UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________
FORM 10-Q
_________________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 000-29187-87
_________________________________________________
CARRIZO OIL & GAS, INC.
(Exact name of registrant as specified in its charter)
_________________________________________________
Texas
 
76-0415919
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
500 Dallas Street, Suite 2300, Houston, Texas
 
77002
(Address of principal executive offices)
 
(Zip Code)
(713) 328-1000
(Registrant’s telephone number)
 ____________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    YES   x     NO   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES   x     NO   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):  
Large accelerated filer
 
x
 
Accelerated filer
 
¨
 
Non-accelerated filer
 
¨   (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES   ¨     NO   x
The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of April 30, 2014 was 45,489,678 .



CARRIZO OIL & GAS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014
INDEX
 
PAGE
 
Item 1.
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CARRIZO OIL & GAS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
 
 
March 31,
2014
 
December 31,
2013
Assets
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$62,420
 
$157,439
Accounts receivable, net
 
123,754

 
111,195

Deferred income taxes
 
5,722

 
4,201

Other current assets
 
5,957

 
6,926

Total current assets
 
197,853

 
279,761

Property and equipment
 
 
 
 
Oil and gas properties, full cost method
 
 
 
 
Proved properties, net
 
1,530,946

 
1,408,484

Unproved properties, not being amortized
 
399,166

 
377,437

Other property and equipment, net
 
8,081

 
8,294

Total property and equipment, net
 
1,938,193

 
1,794,215

Debt issuance costs
 
22,093

 
22,899

Other assets
 
10,925

 
13,885

Total Assets
 
$2,169,064
 
$2,110,760
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$47,049
 
$57,146
Revenues and royalties payable
 
87,278

 
79,136

Accrued capital expenditures
 
108,483

 
87,031

Accrued interest
 
24,787

 
17,430

Advances for joint operations
 
7,977

 
19,967

Liabilities of discontinued operations
 
9,533

 
10,936

Derivative liabilities
 
21,382

 
9,947

Other current liabilities
 
56,659

 
41,242

Total current liabilities
 
363,148

 
322,835

Long-term debt
 
900,425

 
900,247

Liabilities of discontinued operations
 
17,060

 
17,336

Deferred income taxes
 
22,019

 
16,856

Asset retirement obligations
 
7,156

 
6,576

Other liabilities
 
6,026

 
5,306

Total liabilities
 
1,315,834

 
1,269,156

Commitments and contingencies
 

 

Shareholders’ equity
 
 
 
 
Common stock, $0.01 par value, 90,000,000 shares authorized; 45,480,154 issued and outstanding as of March 31, 2014 and 45,468,675 issued and outstanding as of December 31, 2013
 
455

 
455

Additional paid-in capital
 
885,598

 
879,948

Accumulated deficit
 
(32,823
)
 
(38,799
)
Total shareholders’ equity
 
853,230

 
841,604

Total Liabilities and Shareholders’ Equity
 
$2,169,064
 
$2,110,760
The accompanying notes are an integral part of these consolidated financial statements.

- 2 -


CARRIZO OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
 
For The Three Months Ended
March 31,
 
2014
 
2013
Revenues
 
 
 
Crude oil
$130,362
 
$87,482
Natural gas liquids
5,888

 
2,741

Natural gas
20,962

 
21,678

Total revenues
157,212

 
111,901

 
 
 
 
Costs and Expenses
 
 
 
Lease operating
12,605

 
10,195

Production taxes
6,091

 
4,513

Ad valorem taxes
1,428

 
1,860

Depreciation, depletion and amortization
64,594

 
45,697

General and administrative
28,261

 
16,173

Loss on derivatives, net
20,680

 
14,554

Interest expense, net
12,425

 
14,976

Other (income) expense, net
574

 
(40
)
Total costs and expenses
146,658

 
107,928

 
 
 
 
Income From Continuing Operations Before Income Taxes
10,554

 
3,973

Income tax expense
(3,933
)
 
(1,449
)
Income From Continuing Operations
6,621

 
2,524

Income (Loss) From Discontinued Operations, Net of Income Taxes
(645
)
 
23,658

Net Income
$5,976
 
$26,182
 
 
 
 
Net Income (Loss) Per Common Share - Basic
 
 
 
Income from continuing operations
$0.15
 
$0.06
Income (loss) from discontinued operations, net of income taxes
(0.02
)
 
0.60

Net income
$0.13
 
$0.66
 
 
 
 
Net Income (Loss) Per Common Share - Diluted
 
 
 
Income from continuing operations
$0.14
 
$0.06
Income (loss) from discontinued operations, net of income taxes
(0.01
)
 
0.59

Net income
$0.13
 
$0.65
 
 
 
 
Weighted Average Common Shares Outstanding
 
 
 
Basic
45,003

 
39,778

Diluted
45,834

 
40,333

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


- 3 -


CARRIZO OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
 
For The Three Months Ended
March 31,
 
2014
 
2013
Cash Flows From Operating Activities
 
 
 
Net income
$5,976
 
$26,182
(Income) loss from discontinued operations, net of income taxes
645

 
(23,658
)
Adjustments to reconcile income from continuing operations to net cash provided by operating activities from continuing operations
 
 
 
Depreciation, depletion and amortization
64,594

 
45,697

Non-cash loss on derivatives, net
14,005

 
21,057

Stock-based compensation, net
12,161

 
6,483

Deferred income taxes
3,933

 
1,449

Non-cash interest expense, net
675

 
1,309

Other, net
1,101

 
(1,336
)
Changes in operating assets and liabilities-
 
 
 
Accounts receivable
(12,471
)
 
2,216

Accounts payable
9,891

 
29,337

Accrued liabilities
3,627

 
(16,398
)
Other, net
(1,290
)
 
(1,156
)
Net cash provided by operating activities from continuing operations
102,847

 
91,182

Net cash used in operating activities from discontinued operations
(456
)
 
(61
)
Net cash provided by operating activities
102,391

 
91,121

Cash Flows From Investing Activities
 
 
 
Capital expenditures - oil and gas properties
(197,879
)
 
(213,260
)
Capital expenditures - other property and equipment
(187
)
 
(999
)
Proceeds from sales of oil and gas properties, net
2,865

 
9,063

Other, net
129

 
13,235

Net cash used in investing activities from continuing operations
(195,072
)
 
(191,961
)
Net cash provided by (used in) investing activities from discontinued operations
(2,229
)
 
116,179

Net cash used in investing activities
(197,301
)
 
(75,782
)
Cash Flows From Financing Activities
 
 
 
Long-term borrowings under credit agreement

 
45,000

Repayments of long-term borrowings under credit agreement

 
(45,000
)
Payments of debt issuance costs
(109
)
 
(50
)
Proceeds from stock options exercised

 
743

Net cash provided by (used in) financing activities from continuing operations
(109
)
 
693

Net cash provided by financing activities from discontinued operations

 
3,000

Net cash provided by (used in) financing activities
(109
)
 
3,693

Net Increase (Decrease) in Cash and Cash Equivalents
(95,019
)
 
19,032

Cash and Cash Equivalents, Beginning of Period
157,439

 
52,614

Cash and Cash Equivalents, End of Period
$62,420
 
$71,646
The accompanying notes are an integral part of these consolidated financial statements.

