
amount comparable to the Annual Bonus Award to other Company executives,
taking into account Executive's position and responsibilities with the
Company, prorated for any period consisting of less than 12 full months.

(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans that are tax-qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended
("Code"), and all plans that are supplemental to any such tax-qualified
plans, in each case to the extent that such plans are applicable
generally to other executives of the Company and its affiliated
companies, but in no event shall such plans provide the Executive with
incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement

2
<PAGE> 5
benefit opportunities that are, in each case, less favorable to the
Executive, in the aggregate, than the most favorable plans of the
Company and its affiliated companies. As used in this Agreement, the
term "most favorable" shall, when used with reference to any plans,
practices, policies or programs of the Company and its affiliated
companies, be deemed to refer to the plans, practices, policies or
programs of the Company and its affiliated companies, as in effect at
any time during the Employment Period and provided generally to other
executives of the Company or its affiliated companies, which are most
favorable to the Executive.

(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the
Company or its affiliated companies (including, without limitation,
medical, prescription, dental, vision, disability, salary continuance,
group life and supplemental group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to other executives of the Company or its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits that are less favorable, in
the aggregate, than the most favorable such plans, practices, policies
and programs of the Company and its affiliated companies.

(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated
companies.

(vi) Fringe Benefits and Perquisites. During the Employment
Period, the Executive shall be entitled to fringe benefits and
perquisites in accordance with the most favorable plans, practices,
programs and policies of the Company and its affiliated companies
applicable to similarly situated executives.

(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to secretarial and other
assistance to the extent needed to fulfill his corporate
responsibilities, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at
any time during the Employment Period.

(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its
affiliated companies.

(ix) Stock Option Grant. On the IPO Closing Date as defined in
Section 4(a) of this Agreement, Executive will be granted stock options
on 100,000 shares of Company common stock, par value $.01 per share
("Common Stock"), at an exercise price equal to the

3
<PAGE> 6
IPO Price ("Initial Stock Option"). The Initial Stock Option has a term
of 10 years and is exercisable for the total number of shares subject to
the option, beginning on the Date of Grant. "IPO" shall mean the
initial public offering of Common Stock pursuant to which the Company
receives payment in cash for shares of its Common Stock that it sells
pursuant to a registration statement on Form S-1 filed and declared
effective under the Securities Act of 1933. "IPO Price" shall mean the
per share price to the public for the Common Stock sold in the IPO, as
set forth on the cover page of the final prospectus for the IPO.

3. Termination of Employment.

(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the definition
of Disability set forth below), it may give to the Executive written notice in
accordance with Section 11(d) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's
duties with the Company on a full-time basis for either (i) 180 consecutive
business days or (ii) in any two-year period 270 nonconsecutive business days
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).

4
<PAGE> 7
and held following the Grace Period in the city in which the Company's
principal executive offices are located, of which the Executive was given not
less than 10 days' prior written notice and at which the Executive was afforded
the opportunity to be represented by counsel, appear and be heard, the Required
Board Majority shall adopt a written resolution which (1) sets forth the
Required Board Majority's determination that the failure of the Executive to
substantially perform his duties and responsibilities hereunder has (except by
reason of his incapacity due to physical or mental illness or injury) continued
past the Grace Period and (2) specifically identifies the bases for that
determination, and (B) the Company, at the written direction of the Required
Board Majority, shall deliver to the Executive a Notice of Termination for
Cause to which a copy of that resolution, certified as being true and correct
by the secretary or any assistant secretary of the Company, is attached.
"Required Board Majority" means at any time a majority of the members of the
Board at that time which includes at least a majority of the Directors, each of
whom has not been an employee of the Company or any subsidiary of the Company.

(c) Good Reason; Window Period. The Executive's employment
may be terminated during the Employment Period by the Executive for Good
Reason, or during a Window Period by the Executive without any reason. For
purposes of this Agreement, "Window Period" shall mean the 60-day period
immediately following elapse of one year after any Change of Control as defined
in Section 9 of this Agreement. For purposes of this Agreement, "Good Reason"
shall mean:

(i) the assignment to the Executive of any duties
materially inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section 2 of
this Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;

(ii) any material failure by the Company to comply with
any of the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;

(iii) the Company's requiring the Executive to be based
at any office outside the Houston metropolitan area;

(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement;

5
<PAGE> 8
subparagraph (e) below), written notice from the Company or the
Executive of the requirements of such provision and (B) such failure to
be in compliance and satisfy the requirements of Section 11 shall
continue as of the Date of Termination; or

(vi) any failure to reelect Executive as a member of the
Board.

(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason or without any reason during a
Window Period, shall be communicated by Notice of Termination to the other
party hereto given in accordance with Section 12(d) of this Agreement. The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.

(e) Date of Termination. For purposes of this Agreement, the
term "Date of Termination" means (i) if the Executive's employment is
terminated by the Company for Cause, or by the Executive during a Window Period
or for Good Reason, the date of receipt of the Notice of Termination or any
later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the
case may be.

4. Obligations of the Company upon Termination.

(a) Disability, Good Reason or During a Window Period; Other
than for Cause or Death (except during a Window Period). If, during the
Employment Period and after the date on which the Company first receives
payment for shares of its Common Stock that it sells pursuant to a registration
statement filed under the Securities Act of 1933 (the "IPO Closing Date"), (x)
the Company shall terminate the Executive's employment other than for Cause,
including a termination by reason of Disability (but not by reason of death),
or (y) the Executive shall terminate employment for Good Reason or (z) his
employment shall be terminated during a Window Period by the Company for Cause,
by the Executive without any reason, or by reason of death:

(i) the Company shall pay or provide to or in respect of the
Executive the following amounts and benefits:

6
<PAGE> 9
compensation for unused vacation time for which the Executive is
eligible in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated
companies, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligation");

B. in a lump sum in cash, discounted at 6%, within 10
days after the Date of Termination, an amount equal to 150% of
Annual Base Salary that would have been paid annually to the
Executive pursuant to this Agreement for the period (the
"Remaining Employment Period") beginning on the Date of
Termination and ending on the latest possible date of termination
of the Employment Period in accordance with the provisions of
Section 1 hereof (the "Final Expiration Date") if the Executive's
employment had not been terminated; provided if the termination
occurs after the date a Change of Control occurs 375% shall be
substituted for 150%;

C. continuation for the Remaining Employment Period of
life insurance and medical benefits coverages, but with the
Company's medical benefits coverages being secondary to any
coverages provided by another employer;

D. effective as of the Date of Termination, (1)
immediate vesting and exercisability of, and termination of any
restrictions on sale or transfer (other than any such
restriction arising by operation of law) with respect to, each
and every stock option, restricted stock award, restricted stock
unit award and other equity-based award and performance award
(each, a "Compensatory Award") that is outstanding as of a time
immediately prior to the Date of Termination, (2) the extension
of the term during which each and every Compensatory Award may be
exercised by the Executive until the earlier of (x) the first
anniversary of the Date of Termination or (y) the date upon which
the right to exercise any Compensatory Award would have expired
if the Executive had continued to be employed by the Company
under the terms of this Agreement until the Final Expiration Date
and (3) at the sole election of Executive, in exchange for any or
all Compensatory Awards that are either denominated in or payable
in Common Stock, an amount in cash equal to the excess of (x) the
Highest Price Per Share (as defined below) over (y) the exercise
or purchase price, if any, of such Compensatory Awards. As used
herein, the term "Highest Price Per Share" shall mean the highest
price per share that can be determined to have been paid or
agreed to be paid for any share of Common Stock by a Covered
Person (as defined below) at any time during the Employment
Period or the six-month period immediately preceding the
Agreement Effective Date. As used herein, the term "Covered
Person" shall mean any Person other than an Exempt Person (in
each case as defined in Section 9 hereof) who (I) is the
Beneficial Owner (as defined in Section 9 hereof) of 10% or more
of the outstanding shares of Common Stock or 10% or more of the
combined voting power of the outstanding Voting Stock (as defined
in Section 9 hereof) of the Company at any time during the

7
<PAGE> 10
Employment Period, (II) is a Person who has any material
involvement in proposing or effectuating the Change of Control
(as defined in Section 9 hereof) or (III) is an assignee of or
has otherwise succeeded to any shares of Common Stock or Voting
Stock of the Company which were at any time during the Employment
Period "beneficially owned" (as defined in Section 9 hereof) by
any Person identified in clause (I) or (II) of this definition,
if such assignment or succession shall have occurred in the
course of a privately negotiated transaction rather than an open
market transaction. For purposes of determining whether a Person
is a Covered Person, the number of shares of Common Stock or
Voting Stock of the Company deemed to be outstanding shall
include shares of which the Person is deemed the Beneficial
Owner, but shall not include any other shares which may be
issuable pursuant to any agreement, arrangement or understanding,
or upon exercise of conversion rights, warrants or options. In
determining the Highest Price Per Share, the price paid or agreed
to be paid by a Covered Person will be appropriately adjusted to
take into account (W) distributions paid or payable in stock, (X)
subdivisions of outstanding stock, (Y) combinations of shares of
stock into a smaller number of shares and (Z) similar events; and

E. as soon as practicable following the calendar year
of the date of termination, an amount equal to the product of (x)
the Annual Bonus that would have been paid to Executive with
respect to the year of termination had the Date of Termination
not occurred and (y) a fraction, the numerator of which is the
number of days in the fiscal year through the Date of Termination
and the denominator of which is 365;

Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the Company is terminated
prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment
(x) was at the request of a third party who has taken steps reasonably
calculated to effect the Change of Control or (y) otherwise arose in connection
with or anticipation of the Change of Control, then for all purposes of this
Agreement, the "date a Change of Control occurs" shall mean the date
immediately prior to the date of such termination of employment.

(ii) for the Remaining Employment Period, or such longer period
as any plan, program, practice or policy may provide, the Company shall
continue benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described in
Sections 2(b)(iv) of this Agreement if the Executive's employment had
not been terminated in accordance with the most favorable plans,
practices, programs or policies of the Company and its affiliated
companies (such continuation of such benefits for the applicable period
herein set forth shall be hereinafter referred to as "Welfare Benefit
Continuation"). For purposes of determining eligibility of the
Executive for retiree benefits

8
<PAGE> 11
pursuant to such plans, practices, programs and policies, the Executive
shall be considered to have remained employed until the Final Expiration
Date and to have retired on such date.

(b) Death (except during a Window Period). If the Executive's
employment is terminated by reason of the Executive's death during the
Employment Period and other than during a Window Period in which event the
provisions of Section 4(a) shall govern, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement, other than (i) the payment of Accrued Obligations (which shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination), (ii) the payment of an amount
equal to the Annual Salary that would have been paid to the Executive pursuant
to this Agreement during the Remaining Employment Period if the Executive's
employment had not terminated by reason of death (which shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination) reduced by the amount payable in respect of
Executive's death under any life insurance policy (other than accidental death
and dismemberment or travel accident policies) but only to the extent such
amounts are attributable to premiums paid by the Company, (iii) during the
period beginning on the Date of Termination and ending on the first anniversary
thereof medical benefits coverage determined as if Executive's employment had
not terminated by reason of death, (iv) as soon as practicable following the
fiscal year in which death occurs, payment of an amount equal to the product of
(x) the Annual Bonus that would have been paid to Executive with respect to the
year of termination had the Date of Termination not occurred and (y) a
fraction, the numerator of which is the number of days in the fiscal year
through the Date of Termination and the denominator of which is 365 and (v)
effective as of the Date of Termination, (A) immediate vesting and
exercisability of, and termination of any restrictions on sale or transfer
(other than any such restriction arising by operation of law) with respect to,
each and every Compensatory Award outstanding as of a time immediately prior
to the Date of Termination, (B) the extension of the term during which each and
every Compensatory Award may be exercised or purchased by the Executive until
the earlier of (1) the first anniversary of the Date of Termination or (2) the
date upon which the right to exercise or purchase any Compensatory Award would
have expired if the Executive had continued to be employed by the Company under
the terms of this Agreement until the Final Expiration Date and (C) at the sole
election of the Executive's legal representative, in exchange for any
Compensatory Award that is either denominated in or payable in Common Stock, an
amount in cash equal to the excess of (1) the Highest Price Per Share over (2)
the exercise or purchase price, if any, of such Compensatory Award.

(c) Cause; Other than for Disability, Good Reason or During a
Window Period. If the Executive's employment shall be terminated for Cause
during the Employment Period and other than during a Window Period, in which
event the provisions of Section 4(a) shall govern, this Agreement shall
terminate without further obligations to the Executive other than for Accrued
Obligations. If the Executive terminates employment during the Employment
Period, excluding a termination for any of Disability, Good Reason or without
any reason during a Window Period, in which event the provisions of Section
4(a) shall govern, this Agreement shall terminate without further obligations
to the Executive, other than for the payment of Accrued Obligations. In such

9
<PAGE> 12
case, all Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.

5. Non-exclusivity of Rights. Except as provided in Section
4 of this Agreement, nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as such plan, policy, practice or
program is superseded by this Agreement.

6. Full Settlement; Resolution of Disputes.

(a) The Company's obligation to make payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any setoff, counterclaim, recoupment, defense, mitigation or other
claim, right or action which the Company may have against the Executive or
others. The Company agrees to pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive
about the amount of any such payment pursuant to this Agreement), plus in each
case interest on any delayed payment at the annual percentage rate which is
three percentage points above the interest rate shown as the Prime Rate in the
Money Rates column in the then most recently published edition of The Wall
Street Journal (Southwest Edition), or, if such rate is not then so published
on at least a weekly basis, the interest rate announced by Chase Manhattan Bank
(or its successor), from time to time, as its Base Rate (or prime lending
rate), from the date those amounts were required to have been paid or
reimbursed to the Employee until those amounts are finally and fully paid or
reimbursed; provided, however, that in no event shall the amount of interest
contracted for, charged or received hereunder exceed the maximum non-usurious
amount of interest allowed by applicable law ; provided, further, that if the
Executive is not the prevailing party in any such contest, then he shall, upon
the conclusion thereof, repay to the Company any amounts that were previously
advanced pursuant to this sentence by the Company as payment of legal fees and
expenses.

10
<PAGE> 13
of competent jurisdiction declaring that such termination was for Cause or
Disability or that the determination by the Executive of the existence of Good
Reason was not made in good faith or that the termination by the Executive did
not occur during a Window Period, the Company shall pay all amounts, and
provide all benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Section 4(a) hereof as though such termination were by the
Company without Cause or by the Executive with Good Reason or during a Window
Period; provided, however, that the Company shall not be required to pay any
disputed amounts pursuant to this paragraph except upon receipt of an
undertaking by or on behalf of the Executive to repay all such amounts to which
the Executive is ultimately adjudged by such court not to be entitled.

7. Certain Additional Payments by the Company.

(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7 (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.

11
<PAGE> 14
Section 7, shall provide to the Company and the Executive a written report
setting forth such determinations, together with detailed supporting
calculations, and, if the Accounting Firm determines that no Excise Tax is
payable, shall deliver the Accounting Opinion to the Executive. Any Gross-Up
Payment, as determined pursuant to this Section 7, shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
determination. Subject to the remainder of this Section 7, any determination
by the Accounting Firm shall be binding upon the Company and the Executive. As
a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that it is ultimately determined
in accordance with the procedures set forth in Section 7(c) that the Executive
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.

(c) The Executive shall notify the Company in writing of any
claims by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 30 days after the Executive
actually receives notice in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid; provided, however, that the failure of the Executive to notify the
Company of such claim (or to provide any required information with respect
thereto) shall not affect any rights granted to the Executive under this
Section 7 except to the extent that the Company is materially prejudiced in the
defense of such claim as a direct result of such failure. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which he gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to the expiration
of such period that it desires to contest such claim, the Executive shall:

(i) give the Company any information reasonably requested by
the Company relating to such claim;

(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney selected by the Company and
reasonably acceptable to the Executive;

(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and

(iv) if the Company elects not to assume and control the
defense of such claim, permit the Company to participate in any
proceedings relating to such claim;

12
<PAGE> 15
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 7(c), the Company shall have the right, at its sole option, to
assume the defense of and control all proceedings in connection with
such contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim, and may either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on an
interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided, that any extension of the
statute of limitations relating to payment of taxes for the taxable year
of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's right to assume the defense of and control the contest shall
be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.

(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c) the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c) a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim, and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.

13
<PAGE> 16
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 8 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement. Also, within 14 days
of the termination of Executive's employment for any reason, Executive shall
return to Company all documents and other tangible items of or containing
Company information which are in Executive's possession, custody or control.

9. Change of Control.

As used in this Agreement, the terms set forth below shall have
the following respective meanings:

"Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as in effect
on the date of this Agreement.

"Associate" shall mean, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated organization or
other entity (other than the Company or a subsidiary of the Company) of which
such Person is an officer or general partner (or officer or general partner of
a general partner) or is, directly or indirectly, the Beneficial Owner of 10%
or more of any class of equity securities, (b) any trust or other estate in
which such Person has a substantial beneficial interest or as to which such
Person serves as trustee or in a similar fiduciary capacity and (c) any
relative or spouse of such Person, or any relative of such spouse, who has the
same home as such Person.

