2015 Annual Report

The oil and gas industry has always been defined by cycles. Through these cycles, we typically see significant changes in commodity prices from peak to trough, and vice versa. At the peaks, it often feels like commodity prices will never go down, while at the troughs, it can feel like they may never go back up. The truth typically lies somewhere in between. Given this type of volatility, the best way to deliver shareholder returns throughout the cycles is to be a low cost producer with a strong balance sheet. This is how we believe Carrizo is positioned today.

The current crude oil price downcycle started in mid-2014, then accelerated when OPEC elected not to curtail volumes later that year and instead increased its production by more than 1 MMBbls/d. Despite the continued increase in global demand, this contributed to an oversupplied market and helped send crude oil prices down more than 70% from the average of the previous five years. The downturn has not only been severe from a price standpoint, but also from a duration standpoint. However, we are starting to see signs of the trough potentially coming to an end. Aggregate U.S. production declines are happening now, and with industry capex expected to decline significantly in 2016, the declines should accelerate. And with worldwide demand projected to continue its pace of growth of about 1 MMBbls/d per year, the supply/demand surplus should eventually shift to a deficit. While we do not expect this to happen overnight, Carrizo is designed to manage a prolonged downturn and be in a position to capitalize on the subsequent upcycle.

While we are confident that crude oil prices will move higher in the future, pinpointing exactly where prices settle is a tougher question. However, as a low-cost producer, we believe we will be able to thrive wherever they can reasonably be expected to shake out. But don’t take our word for this, as a respected third-party research firm recently evaluated more than 6,000 wells drilled in North America during 2015 and highlighted Carrizo as having the lowest weighted-average PV10 breakeven cost in the industry at $38/Bbl WTI.

Our advantaged position starts with our assets. We currently have positions in some of the lowest-cost resource plays in North America, with acreage in the Eagle Ford Shale, Delaware Basin, Niobrara Formation, Utica Shale, and Marcellus Shale. This gives us an inventory of approximately 1,800 net potential drilling locations, of which more than 50% are economical below $40/Bbl. And while being a low-cost producer starts with good rock, it also requires a strong technical and operational team. This is an area that we believe sets Carrizo apart from its small- and mid-cap peers. Members of our management team have been together for over a decade, and have drilled more than 800 horizontal wells across approximately 15 unconventional plays. This experience and expertise results in highly efficient drilling and completion operations in addition to well results that consistently rank among the best in our core areas.

We have a strong financial position that provides us with the liquidity and flexibility to execute our capital plan moving forward. We exited the year with a net-debt-to-adjusted-EBITDA ratio of 2.7x, an undrawn $685 million bank revolver, and cash on the balance sheet. We also have a strong hedge book supporting our cash flows during 2016, with approximately 60% of our forecast oil production hedged at a weighted-average floor price of approximately $64/Bbl, including the benefit of the cash we will receive from prior hedge restructurings.

For 2016, our focus is on protecting our balance sheet and maintaining our recent crude oil production rates. We have reduced our planned drilling and completion spending by more than 40% to $270-$290 million from $496 million last year. The majority of our drilling and completion capital is once again expected to be allocated to the Eagle Ford Shale, and we have announced a target crude oil production growth rate of approximately 8% for 2016. We also remain positioned to reaccelerate production growth once commodity prices recover.

In closing, we want to thank all of the Carrizo employees and contractors whose efforts have helped build Carrizo into a company that can prosper throughout the cycles.

Steve A. Webster

Steve A. Webster
Chairman

Steve A. Webster
S.P. Johnson

S.P. Johnson, IV
President & CEO

S.P. Johnson