- 4 -


CARRIZO OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations
Carrizo Oil & Gas, Inc. is a Houston-based energy company which, together with its subsidiaries (collectively, the “Company”), is actively engaged in the exploration, development, and production of oil and gas primarily from resource plays located in the United States. The Company’s current operations are principally focused in proven, producing oil and gas plays primarily in the Eagle Ford Shale in South Texas, the Utica Shale in Ohio, the Niobrara Formation in Colorado, and the Marcellus Shale in Pennsylvania.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of the Company after elimination of intercompany transactions and balances and are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company proportionately consolidates its undivided interests in oil and gas properties as well as investments in unincorporated entities, such as partnerships and limited liability companies where the Company, as a partner or member, has undivided interests in the oil and gas properties. The consolidated financial statements reflect all necessary adjustments, all of which were of a normal recurring nature and are in the opinion of management necessary to present fairly, in all material respects, the Company’s interim financial position, results of operations and cash flows. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the full year. The consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 .
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to the current period presentation. Such reclassifications had no material impact on prior period amounts.
Discontinued Operations
On December 27, 2012, the Company agreed to sell Carrizo UK Huntington Ltd, a wholly owned subsidiary of the Company (“Carrizo UK”), and all of its interest in the Huntington Field discovery, where Carrizo UK owned a 15% non-operated working interest and certain overriding royalty interests. The sale closed on February 22, 2013. The liabilities, results of operations and cash flows associated with Carrizo UK have been classified as discontinued operations in the consolidated financial statements. Unless otherwise indicated, the information in these notes relate to the Company’s continuing operations. Information related to discontinued operations is included in “Note 3. Discontinued Operations” and “Note 10. Condensed Consolidating Financial Information.”
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods reported. Certain of such estimates and assumptions are inherently unpredictable and will differ from actual results. The Company evaluates subsequent events through the date the financial statements are issued.
Significant estimates include volumes of proved oil and gas reserves, which are used in calculating the depreciation, depletion, and amortization (“DD&A”) of proved oil and gas property costs, the present value of future net revenues included in the full cost ceiling test, estimates of future taxable income used in assessing the realizability of deferred tax assets, and the estimated costs and timing of cash outflows underlying asset retirement obligations. Oil and gas reserve estimates, and therefore calculations based on such reserve estimates, are subject to numerous inherent uncertainties, the accuracy of which, is a function of the quality and quantity of available data, the application of engineering and geological interpretation and judgment to available data and the interpretation of mineral leaseholds and other contractual arrangements, including adequacy of title, drilling requirements and royalty obligations. These estimates also depend on assumptions regarding quantities and production rates of recoverable oil and gas reserves, oil and gas prices, timing and amounts of development costs and operating expenses, all of which will vary from those assumed in the Company’s estimates. Other significant estimates are involved in determining impairments of unevaluated leasehold costs, fair values of derivative instruments, stock-based compensation, collectability of receivables, and in evaluating

- 5 -


disputed claims, interpreting of contractual arrangements (including royalty obligations and notional interest calculations) and contingencies. Estimates are based on current assumptions that may be materially affected by the results of subsequent drilling and completion, testing and production as well as subsequent changes in oil and gas prices, counterparty creditworthiness, interest rates and the market value and volatility of the Company’s common stock.
Cash and Cash Equivalents
Cash equivalents include highly liquid investments with original maturities of three months or less.
Accounts Receivable and Allowance for Doubtful Accounts
The Company establishes an allowance for doubtful accounts when it determines that it will not collect all or a part of an accounts receivable balance. The Company assesses the collectability of its accounts receivable on a quarterly basis and adjusts the allowance as necessary using the specific identification method. The allowance for doubtful accounts was not significant at March 31, 2014 and December 31, 2013 . Accounts receivable from related parties at March 31, 2014 and December 31, 2013 was $5.4 million and $6.6 million , respectively.
Concentration of Credit Risk
The Company’s accounts receivable consists primarily of receivables from oil and gas purchasers and joint interest owners in properties the Company operates. This concentration of customers and joint interest owners in the oil and gas industry may impact the Company’s overall credit risk in that these entities may be similarly affected by changes in economic and other industry conditions. The Company does not require collateral from its customers and joint interest owners. The Company generally has the right to withhold future revenue distributions to recover any non-payment of joint interest billings.
The Company’s derivative instruments in a net asset position also subject the Company to a concentration of credit risk. See “Note 8. Derivative Instruments”.
Oil and Gas Properties
Oil and gas properties are accounted for using the full cost method of accounting under which all productive and nonproductive costs directly associated with property acquisition, exploration and development activities are capitalized to costs centers established on a country-by-country basis. The internal cost of employee compensation and benefits, including stock-based compensation, directly associated with acquisition, exploration and development activities are capitalized and totaled $5.4 million and $2.1 million for the three months ended March 31, 2014 and 2013 , respectively. Internal costs related to production, general corporate overhead and similar activities are expensed as incurred.
Capitalized oil and gas property costs within a cost center are amortized on an equivalent unit-of-production method, converting natural gas to barrels of oil equivalent at the ratio of six thousand cubic feet of gas to one barrel of oil, which represents their approximate relative energy content. The equivalent unit-of-production rate is computed on a quarterly basis by dividing production by proved oil and gas reserves at the beginning of the quarter then applying such amount to capitalized oil and gas property costs, which includes estimated asset retirement costs, less accumulated amortization, plus the estimated future expenditures (based on current costs) to be incurred in developing proved reserves, net of estimated salvage values. Average DD&A per Boe of proved oil and gas properties was $26.68 and $18.82 for the three months ended March 31, 2014 and 2013 , respectively.
Unproved properties, not being amortized, include unevaluated leasehold and seismic costs associated with specific unevaluated properties, the cost of exploratory wells in progress, and related capitalized interest. Exploratory wells in progress and individually significant unevaluated leaseholds are assessed on a quarterly basis to determine whether or not and to what extent proved reserves have been assigned to the properties or if an impairment has occurred, in which case the related costs along with associated capitalized interest are added to the oil and gas property costs subject to amortization. Factors the Company considers in its impairment assessment include drilling results by the Company and other operators, the terms of oil and gas leases not held by production and drilling and completion capital expenditure plans. The Company expects to complete its evaluation of the majority of its unevaluated leaseholds within the next five years and exploratory wells in progress within the next year. Individually insignificant unevaluated leaseholds are grouped by major area and added to the oil and gas property costs subject to amortization based on the average primary lease term of the properties. The Company capitalized interest costs associated with its unproved properties totaling $7.7 million and $6.8 million for the three months ended March 31, 2014 and 2013 , respectively. The amount of interest costs capitalized is determined on a quarterly basis based on the average balance of unproved properties using a weighted-average interest rate based on outstanding borrowings.
Proceeds from the sale of proved and unproved oil and gas properties are recognized as a reduction of capitalized oil and gas property costs with no gain or loss recognized, unless the sale significantly alters the relationship between capitalized costs and