"Beneficial Owner" shall mean, with reference to any securities,
any Person if:

(a) such Person or any of such Person's Affiliates and
Associates, directly or indirectly, is the "beneficial owner" of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement) such
securities or otherwise has the right to vote or dispose of such
securities, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subsection (a) as a result
of an agreement, arrangement or understanding to vote such security if
such agreement, arrangement or understanding: (i) arises solely from a
revocable proxy or consent given in response to a public (i.e., not
including a solicitation exempted by Rule 14a-2(b)(2) of the General
Rules and Regulations under the Exchange Act) proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act
and (ii) is not then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report);

14
<PAGE> 17
(b) such Person or any of such Person's Affiliates and
Associates, directly or indirectly, has the right or obligation to
acquire such securities (whether such right or obligation is exercisable
or effective immediately or only after the passage of time or the
occurrence of an event) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options,
or otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to "beneficially own," (i) securities tendered
pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange or (ii) securities issuable upon
exercise of Exempt Rights; or

(c) such Person or any of such Person's Affiliates or
Associates (i) has any agreement, arrangement or understanding (whether
or not in writing) with any other Person (or any Affiliate or Associate
thereof) that beneficially owns such securities for the purpose of
acquiring, holding, voting (except as set forth in the proviso to
subsection (a) of this definition) or disposing of such securities or
(ii) is a member of a group (as that term is used in Rule 13d-5(b) of
the General Rules and Regulations under the Exchange Act) that includes
any other Person that beneficially owns such securities;

provided, however, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the Beneficial Owner of, or
to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of 40 days after the date of such acquisition. For purposes hereof,
"voting" a security shall include voting, granting a proxy, consenting or
making a request or demand relating to corporate action (including, without
limitation, a demand for a stockholder list, to call a stockholder meeting or
to inspect corporate books and records) or otherwise giving an authorization
(within the meaning of Section 14(a) of the Exchange Act) in respect of such
security.

The terms "beneficially own" and "beneficially owning" shall have
meanings that are correlative to this definition of the term "Beneficial
Owner."

"Change of Control" shall mean any of the following occurring on
or after the IPO Closing Date (and, without limiting the generality of any
other provision hereof, no Change of Control shall be deemed to have occurred
as a result of the consummation of any of the transactions contemplated by the
Combination Agreement among the Company, Carrizo Production, Inc., Encinitas
Partners, Ltd., La Rosa Partners, Ltd., Carrizo Partners, Ltd. and the
shareholders of the Company):

15
<PAGE> 18
Stock or 40% or more of the combined voting power of the Voting Stock of
the Company solely as a result of (i) an Exempt Transaction or (ii) an
acquisition by a Person pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii) and (iii)
of subsection (c) of this definition are satisfied;

(b) individuals who, as of the Agreement Effective Date,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the Agreement Effective
Date whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board; provided,
further, that there shall be excluded, for this purpose, any such
individual whose initial assumption of office occurs as a result of any
actual or threatened election contest that is subject to the provisions
of Rule 14a-11 under the Exchange Act;

(c) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following
such reorganization, merger or consolidation, (i) more than 85% of the
then outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation and the combined
voting power of the then outstanding Voting Stock of such corporation
beneficially owned, directly or indirectly, by all or substantially all
of the Persons who were the Beneficial Owners of the outstanding Common
Stock immediately prior to such reorganization, merger or consolidation
in substantially the same proportions as their ownership, immediately
prior to such reorganization, merger or consolidation, of the
outstanding Common Stock, (ii) no Person (excluding any Exempt Person or
any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 40% or
more of the Common Stock then outstanding or 40% or more of the combined
voting power of the Voting Stock of the Company then outstanding)
beneficially owns, directly or indirectly, 40% or more of the then
outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation or the combined voting
power of the then outstanding Voting Stock of such corporation and (iii)
at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the
initial agreement or initial action by the Board providing for such
reorganization, merger or consolidation; or

16
<PAGE> 19
Company, other than to a corporation, with respect to which, following
such sale or other disposition, (A) more than 85% of the then
outstanding shares of common stock of such corporation and the combined
voting power of the Voting Stock of such corporation is then
beneficially owned, directly or indirectly, by all or substantially all
of the Persons who were the Beneficial Owners of the outstanding Common
Stock immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior
to such sale or other disposition, of the outstanding Common Stock, (B)
no Person (excluding any Exempt Person and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 40% or more of the Common Stock then outstanding or 40% or
more of the combined voting power of the Voting Stock of the Company
then outstanding) beneficially owns, directly or indirectly, 40% or more
of the then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding Voting Stock of such
corporation and (C) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at the
time of the execution of the initial agreement or initial action of the
Board providing for such sale or other disposition of assets of the
Company.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

"Exempt Person" shall mean the Company, any subsidiary of the
Company, any employee benefit plan of the Company or any subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan.

"Exempt Rights" shall mean any rights to purchase shares of
Common Stock or other Voting Stock of the Company if at the time of the
issuance thereof such rights are not separable from such Common Stock or other
Voting Stock (i.e., are not transferable otherwise than in connection with a
transfer of the underlying Common Stock or other Voting Stock) except upon the
occurrence of a contingency, whether such rights exist as of the Agreement
Effective Date or are thereafter issued by the Company as a dividend on shares
of Common Stock or other Voting Securities or otherwise.

"Exempt Transaction" shall mean an increase in the percentage of
the outstanding shares of Common Stock or the percentage of the combined voting
power of the outstanding Voting Stock of the Company beneficially owned by any
Person solely as a result of a reduction in the number of shares of Common
Stock then outstanding due to the repurchase of Common Stock or Voting Stock by
the Company, unless and until such time as (a) such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the Beneficial
Owner of additional shares of Common Stock constituting 1% or more of the then
outstanding shares of Common Stock or additional Voting Stock representing 1%
or more of the combined voting power of the then outstanding Voting Stock, or
(b) any other Person (or Persons) who is (or collectively are) the Beneficial
Owner of shares of Common Stock constituting 1% or more of the then outstanding
shares of Common Stock or Voting Stock representing 1% or more of the combined
voting power of the then outstanding Voting Stock shall become an Affiliate or
Associate of such Person.

17
<PAGE> 20
"Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.

"Voting Stock" shall mean, with respect to a corporation, all
securities of such corporation of any class or series that are entitled to vote
generally in the election of directors of such corporation (excluding any class
or series that would be entitled so to vote by reason of the occurrence of any
contingency, so long as such continency has not occurred).

10. Covenant Not to Compete.

(a) Executive recognizes that in each of the highly
competitive businesses in which the Company is engaged, personal contact is of
primary importance in securing new customers and in retaining the accounts and
goodwill of present customers and protecting the business of the Company. The
Executive, therefore, agrees that during the Employment Period and, if the Date
of Termination occurs by reason of the Executive terminating his employment for
reasons other than Disability or Good Reason and other than during a Window
Period, for a period of two years after the Date of Termination, he will not,
either within 20 miles of any geographic location with respect to which he has
devoted substantial attention to the material business interests of the Company
or any of its affiliated companies or with respect to any immediate geologic
trends in which the Company or any of its affiliated companies is active as of
the Date of Termination without regard, in either case, to whether the
Executive has worked at such location (the "Relevant Geographic Area"), with
respect to only the Relevant Geographic Area, (i) accept employment or render
service to any person that is engaged in a business directly competitive with
the business then engaged in by the Company or any of its affiliated companies
or (ii) enter into or take part in or lend his name, counsel or assistance to
any business, either as proprietor, principal, investor, partner, director,
officer, executive, consultant, advisor, agent, independent contractor, or in
any other capacity whatsoever, for any purpose that would be competitive with
the business of the Company or any of its affiliated companies (all of the
foregoing activities are collectively referred to as the "Prohibited
Activity").

(b) In addition to all other remedies at law or in equity
which the Company may have for breach of a provision of this Section 10 by the
Executive, it is agreed that in the event of any breach or attempted or
threatened breach of any such provision, the Company shall be entitled, upon
application to any court of proper jurisdiction, to a temporary restraining
order or preliminary injunction (without the necessity of (i) proving
irreparable harm, (ii) establishing that monetary damages are inadequate or
(iii) posting any bond with respect thereto) against the Executive prohibiting
such breach or attempted or threatened breach by proving only the existence of
such breach or attempted or threatened breach. If the provisions of this
Section 10 should ever be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable law, the Executive and the Company
agree that such provisions shall be and are hereby reformed to the maximum
time, geographic or occupational limitations permitted by the applicable law.

18
<PAGE> 21
(c) The covenants of the Executive set forth in this Section
10 are independent of and severable from every other provision of this
Agreement; and the breach of any other provision of this Agreement by the
Company or the breach by the Company of any other agreement between the Company
and the Executive shall not affect the validity of the provisions of this
Section 10 or constitute a defense of the Executive in any suit or action
brought by the Company to enforce any of the provisions of this Section 10 or
seek any relief for the breach thereof by Executive.

(d) The Executive acknowledges, agrees and stipulates that:
(i) the terms and provisions of this Agreement are reasonable and constitute an
otherwise enforceable agreement to which the terms and provisions of this
Section 10 are ancillary or a part of as contemplated by TEX. BUS. & COM. CODE
ANN. Sections 15.50-15.52; (ii) the consideration provided by the Company
under this Agreement is not illusory; and (iii) the consideration given by the
Company under this Agreement, including, without limitation, the provision by
the Company of Confidential Information to the Executive as contemplated by
Section 8, gives rise to the Company's interest in restraining and prohibiting
the Executive from engaging in the Prohibited Activity within the Relevant
Geographic Area as provided under this Section 10, and the Executive's covenant
not to engage in the Prohibited Activity within the Relevant Geographic Area
pursuant to this Section 10 is designed to enforce the Executive's
consideration (or return promises), including, without limitation, the
Executive's promise to not disclose Confidential Information under this
Agreement.

11. Successors.

(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
heirs, executors and other legal representatives.

(b) This Agreement shall inure to the benefit of and be
binding upon the Company and may only be assigned to a successor described in
Section 11(c).

(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.

12. Miscellaneous.

(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to principles
of conflict of laws that would require the application of the laws of any other
state or jurisdiction.

19
<PAGE> 22
(b) The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.

(c) This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and heirs, executors and other legal representatives.

(d) All notices and other communications hereunder shall be in
writing and shall be given, if by the Executive to the Company, by telecopy or
facsimile transmission at the telecommunications number set forth below and, if
by either the Company or the Executive, either by hand delivery to the other
party or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:

If to the Executive:

S. P. Johnson, IV
Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079

If to the Company:

Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Telecommunications Number: (281) 496-1352
Attention: Corporate Secretary

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

(e) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.

(f) The Company may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.

(g) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason or during a Window Period pursuant to

20
<PAGE> 23
Section 3(c) of this Agreement, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.

(h) This agreement contains the complete and total
understanding of the parties concerning the subject matter hereof and expressly
supersedes any previous agreement between the parties relating to the subject
matter hereof.

(i) This Agreement shall become effective as of the date
hereof (the "Agreement Effective Date").

IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.

CARRIZO OIL & GAS, INC.

By: /s/ PAUL B. LOYD, JR.
---------------------------------

/s/ S. P. JOHNSON IV
------------------------------------
S. P. Johnson, IV

<PAGE> 1
EXHIBIT 10.3

EMPLOYMENT AGREEMENT
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Terms of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Position and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(i) Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(ii) Annual Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(iii) Incentive, Savings and Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(iv) Welfare Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(v) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(vi) Fringe Benefits and Perquisites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(vii) Office and Support Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(viii) Vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(ix) Stock Option Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Death or Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Good Reason; Window Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Notice of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Date of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Obligations of the Company upon Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Disability, Good Reason or During a Window Period; Other than for Cause . . . . . . . . . . . . . . . 6
(b) Death (except during a Window Period) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Cause; Other than for Disability, Good Reason or During a Window Period . . . . . . . . . . . . . . . 9
5. Non-exclusivity of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6. Full Settlement; Resolution of Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7. Certain Additional Payments by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8. Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10. Covenant Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>

-i-
<PAGE> 3

EMPLOYMENT AGREEMENT

This AGREEMENT (the "Agreement") by and between Carrizo Oil &
Gas, Inc., a Texas corporation (the "Company"), and Frank A. Wojtek (the
"Executive"), dated as of the 13th day of June, 1997 and to be effective as of
the Agreement Effective Date (as defined herein).

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1. Employment Period. As of the Agreement Effective
Date (hereinafter defined), the Company hereby agrees to employ the Executive
and the Executive hereby agrees to accept employment with the Company, in
accordance with, and subject to, the terms and provisions of this Agreement,
for the period (the "Employment Period") commencing on the Agreement Effective
Date and ending on the third anniversary of the Agreement Effective Date;
provided, on the second anniversary of the Agreement Effective Date and on each
day thereafter, the Employment Period shall automatically be extended for an
additional one day without any further action by either the Company or the
Executive, it being the intention of the parties that there shall be
continuously a remaining term of not less than one year's duration of the
Employment Period until an event has occurred as described in, or one of the
parties shall have made an appropriate election pursuant to, the provisions of
Section 3.

2. Terms of Employment.

(a) Position and Duties. It is contemplated that
initially Executive shall be a part time employee with limited duties and
responsibilities and that upon commencement of his entitlement to Base Salary
under Section 2(b)(i) of this Agreement, the following shall apply:

(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant
of those held, exercised and assigned on the Agreement Effective Date,
which shall in any event include status as a member of the Board of
Directors of the Company, and (B) the Executive's services shall be
performed within the Houston, Texas metropolitan area.

1
<PAGE> 4
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote full attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period, it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments,
so long as such activities do not interfere with the performance of
the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the
Executive prior to the Agreement Effective Date, the continued conduct
of such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Agreement Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.

(b) Compensation.

(i) Base Salary. Commencing on the earlier to occur of
(x) the IPO Closing Date as defined in Section 4(a) of this Agreement
and (y) the date on which Executive commences full time employment
with the Company and thereafter during his Employment Period, the
Executive shall receive an annual base salary of $150,000 ("Annual
Base Salary"), which shall be paid on a semimonthly basis. During the
Employment Period, the Annual Base Salary shall be reviewed at least
annually and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base salary
generally awarded in the ordinary course of business to executives of
the Company and its affiliated companies. Any increase in Annual Base
Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be
reduced after any such increase and the term "Annual Base Salary," as
utilized in this Agreement, shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies"
shall include, when used with reference to the Company, any company
controlled by, controlling or under common control with the Company.

(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive may be awarded, for each fiscal year or portion thereof
during the Employment Period, an Annual Bonus (the "Annual Bonus"), in
an amount comparable to the Annual Bonus Award to other Company
executives, taking into account Executive's position and
responsibilities with the Company, prorated for any period consisting
of less than 12 full months.

2
<PAGE> 5
("Code"), and all plans that are supplemental to any such
tax-qualified plans, in each case to the extent that such plans are
applicable generally to other executives of the Company and its
affiliated companies, but in no event shall such plans provide the
Executive with incentive opportunities (measured with respect to both
regular and special incentive opportunities, to the extent, if any,
that such distinction is applicable), savings opportunities and
retirement benefit opportunities that are, in each case, less
favorable to the Executive, in the aggregate, than the most favorable
plans of the Company and its affiliated companies. As used in this
Agreement, the term "most favorable" shall, when used with reference
to any plans, practices, policies or programs of the Company and its
affiliated companies, be deemed to refer to the plans, practices,
policies or programs of the Company and its affiliated companies, as
in effect at any time during the Employment Period and provided
generally to other executives of the Company or its affiliated
companies, which are most favorable to the Executive.

(iv) Welfare Benefit Plans. During the Employment Period,
the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by
the Company or its affiliated companies (including, without
limitation, medical, prescription, dental, vision, disability, salary
continuance, group life and supplemental group life, accidental death
and travel accident insurance plans and programs) to the extent
applicable generally to other executives of the Company or its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits that are
less favorable, in the aggregate, than the most favorable such plans,
practices, policies and programs of the Company and its affiliated
companies.

(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies.

(vi) Fringe Benefits and Perquisites. During the
Employment Period, the Executive shall be entitled to fringe benefits
and perquisites in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated
companies applicable to similarly situated executives.

(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to secretarial
and other assistance to the extent needed to fulfill his corporate
responsibilities, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated
companies at any time during the Employment Period.

3
<PAGE> 6
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies.

(ix) Stock Option Grant. On the IPO Closing Date as
defined in Section 4(a) of this Agreement, Executive will be granted
stock options on 40,000 shares of Company common stock, par value $.01
per share ("Common Stock"), at an exercise price equal to the IPO
Price ("Initial Stock Option"). The Initial Stock Option has a term
of 10 years and is exercisable for the total number of shares subject
to the option, beginning on the Date of Grant. "IPO" shall mean the
initial public offering of Common Stock pursuant to which the Company
receives payment in cash for shares of its Common Stock that it sells
pursuant to a registration statement on Form S-1 filed and declared
effective under the Securities Act of 1933. "IPO Price" shall mean
the per share price to the public for the Common Stock sold in the
IPO, as set forth on the cover page of the final prospectus for the
IPO.

3. Termination of Employment.

(a) Death or Disability. The Executive's employment
shall terminate automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the definition
of Disability set forth below), it may give to the Executive written notice in
accordance with Section 11(d) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's
duties with the Company on a full-time basis for either (i) 180 consecutive
business days or (ii) in any two-year period 270 nonconsecutive business days
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).

4
<PAGE> 7
expressly required by this Agreement; or (v) the Executive's continuing failure
to substantially perform his duties and responsibilities hereunder (except by
reason of the Executive's incapacity due to physical or mental illness or
injury) for a period of 45 days after the Required Board Majority, as defined
herein, has delivered to the Executive a written demand for substantial
performance hereunder which specifically identifies the bases for the Required
Board Majority's determination that the Executive has not substantially
performed his duties and responsibilities hereunder (that period being the
"Grace Period"); provided, that for purposes of this clause (v), the Company
shall not have Cause to terminate the Executive's employment unless (A) at a
meeting of the Board called and held following the Grace Period in the city in
which the Company's principal executive offices are located, of which the
Executive was given not less than 10 days' prior written notice and at which
the Executive was afforded the opportunity to be represented by counsel, appear
and be heard, the Required Board Majority shall adopt a written resolution
which (1) sets forth the Required Board Majority's determination that the
failure of the Executive to substantially perform his duties and
responsibilities hereunder has (except by reason of his incapacity due to
physical or mental illness or injury) continued past the Grace Period and (2)
specifically identifies the bases for that determination, and (B) the Company,
at the written direction of the Required Board Majority, shall deliver to the
Executive a Notice of Termination for Cause to which a copy of that resolution,
certified as being true and correct by the secretary or any assistant secretary
of the Company, is attached. "Required Board Majority" means at any time a
majority of the members of the Board at that time which includes at least a
majority of the Directors, each of whom has not been an employee of the Company
or any subsidiary of the Company.

