2016 Annual Report

Letter to Shareholders

The year 2016 marked a turning point for the oil and gas industry. In the beginning of the year, our industry was still mired in the crude oil price downcycle that began in mid-2014, and these conditions intensified when OPEC elected to add more than 1 MMBbls/d to an already oversupplied market. While the dramatic decline in prices led to a significant reduction in industry-wide activity in 2015 and 2016, it takes time for the impact to flow through to production and for supply and demand to rebalance. As a result, crude oil prices did not bottom until the first quarter of 2016, falling below $30/Bbl before rallying to end the year above $50/Bbl as production declines in the U.S. and elsewhere began to manifest.

Although the challenging macro environment led to production declines for many domestic producers, we were able to deliver another year of growth in 2016. Our crude oil production of 25,745 Bbls/d and total production of 42,276 Boe/d were both Company records, and were up 12% and 15% respectively, versus 2015. Additionally, we exited 2016 with a record 200.2 MMBoe of proved reserves.

One positive that came from the downcycle is that our industry became more efficient, and the U.S. is now even more competitive on the global energy stage than it was just a few years ago. Carrizo has been at the forefront of these efficiency gains. In the Eagle Ford Shale, we are currently drilling wells approximately 40% faster than we were in late 2015. This and other efficiencies resulted in well costs in the Eagle Ford Shale declining by more than 10% during 2016. And that is despite increasing the average lateral length and number of frac stages in our wells, which has led to increased recoveries of oil and gas. As a result, we have been able to drive the PV10 break-even cost of our average Eagle Ford Shale well below $35/Bbl and down to approximately $31/Bbl on our Core acreage in the play.

While we can now thrive in a much lower commodity price environment than we did a few years ago, we remain confident that crude oil prices will head higher in the future. Though U.S. production is likely to rise again in 2017, we believe the world will need more U.S. production given the continued strong growth in global demand. Global oil demand grew by an estimated 1.6 MMBbls/d in 2016 and is projected to grow by another 1.4 MMBbls/d in 2017. As a result, demand is projected to exceed supply later this year, even with an assumed increase in U.S. production.

We have a deep inventory of low-risk drilling locations that should provide us with years of strong production growth. We currently have more than 2,200 net drilling locations in our inventory, concentrated in some of the highest-return plays in the U.S., like the Eagle Ford Shale and Delaware Basin. Given the visibility that this inventory provides, we recently announced a three-year plan that aims to deliver a compound annual growth rate in excess of 20% for our crude oil production.

In addition to having the necessary drilling inventory, we also have the balance sheet to execute our three-year plan. We came out of the commodity price downcycle with very manageable leverage levels and significant liquidity available on our senior credit facility. This provides us with ample financial flexibility to execute our plan, even if crude oil prices do not recover as quickly as we expect.

For 2017, our planned drilling and completion capital program is $530-$550 million, up from $406 million in 2016, as we elected to add a third rig to the Eagle Ford Shale earlier this year. The Eagle Ford Shale is again expected to get the majority of our drilling and completion capital, although we also plan to continue developing our Delaware Basin position. Based on this level of spending, we have announced a target crude oil production growth rate of approximately 23% for the year.

In closing, we would like to thank all of our employees and contractors whose hard work and dedication allowed Carrizo to emerge from the recent commodity price downcycle in a strong position.

Steve A. Webster

Steve A. Webster
Chairman

Steve A. Webster
S.P. Johnson

S.P. Johnson, IV
President & CEO

S.P. Johnson