- 6 -


proved reserves of oil and gas attributable to a cost center. For the three months ended March 31, 2014 and 2013, the Company did not have any sales of oil and gas properties that significantly altered such relationship.
Capitalized costs, less accumulated amortization and related deferred income taxes, are limited to the “cost center ceiling” equal to (i) the sum of (A) the present value of estimated future net revenues from proved oil and gas reserves, less estimated future expenditures to be incurred in developing and producing the proved reserves computed using a discount factor of 10% , (B) the costs of unproved properties not being amortized, and (C) the lower of cost or estimated fair value of unproved properties included in the costs being amortized; less (ii) related income tax effects. If the net capitalized costs exceed the cost center ceiling, the excess is recognized as an impairment of oil and gas properties. An impairment recognized in one period may not be reversed in a subsequent period even if higher oil and gas prices in the future increase the cost center ceiling applicable to the subsequent period.
The estimated future net revenues used in the ceiling test are calculated using the average realized prices for sales of oil and gas on the first calendar day of each month during the preceding 12-month period prior to the end of the current reporting period. Prices are held constant indefinitely and are not changed except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts. Prices used in the ceiling test computation do not include the impact of derivative instruments because the Company elected not to meet the criteria to qualify its derivative instruments for hedge accounting treatment.
Depreciation of other property and equipment is recognized using the straight-line method based on estimated useful lives ranging from five to ten years.
Debt Issuance Costs
Debt issuance costs associated with the revolving credit facility are amortized to interest expense on a straight-line basis over the term of the facility. Debt issuance costs associated with the senior notes are amortized to interest expense using the effective interest method over the terms of the related notes.
Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, receivables, payables, derivative instruments and long-term debt. The carrying amounts of cash and cash equivalents, receivables and payables approximate fair value due to the highly liquid or short-term nature of these instruments. The fair values of the Company’s derivative instruments are based on a third-party industry-standard pricing model that uses market data obtained from third-party sources, including quoted forward prices for oil and gas, discount rates and volatility factors. The carrying amounts of long-term debt under the Company’s revolving credit facility, if any, would approximate fair value as borrowings would bear interest at variable rates of interest. The carrying amounts of the Company’s senior notes and other long-term debt may not approximate fair value because carrying amounts are net of any unamortized discount and the notes bear interest at fixed rates of interest. See “Note 6. Long-Term Debt” and “Note 9. Fair Value Measurements.”
Asset Retirement Obligations
The Company’s asset retirement obligations represent the present value of the estimated future costs associated with plugging and abandonment of oil and gas wells, removal of production equipment and facilities and restoring the surface of the land in accordance with the terms of oil and gas leases and applicable local, state and federal laws. Determining asset retirement obligations requires estimates of the costs of plugging and abandoning oil and gas wells, removing production equipment and facilities and restoring the surface of the land as well as estimates of the economic lives of the oil and gas wells and future inflation rates. The resulting estimate of future cash outflows are discounted using a credit-adjusted risk-free interest rate that corresponds with the timing of the cash outflows. Cost estimates consider historical experience, third party estimates, the requirements of oil and gas leases and applicable local, state and federal laws, but do not consider estimated salvage values. Asset retirement obligations are recognized when the well is drilled or when the production equipment and facilities are installed with an associated increase in oil and gas property costs. Asset retirement obligations are accreted to their expected settlement values with any difference between the actual cost of settling the asset retirement obligations and recorded amount being recognized as an adjustment to proved oil and gas property costs. On an interim basis, when indicators suggest there have been material changes in the estimates underlying the obligation, the Company reassesses its asset retirement obligations to determine whether any revisions to the obligations are necessary. At least annually, the Company reassesses all of its asset retirement obligations to determine whether any revisions to the obligations are necessary. Revisions typically occur due to changes in estimated costs or well economic lives, or if federal or state regulators enact new requirements regarding the abandonment of oil and gas wells.

- 7 -


Commitments and Contingencies
Liabilities are recognized for contingencies when (i) it is both probable that an asset has been impaired or that a liability has been incurred and (ii) the amount of such loss is reasonably estimable.
Revenue Recognition
Oil and gas revenues are recognized when production is sold to a purchaser at a fixed or determinable price, delivery has occurred, title has transferred and collectability is reasonably assured. The Company follows the sales method of accounting whereby revenues from the production of natural gas from properties in which the Company has an interest with other producers are recognized for production sold to purchasers, regardless of whether the sales are proportionate to the Company’s ownership interest in the property. Production imbalances are recognized as an asset or liability to the extent that the Company has an imbalance on a specific property that is in excess of its remaining proved reserves. Sales volumes are not significantly different from the Company’s share of production and as of March 31, 2014 and December 31, 2013 , the Company did not have any material production imbalances.
Derivative Instruments
The Company uses commodity derivative instruments, primarily fixed price swaps and costless collars, to manage its exposure to commodity price risk. All derivative instruments are recorded on the consolidated balance sheets as either an asset or liability measured at fair value. The Company nets its derivative instrument fair value amounts executed with the same counterparty pursuant to ISDA master agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. Although the derivative instruments provide an economic hedge of the Company’s exposure to commodity price volatility, because the Company elected not to meet the criteria to qualify its derivative instruments for hedge accounting treatment, gains and losses as a result of changes in the fair value of derivative instruments are recognized as gain (loss) on derivative instruments, net in the consolidated statements of income in the period in which the changes occur. The net cash flows resulting from the payments to and receipts from counterparties as a result of derivative settlements are classified as cash flows from operating activities. The Company does not enter into derivative instruments for speculative or trading purposes.
The Company’s Board of Directors establishes risk management policies and reviews derivative instruments, including volumes, types of instruments and counterparties, on a quarterly basis. These policies require that derivative instruments be executed only by the President or Chief Financial Officer after consultation with and concurrence by the President, Chief Financial Officer and Chairman of the Board. The master contracts with approved counterparties identify the President and Chief Financial Officer as the only Company representatives authorized to execute derivative instruments. See “Note 8. Derivative Instruments” for further discussion of the Company’s derivative instruments.
Stock-Based Compensation
The Company currently has outstanding stock options, stock appreciation rights (“SARs”) to be settled in cash, restricted stock awards and units and performance share awards. The Company recognized the following stock-based compensation expense, net of amounts capitalized for the periods indicated which is reflected as general and administrative expense in the consolidated statements of income:
 