(c) Good Reason; Window Period. The Executive's
employment may be terminated during the Employment Period by the Executive for
Good Reason, or during a Window Period by the Executive without any reason.
For purposes of this Agreement, "Window Period" shall mean the 60-day period
immediately following elapse of one year after any Change of Control as defined
in Section 9 of this Agreement. For purposes of this Agreement, "Good Reason"
shall mean:

(ii) any material failure by the Company to comply
with any of the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;

5
<PAGE> 8
(iii) the Company's requiring the Executive to be
based at any office outside the Houston metropolitan area;

(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly permitted by
this Agreement;

(v) any failure by the Company to comply with and
satisfy the requirements of Section 11 of this Agreement, provided
that (A) the successor described in Section 11(c) has received, at
least 10 days prior to the Date of Termination (as defined in
subparagraph (e) below), written notice from the Company or the
Executive of the requirements of such provision and (B) such failure
to be in compliance and satisfy the requirements of Section 11 shall
continue as of the Date of Termination; or

(vi) any failure to reelect Executive as a member
of the Board.

(d) Notice of Termination. Any termination by the
Company for Cause, or by the Executive for Good Reason or without any reason
during a Window Period, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(d) of this Agreement.
The failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.

(e) Date of Termination. For purposes of this Agreement,
the term "Date of Termination" means (i) if the Executive's employment is
terminated by the Company for Cause, or by the Executive during a Window Period
or for Good Reason, the date of receipt of the Notice of Termination or any
later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the
case may be.

4. Obligations of the Company upon Termination.

(a) Disability, Good Reason or During a Window Period;
Other than for Cause or Death (except during a Window Period). If, during the
Employment Period and after the date on which the Company first receives
payment for shares of its Common Stock that it sells pursuant to a registration
statement filed under the Securities Act of 1933 (the "IPO Closing Date"), (x)
the Company shall terminate the Executive's employment other than for Cause,
including a termination by reason of Disability (but not by reason of death),
or (y) the Executive shall terminate employment

6
<PAGE> 9
for Good Reason or (z) his employment shall be terminated during a Window
Period by the Company for Cause, by the Executive without any reason, or by
reason of death:

(i) the Company shall pay or provide to or in respect of
the Executive the following amounts and benefits:

A. in a lump sum in cash, within 10 days after
the Date of Termination, an amount equal to the sum of (1) the
Executive's Annual Base Salary through the Date of
Termination, (2) any deferred compensation previously awarded
to or earned by the Executive (together with any accrued
interest or earnings thereon) and (3) any compensation for
unused vacation time for which the Executive is eligible in
accordance with the most favorable plans, policies, programs
and practices of the Company and its affiliated companies, in
each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligation");

B. in a lump sum in cash, discounted at 6%,
within 10 days after the Date of Termination, an amount equal
to 150% of Annual Base Salary that would have been paid
annually to the Executive pursuant to this Agreement for the
period (the "Remaining Employment Period") beginning on the
Date of Termination and ending on the latest possible date of
termination of the Employment Period in accordance with the
provisions of Section 1 hereof (the "Final Expiration Date")
if the Executive's employment had not been terminated;
provided if the termination occurs after the date a Change of
Control occurs 375% shall be substituted for 150%;

C. continuation for the Remaining Employment
Period of life insurance and medical benefits coverages, but
with the Company's medical benefits coverages being secondary
to any coverages provided by another employer;

7
<PAGE> 10
of (x) the Highest Price Per Share (as defined below) over (y)
the exercise or purchase price, if any, of such Compensatory
Awards. As used herein, the term "Highest Price Per Share"
shall mean the highest price per share that can be determined
to have been paid or agreed to be paid for any share of Common
Stock by a Covered Person (as defined below) at any time
during the Employment Period or the six-month period
immediately preceding the Agreement Effective Date. As used
herein, the term "Covered Person" shall mean any Person other
than an Exempt Person (in each case as defined in Section 9
hereof) who (I) is the Beneficial Owner (as defined in Section
9 hereof) of 10% or more of the outstanding shares of Common
Stock or 10% or more of the combined voting power of the
outstanding Voting Stock (as defined in Section 9 hereof) of
the Company at any time during the Employment Period, (II) is
a Person who has any material involvement in proposing or
effectuating the Change of Control (as defined in Section 9
hereof) or (III) is an assignee of or has otherwise succeeded
to any shares of Common Stock or Voting Stock of the Company
which were at any time during the Employment Period
"beneficially owned" (as defined in Section 9 hereof) by any
Person identified in clause (I) or (II) of this definition, if
such assignment or succession shall have occurred in the
course of a privately negotiated transaction rather than an
open market transaction. For purposes of determining whether
a Person is a Covered Person, the number of shares of Common
Stock or Voting Stock of the Company deemed to be outstanding
shall include shares of which the Person is deemed the
Beneficial Owner, but shall not include any other shares which
may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants
or options. In determining the Highest Price Per Share, the
price paid or agreed to be paid by a Covered Person will be
appropriately adjusted to take into account (W) distributions
paid or payable in stock, (X) subdivisions of outstanding
stock, (Y) combinations of shares of stock into a smaller
number of shares and (Z) similar events; and

E. as soon as practicable following the calendar
year of the date of termination, an amount equal to the
product of (x) the Annual Bonus that would have been paid to
Executive with respect to the year of termination had the Date
of Termination not occurred and (y) a fraction, the numerator
of which is the number of days in the fiscal year through the
Date of Termination and the denominator of which is 365;

8
<PAGE> 11
of Control, then for all purposes of this Agreement, the "date a Change of
Control occurs" shall mean the date immediately prior to the date of such
termination of employment.

(ii) for the Remaining Employment Period, or such longer
period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Sections 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated in accordance with the
most favorable plans, practices, programs or policies of the Company
and its affiliated companies (such continuation of such benefits for
the applicable period herein set forth shall be hereinafter referred
to as "Welfare Benefit Continuation"). For purposes of determining
eligibility of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the Final Expiration Date
and to have retired on such date.

(b) Death (except during a Window Period). If the
Executive's employment is terminated by reason of the Executive's death during
the Employment Period and other than during a Window Period in which event the
provisions of Section 4(a) shall govern, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement, other than (i) the payment of Accrued Obligations (which shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination), (ii) the payment of an amount
equal to the Annual Salary that would have been paid to the Executive pursuant
to this Agreement during the Remaining Employment Period if the Executive's
employment had not terminated by reason of death (which shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination) reduced by the amount payable in respect of
Executive's death under any life insurance policy (other than accidental death
and dismemberment or travel accident policies) but only to the extent such
amounts are attributable to premiums paid by the Company, (iii) during the
period beginning on the Date of Termination and ending on the first anniversary
thereof medical benefits coverage determined as if Executive's employment had
not terminated by reason of death, (iv) as soon as practicable following the
fiscal year in which death occurs, payment of an amount equal to the product of
(x) the Annual Bonus that would have been paid to Executive with respect to the
year of termination had the Date of Termination not occurred and (y) a
fraction, the numerator of which is the number of days in the fiscal year
through the Date of Termination and the denominator of which is 365 and (v)
effective as of the Date of Termination, (A) immediate vesting and
exercisability of, and termination of any restrictions on sale or transfer
(other than any such restriction arising by operation of law) with respect to,
each and every Compensatory Award outstanding as of a time immediately prior to
the Date of Termination, (B) the extension of the term during which each and
every Compensatory Award may be exercised or purchased by the Executive until
the earlier of (1) the first anniversary of the Date of Termination or (2) the
date upon which the right to exercise or purchase any Compensatory Award would
have expired if the Executive had continued to be employed by the Company under
the terms of this Agreement until the Final Expiration Date and (C) at the sole

9
<PAGE> 12
election of the Executive's legal representative, in exchange for any
Compensatory Award that is either denominated in or payable in Common Stock, an
amount in cash equal to the excess of (1) the Highest Price Per Share over (2)
the exercise or purchase price, if any, of such Compensatory Award.

(c) Cause; Other than for Disability, Good Reason or
During a Window Period. If the Executive's employment shall be terminated for
Cause during the Employment Period and other than during a Window Period, in
which event the provisions of Section 4(a) shall govern, this Agreement shall
terminate without further obligations to the Executive other than for Accrued
Obligations. If the Executive terminates employment during the Employment
Period, excluding a termination for any of Disability, Good Reason or without
any reason during a Window Period, in which event the provisions of Section
4(a) shall govern, this Agreement shall terminate without further obligations
to the Executive, other than for the payment of Accrued Obligations. In such
case, all Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.

5. Non-exclusivity of Rights. Except as provided in
Section 4 of this Agreement, nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any plan, program, policy
or practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as such plan, policy, practice or
program is superseded by this Agreement.

6. Full Settlement; Resolution of Disputes.

10
<PAGE> 13
interest rate announced by Chase Manhattan Bank (or its successor), from time
to time, as its Base Rate (or prime lending rate), from the date those amounts
were required to have been paid or reimbursed to the Employee until those
amounts are finally and fully paid or reimbursed; provided, however, that in no
event shall the amount of interest contracted for, charged or received
hereunder exceed the maximum non-usurious amount of interest allowed by
applicable law ; provided, further, that if the Executive is not the prevailing
party in any such contest, then he shall, upon the conclusion thereof, repay to
the Company any amounts that were previously advanced pursuant to this sentence
by the Company as payment of legal fees and expenses.

(b) If there shall be any dispute between the Company and
the Executive concerning (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause or
Disability, or (ii) in the event of any termination of employment by the
Executive, whether Good Reason existed or whether such termination occurred
during a Window Period, then, unless and until there is a final, nonappealable
judgment by a court of competent jurisdiction declaring that such termination
was for Cause or Disability or that the determination by the Executive of the
existence of Good Reason was not made in good faith or that the termination by
the Executive did not occur during a Window Period, the Company shall pay all
amounts, and provide all benefits, to the Executive and/or the Executive's
family or other beneficiaries, as the case may be, that the Company would be
required to pay or provide pursuant to Section 4(a) hereof as though such
termination were by the Company without Cause or by the Executive with Good
Reason or during a Window Period; provided, however, that the Company shall not
be required to pay any disputed amounts pursuant to this paragraph except upon
receipt of an undertaking by or on behalf of the Executive to repay all such
amounts to which the Executive is ultimately adjudged by such court not to be
entitled.

7. Certain Additional Payments by the Company.

11
<PAGE> 14
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen LLP (the "Accounting Firm"); provided, however, that the
Accounting Firm shall not determine that no Excise Tax is payable by the
Executive unless it delivers to the Executive a written opinion (the
"Accounting Opinion") that failure to report the Excise Tax on the Executive's
applicable federal income tax return would not result in the imposition of a
negligence or similar penalty. In the event that by Deloitte & Touche LLP has
served, at any time during the two years immediately preceding a Change in
Control Date, as accountant or auditor for the individual, entity or group that
is involved in effecting or has any material interest in the Change in Control,
the Executive shall appoint another nationally recognized accounting firm to
make the determinations and perform the other functions specified in this
Section 7 (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Within 15 business days of the receipt of notice from
the Executive that there has been a Payment, or such earlier time as is
requested by the Company, the Accounting Firm shall make all determinations
required under this Section 7, shall provide to the Company and the Executive a
written report setting forth such determinations, together with detailed
supporting calculations, and, if the Accounting Firm determines that no Excise
Tax is payable, shall deliver the Accounting Opinion to the Executive. Any
Gross-Up Payment, as determined pursuant to this Section 7, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Subject to the remainder of this Section 7, any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that it is ultimately
determined in accordance with the procedures set forth in Section 7(c) that the
Executive is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.

(c) The Executive shall notify the Company in writing of
any claims by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 30 days after the Executive
actually receives notice in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid; provided, however, that the failure of the Executive to notify the
Company of such claim (or to provide any required information with respect
thereto) shall not affect any rights granted to the Executive under this
Section 7 except to the extent that the Company is materially prejudiced in the
defense of such claim as a direct result of such failure. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which he gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due). If the

12
<PAGE> 15
Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:

(i) give the Company any information reasonably requested
by the Company relating to such claim;

(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Company and
reasonably acceptable to the Executive;

(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and

(iv) if the Company elects not to assume and control the
defense of such claim, permit the Company to participate in any
proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 7(c), the Company shall have the right, at its sole option, to
assume the defense of and control all proceedings in connection with such
contest, in which case it may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim, and may either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however, that
if the Company directs the Executive to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to the Executive, on an
interest-free basis, and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further
provided, that any extension of the statute of limitations relating to payment
of taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's right to assume the defense of and control
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.

13
<PAGE> 16
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c) the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c) a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim, and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.

8. Confidential Information. The Executive shall hold
in a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or any of
its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executive's employment by the Company
or any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement) (referred to herein as "Confidential
Information"). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it. In no event shall an asserted violation of
the provisions of this Section 8 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this
Agreement. Also, within 14 days of the termination of Executive's employment
for any reason, Executive shall return to Company all documents and other
tangible items of or containing Company information which are in Executive's
possession, custody or control.

9. Change of Control.

As used in this Agreement, the terms set forth below shall
have the following respective meanings:

"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in
effect on the date of this Agreement.

14
<PAGE> 17
capacity and (c) any relative or spouse of such Person, or any relative of such
spouse, who has the same home as such Person.

"Beneficial Owner" shall mean, with reference to any
securities, any Person if:

(a) such Person or any of such Person's Affiliates and
Associates, directly or indirectly, is the "beneficial owner" of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement)
such securities or otherwise has the right to vote or dispose of such
securities, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subsection (a) as a result
of an agreement, arrangement or understanding to vote such security if
such agreement, arrangement or understanding: (i) arises solely from
a revocable proxy or consent given in response to a public (i.e., not
including a solicitation exempted by Rule 14a-2(b)(2) of the General
Rules and Regulations under the Exchange Act) proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act
and (ii) is not then reportable by such Person on Schedule 13D under
the Exchange Act (or any comparable or successor report);

(b) such Person or any of such Person's Affiliates and
Associates, directly or indirectly, has the right or obligation to
acquire such securities (whether such right or obligation is
exercisable or effective immediately or only after the passage of time
or the occurrence of an event) pursuant to any agreement, arrangement
or understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options,
or otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to "beneficially own," (i) securities tendered
pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange or (ii) securities issuable upon
exercise of Exempt Rights; or

(c) such Person or any of such Person's Affiliates or
Associates (i) has any agreement, arrangement or understanding
(whether or not in writing) with any other Person (or any Affiliate or
Associate thereof) that beneficially owns such securities for the
purpose of acquiring, holding, voting (except as set forth in the
proviso to subsection (a) of this definition) or disposing of such
securities or (ii) is a member of a group (as that term is used in
Rule 13d-5(b) of the General Rules and Regulations under the Exchange
Act) that includes any other Person that beneficially owns such
securities;

15
<PAGE> 18
the expiration of 40 days after the date of such acquisition. For purposes
hereof, "voting" a security shall include voting, granting a proxy, consenting
or making a request or demand relating to corporate action (including, without
limitation, a demand for a stockholder list, to call a stockholder meeting or
to inspect corporate books and records) or otherwise giving an authorization
(within the meaning of Section 14(a) of the Exchange Act) in respect of such
security.

The terms "beneficially own" and "beneficially owning" shall
have meanings that are correlative to this definition of the term "Beneficial
Owner."

"Change of Control" shall mean any of the following occurring
on or after the IPO Closing Date (and, without limiting the generality of any
other provision hereof, no Change of Control shall be deemed to have occurred
as a result of the consummation of any of the transactions contemplated by the
Combination Agreement among the Company, Carrizo Production, Inc., Encinitas
Partners, Ltd., La Rosa Partners, Ltd., Carrizo Partners, Ltd. and the
shareholders of the Company):

(a) any Person (other than an Exempt Person) shall become
the Beneficial Owner of 40% or more of the shares of Common Stock then
outstanding or 40% or more of the combined voting power of the Voting
Stock of the Company then outstanding; provided, however, that no
Change of Control shall be deemed to occur for purposes of this
subsection (a) if such Person shall become a Beneficial Owner of 40%
or more of the shares of Common Stock or 40% or more of the combined
voting power of the Voting Stock of the Company solely as a result of
(i) an Exempt Transaction or (ii) an acquisition by a Person pursuant
to a reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (i), (ii) and (iii) of subsection (c) of this definition are
satisfied;

(b) individuals who, as of the Agreement Effective Date,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Agreement
Effective Date whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board; provided, further, that there shall be excluded, for this
purpose, any such individual whose initial assumption of office occurs
as a result of any actual or threatened election contest that is
subject to the provisions of Rule 14a-11 under the Exchange Act;

16
<PAGE> 19
indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding Common Stock immediately prior to
such reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the outstanding Common
Stock, (ii) no Person (excluding any Exempt Person or any Person
beneficially owning, immediately prior to such reorganization, merger
or consolidation, directly or indirectly, 40% or more of the Common
Stock then outstanding or 40% or more of the combined voting power of
the Voting Stock of the Company then outstanding) beneficially owns,
directly or indirectly, 40% or more of the then outstanding shares of
common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then
outstanding Voting Stock of such corporation and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the
initial agreement or initial action by the Board providing for such
reorganization, merger or consolidation; or

(d) approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company unless such
liquidation or dissolution is approved as part of a plan of
liquidation and dissolution involving a sale or disposition of all or
substantially all of the assets of the Company to a corporation with
respect to which, following such sale or other disposition, all of the
requirements of clauses (ii)(A), (B) and (C) of this subsection (d)
are satisfied, or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a
corporation, with respect to which, following such sale or other
disposition, (A) more than 85% of the then outstanding shares of
common stock of such corporation and the combined voting power of the
Voting Stock of such corporation is then beneficially owned, directly
or indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding Common Stock immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition,
of the outstanding Common Stock, (B) no Person (excluding any Exempt
Person and any Person beneficially owning, immediately prior to such
sale or other disposition, directly or indirectly, 40% or more of the
Common Stock then outstanding or 40% or more of the combined voting
power of the Voting Stock of the Company then outstanding)
beneficially owns, directly or indirectly, 40% or more of the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding Voting Stock of such
corporation and (C) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at
the time of the execution of the initial agreement or initial action
of the Board providing for such sale or other disposition of assets of
the Company.