 
 Three Months Ended
March 31,
 
 
2014
 
2013
 
 
(In thousands)
Stock appreciation rights
 
$8,456
 
$3,932
Restricted stock awards and units
 
5,701

 
3,857

Performance share awards
 
14

 

 
 
14,171

 
7,789

Less: amounts capitalized
 
(2,010
)
 
(1,306
)
Total stock-based compensation expense
 
$12,161
 
$6,483
Income tax benefit
 
$4,256
 
$2,363
Stock Appreciation Rights. For stock appreciation rights to be settled in cash, stock-based compensation expense is based on the fair value liability (using the Black-Scholes-Merton option pricing model) remeasured at each reporting period, recognized over the vesting period (generally three years) using the graded vesting method. For periods subsequent to vesting and prior to exercise, stock-based compensation expense is based on the fair value liability remeasured at each reporting period based on the intrinsic value of the SAR. The liability for SARs are classified as “Other current liabilities” for the portion of the awards that are vested or are expected to vest within the next 12 months, with the remainder classified as “Other liabilities.” SARs typically expire between four and seven years after the date of grant.

- 8 -


Restricted Stock Awards and Units . For restricted stock awards and units, stock-based compensation expense is based on the grant-date fair value and recognized over the vesting period (generally one to three years) using the straight-line method, except for award or units with performance conditions, in which case the Company uses the graded vesting method. The fair value of restricted stock awards and units is based on the price of the Company’s common stock on the grant date. For restricted stock awards and units granted to independent contractors, stock-based compensation expense is based on fair value remeasured at each reporting period and recognized over the vesting period (generally three years) using the straight-line method.
Performance Share Awards. For performance share awards, stock-based compensation expense is based on the grant-date fair value (using a Monte Carlo valuation model) and recognized over the vesting period (generally three years) using the straight-line method. The number of shares of common stock issuable upon vesting of the performance share awards range from zero to 200% based on the Company's total shareholder return relative to an industry peer group over a three year performance period.
Income Taxes
Income taxes are recognized based on earnings reported for tax return purposes in addition to a provision for deferred income taxes. Deferred income taxes are recognized at each reporting period for the future tax consequences of cumulative temporary differences between the tax bases of assets and liabilities and their reported amounts in the Company’s financial statements based on existing tax laws and enacted statutory tax rates applicable to the periods in which the temporary differences are expected to affect taxable income. The Company routinely assesses the realizability of its deferred tax assets by taxing jurisdiction and considers its estimate of future taxable income based on production of proved reserves at estimated future pricing in making such assessments. If the Company concludes that it is more likely than not that some portion or all of the benefit from deferred tax assets will not be realized, the deferred tax assets are reduced by a valuation allowance. The Company classifies interest and penalties associated with income taxes as interest expense.
Income From Continuing Operations Per Common Share
Supplemental income from continuing operations per common share information is provided below:
 
 
 Three Months Ended
March 31,
 
 
2014
 
2013
 
 
(In thousands, except per share amounts)
Income From Continuing Operations
 
$6,621
 
$2,524
Basic weighted average common shares outstanding
 
45,003

 
39,778

Effect of dilutive instruments
 
831

 
555

Diluted weighted average common shares outstanding
 
45,834

 
40,333

Income From Continuing Operations Per Common Share
 
 
 
 
Basic
 
$0.15
 
$0.06
Diluted
 
$0.14
 
$0.06
Basic income from continuing operations per common share is based on the weighted average number of shares of common stock outstanding during the period. Diluted income from continuing operations per common share is based on the weighted average number of common shares and all potentially dilutive common shares outstanding during the period which include restricted stock awards and units, performance share awards, stock options and warrants. The Company excludes the number of awards, units, options and warrants from the calculation of diluted weighted average shares outstanding when the grant date prices are greater than the average market prices of the Company’s common stock for the corresponding period as the effect would be antidilutive to the computation. The Company includes the number of potentially dilutive shares attributable to the performance share awards based on the number of shares, if any, that would be issuable as if the end of the period was the end of the performance period. The number of awards, units, options, warrants and performance share awards excluded for the three months ended March 31, 2014 and 2013 were not significant.
3. Discontinued Operations
On February 22, 2013, the Company closed on the sale of Carrizo UK, and all of its interest in the Huntington Field discovery, including a 15% non-operated working interest and certain overriding royalty interests, to a subsidiary of Iona Energy Inc. (“Iona Energy”) for an agreed-upon price of $184.0 million , including the assumption and repayment by Iona Energy of the $55.0 million of borrowings outstanding under Carrizo UK’s senior secured multicurrency credit facility as of the closing date. The liabilities of discontinued operations of $26.6 million as of March 31, 2014 relate to an accrual for estimated future obligations related to the sale. See “Note 2. Summary of Significant Accounting Policies—Use of Estimates” for further discussion of estimates and assumptions that may affect the reported amounts of liabilities related to the sale of Carrizo UK.

- 9 -


The following table summarizes the amounts included in income (loss) from discontinued operations, net of income taxes presented in the consolidated statements of income for the three months ended March 31, 2014 and 2013 :
 
 
 Three Months Ended
March 31,
 
 
2014
 
2013
 
 
(In thousands)
Revenues
 

 

 
 
 
 
 
Costs and Expenses
 
 
 
 
General and administrative
 
437

 
5

Accretion related to asset retirement obligations
 

 
36

Gain on sale of discontinued operations
 

 
(37,294
)
Increase in estimated future obligations
 
535

 

Loss on derivatives, net
 
20

 
44

Other income, net
 

 
(24
)
Income (Loss) From Discontinued Operations Before Income Taxes
 
(992
)
 
37,233

Income tax (expense) benefit
 
347

 
(13,575
)
Income (Loss) From Discontinued Operations, Net of Income Taxes
 
($645)
 
$23,658
Income Taxes
Carrizo UK is a disregarded entity for U.S. federal income tax purposes. Accordingly, the income tax (expense) benefit reflected above includes the Company’s U.S. deferred income tax (expense) benefit associated with the income (loss) from discontinued operations before income taxes. The related U.S. deferred tax assets and liabilities have been classified as deferred income taxes of continuing operations in the consolidated balance sheets.
4. Property and Equipment, Net
At March 31, 2014 and December 31, 2013 , total property and equipment, net consisted of the following:
 
 
March 31,
2014
 
December 31,
2013
 
 
(In thousands)
Proved properties
 
$2,368,532
 
$2,182,226
Accumulated depreciation, depletion and amortization
 
(837,586
)
 
(773,742
)
Proved properties, net
 
1,530,946

 
1,408,484

Unproved properties, not being amortized
 
 
 
 
Unevaluated leasehold and seismic costs
 
326,703

 
302,232

Exploratory wells in progress
 
21,169

 
30,196

Capitalized interest
 
51,294

 
45,009

Total unproved properties, not being amortized
 
399,166

 
377,437

Other property and equipment
 
15,486

 
15,260

Accumulated depreciation
 
(7,405
)
 
(6,966
)
Other property and equipment, net
 
8,081

 
8,294

Total property and equipment, net
 
$1,938,193
 
$1,794,215

- 10 -


5. Income Taxes
The Company’s estimated annual effective income tax rates are used to allocate expected annual income tax expense to interim periods. The rates are the ratio of estimated annual income tax expense to estimated annual income before income taxes by taxing jurisdiction, except for discrete items, which are significant, unusual or infrequent items for which income taxes are computed and recorded in the interim period in which the specific transaction occurs. The estimated annual effective income tax rates are applied to the year-to-date income before income taxes by taxing jurisdiction to determine the income tax expense allocated to the interim period. The Company updates its estimated annual effective income tax rate at the end of each quarterly period considering the geographic mix of income based on the tax jurisdictions in which the Company operates. Actual results that are different from the assumptions used in estimating the annual effective income tax rate will impact future income tax expense. Income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate income tax rate of 35% to income from continuing operations before income taxes as follows:
 
 
 Three Months Ended
March 31,
 
 
2014
 
2013
 
 
(In thousands)
Income tax expense at the statutory rate
 
($3,694)
 
($1,391)
State income taxes, net of U.S. federal income tax benefit
 
(192)
 
(14)
Other, net
 
(47)
 
(44)
Income tax expense
 
($3,933)
 
($1,449)
6. Long-Term Debt
Long-term debt consisted of the following at March 31, 2014 and December 31, 2013 :
 
 
March 31,
2014
 
December 31,
2013
 
 
(In thousands)
8.625% Senior Notes due 2018
 
$600,000
 
$600,000
Unamortized discount for 8.625% Senior Notes
 
(4,000
)
 
(4,178
)
7.50% Senior Notes due 2020
 
300,000

 
300,000

Other long-term debt due 2018
 
4,425

 
4,425

Senior Secured Revolving Credit Facility
 

 

Total long-term debt
 
$900,425
 
$900,247
Senior Secured Revolving Credit Facility
The Company is party to a senior secured revolving credit facility with Wells Fargo Bank, National Association as the administrative agent. The revolving credit facility provides for a borrowing capacity up to the lesser of (i) the borrowing base (as defined in the senior credit agreement governing the revolving credit facility) and (ii) $ 1.0 billion . The revolving credit facility matures on July 2, 2018. The revolving credit facility is secured by substantially all of the Company’s U.S. assets and is guaranteed by all of the Company’s existing Material Domestic Subsidiaries (as defined in the credit agreement governing the revolving credit facility).
As of March 31, 2014, the borrowing base was $ 470.0 million . As a result of the Spring 2014 borrowing base redetermination, effective April 10, 2014, the borrowing base was increased to $570.0 million . The borrowing base will be redetermined by the lenders at least semi-annually on each May 1 and November 1, with the next redetermination expected in the Fall of 2014. The amount the Company is able to borrow with respect to the borrowing base is subject to compliance with the financial covenants and other provisions of the credit agreement governing the revolving credit facility.
The Company is subject to certain covenants under the terms of the revolving credit facility, as amended, which include the maintenance of the following financial covenants: (1) a ratio of Total Debt to EBITDA of not more than 4.00 to 1.00 ; and (2) a Current Ratio of not less than 1.00 to 1.00 ; (each of the capitalized terms used in the foregoing clauses (1) and (2) being as defined in the credit agreement governing the revolving credit facility). At March 31, 2014 , the ratio of Total Debt to EBITDA was 2.03 to 1.00 and the Current Ratio was 2.10 to 1.00 . As defined in the credit agreement governing the revolving credit facility, Total Debt is net of cash and cash equivalents and the Current Ratio includes an add back of the available borrowing capacity. Because the calculation of the financial ratios are made as of a certain date, the financial ratios can fluctuate significantly period to period as the amounts outstanding under the revolving credit facility are dependent on the timing of cash flows from operations, capital expenditures, sales of oil and gas properties and securities offerings.

- 11 -


At March 31, 2014 , the Company had no borrowings outstanding under the revolving credit facility and had $0.9 million in letters of credit outstanding which reduced the amounts available under the revolving credit facility. The revolving credit facility is generally used to fund ongoing working capital needs and the Company’s capital expenditure plan to the extent such amounts exceed cash on hand, cash flow from operations, proceeds from the sale of oil and gas properties and securities offerings.
7. Commitments and Contingencies
From time to time, the Company is 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 currently expect these matters to have a materially adverse effect on the financial position or results of operations of the Company.
The results of operations and financial position of the Company continue to be affected from time to time in varying degrees by domestic and foreign political developments as well as legislation and regulations pertaining to restrictions on oil and natural gas production, imports and exports, natural gas regulation, tax increases, environmental regulations and cancellation of contract rights. Both the likelihood and overall effect of such occurrences on the Company vary greatly and are not predictable.
8. Derivative Instruments
The Company uses commodity derivative instruments, primarily fixed price swaps and costless collars, to reduce its exposure to commodity price volatility for a substantial, but varying, portion of its forecasted oil and gas production up to 60 months and thereby achieve a more predictable level of cash flows to support the Company’s drilling and completion capital expenditure program. Costless collars are designed to establish floor and ceiling prices on anticipated future oil and gas production. While the use of these derivative instruments limits the downside risk of adverse price movements, they may also limit future revenues from favorable price movements. The Company does not enter into derivative instruments for speculative or trading purposes.
The Company typically has numerous hedge positions that span several time periods and often result in both fair value asset and liability positions held with that counterparty, which positions are all offset to a single fair value asset or liability at the end of each reporting period. The Company nets its derivative instrument fair value amounts executed with the same counterparty pursuant to ISDA master agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. The fair value of derivative instruments where the Company is in a net asset position with its counterparties at March 31, 2014 and December 31, 2013 totaled $6.7 million and $9.3 million , respectively, and is summarized by counterparty in the table below:
Counterparty
 
March 31, 2014
 
December 31, 2013
Credit Suisse
 
41
%
 
46
%
Wells Fargo
 
33
%
 
23
%
Societe Generale
 
26
%
 
31
%
Total
 
100
%
 
100
%
The counterparties to the Company’s derivative instruments are lenders under the Company’s credit agreement. Because each of the lenders have investment grade credit ratings, the Company believes it has minimal credit risk and accordingly does not currently require its counterparties to post collateral to support the net asset positions of its derivative instruments. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties to its derivative instruments. Although the Company does not currently anticipate such nonperformance, it continues to monitor the financial viability of its counterparties. The fair value of derivative instruments where the Company is in a net liability position with its counterparties at March 31, 2014 and December 31, 2013 totaled $21.5 million and $10.1 million , respectively. The Company uses only credit agreement participants to hedge with, since these institutions are secured equally with the holders of the Company’s bank debt, which eliminates the potential need to post collateral when the Company is in a net derivative liability position.
For the three months ended March 31, 2014 and 2013 , the Company recorded in the consolidated statements of income a loss on derivative instruments, net of $20.7 million and $14.6 million , respectively.