"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

17
<PAGE> 20
"Exempt Person" shall mean the Company, any subsidiary of the
Company, any employee benefit plan of the Company or any subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan.

"Exempt Transaction" shall mean an increase in the percentage
of the outstanding shares of Common Stock or the percentage of the combined
voting power of the outstanding Voting Stock of the Company beneficially owned
by any Person solely as a result of a reduction in the number of shares of
Common Stock then outstanding due to the repurchase of Common Stock or Voting
Stock by the Company, unless and until such time as (a) such Person or any
Affiliate or Associate of such Person shall purchase or otherwise become the
Beneficial Owner of additional shares of Common Stock constituting 1% or more
of the then outstanding shares of Common Stock or additional Voting Stock
representing 1% or more of the combined voting power of the then outstanding
Voting Stock, or (b) any other Person (or Persons) who is (or collectively are)
the Beneficial Owner of shares of Common Stock constituting 1% or more of the
then outstanding shares of Common Stock or Voting Stock representing 1% or more
of the combined voting power of the then outstanding Voting Stock shall become
an Affiliate or Associate of such Person.

"Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.

10. Covenant Not to Compete.

18
<PAGE> 21
with respect to which he has devoted substantial attention to the material
business interests of the Company or any of its affiliated companies or with
respect to any immediate geologic trends in which the Company or any of its
affiliated companies is active as of the Date of Termination without regard, in
either case, to whether the Executive has worked at such location (the
"Relevant Geographic Area"), with respect to only the Relevant Geographic Area,
(i) accept employment or render service to any person that is engaged in a
business directly competitive with the business then engaged in by the Company
or any of its affiliated companies or (ii) enter into or take part in or lend
his name, counsel or assistance to any business, either as proprietor,
principal, investor, partner, director, officer, executive, consultant,
advisor, agent, independent contractor, or in any other capacity whatsoever,
for any purpose that would be competitive with the business of the Company or
any of its affiliated companies (all of the foregoing activities are
collectively referred to as the "Prohibited Activity").

(c) The covenants of the Executive set forth in this
Section 10 are independent of and severable from every other provision of this
Agreement; and the breach of any other provision of this Agreement by the
Company or the breach by the Company of any other agreement between the Company
and the Executive shall not affect the validity of the provisions of this
Section 10 or constitute a defense of the Executive in any suit or action
brought by the Company to enforce any of the provisions of this Section 10 or
seek any relief for the breach thereof by Executive.

(d) The Executive acknowledges, agrees and stipulates
that: (i) the terms and provisions of this Agreement are reasonable and
constitute an otherwise enforceable agreement to which the terms and provisions
of this Section 10 are ancillary or a part of as contemplated by TEX. BUS. &
COM. CODE ANN. Sections 15.50-15.52; (ii) the consideration provided by the
Company under this Agreement is not illusory; and (iii) the consideration given
by the Company under this Agreement, including, without limitation, the
provision by the Company of Confidential Information to the Executive as
contemplated by Section 8, gives rise to the Company's interest in restraining
and prohibiting the Executive from engaging in the Prohibited Activity within
the Relevant Geographic Area as provided under this Section 10, and the
Executive's covenant not to engage in the Prohibited Activity within the
Relevant Geographic Area pursuant to this Section 10 is designed to enforce the

19
<PAGE> 22
Executive's consideration (or return promises), including, without limitation,
the Executive's promise to not disclose Confidential Information under this
Agreement.

11. Successors.

(a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
heirs, executors and other legal representatives.

(b) This Agreement shall inure to the benefit of and be
binding upon the Company and may only be assigned to a successor described in
Section 11(c).

(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.

12. Miscellaneous.

(b) The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.

(c) This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and heirs, executors and other legal representatives.

(d) All notices and other communications hereunder shall
be in writing and shall be given, if by the Executive to the Company, by
telecopy or facsimile transmission at the telecommunications number set forth
below and, if by either the Company or the Executive, either by hand delivery
to the other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:

20
<PAGE> 23
If to the Executive:

Frank A. Wojtek
Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079

If to the Company:

Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Telecommunications Number: (281) 496-1352
Attention: Corporate Secretary

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

(e) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.

(f) The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.

(g) The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason or during a Window Period pursuant to
Section 3(c) of this Agreement, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.

(i) This Agreement shall become effective as of the date
hereof (the "Agreement Effective Date").

21
<PAGE> 24
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.

CARRIZO OIL & GAS, INC.

By: /s/ PAUL B. LOYD, JR.
-------------------------------------

/s/ FRANK A. WOJTEK
----------------------------------------
Frank A. Wojtek

<PAGE> 1
EXHIBIT 10.4

EMPLOYMENT AGREEMENT

<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Terms of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Position and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(i) Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(ii) Annual Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(iii) Incentive, Savings and Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(iv) Welfare Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(v) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(vi) Fringe Benefits and Perquisites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(vii) Office and Support Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(viii) Vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(ix) Stock Option Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Death or Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Good Reason; Window Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Notice of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(e) Date of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Obligations of the Company upon Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Disability, Good Reason or During a Window Period; Other than for Cause . . . . . . . . . . . . . . . 6
(b) Death (except during a Window Period) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Cause; Other than for Disability, Good Reason or During a Window Period . . . . . . . . . . . . . . . 9
5. Non-exclusivity of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. Full Settlement; Resolution of Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7. Certain Additional Payments by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8. Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10. Covenant Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>

-i-

<PAGE> 3

EMPLOYMENT AGREEMENT

This AGREEMENT (the "Agreement") by and between Carrizo Oil &
Gas, Inc., a Texas corporation (the "Company"), and Ken Trahan (the
"Executive"), dated as of the 6th day of June, 1997 and to be effective as of
the Agreement Effective Date (as defined herein).

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1. Employment Period. As of the Agreement Effective
Date (hereinafter defined), the Company hereby agrees to employ the Executive
and the Executive hereby agrees to accept employment with the Company, in
accordance with, and subject to, the terms and provisions of this Agreement,
for the period (the "Employment Period") commencing on the Agreement Effective
Date and ending on the third anniversary of the Agreement Effective Date;
provided, on the second anniversary of the Agreement Effective Date and on each
day thereafter, the Employment Period shall automatically be extended for an
additional one day without any further action by either the Company or the
Executive, it being the intention of the parties that there shall be
continuously a remaining term of not less than one year's duration of the
Employment Period until an event has occurred as described in, or one of the
parties shall have made an appropriate election pursuant to, the provisions of
Section 3.

2. Terms of Employment.

(a) Position and Duties.

(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant
of those held, exercised and assigned on the Agreement Effective Date
and (B) the Executive's services shall be performed within the
Houston, Texas metropolitan area.

(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote full attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such

1
<PAGE> 4
responsibilities. During the Employment Period, it shall not be a
violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as such
activities do not interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent
that any such activities have been conducted by the Executive prior to
the Agreement Effective Date, the continued conduct of such activities
(or the conduct of activities similar in nature and scope thereto)
subsequent to the Agreement Effective Date shall not thereafter be
deemed to interfere with the performance of the Executive's
responsibilities to the Company.

(b) Compensation.

(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary equal to the base salary
in effect immediately prior to the Agreement Effective Date ("Annual
Base Salary"), which shall be paid on a semimonthly basis. During the
Employment Period, the Annual Base Salary shall be reviewed at least
annually and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base salary
generally awarded in the ordinary course of business to executives of
the Company and its affiliated companies. Any increase in Annual Base
Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be
reduced after any such increase and the term "Annual Base Salary," as
utilized in this Agreement, shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies"
shall include, when used with reference to the Company, any company
controlled by, controlling or under common control with the Company.

(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive may be awarded, for each fiscal year or portion thereof
during the Employment Period, an Annual Bonus (the "Annual Bonus"), in
an amount comparable to the Annual Bonus Award to other Company
executives, taking into account Executive's position and
responsibilities with the Company, prorated for any period consisting
of less than 12 full months.

(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in
all incentive, savings and retirement plans that are tax-qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended
("Code"), and all plans that are supplemental to any such
tax-qualified plans, in each case to the extent that such plans are
applicable generally to other executives of the Company and its
affiliated companies, but in no event shall such plans provide the
Executive with incentive opportunities (measured with respect to both
regular and special incentive opportunities, to the extent, if any,
that such distinction is applicable), savings opportunities and
retirement benefit opportunities that are, in each case, less
favorable to the Executive, in the aggregate, than the most favorable
plans of the Company and its affiliated companies. As used in this

2
<PAGE> 5
Agreement, the term "most favorable" shall, when used with reference
to any plans, practices, policies or programs of the Company and its
affiliated companies, be deemed to refer to the plans, practices,
policies or programs of the Company and its affiliated companies, as
in effect at any time during the Employment Period and provided
generally to other executives of the Company or its affiliated
companies, which are most favorable to the Executive.

(iv) Welfare Benefit Plans. During the Employment Period,
the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by
the Company or its affiliated companies (including, without
limitation, medical, prescription, dental, vision, disability, salary
continuance, group life and supplemental group life, accidental death
and travel accident insurance plans and programs) to the extent
applicable generally to other executives of the Company or its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits that are
less favorable, in the aggregate, than the most favorable such plans,
practices, policies and programs of the Company and its affiliated
companies.

(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies.

(vi) Fringe Benefits and Perquisites. During the
Employment Period, the Executive shall be entitled to fringe benefits
and perquisites in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated
companies applicable to similarly situated executives.

(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to secretarial
and other assistance to the extent needed to fulfill his corporate
responsibilities, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated
companies at any time during the Employment Period.

(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies.

(ix) Stock Option Grant. Executive has been granted
previously stock options on shares of Company common stock, par value
$.01 per share ("Common Stock"), ("Initial Stock Option"). The
Initial Stock Option is hereby continued and, as revised as of the
date hereof, shall be a part of this Agreement as evidenced by Exhibit
"A" attached hereto.

3
<PAGE> 6
3. Termination of Employment.

(a) Death or Disability. The Executive's employment
shall terminate automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the definition
of Disability set forth below), it may give to the Executive written notice in
accordance with Section 11(d) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's
duties with the Company on a full-time basis for either (i) 180 consecutive
business days or (ii) in any two-year period 270 nonconsecutive business days
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).

(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean for the Company's termination of the Executive's
employment for any of the following: (i) the Executive's final conviction of a
felony crime that enriched the Executive at the expense of the Company;
provided, however, that after indictment, the Company may suspend Executive
from the rendition of services, but without limiting or modifying in any other
way the Company's obligations under this Agreement; (ii) a material breach by
Executive of a material fiduciary duty owed to the Company; (iii) a material
breach by Executive of any of the covenants made by him in Sections 8 and 10
hereof; (iv) the willful and gross neglect by Executive of the material duties
specifically and expressly required by this Agreement; or (v) the Executive's
continuing failure to substantially perform his duties and responsibilities
hereunder (except by reason of the Executive's incapacity due to physical or
mental illness or injury) for a period of 45 days after the Required Board
Majority, as defined herein, has delivered to the Executive a written demand
for substantial performance hereunder which specifically identifies the bases
for the Required Board Majority's determination that the Executive has not
substantially performed his duties and responsibilities hereunder (that period
being the "Grace Period"); provided, that for purposes of this clause (v), the
Company shall not have Cause to terminate the Executive's employment unless (A)
at a meeting of the Board called and held following the Grace Period in the
city in which the Company's principal executive offices are located, of which
the Executive was given not less than 10 days' prior written notice and at
which the Executive was afforded the opportunity to be represented by counsel,
appear and be heard, the Required Board Majority shall adopt a written
resolution which (1) sets forth the Required Board Majority's determination
that the failure of the Executive to substantially perform his duties and
responsibilities hereunder has (except by reason of his incapacity due to
physical or mental illness or injury) continued past the Grace Period and (2)
specifically identifies the bases for that determination, and (B) the Company,
at the written direction of the Required Board Majority, shall

4
<PAGE> 7
deliver to the Executive a Notice of Termination for Cause to which a copy of
that resolution, certified as being true and correct by the secretary or any
assistant secretary of the Company, is attached. "Required Board Majority"
means at any time a majority of the members of the Board at that time which
includes at least a majority of the Directors, each of whom has not been an
employee of the Company or any subsidiary of the Company.

(c) Good Reason; Window Period. The Executive's
employment may be terminated during the Employment Period by the Executive for
Good Reason, or during a Window Period by the Executive without any reason.
For purposes of this Agreement, "Window Period" shall mean the 60-day period
immediately following elapse of one year after any Change of Control as defined
in Section 9 of this Agreement. For purposes of this Agreement, "Good Reason"
shall mean:

(ii) any material failure by the Company to comply
with any of the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;

(iii) the Company's requiring the Executive to be
based at any office outside the Houston metropolitan area;

(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly permitted by
this Agreement; or

5
<PAGE> 8
Notice of Termination any fact or circumstance which contributes to a showing
of Good Reason or Cause shall not waive any right of the Executive or the
Company hereunder or preclude the Executive or the Company from asserting such
fact or circumstance in enforcing the Executive's or the Company's rights
hereunder.

(e) Date of Termination. For purposes of this Agreement,
the term "Date of Termination" means (i) if the Executive's employment is
terminated by the Company for Cause, or by the Executive during a Window Period
or for Good Reason, the date of receipt of the Notice of Termination or any
later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the
case may be.

4. Obligations of the Company upon Termination.

(a) Disability, Good Reason or During a Window Period;
Other than for Cause or Death (except during a Window Period). If, during the
Employment Period and after the date on which the Company first receives
payment for shares of its Common Stock that it sells pursuant to a registration
statement filed under the Securities Act of 1933 (the "IPO Closing Date"), (x)
the Company shall terminate the Executive's employment other than for Cause,
including a termination by reason of Disability (but not by reason of death),
or (y) the Executive shall terminate employment for Good Reason or (z) his
employment shall be terminated during a Window Period by the Company for Cause,
by the Executive without any reason, or by reason of death:

(i) the Company shall pay or provide to or in respect of
the Executive the following amounts and benefits:

6
<PAGE> 9
on the latest possible date of termination of the Employment
Period in accordance with the provisions of Section 1 hereof
(the "Final Expiration Date") if the Executive's employment
had not been terminated; provided if the termination occurs
after the date a Change of Control occurs 375% shall be
substituted for 150%;

C. continuation for the Remaining Employment
Period of life insurance and medical benefits coverages, but
with the Company's medical benefits coverages being secondary
to any coverages provided by another employer;

D. effective as of the Date of Termination, (1)
immediate vesting and exercisability of, and termination of
any restrictions on sale or transfer (other than any such
restriction arising by operation of law) with respect to, each
and every stock option, restricted stock award, restricted
stock unit award and other equity-based award and performance
award (each, a "Compensatory Award") that is outstanding as of
a time immediately prior to the Date of Termination, (2) the
extension of the term during which each and every Compensatory
Award may be exercised by the Executive until the earlier of
(x) the first anniversary of the Date of Termination or (y)
the date upon which the right to exercise any Compensatory
Award would have expired if the Executive had continued to be
employed by the Company under the terms of this Agreement
until the Final Expiration Date and (3) at the sole election
of Executive, in exchange for any or all Compensatory Awards
that are either denominated in or payable in Common Stock, an
amount in cash equal to the excess of (x) the Highest Price
Per Share (as defined below) over (y) the exercise or purchase
price, if any, of such Compensatory Awards. As used herein,
the term "Highest Price Per Share" shall mean the highest
price per share that can be determined to have been paid or
agreed to be paid for any share of Common Stock by a Covered
Person (as defined below) at any time during the Employment
Period or the six-month period immediately preceding the
Agreement Effective Date. As used herein, the term "Covered
Person" shall mean any Person other than an Exempt Person (in
each case as defined in Section 9 hereof) who (I) is the
Beneficial Owner (as defined in Section 9 hereof) of 10% or
more of the outstanding shares of Common Stock or 10% or more
of the combined voting power of the outstanding Voting Stock
(as defined in Section 9 hereof) of the Company at any time
during the Employment Period, (II) is a Person who has any
material involvement in proposing or effectuating the Change
of Control (as defined in Section 9 hereof) or (III) is an
assignee of or has otherwise succeeded to any shares of Common
Stock or Voting Stock of the Company which were at any time
during the Employment Period "beneficially owned" (as defined
in Section 9 hereof) by any Person identified in clause (I) or
(II) of this definition, if such assignment or succession
shall have occurred in the course of a privately negotiated
transaction rather than an open market transaction. For
purposes of determining whether a Person is a Covered Person,
the number of shares of Common Stock or Voting Stock of the
Company deemed to be outstanding shall include shares of which
the Person is deemed the

7
<PAGE> 10
Beneficial Owner, but shall not include any other shares which
may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants
or options. In determining the Highest Price Per Share, the
price paid or agreed to be paid by a Covered Person will be
appropriately adjusted to take into account (W) distributions
paid or payable in stock, (X) subdivisions of outstanding
stock, (Y) combinations of shares of stock into a smaller
number of shares and (Z) similar events; and

E. as soon as practicable following the calendar
year of the date of termination, an amount equal to the
product of (x) the Annual Bonus that would have been paid to
Executive with respect to the year of termination had the Date
of Termination not occurred and (y) a fraction, the numerator
of which is the number of days in the fiscal year through the
Date of Termination and the denominator of which is 365;

(ii) for the Remaining Employment Period, or such longer
period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Sections 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated in accordance with the
most favorable plans, practices, programs or policies of the Company
and its affiliated companies (such continuation of such benefits for
the applicable period herein set forth shall be hereinafter referred
to as "Welfare Benefit Continuation"). For purposes of determining
eligibility of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the Final Expiration Date
and to have retired on such date.

8
<PAGE> 11
had not terminated by reason of death (which shall be paid to the Executive's
estate or beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination) reduced by the amount payable in respect of
Executive's death under any life insurance policy (other than accidental death
and dismemberment or travel accident policies) but only to the extent such
amounts are attributable to premiums paid by the Company, (iii) during the
period beginning on the Date of Termination and ending on the first anniversary
thereof medical benefits coverage determined as if Executive's employment had
not terminated by reason of death, (iv) as soon as practicable following the
fiscal year in which death occurs, payment of an amount equal to the product of
(x) the Annual Bonus that would have been paid to Executive with respect to the
year of termination had the Date of Termination not occurred and (y) a
fraction, the numerator of which is the number of days in the fiscal year
through the Date of Termination and the denominator of which is 365 and (v)
effective as of the Date of Termination, (A) immediate vesting and
exercisability of, and termination of any restrictions on sale or transfer
(other than any such restriction arising by operation of law) with respect to,
each and every Compensatory Award outstanding as of a time immediately prior
to the Date of Termination, (B) the extension of the term during which each and
every Compensatory Award may be exercised or purchased by the Executive until
the earlier of (1) the first anniversary of the Date of Termination or (2) the
date upon which the right to exercise or purchase any Compensatory Award would
have expired if the Executive had continued to be employed by the Company under
the terms of this Agreement until the Final Expiration Date and (C) at the sole
election of the Executive's legal representative, in exchange for any
Compensatory Award that is either denominated in or payable in Common Stock, an
amount in cash equal to the excess of (1) the Highest Price Per Share over (2)
the exercise or purchase price, if any, of such Compensatory Award.

(c) Cause; Other than for Disability, Good Reason or
During a Window Period. If the Executive's employment shall be terminated for
Cause during the Employment Period and other than during a Window Period, in
which event the provisions of Section 4(a) shall govern, this Agreement shall
terminate without further obligations to the Executive other than for Accrued
Obligations. If the Executive terminates employment during the Employment
Period, excluding a termination for any of Disability, Good Reason or without
any reason during a Window Period, in which event the provisions of Section
4(a) shall govern, this Agreement shall terminate without further obligations
to the Executive, other than for the payment of Accrued Obligations. In such
case, all Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.

5. Non-exclusivity of Rights. Except as provided in
Section 4 of this Agreement, nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any plan, program, policy
or practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the

9
<PAGE> 12
Date of Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as such plan, policy,
practice or program is superseded by this Agreement.

6. Full Settlement; Resolution of Disputes.

(a) The Company's obligation to make payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any setoff, counterclaim, recoupment, defense, mitigation or
other claim, right or action which the Company may have against the Executive
or others. The Company agrees to pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive
about the amount of any such payment pursuant to this Agreement), plus in each
case interest on any delayed payment at the annual percentage rate which is
three percentage points above the interest rate shown as the Prime Rate in the
Money Rates column in the then most recently published edition of The Wall
Street Journal (Southwest Edition), or, if such rate is not then so published
on at least a weekly basis, the interest rate announced by Chase Manhattan Bank
(or its successor), from time to time, as its Base Rate (or prime lending
rate), from the date those amounts were required to have been paid or
reimbursed to the Employee until those amounts are finally and fully paid or
reimbursed; provided, however, that in no event shall the amount of interest
contracted for, charged or received hereunder exceed the maximum non-usurious
amount of interest allowed by applicable law ; provided, further, that if the
Executive is not the prevailing party in any such contest, then he shall, upon
the conclusion thereof, repay to the Company any amounts that were previously
advanced pursuant to this sentence by the Company as payment of legal fees and
expenses.

10
<PAGE> 13
7. Certain Additional Payments by the Company.

(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen LLP (the "Accounting Firm"); provided, however, that the
Accounting Firm shall not determine that no Excise Tax is payable by the
Executive unless it delivers to the Executive a written opinion (the
"Accounting Opinion") that failure to report the Excise Tax on the Executive's
applicable federal income tax return would not result in the imposition of a
negligence or similar penalty. In the event that by Deloitte & Touche LLP has
served, at any time during the two years immediately preceding a Change in
Control Date, as accountant or auditor for the individual, entity or group that
is involved in effecting or has any material interest in the Change in Control,
the Executive shall appoint another nationally recognized accounting firm to
make the determinations and perform the other functions specified in this
Section 7 (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Within 15 business days of the receipt of notice from
the Executive that there has been a Payment, or such earlier time as is
requested by the Company, the Accounting Firm shall make all determinations
required under this Section 7, shall provide to the Company and the Executive a
written report setting forth such determinations, together with detailed
supporting calculations, and, if the Accounting Firm determines that no Excise
Tax is payable, shall deliver the Accounting Opinion to the Executive. Any
Gross-Up Payment, as determined pursuant to this Section 7, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Subject to the remainder of this Section 7, any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that

11
<PAGE> 14
it is ultimately determined in accordance with the procedures set forth in
Section 7(c) that the Executive is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive.

(c) The Executive shall notify the Company in writing of
any claims by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 30 days after the Executive
actually receives notice in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid; provided, however, that the failure of the Executive to notify the
Company of such claim (or to provide any required information with respect
thereto) shall not affect any rights granted to the Executive under this
Section 7 except to the extent that the Company is materially prejudiced in the
defense of such claim as a direct result of such failure. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which he gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to the expiration
of such period that it desires to contest such claim, the Executive shall:

(i) give the Company any information reasonably requested
by the Company relating to such claim;

(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Company and
reasonably acceptable to the Executive;

(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and

(iv) if the Company elects not to assume and control the
defense of such claim, permit the Company to participate in any
proceedings relating to such claim;

12
<PAGE> 15
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine; provided,
however, that if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis, and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such
advance; and further provided, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's right to assume the defense of
and control the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.

13
<PAGE> 16
9. Change of Control.

As used in this Agreement, the terms set forth below shall
have the following respective meanings:

"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in
effect on the date of this Agreement.

"Beneficial Owner" shall mean, with reference to any
securities, any Person if:

(a) such Person or any of such Person's Affiliates and
Associates, directly or indirectly, is the "beneficial owner" of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement)
such securities or otherwise has the right to vote or dispose of such
securities, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subsection (a) as a result
of an agreement, arrangement or understanding to vote such security if
such agreement, arrangement or understanding: (i) arises solely from
a revocable proxy or consent given in response to a public (i.e., not
including a solicitation exempted by Rule 14a-2(b)(2) of the General
Rules and Regulations under the Exchange Act) proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act
and (ii) is not then reportable by such Person on Schedule 13D under
the Exchange Act (or any comparable or successor report);

14
<PAGE> 17
such tendered securities are accepted for purchase or exchange or (ii)
securities issuable upon exercise of Exempt Rights; or

(c) such Person or any of such Person's Affiliates or
Associates (i) has any agreement, arrangement or understanding
(whether or not in writing) with any other Person (or any Affiliate or
Associate thereof) that beneficially owns such securities for the
purpose of acquiring, holding, voting (except as set forth in the
proviso to subsection (a) of this definition) or disposing of such
securities or (ii) is a member of a group (as that term is used in
Rule 13d-5(b) of the General Rules and Regulations under the Exchange
Act) that includes any other Person that beneficially owns such
securities;

The terms "beneficially own" and "beneficially owning" shall
have meanings that are correlative to this definition of the term "Beneficial
Owner."

"Change of Control" shall mean any of the following occurring
on or after the IPO Closing Date (and, without limiting the generality of any
other provision hereof, no Change of Control shall be deemed to have occurred
as a result of the consummation of any of the transactions contemplated by the
Combination Agreement among the Company, Carrizo Production, Inc., Encinitas
Partners, Ltd., La Rosa Partners, Ltd., Carrizo Partners, Ltd. and the
shareholders of the Company):

(b) individuals who, as of the Agreement Effective Date,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board;

15
<PAGE> 18
provided, however, that any individual becoming a director subsequent
to the Agreement Effective Date whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board; provided, further, that there shall be excluded, for
this purpose, any such individual whose initial assumption of office
occurs as a result of any actual or threatened election contest that
is subject to the provisions of Rule 14a-11 under the Exchange Act;

(c) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more than
85% of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation and the
combined voting power of the then outstanding Voting Stock of such
corporation beneficially owned, directly or indirectly, by all or
substantially all of the Persons who were the Beneficial Owners of the
outstanding Common Stock immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the outstanding Common Stock, (ii) no Person
(excluding any Exempt Person or any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 40% or more of the Common Stock then
outstanding or 40% or more of the combined voting power of the Voting
Stock of the Company then outstanding) beneficially owns, directly or
indirectly, 40% or more of the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding
Voting Stock of such corporation and (iii) at least a majority of the
members of the board of directors of the corporation resulting from
such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
or initial action by the Board providing for such reorganization,
merger or consolidation; or

16
<PAGE> 19
such sale or other disposition, directly or indirectly, 40% or more of
the Common Stock then outstanding or 40% or more of the combined
voting power of the Voting Stock of the Company then outstanding)
beneficially owns, directly or indirectly, 40% or more of the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding Voting Stock of such
corporation and (C) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at
the time of the execution of the initial agreement or initial action
of the Board providing for such sale or other disposition of assets of
the Company.

"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

"Exempt Transaction" shall mean an increase in the percentage
of the outstanding shares of Common Stock or the percentage of the combined
voting power of the outstanding Voting Stock of the Company beneficially owned
by any Person solely as a result of a reduction in the number of shares of
Common Stock then outstanding due to the repurchase of Common Stock or Voting
Stock by the Company, unless and until such time as (a) such Person or any
Affiliate or Associate of such Person shall purchase or otherwise become the
Beneficial Owner of additional shares of Common Stock constituting 1% or more
of the then outstanding shares of Common Stock or additional Voting Stock
representing 1% or more of the combined voting power of the then outstanding
Voting Stock, or (b) any other Person (or Persons) who is (or collectively are)
the Beneficial Owner of shares of Common Stock constituting 1% or more of the
then outstanding shares of Common Stock or Voting Stock representing 1% or more
of the combined voting power of the then outstanding Voting Stock shall become
an Affiliate or Associate of such Person.

"Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.

17
<PAGE> 20
10. Covenant Not to Compete.

18
<PAGE> 21
(d) The Executive acknowledges, agrees and stipulates
that: (i) the terms and provisions of this Agreement are reasonable and
constitute an otherwise enforceable agreement to which the terms and provisions
of this Section 10 are ancillary or a part of as contemplated by TEX. BUS. &
COM. CODE ANN. Sections 15.50-15.52; (ii) the consideration provided by the
Company under this Agreement is not illusory; and (iii) the consideration given
by the Company under this Agreement, including, without limitation, the
provision by the Company of Confidential Information to the Executive as
contemplated by Section 8, gives rise to the Company's interest in restraining
and prohibiting the Executive from engaging in the Prohibited Activity within
the Relevant Geographic Area as provided under this Section 10, and the
Executive's covenant not to engage in the Prohibited Activity within the
Relevant Geographic Area pursuant to this Section 10 is designed to enforce the
Executive's consideration (or return promises), including, without limitation,
the Executive's promise to not disclose Confidential Information under this
Agreement.

11. Successors.

(a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
heirs, executors and other legal representatives.

(b) This Agreement shall inure to the benefit of and be
binding upon the Company and may only be assigned to a successor described in
Section 11(c).

(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.

12. Miscellaneous.

(b) The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.

(c) This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and heirs, executors and other legal representatives.

19
<PAGE> 22
(d) All notices and other communications hereunder shall
be in writing and shall be given, if by the Executive to the Company, by
telecopy or facsimile transmission at the telecommunications number set forth
below and, if by either the Company or the Executive, either by hand delivery
to the other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:

If to the Executive:

Ken Trahan
Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079

If to the Company:

Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Telecommunications Number: (281) 496-1352
Attention: Corporate Secretary

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

(e) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.

(f) The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.

(g) The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason or during a Window Period pursuant to
Section 3(c) of this Agreement, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.

20
<PAGE> 23
(i) This Agreement shall become effective as of the date
hereof (the "Agreement Effective Date").

IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.

CARRIZO OIL & GAS, INC.

By: /s/ S.P. JOHNSON IV
-------------------------------------
S.P. Johnson IV

/s/ KEN TRAHAN
-------------------------------------
Ken Trahan

21
<PAGE> 24
EXHIBIT "A"

AMENDED STOCK OPTION AGREEMENT

This AMENDED STOCK OPTION AGREEMENT is entered into this ____
day of ______________, 1997, between Carrizo Oil & Gas, Inc., a Texas
corporation ("the Company"), and Ken Trahan ("Employee").

In consideration of the mutual promises hereinafter set forth,
and other good and valuable consideration, the parties hereto agree as follows:

1. The Company hereby evidences its grant on March 1, 1997 to
Employee the right and option (hereinafter called the "Option") to purchase up
to 83,295 of its shares ("Option Shares") (159.88 shares prior to the June 5,
1997 stock split) of common stock, $.01 par value per share (the "Common
Stock"), on the terms and conditions herein set forth. The Company hereby
represents and warrants to Employee that, as of March 1, 1997, it had 10,000
shares of Common Stock issued and outstanding.

2. The purchase price of the Option Shares shall be $300,000 (the
"Exercise Price").

3. Provided that Employee is then employed by the Company, the
Options will become exercisable by Employee and vest on each of the dates (the
"Vesting Dates") and in the amounts and for the Exercise Price set forth below.
Notwithstanding the foregoing, vesting of such Option Shares is further subject
to the terms and provisions of Employee's Employment Agreement with the
Company, which provides for acceleration of vesting in certain circumstances.
The number of shares of the Company's Common Stock which shall become subject
to the Option (and which shall thus become Option Shares) on each Vesting Date
shall be as follows:

<TABLE>
<CAPTION>
Vesting Date Option Shares Exercise Price
------------ ------------- --------------
<S> <C> <C>
March 1, 1997 16,659 $ 60,000
September 1, 1997 16,659 $ 60,000
March 1, 1998 16,659 $ 60,000
September 1, 1998 16,659 $ 60,000
March 1, 1999 16,659 $ 60,000
------ ---------
83,295 $ 300,000
=========
</TABLE>

If the Option is not exercised with respect to any Option Shares before March
1, 2008, any unexercised portion of the Option shall expire and be of no
further force and effect.

A-1
<PAGE> 25
4. The Option shall not be transferable by Employee, and the
Option is exercisable only by him, except that it may be exercised by his legal
representative in the event of his death or disability. Subject to the
foregoing, the Option may not be assigned, transferred, pledged or hypothecated
in any way (whether by operation of law or otherwise) and shall not be subject
to execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of the Option contrary to
the provisions hereof, or the levy of any attachment or similar process upon
the Option, which would otherwise effect a change in the ownership of the
Option, shall terminate the Option.

5. In the event any dividend or other distribution (whether in
the form of cash, Common Stock, other securities or other property),
recapitalization, stock split, reverse stock split (or other similar
corporation transaction or event) affects the Common Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
potential benefits intended to be made available under this Agreement, then (i)
the number and type of Option Shares (or other securities or property) which
thereafter may be available, (ii) the number and type of Option Shares (or
other securities or property) subject to grant, and (iii) the grant, purchase,
or Exercise Price with respect to any Option Shares, shall be appropriately
adjusted. In any event, fractional shares will not be issued and the number of
Option Shares issuable to the Employee shall always be rounded to the nearer
whole number. This Amended Stock Option takes into account the 521 for one
stock split effected on June 5, 1997.

6. In the event the Company shall sell all or substantially all
of its assets or shall be a party to any merger, consolidation or corporate
reorganization, as the result of which the Company shall not be the surviving
organization (or shall be the surviving corporate subsidiary in a triangular
merger), or in the event any other company may make a tender or exchange offer
for stock of the Company (the surviving corporation, purchaser, or tendering
corporation being hereinafter collectively referred to as the "purchaser," and
the transaction being hereinafter referred to as the "purchase"), then the
Company may, at its election, (i) reach an agreement with the purchaser that
the purchaser will assume the obligations of the Company as to any outstanding
portion of the Option; (ii) reach an agreement with the purchaser that the
purchaser will convert the outstanding portion of the Option into an option of
at least equal value as to stock of the purchaser; (iii) not later than thirty
(30) days prior to the effective date of the purchase, notify Employee that the
Option is accelerated and afford to Employee a right for ten (10) days after
the date of such notice to exercise any then unexercised vested or unvested
portion of the Option, and within such ten day period, Employee shall exercise
any portion of the Option as he may desire in accordance with paragraph 7 of
this Agreement; or (iv) pay to Employee, in cash, at or in connection with the
closing of any such transaction, the "spread" between the Exercise Price and
the price per share of the Company paid by the purchaser, as determined in good
faith by the Company's Board of Directors, multiplied by the number of then
unexercised vested or unvested Option Shares.