- 12 -


The following sets forth a summary of the Company’s crude oil derivative positions at average NYMEX prices as of March 31, 2014 :
Period    
 
Type of Contract
 
Volumes
(in Bbls/d)
 
Weighted
Average
Floor  Price
($/Bbl)
 
Weighted
Average
Ceiling  Price
($/Bbl)
 
Weighted
Average
Short Put  Price
($/Bbl)
 
Weighted
Average
Put Spread
($/Bbl)
April - December 2014
 
Swaps
 
8,850

 
$92.53
 

 
 
 
 
 
 
Collars
 
3,000

 
$88.33
 
$104.26
 
 
 
 
 
 
Three-way collars
 
500

 
$85.00
 
$107.75
 
$65.00
 
$20.00
January - December 2015
 
Swaps
 
5,200

 
$91.44
 

 
 
 
 
 
 
Collars
 
700

 
$90.00
 
$100.65
 
 
 
 
 
 
Three-way collars
 
1,000

 
$85.00
 
$105.00
 
$65.00
 
$20.00
January - December 2016
 
Three-way collars
 
667

 
$85.00
 
$104.00
 
$65.00
 
$20.00
The following sets forth a summary of the Company’s natural gas derivative positions at average NYMEX prices as of March 31, 2014 :
Period    
 
Type of Contract
 
Volumes
(in MMBtu/d)
 
Weighted
Average
Floor Price
($/MMBtu)
 
Weighted
Average
Ceiling Price
($/MMBtu)
April - December 2014
 
Swaps
 
50,000

 
$4.10
 

 
 
Calls
 
10,000

 

 
$5.50
January - December 2015
 
Swaps
 
20,000

 
$4.27
 

9. Fair Value Measurements
Accounting guidelines for measuring fair value establish a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:
Level 1 – Observable inputs such as quoted prices in active markets at the measurement date for identical, unrestricted assets or liabilities.
Level 2 – Other inputs that are observable directly or indirectly such as quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 – Unobservable inputs for which there is little or no market data and which the Company makes its own assumptions about how market participants would price the assets and liabilities.

- 13 -


Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables summarize the location and amounts of the Company’s assets and liabilities measured at fair value on a recurring basis as presented in the consolidated balance sheets as of March 31, 2014 and December 31, 2013 . All items included in the tables below are Level 2 inputs within the fair value hierarchy:
 
 
March 31, 2014
 
 
Gross Amounts Recognized
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amounts Presented in the Consolidated Balance Sheets
 
 
(In thousands)
Derivative assets
 
 
 
 
 
 
Other current assets
 
$1,437
 
($1,437)
 

Other assets
 
8,394

 
(1,726
)
 
6,668

Derivative liabilities
 
 
 
 
 
 
Derivative liabilities
 
(22,819
)
 
1,437

 
(21,382
)
Other liabilities
 
(1,868
)
 
1,726

 
(142
)
Total
 
($14,856)
 

 
($14,856)
 
 
December 31, 2013
 
 
Gross Amounts Recognized
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amounts Presented in the Consolidated Balance Sheets
 
 
(In thousands)
Derivative assets
 
 
 
 
 
 
Other current assets
 
$2,389
 
($2,389)
 

Other assets
 
11,709

 
(2,425
)
 
9,284

Derivative liabilities
 
 
 
 
 
 
Derivative liabilities
 
(12,336
)
 
2,389

 
(9,947
)
Other liabilities
 
(2,613
)
 
2,425

 
(188
)
Total
 
($851)
 

 
($851)
The fair values of the Company’s derivative instruments are based on a third-party industry-standard pricing model that uses market data obtained from third-party sources, including quoted forward prices for oil and gas, discount rates and volatility factors. The estimates of fair value are also compared to the values provided by the counterparty for reasonableness and are adjusted for the counterparties’ credit quality for derivative assets and the Company’s credit quality for derivative liabilities. To date, adjustments for credit quality have not had a material impact on the fair values.
The fair values reported in the consolidated balance sheets are as of a particular point in time and subsequently change as these estimates are revised to reflect actual results, changes in market conditions and other factors. The Company typically has numerous hedge positions that span several time periods and often result in both fair value asset and liability positions held with that counterparty, which positions are all offset to a single fair value asset or liability in the consolidated balance sheets. The Company nets its derivative instrument fair value amounts executed with the same counterparty pursuant to ISDA master agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. The Company had no transfers in or out of Levels 1 or 2 for the three months ended March 31, 2014 or 2013 .

- 14 -


Fair Value of Other Financial Instruments
The Company’s other financial instruments consist of cash and cash equivalents, receivables, payables and long-term debt which are classified as Level 1 under the fair value hierarchy. The carrying amounts of cash and cash equivalents, receivables, and payables approximate fair value due to the highly liquid or short-term nature of these instruments. The following table presents the carrying amounts and fair values of the Company’s senior notes and other long-term debt, based on quoted market prices, as of March 31, 2014 and December 31, 2013 .
 