7. The Option shall be exercised by written notice to the Company
at its principal office in Houston, Texas, attention to the President or
Secretary. Such notice shall be deemed duly given on the date delivered in
person to the President or Secretary, or on the date that is five (5) days
after

A-2
<PAGE> 26
the date such notice is posted if such notice is sent by prepaid certified
mail, return receipt requested, to the President or Secretary at the above
office. Such notice shall state the election to exercise the Option and the
number of full shares in respect of which it is being exercised and shall be
signed by the person exercising the Option. Such notice shall be accompanied
by (a) a check payable to the order of the Company for the full Exercise Price
of such shares, or other consideration for the shares to be purchased that is
acceptable to the Company and (b) any other written representations, covenants,
and undertakings that the Company may reasonably prescribe to satisfy
applicable securities laws and regulations or other requirements of this
Agreement. The certificate or certificates for the shares as to which the
Option shall have been so exercised shall be registered in the name of the
person exercising the Option and shall be delivered to the person exercising
the Option. All shares issued as provided herein will be fully paid and
non-assessable. Such certificates shall bear such legends as the Company shall
deem appropriate to comply with applicable securities laws.

8. By accepting this Option, Employee agrees that any Option
Shares purchased upon the exercise of this Option shall be acquired for his own
account and not with a view to distribution (in the absence of registration or
other exception from applicable securities laws) and that upon giving each
notice of the exercise of any portion of this Option, Employee shall execute a
written representation and covenant, to be prepared by the Company, in such
form as may be reasonably specified by the Company, confirming such agreement.
So long as the Company is not a publicly reporting company under the securities
laws, contemporaneously with the exercise of any Option, Employee shall execute
and furnish to the Company a Buy-Sell Agreement covering any shares which
Employee may acquire in the Company and providing that Employee may not
transfer any such shares without giving the Company a right of first refusal to
acquire them at the bona fide price offered by a potential third party
purchaser, or, in the case of a transfer other than a purchase by a bona fide
third party, at the average of their appraised value, as determined by two (2)
different nationally recognized accounting firms, one of which is engaged by
Company and one of which is engaged by Employee. Such Buy-Sell Agreement shall
be executed by Employee's spouse (if any), and if Employee should thereafter
become married, he shall within thirty days after the date of such marriage,
and in any event prior to the exercise of any option unexercised on the date of
marriage, furnish to the Company an original counterpart of such Buy-Sell
Agreement executed by his spouse. Failure to comply with the provisions of
this paragraph 8 shall render the Option null and void.

9. Nothing contained in this Agreement shall be construed as
conferring upon the Employee any rights as a shareholder of the Company,
including without limitation the right to vote, receive distributions, call
meetings, consent or receive notices as a shareholder in respect of any meeting
of shareholders or imposing any fiduciary or other duty on the Company, its
officers, directors or shareholders, in favor of the Employee all of which
rights and duties are expressly disclaimed and waived by the Employee.
Accordingly, the Employee shall have none of the aforementioned rights of a
shareholder with respect to Option Shares subject to the Option unless and
until such time as the Option has been exercised and ownership of such Option
Shares has been transferred to the Employee.

A-3
<PAGE> 27
10. The Employee agrees that the Company (or a representative of
any underwriters designated by the Company) may, in connection with any
underwritten public offering (whether or not the Company is the seller in such
offering) of any securities of the Company, require that the Employee not sell
or otherwise transfer or dispose of any Option Shares or other securities of
the Company during such period (not to exceed 180 days following the Company's
first underwritten offering nor to exceed 90 days in the case of any subsequent
underwritten offering) following the date of the final prospectus for such
offering as may be requested by the Company or the representative of the
underwriters. For purposes of this restriction, the Employee will be deemed to
own securities which (i) are owned directly or indirectly by the Employee,
including securities held for the Employee's benefit by nominees, custodians,
brokers, or pledgees; (ii) may be acquired by the Employee under this Option at
any time or otherwise be acquired by the Employee during the "lock-up" period;
(iii) are owned directly or indirectly, by or for the Employee's spouse,
brothers or sisters (whether by whole or half blood), ancestors, and lineal
descendants; or (iv) are owned, directly or indirectly, by or for a
corporation, partnership, estate, or trust of which the Employee is a
shareholder, partner, beneficiary or trustee, but in the event the Employee is
a shareholder, partner or beneficiary, only to the extent of the Employee's
proportionate interest therein as a shareholder, partner, or beneficiary
thereof. The Employee further agrees that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period and include an appropriate legend on the
certificates for such securities.

11. The terms of this Option may not be amended or varied except
by a written instrument which is duly executed by the Employee and by a duly
authorized officer of the Company.

EXECUTED as of the date first set forth above.

-------------------------------------
Ken Trahan

CARRIZO OIL & GAS, INC.

By:
----------------------------------
S. P. Johnson IV, President

A-4

<PAGE> 1
EXHIBIT 10.5

EMPLOYMENT AGREEMENT

<PAGE> 2

<TABLE>
<CAPTION>
TABLE OF CONTENTS

Page
----
<S> <C> <C>
1. Employment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Terms of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Position and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(i) Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(ii) Annual Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(iii) Incentive, Savings and Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(iv) Welfare Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(v) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(vi) Fringe Benefits and Perquisites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(vii) Office and Support Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(viii) Vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(ix) Stock Option Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(x) Royalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Death or Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Good Reason; Window Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Notice of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Date of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Obligations of the Company upon Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Disability, Good Reason or During a Window Period; Other than for Cause . . . . . . . . . . . . . . . 6
(b) Death (except during a Window Period) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Cause; Other than for Disability, Good Reason or During a Window Period . . . . . . . . . . . . . . . 9
5. Non-exclusivity of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. Full Settlement; Resolution of Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7. Certain Additional Payments by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8. Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10. Covenant Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>

-i-
<PAGE> 3

EMPLOYMENT AGREEMENT

This AGREEMENT (the "Agreement") by and between Carrizo Oil &
Gas, Inc., a Texas corporation (the "Company"), and George F. Canjar (the
"Executive"), dated as of the 6th day of June, 1997 and to be effective as of
the Agreement Effective Date (as defined herein).

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1. Employment Period. As of the Agreement Effective
Date (hereinafter defined), the Company hereby agrees to employ the Executive
and the Executive hereby agrees to accept employment with the Company, in
accordance with, and subject to, the terms and provisions of this Agreement,
for the period (the "Employment Period") commencing on the Agreement Effective
Date and ending on the third anniversary of the Agreement Effective Date;
provided, on the second anniversary of the Agreement Effective Date and on each
day thereafter, the Employment Period shall automatically be extended for an
additional one day without any further action by either the Company or the
Executive, it being the intention of the parties that there shall be
continuously a remaining term of not less than one year's duration of the
Employment Period until an event has occurred as described in, or one of the
parties shall have made an appropriate election pursuant to, the provisions of
Section 3.

2. Terms of Employment.

(a) Position and Duties.

(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant
of those held, exercised and assigned on the Agreement Effective Date
and (B) the Executive's services shall be performed within the
Houston, Texas metropolitan area.

1
<PAGE> 4
the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period, it
shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as such
activities do not interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent
that any such activities have been conducted by the Executive prior to
the Agreement Effective Date, the continued conduct of such activities
(or the conduct of activities similar in nature and scope thereto)
subsequent to the Agreement Effective Date shall not thereafter be
deemed to interfere with the performance of the Executive's
responsibilities to the Company.

(b) Compensation.

(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary equal to the base salary
in effect immediately prior to the Agreement Effective Date ("Annual
Base Salary"), which shall be paid on a semimonthly basis. During the
Employment Period, the Annual Base Salary shall be reviewed at least
annually and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base salary
generally awarded in the ordinary course of business to executives of
the Company and its affiliated companies. Any increase in Annual Base
Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be
reduced after any such increase and the term "Annual Base Salary," as
utilized in this Agreement, shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies"
shall include, when used with reference to the Company, any company
controlled by, controlling or under common control with the Company.

(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive may be awarded, for each fiscal year or portion thereof
during the Employment Period, an Annual Bonus (the "Annual Bonus"), in
an amount comparable to the Annual Bonus Award to other Company
executives, taking into account Executive's position and
responsibilities with the Company, prorated for any period consisting
of less than 12 full months.

(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in
all incentive, savings and retirement plans that are tax-qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended
("Code"), and all plans that are supplemental to any such
tax-qualified plans, in each case to the extent that such plans are
applicable generally to other executives of the Company and its
affiliated companies, but in no event shall such plans provide the
Executive with incentive opportunities (measured with respect to both
regular and special incentive opportunities, to the extent, if any,
that such distinction is applicable), savings opportunities and
retirement benefit opportunities that are, in each case, less
favorable to the Executive, in the aggregate,

2
<PAGE> 5
than the most favorable plans of the Company and its affiliated
companies. As used in this Agreement, the term "most favorable"
shall, when used with reference to any plans, practices, policies or
programs of the Company and its affiliated companies, be deemed to
refer to the plans, practices, policies or programs of the Company and
its affiliated companies, as in effect at any time during the
Employment Period and provided generally to other executives of the
Company or its affiliated companies, which are most favorable to the
Executive.

(iv) Welfare Benefit Plans. During the Employment Period,
the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by
the Company or its affiliated companies (including, without
limitation, medical, prescription, dental, vision, disability, salary
continuance, group life and supplemental group life, accidental death
and travel accident insurance plans and programs) to the extent
applicable generally to other executives of the Company or its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits that are
less favorable, in the aggregate, than the most favorable such plans,
practices, policies and programs of the Company and its affiliated
companies.

(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies.

(vi) Fringe Benefits and Perquisites. During the
Employment Period, the Executive shall be entitled to fringe benefits
and perquisites in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated
companies applicable to similarly situated executives.

(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to secretarial
and other assistance to the extent needed to fulfill his corporate
responsibilities, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated
companies at any time during the Employment Period.

(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies.

3
<PAGE> 6
(x) Royalty. Company agrees to grant Executive an
undivided 0.5% overriding royalty interest, proportionately reduced to
Company's working interest, in and to all oil, gas, and other minerals
that may be produced and saved from prospects generated by the
Employee.

3. Termination of Employment.

(a) Death or Disability. The Executive's employment
shall terminate automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the definition
of Disability set forth below), it may give to the Executive written notice in
accordance with Section 11(d) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's
duties with the Company on a full-time basis for either (i) 180 consecutive
business days or (ii) in any two-year period 270 nonconsecutive business days
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).

4
<PAGE> 7
the Required Board Majority shall adopt a written resolution which (1) sets
forth the Required Board Majority's determination that the failure of the
Executive to substantially perform his duties and responsibilities hereunder
has (except by reason of his incapacity due to physical or mental illness or
injury) continued past the Grace Period and (2) specifically identifies the
bases for that determination, and (B) the Company, at the written direction of
the Required Board Majority, shall deliver to the Executive a Notice of
Termination for Cause to which a copy of that resolution, certified as being
true and correct by the secretary or any assistant secretary of the Company, is
attached. "Required Board Majority" means at any time a majority of the
members of the Board at that time which includes at least a majority of the
Directors, each of whom has not been an employee of the Company or any
subsidiary of the Company.

(c) Good Reason; Window Period. The Executive's
employment may be terminated during the Employment Period by the Executive for
Good Reason, or during a Window Period by the Executive without any reason.
For purposes of this Agreement, "Window Period" shall mean the 60-day period
immediately following elapse of one year after any Change of Control as defined
in Section 9 of this Agreement. For purposes of this Agreement, "Good Reason"
shall mean:

(ii) any material failure by the Company to comply
with any of the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;

(iii) the Company's requiring the Executive to be
based at any office outside the Houston metropolitan area;

(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly permitted by
this Agreement; or

5
<PAGE> 8
(d) Notice of Termination. Any termination by the
Company for Cause, or by the Executive for Good Reason or without any reason
during a Window Period, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(d) of this Agreement.
The failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.

(e) Date of Termination. For purposes of this Agreement,
the term "Date of Termination" means (i) if the Executive's employment is
terminated by the Company for Cause, or by the Executive during a Window Period
or for Good Reason, the date of receipt of the Notice of Termination or any
later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the
case may be.

4. Obligations of the Company upon Termination.

(a) Disability, Good Reason or During a Window Period;
Other than for Cause or Death (except during a Window Period). If, during the
Employment Period and after the date on which the Company first receives
payment for shares of its Common Stock that it sells pursuant to a registration
statement filed under the Securities Act of 1933 (the "IPO Closing Date"), (x)
the Company shall terminate the Executive's employment other than for Cause,
including a termination by reason of Disability (but not by reason of death),
or (y) the Executive shall terminate employment for Good Reason or (z) his
employment shall be terminated during a Window Period by the Company for Cause,
by the Executive without any reason, or by reason of death:

(i) the Company shall pay or provide to or in respect of
the Executive the following amounts and benefits:

6
<PAGE> 9
B. in a lump sum in cash, discounted at 6%,
within 10 days after the Date of Termination, an amount equal
to 150% of Annual Base Salary that would have been paid
annually to the Executive pursuant to this Agreement for the
period (the "Remaining Employment Period") beginning on the
Date of Termination and ending on the latest possible date of
termination of the Employment Period in accordance with the
provisions of Section 1 hereof (the "Final Expiration Date")
if the Executive's employment had not been terminated;
provided if the termination occurs after the date a Change of
Control occurs 375% shall be substitute for 150%;

C. continuation for the Remaining Employment
Period of life insurance and medical benefits coverages, but
with the Company's medical benefits coverages being secondary
to any coverages provided by another employer;

D. effective as of the Date of Termination, (1)
immediate vesting and exercisability of, and termination of
any restrictions on sale or transfer (other than any such
restriction arising by operation of law) with respect to, each
and every stock option, restricted stock award, restricted
stock unit award and other equity-based award and performance
award (each, a "Compensatory Award") that is outstanding as of
a time immediately prior to the Date of Termination, (2) the
extension of the term during which each and every Compensatory
Award may be exercised by the Executive until the earlier of
(x) the first anniversary of the Date of Termination or (y)
the date upon which the right to exercise any Compensatory
Award would have expired if the Executive had continued to be
employed by the Company under the terms of this Agreement
until the Final Expiration Date and (3) at the sole election
of Executive, in exchange for any or all Compensatory Awards
that are either denominated in or payable in Common Stock, an
amount in cash equal to the excess of (x) the Highest Price
Per Share (as defined below) over (y) the exercise or purchase
price, if any, of such Compensatory Awards. As used herein,
the term "Highest Price Per Share" shall mean the highest
price per share that can be determined to have been paid or
agreed to be paid for any share of Common Stock by a Covered
Person (as defined below) at any time during the Employment
Period or the six-month period immediately preceding the
Agreement Effective Date. As used herein, the term "Covered
Person" shall mean any Person other than an Exempt Person (in
each case as defined in Section 9 hereof) who (I) is the
Beneficial Owner (as defined in Section 9 hereof) of 10% or
more of the outstanding shares of Common Stock or 10% or more
of the combined voting power of the outstanding Voting Stock
(as defined in Section 9 hereof) of the Company at any time
during the Employment Period, (II) is a Person who has any
material involvement in proposing or effectuating the Change
of Control (as defined in Section 9 hereof) or (III) is an
assignee of or has otherwise succeeded to any shares of Common
Stock or Voting Stock of the Company which were at any time
during the Employment Period "beneficially owned" (as defined
in Section 9 hereof) by any Person identified in clause (I) or
(II) of this definition, if such assignment or succession
shall have

7
<PAGE> 10
occurred in the course of a privately negotiated transaction
rather than an open market transaction. For purposes of
determining whether a Person is a Covered Person, the number
of shares of Common Stock or Voting Stock of the Company
deemed to be outstanding shall include shares of which the
Person is deemed the Beneficial Owner, but shall not include
any other shares which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options. In determining the
Highest Price Per Share, the price paid or agreed to be paid
by a Covered Person will be appropriately adjusted to take
into account (W) distributions paid or payable in stock, (X)
subdivisions of outstanding stock, (Y) combinations of shares
of stock into a smaller number of shares and (Z) similar
events; and

E. as soon as practicable following the calendar
year of the date of termination, an amount equal to the
product of (x) the Annual Bonus that would have been paid to
Executive with respect to the year of termination had the Date
of Termination not occurred and (y) a fraction, the numerator
of which is the number of days in the fiscal year through the
Date of Termination and the denominator of which is 365;

(ii) for the Remaining Employment Period, or such longer
period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Sections 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated in accordance with the
most favorable plans, practices, programs or policies of the Company
and its affiliated companies (such continuation of such benefits for
the applicable period herein set forth shall be hereinafter referred
to as "Welfare Benefit Continuation"). For purposes of determining
eligibility of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the Final Expiration Date
and to have retired on such date.