 
March 31, 2014
 
December 31, 2013
 
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
 
(In thousands)
8.625% Senior Notes
 
$
596,000

 
$
645,000

 
$
595,822

 
$
644,978

7.50% Senior Notes
 
300,000

 
330,000

 
300,000

 
327,000

Other long-term debt
 
4,425

 
4,182

 
4,425

 
4,115

10. Condensed Consolidating Financial Information
The rules of the SEC require that condensed consolidating financial information be provided for a subsidiary that has guaranteed the debt of a registrant issued in a public offering, where the guarantee is full, unconditional and joint and several and where the voting interest of the subsidiary is 100% owned by the registrant. The Company is, therefore, presenting condensed consolidating financial information as of March 31, 2014 and December 31, 2013 , and for the three months ended March 31, 2014 and 2013 on a parent company, combined guarantor subsidiaries, combined non-guarantor subsidiaries and consolidated basis and should be read in conjunction with the consolidated financial statements. The financial information may not necessarily be indicative of results of operations, cash flows, or financial position had such guarantor subsidiaries operated as independent entities.
Investments in subsidiaries are accounted for by the respective parent company using the equity method for purposes of this presentation. Results of operations of subsidiaries are therefore reflected in the parent company’s investment accounts and earnings. The principal elimination entries set forth below eliminate investments in subsidiaries and intercompany balances and transactions. Typically in a condensed consolidating financial statement, the net income and equity of the parent company equals the net income and equity of the consolidated entity. The Company’s oil and gas properties are accounted for using the full cost method of accounting whereby impairments and DD&A are calculated and recorded on a country by country basis. However, when calculated separately on a legal entity basis, the combined totals of parent company and subsidiary impairments and DD&A can be more or less than the consolidated total as a result of differences in the properties each entity owns including amounts of costs incurred, production rates, reserve mix, future development costs, etc. Accordingly, elimination entries are required to eliminate any differences between consolidated and parent company and subsidiary company combined impairments and DD&A.

- 15 -


CARRIZO OIL & GAS, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
(Unaudited)
 
 
March 31, 2014
 
 
Parent
Company
 
Combined
Guarantor
Subsidiaries
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
Total current assets
 
$1,791,395
 
$109,857
 

 
($1,703,399)
 
$197,853
Total property and equipment, net
 
1,753

 
1,914,471

 
2,361

 
19,608

 
1,938,193

Investments in subsidiaries
 
104,616

 

 

 
(104,616
)
 

Other assets
 
83,766

 

 

 
(50,748
)
 
33,018

Total Assets
 
$1,981,530
 
$2,024,328
 
$2,361
 
($1,839,155)
 
$2,169,064
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
$205,689
 
$1,848,892
 
$2,364
 
($1,703,330)
 
$353,615
Liabilities of discontinued operations - current
 
9,533

 

 

 

 
9,533

Long-term liabilities
 
906,153

 
70,817

 

 
(41,344
)
 
935,626

Liabilities of discontinued operations - long-term
 
17,060

 

 

 

 
17,060

Shareholders’ equity
 
843,095

 
104,619

 
(3
)
 
(94,481
)
 
853,230

Total Liabilities and Shareholders’ Equity
 
$1,981,530
 
$2,024,328
 
$2,361
 
($1,839,155)
 
$2,169,064
 
 
December 31, 2013
 
 
Parent
Company
 
Combined
Guarantor
Subsidiaries
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
Total current assets
 
$1,820,069
 
$168,718
 

 
($1,709,026)
 
$279,761
Total property and equipment, net
 
2,797

 
1,768,553

 
2,058

 
20,807

 
1,794,215

Investments in subsidiaries
 
61,619

 

 

 
(61,619
)
 

Other assets
 
69,686

 

 

 
(32,902
)
 
36,784

Total Assets
 
$1,954,171
 
$1,937,271
 
$2,058
 
($1,782,740)
 
$2,110,760
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
$190,550
 
$1,828,314
 
$2,061
 
($1,709,026)
 
$311,899
Liabilities of discontinued operations - current
 
10,936

 

 

 

 
10,936

Long-term liabilities
 
905,235

 
47,335

 

 
(23,585
)
 
928,985

Liabilities of discontinued operations - long-term
 
17,336

 

 

 

 
17,336

Shareholders’ equity
 
830,114

 
61,622

 
(3
)
 
(50,129
)
 
841,604

Total Liabilities and Shareholders’ Equity
 
$1,954,171
 
$1,937,271
 
$2,058
 
($1,782,740)
 
$2,110,760

- 16 -


CARRIZO OIL & GAS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(in thousands)
(Unaudited)
 
 
For the Three Months Ended March 31, 2014
 
 
Parent
Company
 
Combined
Guarantor
Subsidiaries
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$1,566
 
$155,646
 

 

 
$157,212
Total costs and expenses
 
55,551

 
89,909

 

 
1,198

 
146,658

Income (loss) from continuing operations before income taxes
 
(53,985
)
 
65,737

 

 
(1,198
)
 
10,554

Income tax (expense) benefit
 
18,895

 
(22,740
)
 

 
(88
)
 
(3,933
)
Equity in income of subsidiaries
 
42,997

 

 

 
(42,997
)
 

Income (loss) from continuing operations
 
7,907

 
42,997

 

 
(44,283
)
 
6,621

Loss from discontinued operations, net of income taxes
 
(645
)
 

 

 

 
(645
)
Net income (loss)
 
$7,262
 
$42,997
 

 
($44,283)
 
$5,976
 
 
For the Three Months Ended March 31, 2013
 
 
Parent
Company
 
Combined
Guarantor
Subsidiaries
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$1,561
 
$110,340
 

 

 
$111,901
Total costs and expenses
 
40,343

 
67,355

 

 
230

 
107,928

Income (loss) from continuing operations before income taxes
 
(38,782
)
 
42,985

 

 
(230
)
 
3,973

Income tax (expense) benefit
 
13,573

 
(15,045
)
 

 
23

 
(1,449
)
Equity in income of subsidiaries
 
27,940

 

 

 
(27,940
)
 

Income (loss) from continuing operations
 
2,731

 
27,940

 

 
(28,147
)
 
2,524

Income from discontinued operations, net of income taxes
 
23,658

 

 

 

 
23,658

Net income (loss)
 
$26,389
 
$27,940
 

 
($28,147)
 
$26,182

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

- 17 -


CARRIZO OIL & GAS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
 
For the Three Months Ended March 31, 2014
 
 
Parent
Company
 
Combined
Guarantor
Subsidiaries
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities from continuing operations
 
($47,345)
 
$150,192
 

 

 
$102,847
Net cash used in investing activities from continuing operations
 
(44,880
)
 
(200,230
)
 
(303
)
 
50,341

 
(195,072
)
Net cash used in financing activities from continuing operations
 
(109
)
 
50,038

 
303

 
(50,341
)
 
(109
)
Net cash used in discontinued operations
 
(2,685
)
 

 

 

 
(2,685
)
Net decrease in cash and cash equivalents
 
(95,019
)
 

 

 

 
(95,019
)
Cash and cash equivalents, beginning of period
 
157,439

 

 

 

 
157,439

Cash and cash equivalents, end of period
 
$62,420
 

 

 

 
$62,420
 
 
For the Three Months Ended March 31, 2013
 
 
Parent
Company
 
Combined
Guarantor
Subsidiaries
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities from continuing operations
 
($8,924)
 
$100,106
 

 

 
$91,182
Net cash used in investing activities from continuing operations
 
(91,671
)
 
(238,759
)
 

 
138,469

 
(191,961
)
Net cash provided by financing activities from continuing operations
 
693

 
138,469

 