8
<PAGE> 11
other than (i) the payment of Accrued Obligations (which shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination), (ii) the payment of an amount equal to the
Annual Salary that would have been paid to the Executive pursuant to this
Agreement during the Remaining Employment Period if the Executive's employment
had not terminated by reason of death (which shall be paid to the Executive's
estate or beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination) reduced by the amount payable in respect of
Executive's death under any life insurance policy (other than accidental death
and dismemberment or travel accident policies) but only to the extent such
amounts are attributable to premiums paid by the Company, (iii) during the
period beginning on the Date of Termination and ending on the first anniversary
thereof medical benefits coverage determined as if Executive's employment had
not terminated by reason of death, (iv) as soon as practicable following the
fiscal year in which death occurs, payment of an amount equal to the product of
(x) the Annual Bonus that would have been paid to Executive with respect to the
year of termination had the Date of Termination not occurred and (y) a
fraction, the numerator of which is the number of days in the fiscal year
through the Date of Termination and the denominator of which is 365 and (v)
effective as of the Date of Termination, (A) immediate vesting and
exercisability of, and termination of any restrictions on sale or transfer
(other than any such restriction arising by operation of law) with respect to,
each and every Compensatory Award outstanding as of a time immediately prior
to the Date of Termination, (B) the extension of the term during which each and
every Compensatory Award may be exercised or purchased by the Executive until
the earlier of (1) the first anniversary of the Date of Termination or (2) the
date upon which the right to exercise or purchase any Compensatory Award would
have expired if the Executive had continued to be employed by the Company under
the terms of this Agreement until the Final Expiration Date and (C) at the sole
election of the Executive's legal representative, in exchange for any
Compensatory Award that is either denominated in or payable in Common Stock, an
amount in cash equal to the excess of (1) the Highest Price Per Share over (2)
the exercise or purchase price, if any, of such Compensatory Award.

(c) Cause; Other than for Disability, Good Reason or
During a Window Period. If the Executive's employment shall be terminated for
Cause during the Employment Period and other than during a Window Period, in
which event the provisions of Section 4(a) shall govern, this Agreement shall
terminate without further obligations to the Executive other than for Accrued
Obligations. If the Executive terminates employment during the Employment
Period, excluding a termination for any of Disability, Good Reason or without
any reason during a Window Period, in which event the provisions of Section
4(a) shall govern, this Agreement shall terminate without further obligations
to the Executive, other than for the payment of Accrued Obligations. In such
case, all Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.

9
<PAGE> 12
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any contract or agreement
with the Company or any of its affiliated companies at or subsequent to the
Date of Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as such plan, policy,
practice or program is superseded by this Agreement.

6. Full Settlement; Resolution of Disputes.

(a) The Company's obligation to make payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any setoff, counterclaim, recoupment, defense, mitigation or
other claim, right or action which the Company may have against the Executive
or others. The Company agrees to pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive
about the amount of any such payment pursuant to this Agreement), plus in each
case interest on any delayed payment at the annual percentage rate which is
three percentage points above the interest rate shown as the Prime Rate in the
Money Rates column in the then most recently published edition of The Wall
Street Journal (Southwest Edition), or, if such rate is not then so published
on at least a weekly basis, the interest rate announced by Chase Manhattan Bank
(or its successor), from time to time, as its Base Rate (or prime lending
rate), from the date those amounts were required to have been paid or
reimbursed to the Employee until those amounts are finally and fully paid or
reimbursed; provided, however, that in no event shall the amount of interest
contracted for, charged or received hereunder exceed the maximum non-usurious
amount of interest allowed by applicable law ; provided, further, that if the
Executive is not the prevailing party in any such contest, then he shall, upon
the conclusion thereof, repay to the Company any amounts that were previously
advanced pursuant to this sentence by the Company as payment of legal fees and
expenses.

10
<PAGE> 13
shall not be required to pay any disputed amounts pursuant to this paragraph
except upon receipt of an undertaking by or on behalf of the Executive to repay
all such amounts to which the Executive is ultimately adjudged by such court
not to be entitled.

7. Certain Additional Payments by the Company.

11
<PAGE> 14
Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that it is ultimately
determined in accordance with the procedures set forth in Section 7(c) that the
Executive is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.

(c) The Executive shall notify the Company in writing of
any claims by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 30 days after the Executive
actually receives notice in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid; provided, however, that the failure of the Executive to notify the
Company of such claim (or to provide any required information with respect
thereto) shall not affect any rights granted to the Executive under this
Section 7 except to the extent that the Company is materially prejudiced in the
defense of such claim as a direct result of such failure. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which he gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to the expiration
of such period that it desires to contest such claim, the Executive shall:

(i) give the Company any information reasonably requested
by the Company relating to such claim;

(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Company and
reasonably acceptable to the Executive;

(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and

(iv) if the Company elects not to assume and control the
defense of such claim, permit the Company to participate in any
proceedings relating to such claim;

12
<PAGE> 15
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim, and may either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however, that
if the Company directs the Executive to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to the Executive, on an
interest-free basis, and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further
provided, that any extension of the statute of limitations relating to payment
of taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's right to assume the defense of and control
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.

13
<PAGE> 16
other tangible items of or containing Company information which are in
Executive's possession, custody or control.

9. Change of Control.

As used in this Agreement, the terms set forth below shall
have the following respective meanings:

"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in
effect on the date of this Agreement.

"Beneficial Owner" shall mean, with reference to any
securities, any Person if:

(a) such Person or any of such Person's Affiliates and
Associates, directly or indirectly, is the "beneficial owner" of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement)
such securities or otherwise has the right to vote or dispose of such
securities, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subsection (a) as a result
of an agreement, arrangement or understanding to vote such security if
such agreement, arrangement or understanding: (i) arises solely from
a revocable proxy or consent given in response to a public (i.e., not
including a solicitation exempted by Rule 14a-2(b)(2) of the General
Rules and Regulations under the Exchange Act) proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act
and (ii) is not then reportable by such Person on Schedule 13D under
the Exchange Act (or any comparable or successor report);

14
<PAGE> 17
Beneficial Owner of, or to "beneficially own," (i) securities tendered
pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange or (ii) securities issuable upon
exercise of Exempt Rights; or

(c) such Person or any of such Person's Affiliates or
Associates (i) has any agreement, arrangement or understanding
(whether or not in writing) with any other Person (or any Affiliate or
Associate thereof) that beneficially owns such securities for the
purpose of acquiring, holding, voting (except as set forth in the
proviso to subsection (a) of this definition) or disposing of such
securities or (ii) is a member of a group (as that term is used in
Rule 13d-5(b) of the General Rules and Regulations under the Exchange
Act) that includes any other Person that beneficially owns such
securities;

The terms "beneficially own" and "beneficially owning" shall
have meanings that are correlative to this definition of the term "Beneficial
Owner."

"Change of Control" shall mean any of the following occurring
on or after the IPO Closing Date (and, without limiting the generality of any
other provision hereof, no Change of Control shall be deemed to have occurred
as a result of the consummation of any of the transactions contemplated by the
Combination Agreement among the Company, Carrizo Production, Inc., Encinitas
Partners, Ltd., La Rosa Partners, Ltd., Carrizo Partners, Ltd. and the
shareholders of the Company):

15
<PAGE> 18
(b) individuals who, as of the Agreement Effective Date,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Agreement
Effective Date whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board; provided, further, that there shall be excluded, for this
purpose, any such individual whose initial assumption of office occurs
as a result of any actual or threatened election contest that is
subject to the provisions of Rule 14a-11 under the Exchange Act;

(c) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more than
85% of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation and the
combined voting power of the then outstanding Voting Stock of such
corporation beneficially owned, directly or indirectly, by all or
substantially all of the Persons who were the Beneficial Owners of the
outstanding Common Stock immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the outstanding Common Stock, (ii) no Person
(excluding any Exempt Person or any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 40% or more of the Common Stock then
outstanding or 40% or more of the combined voting power of the Voting
Stock of the Company then outstanding) beneficially owns, directly or
indirectly, 40% or more of the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding
Voting Stock of such corporation and (iii) at least a majority of the
members of the board of directors of the corporation resulting from
such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
or initial action by the Board providing for such reorganization,
merger or consolidation; or

16
<PAGE> 19
to such sale or other disposition, of the outstanding Common Stock,
(B) no Person (excluding any Exempt Person and any Person beneficially
owning, immediately prior to such sale or other disposition, directly
or indirectly, 40% or more of the Common Stock then outstanding or 40%
or more of the combined voting power of the Voting Stock of the
Company then outstanding) beneficially owns, directly or indirectly,
40% or more of the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
Voting Stock of such corporation and (C) at least a majority of the
members of the board of directors of such corporation were members of
the Incumbent Board at the time of the execution of the initial
agreement or initial action of the Board providing for such sale or
other disposition of assets of the Company.

"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

"Exempt Transaction" shall mean an increase in the percentage
of the outstanding shares of Common Stock or the percentage of the combined
voting power of the outstanding Voting Stock of the Company beneficially owned
by any Person solely as a result of a reduction in the number of shares of
Common Stock then outstanding due to the repurchase of Common Stock or Voting
Stock by the Company, unless and until such time as (a) such Person or any
Affiliate or Associate of such Person shall purchase or otherwise become the
Beneficial Owner of additional shares of Common Stock constituting 1% or more
of the then outstanding shares of Common Stock or additional Voting Stock
representing 1% or more of the combined voting power of the then outstanding
Voting Stock, or (b) any other Person (or Persons) who is (or collectively are)
the Beneficial Owner of shares of Common Stock constituting 1% or more of the
then outstanding shares of Common Stock or Voting Stock representing 1% or more
of the combined voting power of the then outstanding Voting Stock shall become
an Affiliate or Associate of such Person.

"Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.

"Voting Stock" shall mean, with respect to a corporation, all
securities of such corporation of any class or series that are entitled to vote
generally in the election of directors of such

17
<PAGE> 20
corporation (excluding any class or series that would be entitled so to vote by
reason of the occurrence of any contingency, so long as such continency has not
occurred).

10. Covenant Not to Compete.

11. Successors.

(a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
heirs, executors and other legal representatives.

(b) This Agreement shall inure to the benefit of and be
binding upon the Company and may only be assigned to a successor described in
Section 11(c).

(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.

12. Miscellaneous.

(b) The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.

(c) This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and heirs, executors and other legal representatives.

If to the Executive:

George F. Canjar
Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079

If to the Company:

Carrizo Oil & Gas, Inc.
14811 St. Mary's Lane, Suite 148
Houston, Texas 77079
Telecommunications Number: (281) 496-1352
Attention: Corporate Secretary

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

(e) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.

(f) The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.

(g) The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason or during a Window Period pursuant to
Section 3(c) of this Agreement, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.

20
<PAGE> 23
(i) This Agreement shall become effective as of the date
hereof (the "Agreement Effective Date").

IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.

CARRIZO OIL & GAS, INC.

By: /s/ S.P. JOHNSON IV
-----------------------------------------
S.P. Johnson IV

/s/ GEORGE F. CANJAR
-----------------------------------------
George F. Canjar

21
<PAGE> 24
EXHIBIT "A"

AMENDED STOCK OPTION AGREEMENT

This AMENDED STOCK OPTION AGREEMENT is entered into this ____
day of _____________, 1997, between Carrizo Oil & Gas, Inc., a Texas
corporation ("the Company"), and George F. Canjar ("Employee").

In consideration of the mutual promises hereinafter set forth,
and other good and valuable consideration, the parties hereto agree as follows:

1. The Company hereby evidences its grant on July 19, 1996 to
Employee the right and option (hereinafter called the "Option") to purchase up
to 138,825 of its shares ("Option Shares") (266.46 shares prior to the June 5,
1997 stock split) of common stock, $.01 par value per share (the "Common
Stock") ("Option Shares"), on the terms and conditions herein set forth. The
Company hereby represents and warrants to the Employee that, as of July 19,
1996, it had 10,000 shares of Common Stock issued and outstanding.

2. The purchase price of the Option Shares shall be $500,000 (the
"Exercise Price").

<TABLE>
<CAPTION>
Vesting Date Option Shares Exercise Price
------------ ------------- --------------
<S> <C> <C>
August 1, 1996 27,765 $100,000
February 1, 1997 27,765 $100,000
August 1, 1997 27,765 $100,000
February 1, 1998 27,765 $100,000
August 1, 1998 27,765 $100,000
------- --------

138,825 $500,000
========
</TABLE>

If the Option is not exercised with respect to any Option Shares before August
1, 2007, any unexercised portion of the Option shall expire and be of no
further force and effect.

A-1
<PAGE> 25
4. The Option shall not be transferable by Employee, and the
Option is exercisable only by him except that it may be exercised by his legal
representative in the event of his death or disability. Subject to the
foregoing, the Option may not be assigned, transferred, pledged or hypothecated
in any way (whether by operation of law or otherwise) and shall not be subject
to execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of the Option contrary to
the provisions hereof, or the levy of any attachment or similar process upon
the Option, which would otherwise effect a change in the ownership of the
Option, shall terminate the Option.

5. In the event any dividend or other distribution (whether in
the form of cash, Common Stock, other securities or other property),
recapitalization, stock split, reverse stock split (or other similar
corporation transaction or event) affects the Common Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
potential benefits intended to be made available under this Agreement, then
(i) the number and type of Option Shares (or other securities or property)
which thereafter may be available, (ii) the number and type of Option Shares
(or other securities or property) subject to grant, and (iii) the grant,
purchase, or Exercise Price with respect to any Option Shares, shall be
appropriately adjusted. In any event, fractional shares will not be issued and
the number of Option Shares issuable to the Employee shall always be rounded to
the nearer whole number. This Amended Stock Option takes into account the 521
for one stock split effected on June 5, 1997.

6. In the event the Company shall sell all or substantially all
of its assets or shall be a party to any merger, consolidation or corporate
reorganization, as the result of which the Company shall not be the surviving
organization (or shall be the surviving corporate subsidiary in a triangular
merger), or in the event any other company may make a tender or exchange offer
for stock of the Company (the surviving corporation, purchaser, or tendering
corporation being hereinafter collectively referred to as the "purchaser," and
the transaction being hereinafter referred to as the "purchase"), then the
Company may, at its election, (i) reach an agreement with the purchaser that
the purchaser will assume the obligations of the Company as to any outstanding
portion of the Option; (ii) reach an agreement with the purchaser that the
purchaser will convert the outstanding portion of the Option into an option of
at least equal value as to stock of the purchaser; (iii) not later than thirty
(30) days prior to the effective date of the purchase, notify Employee that the
Option is accelerated and afford to Employee a right for ten (10) days after
the date of such notice to exercise any then unexercised vested or any unvested
portion of the Option, and within such ten day period, Employee shall exercise
any portion of the Option as he may desire in accordance with paragraph 7 of
this Agreement; or (iv) pay to Employee, in cash, at or in connection with the
closing of any such transaction, the "spread" between the Exercise Price and
the price per share of the Company paid by the purchaser, as determined in good
faith by the Company's Board of Directors, multiplied by: (x) the number of
then unexercised vested Option Shares, plus (y) one- half of any unvested
Option Shares.

7. The Option shall be exercised by written notice to the Company
at its principal office in Houston, Texas, attention to the President or
Secretary. Such notice shall be deemed duly given

A-2
<PAGE> 26
on the date delivered in person to the President or Secretary, or on the date
that is five (5) days after the date such notice is posted if such notice is
sent by prepaid certified mail, return receipt requested, to the President or
Secretary at the above office. Such notice shall state the election to
exercise the Option and the number of full shares in respect of which it is
being exercised and shall be signed by the person exercising the Option. Such
notice shall be accompanied by (a) a check payable to the order of the Company
for the full Exercise Price of such shares, or other consideration for the
shares to be purchased that is acceptable to the Company and (b) any other
written representations, covenants, and undertakings that the Company may
reasonably prescribe to satisfy applicable securities laws and regulations or
other requirements of this Agreement. The certificate or certificates for the
shares as to which the Option shall have been so exercised shall be registered
in the name of the person exercising the Option and shall be delivered to the
person exercising the Option. All shares issued as provided herein will be
fully paid and non-assessable. Such certificates shall bear such legends as
the Company shall deem appropriate to comply with applicable securities laws.

8. By accepting this Option, Employee agrees that any Option
Shares purchased upon the exercise of this Option shall be acquired for his own
account and not with a view to distribution (in the absence of registration or
other exception from applicable securities laws) and that upon giving each
notice of the exercise of any portion of this Option, Employee shall execute a
written representation and covenant, to be prepared by the Company, in such
form as may be reasonably specified by the Company, confirming such agreement.
So long as the Company is not a publicly reporting company under the securities
laws, contemporaneously with the exercise of any Option, Employee shall execute
and furnish to the Company a Buy-Sell Agreement covering any shares which
Employee may acquire in the Company and providing that Employee may not
transfer any such shares without giving the Company a right of first refusal to
acquire them at the bona fide price offered by a potential third party
purchaser, or, in the case of a transfer other than a purchase by a bona fide
third party, at the average of their appraised value , as determined by two (2)
different nationally recognized accounting firms, one of which is engaged by
Company and one of which is engaged by Employee. Such Buy-Sell Agreement shall
be executed by Employee's spouse (if any), and if Employee should thereafter
become married, he shall within thirty days after the date of such marriage,
and in any event prior to the exercise of any option unexercised on the date of
marriage, furnish to the Company an original counterpart of such Buy-Sell
Agreement executed by his spouse. Failure to comply with the provisions of
this paragraph 8 shall render the Option null and void.

11. The terms of this Option may not be amended or varied except
by a written instrument which is duly executed by the Employee and by a duly
authorized officer of the Company.

EXECUTED as of the date first set forth above.

--------------------------------------
George F. Canjar

CARRIZO OIL & GAS, INC.

By:
----------------------------------
S. P. Johnson, IV, President

A-4

<PAGE> 1

Exhibit 10.8

CARRIZO OIL & GAS, INC.
S CORPORATION TAX ALLOCATION, PAYMENT AND
INDEMNIFICATION AGREEMENT

This Tax Allocation, Payment and Indemnification Agreement
dated as of May 16, 1997 (the "Agreement") is made by and among Carrizo Oil &
Gas, Inc., a Texas corporation ("Carrizo"), and Steven A. Webster, Sylvester P.
Johnson, IV, Frank A. Wojtek, Douglas A.P. Hamilton, Jr., and Paul B. Loyd,
Jr. (each individually, a "Shareholder" and collectively, the "Shareholders").

WHEREAS, prior to May 16, 1997 (the "Termination Date"),
Carrizo was an S corporation, within the meaning of section 1361 of the
Internal Revenue Code of 1986, as amended ("Code"), and the Shareholders were
its only shareholders;

WHEREAS, effective on and after the Termination Date,
Carrizo's status as an S corporation terminated pursuant to Section 1362(d)(2)
of the Code by reason of the transfer by Douglas A.P. Hamilton, Jr. of 395,960
shares of common stock, par value $.01 per share, ("Common Stock") of Carrizo
to DAPHAM Partnership L.P., a Delaware limited partnership;

WHEREAS, Carrizo and the Shareholders wish to provide for a
tax allocation and indemnification agreement in connection with tax periods
prior to and following the Termination Date;

NOW, THEREFORE, for mutual consideration, the receipt and
sufficiency of which are hereby acknowledged, Carrizo and the Shareholders do
hereby covenant and agree as follows:
<PAGE> 2
ARTICLE I

DEFINITIONS

The following terms, as used herein, have the following
meanings:

"Code" shall mean the Internal Revenue Code of 1986, as
amended.

"C Short Year" shall have the meaning set forth in section
1362(e)(1)(B) of the Code.

"S corporation" shall have the meaning set forth in section
1361 of the Code.

"S corporation Taxable Income" shall mean, for periods
beginning on or after the date Carrizo became an S corporation and ending with
the S Short Year, the sum of (i) Carrizo's items of separately stated income
and gain (within the meaning of section 1366(a)(1)(A) of the Code) reduced, to
the extent applicable, by Carrizo's separately stated items of deduction and
loss (within the meaning of section 1366(a)(1)(A) of the Code) and (ii)
Carrizo's nonseparately computed net income (within the meaning of section
1366(a)(1)(B) of the Code).

"S Short Year" shall have the meaning set forth in section
1362(e)(1)(A) of the Code.

"Shareholders" shall mean Steven A. Webster, Sylvester P.
Johnson, IV, Frank A. Wojtek, Douglas A.P. Hamilton, Jr., and Paul B. Loyd,
Jr.

"Termination Date" shall mean May 16, 1997.

"Carrizo" shall mean Carrizo Oil & Gas, Inc., a Texas
corporation.

-2-
<PAGE> 3
ARTICLE II

ALLOCATION OF INCOME

Carrizo and the Shareholders agree that for tax purposes
(including for purposes of determining Carrizo's S corporation Taxable Income
for its fiscal year ending December 31, 1997) Carrizo shall allocate its items
of income, gain, loss, deduction and credit for its fiscal year ending December
31, 1997 between the S Short Year and the C Short Year in accordance with
normal tax accounting rules (the "closing of the books method"), as permitted
by section 1362(e)(3) of the Code. Carrizo will make the election permitted by
section 1362(e)(3), and the Shareholders will consent to such election.

ARTICLE III

TAXES

3.1 Liability for Taxes Incurred During the S Short Year
and for Tax Periods Ending Prior to the Termination Date. The Shareholders,
severally and jointly, covenant and agree that: (i) the Shareholders have duly
included, or will duly include, in their own federal income tax returns all
items of income, gain, loss, deduction, or credit attributable to the S Short
Year of Carrizo or to any prior period (or that portion of any period) during
which Carrizo was an S corporation as required by applicable law; (ii) such
returns shall include their allocable share of S corporation Taxable Income of
Carrizo from all sources through and including the close of business on the
last day of the S Short Year of Carrizo, and (iii) the Shareholders shall pay
any and all taxes they are required to pay, as a result of being a shareholder
of Carrizo, for all taxable periods (or that portion of any period) during
which Carrizo was an S corporation.

3.2 Shareholder Indemnification for Tax Liabilities. The
Shareholders, severally (according to the percentage of the outstanding shares
of Common Stock owned by each

-3-
<PAGE> 4
Shareholder on the last day of any applicable period to which a liability
described below relates) and jointly (to the extent that such Shareholder was a
shareholder of Carrizo on the last day of any applicable period to which a
liability described below relates) hereby indemnify and hold Carrizo harmless
from, against and in respect of federal income tax liabilities of Carrizo
(including interest and penalties imposed thereon), if any, (i) which are
attributable to the S Short Year or any period ending prior to the Termination
Date, or (ii) which are incurred by Carrizo as a result of a final
determination of an adjustment (by reason of an amended return, claim for
refund, audit, judicial decision or otherwise) to the taxable income of the
Shareholders for any period (including, without limitation, the S Short Year)
which (in the case of this clause (ii)) results in a decrease for any period in
the Shareholders' taxable income and a corresponding increase for any period in
the taxable income of Carrizo.

3.3 Carrizo's Indemnification for Tax Liabilities.
Carrizo hereby indemnifies and agrees to hold the Shareholders harmless from,
against and in respect of federal income tax liabilities (including interest
and penalties imposed thereon), if any, incurred by the Shareholders as a
result of a final determination of an adjustment (by reason of an amended
return, claim for refund, audit, judicial decision or otherwise) to the taxable
income of Carrizo for any period (including, without limitation, the C Short
Year) which results in a decrease for any period in Carrizo's taxable income
and a corresponding increase for any period in the taxable income of the
Shareholders.

3.4 Payments. The Shareholders or Carrizo, as the case
may be, shall make any payment required under section 3.2 or section 3.3 of
this Agreement within fourteen days after receipt of notice from the other
party that a payment is due by such party to the appropriate taxing authority.

-4-
<PAGE> 5
3.5 Refunds. If Carrizo receives a refund of any federal
income tax (including penalties and interest) for any period prior to the
Termination Date, or as to which it has previously been indemnified by the
Shareholders, it shall pay an amount equal to such refund, within seven days
after receipt thereof, to the Shareholders in accordance with the percentage of
the outstanding shares of Common Stock owned by each such Shareholder on the
last day of any applicable period to which the refund relates. If the
Shareholders receive a refund of any federal income tax (including penalties
and interest) as to which they have previously been indemnified by Carrizo,
they shall, within seven days after receipt thereof, remit an amount equal to
such refund to Carrizo.

3.6 Notice and Control of Proceedings. Carrizo shall
notify the Shareholders, or vice versa as the case may be, within 30 days after
the commencement of an audit or other proceeding in which an indemnity may be
sought hereunder and shall keep such other party or parties fully apprised of
such proceedings. At any time, the party or parties against whom an indemnity
may be sought hereunder shall be entitled to assume control of such portion of
the proceedings as relates to the issue which may give rise to the indemnity.

3.7 Payment of Expenses. Carrizo will be responsible for
and pay (without the right to be reimbursed therefor by the Shareholders) the
reasonable expenses of all proceedings (including, without limitation, audits
by the Internal Revenue Service) relating to the federal income tax liability
(i) of Carrizo for any period, and (ii) of the Shareholders, insofar as the
liability of the Shareholders relates to and arises by virtue of their having
been shareholders of Carrizo for the S Short Year or any prior period.

-5-
<PAGE> 6
ARTICLE IV

MISCELLANEOUS

4.1 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
counterparts collectively shall constitute an instrument representing the
Agreement between the parties hereto.

4.2 Construction of Terms. Nothing herein expressed or
implied is intended, or shall be construed, to confer upon or give any person,
firm or corporation, other than the parties hereto or their respective
successors, any rights or remedies under or by reason of this Agreement.

4.3 Intent of Parties. It is the parties' intent that
the liability for federal income taxes arising from the operations of Carrizo
will be borne by the Shareholders for periods through and including the S Short
Year and by Carrizo for periods beginning with the C Short Year, and this
Agreement shall be construed so as most equitably to achieve such intent.

4.4 Governing Law. This Agreement between the parties
hereto shall be governed by and construed in accordance with the substantive
laws of the State of Texas without regard to its choice of law rules.

4.5 Severability. In the event that any one or more of
the provisions of this Agreement shall be held to be illegal, invalid or
unenforceable in any respect, the same shall not in any respect affect the
validity, legality or enforceability of the remainder of this Agreement, and
the parties shall use their best efforts to replace such illegal, invalid or
unenforceable provisions with an enforceable provision approximating, to the
extent possible, the original intent of the parties.

-6-
<PAGE> 7
IN WITNESS WHEREOF the parties hereto have executed this
Agreement effective as of the date first written above.

CARRIZO OIL & GAS, INC., a Texas corporation

By:
----------------------------------------------
Sylvester P. Johnson, IV
President and Chief Executive Officer

-7-
<PAGE> 8

SHAREHOLDERS:

-------------------------------------------------------
Steven A. Webster

-------------------------------------------------------
Sylvester P. Johnson, IV

-------------------------------------------------------

Frank A. Wojtek

-------------------------------------------------------
Douglas A. P. Hamilton, Jr.

-------------------------------------------------------
Paul B. Loyd, Jr.

-8-

<PAGE> 1

EXHIBIT 10.9

CARRIZO PRODUCTION, INC.
S CORPORATION TAX ALLOCATION, PAYMENT AND
INDEMNIFICATION AGREEMENT

This Tax Allocation, Payment and Indemnification Agreement
dated as of June __, 1997 (the "Agreement") is made by and among Carrizo Oil &
Gas, Inc., a Texas corporation ("Carrizo"), and Steven A. Webster, Sylvester P.
Johnson, IV, Frank A. Wojtek, Douglas A.P. Hamilton, Jr., and Paul B. Loyd, Jr.
(each individually, a "Shareholder" and collectively, the "Shareholders").

WHEREAS, Carrizo Production, Inc., a Texas corporation
("Carrizo Production") is an S corporation, within the meaning of section 1361
of the Internal Revenue Code of 1986, as amended ("Code"), and the Shareholders
are its only shareholders;

WHEREAS, Carrizo Production is expected to merge with and into
Carrizo pursuant to that Combination Agreement (hereinafter defined)(the
"Merger"),

WHEREAS, as of the closing of the Merger, Carrizo Production
will cease to exist, and its taxable year will end;

WHEREAS, the Shareholders are currently the only shareholders
of Carrizo Production and will continue to be so until immediately before the
closing of the Merger; and

WHEREAS, Carrizo and the Shareholders wish to provide for an S
corporation tax allocation and indemnification agreement in connection with the
tax liability of Carrizo Production prior to and including the date of the
closing of the Merger (the "Closing Date");
<PAGE> 2
NOW, THEREFORE, for mutual consideration, the receipt and
sufficiency of which are hereby acknowledged, Carrizo and the Shareholders do
hereby covenant and agree as follows:

ARTICLE I

DEFINITIONS

The following terms, as used herein, have the following
meanings:

"Carrizo" shall mean Carrizo Oil and Gas, Inc., a Texas
corporation.

"Carrizo Production" shall mean Carrizo Production, Inc., a
Texas corporation.

"Closing Date" shall mean the date of the closing of the
Merger.

"Code" shall mean the Internal Revenue Code of 1986, as
amended.

"Combination Agreement" shall mean that agreement by and among
Carrizo, Carrizo Production, Encinitas Partners, Ltd., La Rosa Partners Ltd.,
Cerritas Partners Ltd., and the Shareholders, dated as of June 6, 1997.

"Final Year" shall mean the tax year beginning on January 1,
1997 and ending on the Closing Date.

"Merger" shall mean the merger of Carrizo Production with and
into Carrizo pursuant to the terms of the Combination Agreement.

"S corporation" shall have the meaning set forth in section
1361 of the Code.

"S corporation Taxable Income" shall mean, for periods
beginning on or after the date Carrizo Production became an S corporation and
ending with the Final Year, the sum of (i) Carrizo Production's items of
separately stated income and gain (within the meaning of section 1366(a)(1)(A)
of the Code) reduced, to the extent applicable, by Carrizo Production's
separately

-2-
<PAGE> 3
stated items of deduction and loss (within the meaning of section 1366(a)(1)(A)
of the Code) and (ii) Carrizo Production's nonseparately computed net income
(within the meaning of section 1366(a)(1)(B) of the Code).

"Shareholders" shall mean Steven A. Webster, Sylvester P.
Johnson, IV, Frank A. Wojtek, Douglas A.P. Hamilton, Jr., and Paul B. Loyd,
Jr.

ARTICLE II

ALLOCATION OF INCOME

All items of income, gain, loss, deduction and credit of
Carrizo Production for the tax year beginning on January 1, 1997 and ending on
the Closing Date (the "Final Year") will be included in the final tax return of
Carrizo Production.

ARTICLE III

TAXES

3.1 Liability for Taxes Incurred During the Final Year
and for Tax Periods Ending Prior to the Closing Date. The Shareholders,
severally and jointly, covenant and agree that: (i) the Shareholders have duly
included, or will duly include, in their own federal income tax returns all
items of income, gain, loss, deduction, or credit attributable to the Final
Year of Carrizo Production or to any prior period (or that portion of any
period) during which Carrizo Production was an S corporation as required by
applicable law; (ii) such returns shall include their allocable share of S
corporation Taxable Income of Carrizo Production from all sources through and
including the close of business on the last day of the Final Year of Carrizo
Production, and (iii) the Shareholders shall pay any and all taxes they are
required to pay, as a result of being a

-3-
<PAGE> 4
shareholder of Carrizo Production, for all taxable periods (or that portion of
any period) during which Carrizo Production was an S corporation.

3.2 Shareholder Indemnification for Tax Liabilities. The
Shareholders, severally (according to the percentage of the outstanding shares
of Common Stock owned by each Shareholder on the last day of any applicable
period to which a liability described below relates) and jointly (to the extent
that such Shareholder was a shareholder of Carrizo Production on the last day
of any applicable period to which a liability described below relates) hereby
indemnify and hold Carrizo harmless from, against and in respect of federal
income tax liabilities of Carrizo (including interest and penalties imposed
thereon), if any, (i) which are attributable to the Final Year or any period
ending prior to the Closing Date, or (ii) which are incurred by Carrizo as a
result of a final determination of an adjustment (by reason of an amended
return, claim for refund, audit, judicial decision or otherwise) to the taxable
income of the Shareholders for any period (including, without limitation, the
Final Year) which (in the case of this clause (ii)) results in a decrease for
any period in the Shareholders' taxable income and a corresponding increase for
any period in the taxable income of Carrizo.

3.3 Carrizo's Indemnification for Tax Liabilities.
Carrizo hereby indemnifies and agrees to hold the Shareholders harmless from,
against and in respect of federal income tax liabilities (including interest
and penalties imposed thereon), if any, incurred by the Shareholders as a
result of a final determination of an adjustment (by reason of an amended
return, claim for refund, audit, judicial decision or otherwise) to the taxable
income of Carrizo for any period which results in a decrease for any period in
Carrizo's taxable income and a corresponding increase for any period in the
taxable income of the Shareholders.

-4-
<PAGE> 5
3.4 Payments. The Shareholders or Carrizo, as the case
may be, shall make any payment required under section 3.2 or section 3.3 of
this Agreement within fourteen days after receipt of notice from the other
party that a payment is due by such party to the appropriate taxing authority.

3.5 Refunds. If Carrizo receives a refund of any federal
income tax (including penalties and interest) for any tax period of Carrizo
Production prior to the Closing Date, or as to which it has previously been
indemnified by the Shareholders, it shall pay an amount equal to such refund,
within seven days after receipt thereof, to the Shareholders in accordance with
the percentage of the outstanding shares of Common Stock owned by each such
Shareholder on the last day of any applicable period to which the refund
relates. If the Shareholders receive a refund of any federal income tax
(including penalties and interest) as to which they have previously been
indemnified by Carrizo, they shall, within seven days after receipt thereof,
remit an amount equal to such refund to Carrizo.

-5-
<PAGE> 6
liability of the Shareholders relates to and arises by virtue of their having
been shareholders of Carrizo Production for the Final Year or any prior period.

ARTICLE IV

MISCELLANEOUS

4.3 Intent of Parties. It is the parties' intent that
the liability for federal income taxes arising from the operations of Carrizo
Production will be borne by the Shareholders for periods through and including
the Final Year, and this Agreement shall be construed so as most equitably to
achieve such intent.

-6-
<PAGE> 7
provisions with an enforceable provision approximating, to the extent possible,
the original intent of the parties.

IN WITNESS WHEREOF the parties hereto have executed this
Agreement as of the date first written above.

CARRIZO OIL & GAS, INC., a Texas
corporation

By:
------------------------------------
Sylvester P. Johnson, IV
President and Chief Executive
Officer

-7-
<PAGE> 8

SHAREHOLDERS:

------------------------------
Steven A. Webster

------------------------------
Sylvester P. Johnson, IV

------------------------------
Frank A. Wojtek

------------------------------
Douglas A. P. Hamilton, Jr.

------------------------------
Paul B. Loyd, Jr.

-8-

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Houston, Texas

July 22, 1997

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 1,492,603 1,500,493
<SECURITIES> 0 0
<RECEIVABLES> 1,815,906 2,634,096
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,323,981 4,192,513
<PP&E> 16,734,798 21,073,962
<DEPRECIATION> (1,529,211) (1,911,686)
<TOTAL-ASSETS> 18,869,357 23,912,295
<CURRENT-LIABILITIES> 4,349,275 5,950,645
<BONDS> 9,924,132 12,555,148
0 0
0 0
<COMMON> 4,261,000 4,915,678
<OTHER-SE> 334,950 490,824
<TOTAL-LIABILITY-AND-EQUITY> 18,869,357 23,912,295
<SALES> 5,194,709 1,853,170
<TOTAL-REVENUES> 5,194,709 1,853,170
<CGS> 0 0
<TOTAL-COSTS> 2,384,145<F1> 557,464<F1>
<OTHER-EXPENSES> 1,630,916<F2> 580,090<F2>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 79,797 0
<INCOME-PRETAX> 1,099,851 715,616
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 1,099,851 715,616
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,099,851 715,616
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>(1) Includes oil and natural gas operating expenses only.
<F2>(2) Includes other operating expenses and other income.
</FN>

</TABLE>