 
(138,469
)
 
693

Net cash provided by (used in) discontinued operations
 
119,637

 

 
(519
)
 

 
119,118

Net increase (decrease) in cash and cash equivalents
 
19,735

 
(184
)
 
(519
)
 

 
19,032

Cash and cash equivalents, beginning of period
 
51,894

 
201

 
519

 

 
52,614

Cash and cash equivalents, end of period
 
$71,629
 
$17
 

 

 
$71,646


- 18 -


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of the significant factors that affected the Company’s financial position and results of operations during the periods included in the accompanying unaudited consolidated financial statements. You should read this in conjunction with the discussion under “Item 7A. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013 , and the unaudited consolidated financial statements included in this quarterly report.
General Overview
For the first quarter of 2014 , we recognized record total revenues of $157.2 million and production of 2.4 MMBoe. The key drivers to our success for the three months ended March 31, 2014 included the following:
Drilling . See the table below for details of our operated drilling and completion activity in our primary areas of activity:
 
 
For the Three Months Ended March 31, 2014
 
As of March 31, 2014
 
 
Drilled
 
Wells Brought on Production
 
Waiting on Completion
 
Producing
 
Rig count
Region
 
Gross
 
Net
 
Gross
 
Net
 
Gross
 
Net
 
Gross
 
Net
 
 
Eagle Ford
 
15

 
12.3

 
15

 
12.2

 
29

 
23.5

 
138

 
107.8

 
3

Niobrara
 
7

 
2.0

 
14

 
5.5

 
6

 
1.7

 
88

 
38.1

 
1

Marcellus
 
3

 
1.2

 
10

 
2.7

 
20

 
7.5

 
68

 
22.2

 
1

Utica
 

 

 
1

 
0.9

 

 

 
1

 
0.9

 

Total
 
25

 
15.5

 
40

 
21.3

 
55

 
32.7

 
295

 
169.0

 
5


Production. Our first quarter 2014 crude oil production of 1.4 MMBbls, or 15,022 Bbls/d, increased 61% from our first quarter 2013 production of 0.8 MMBbls, or 9,311 Bbls/d, primarily due to production from new wells in the Eagle Ford. Our first quarter 2014 natural gas production of 5.2 Bcf, or 57,978 Mcf/d, decreased 40% from our first quarter 2013 production of 8.7 Bcf, or 96,989 Mcf/d. This was primarily due to the sale of our remaining oil and gas properties in the Barnett to EnerVest Energy Institution Fund XIII-A, L.P., EnerVest Energy Institutional Fund XIII-WIB, L.P., EnerVest Energy Institutional Fund XIII-WIC, L.P., and EV Properties, L.P. (collectively, “EnerVest”) in October 2013 partially offset by production from new wells in Marcellus.
Prices. Our average realized crude oil price during the first quarter of 2014 decreased 8% to $96.42 per Bbl from $104.39 per Bbl in the same period in 2013 . Our average realized natural gas price during the first quarter of 2014 increased 62% to $4.02 per Mcf from $2.48 per Mcf in the same period in 2013 . Commodity prices are affected by changes in market demand, overall economic activity, weather, pipeline capacity constraints, inventory storage levels, basis differentials and other factors. Our financial results are largely dependent on commodity prices, which are beyond our control and have been and are expected to remain volatile.
Results of Operations
Three Months Ended March 31, 2014 , Compared to the Three Months Ended March 31, 2013
Revenues for the three months ended March 31, 2014 increased 40% to $157.2 million from $111.9 million for the same period in 2013 primarily due to the significant increase in oil production, partially offset by the decrease in oil prices. Production volumes for the three months ended March 31, 2014 and 2013 were 2.4 MMBoe. The relatively flat production from the first quarter of 2013 to the first quarter of 2014 was due to the EnerVest sale offset by increased production from new wells, primarily in the Eagle Ford and Marcellus. Average realized oil prices decreased 8% to $96.42 per Bbl in the first quarter of 2014 from $104.39 per Bbl in the same period in 2013 . Average realized natural gas prices increased 62% to $4.02 per Mcf in the first quarter of 2014 from $2.48 per Mcf in the same period in 2013 . Average realized NGL prices increased 31% to $35.47 per Bbl in the first quarter of 2014 from $27.14 per Bbl in the same period in 2013 .

- 19 -


The following table summarizes total production volumes, daily production volumes, average realized prices and revenues for the three months ended March 31, 2014 and 2013 :
 
 
 Three Months Ended
March 31,
 
2014 Period
Compared to 2013 Period
 
 
2014
 
2013
 
Increase (Decrease)
 
% Increase (Decrease)
Total production volumes -
 
 
 
 
 
 
 
 
    Crude oil (MBbls)
 
1,352

 
838

 
514

 
61
 %
    NGLs (MBbls)
 
166

 
101

 
65

 
64
 %
    Natural gas (MMcf)
 
5,218

 
8,729

 
(3,511
)
 
(40
%)
        Total Natural gas and NGLs (MMcfe)
 
6,214


9,335

 
(3,121
)
 
(33
%)
Total barrels of oil equivalent (MBoe)
 
2,388


2,394

 
(6
)
 
 %
 
 
 
 
 
 
 
 
 
Daily production volumes by product -
 
 
 
 
 
 
 
 
    Crude oil (Bbls/d)
 
15,022

 
9,311

 
5,711

 
61
 %
    NGLs (Bbls/d)
 
1,844

 
1,122

 
722

 
64
 %
    Natural gas (Mcf/d)
 
57,978

 
96,989

 
(39,011
)
 
(40
%)
        Total Natural gas and NGLs (Mcfe/d)
 
69,044

 
103,722

 
(34,678
)
 
(33
%)
Total barrels of oil equivalent (Boe/d)
 
26,533

 
26,600

 
(67
)
 
 %
 
 
 
 
 
 
 
 
 
Daily production volumes by region (Boe/d) -
 
 
 
 
 
 
 
 
    Eagle Ford
 
16,049

 
10,312

 
5,737

 
56
 %
    Niobrara
 
2,152

 
950

 
1,202

 
127
 %
    Barnett
 

 
8,666

 
(8,666
)
 
(100
%)
    Marcellus
 
7,422

 
6,335

 
1,087

 
17
 %
    Utica and other
 
910

 
337

 
573

 
170
 %
Total barrels of oil equivalent (Boe/d)
 
26,533

 
26,600

 
(67
)
 
 %
 
 
 
 
 
 
 
 
 
Average realized prices -
 
 
 
 
 
 
 
 
    Crude oil ($ per Bbl)
 
$96.42
 
$104.39
 
($7.97)
 
(8
%)
    NGLs ($ per Bbl)
 
35.47

 
27.14

 
8.33

 
31
 %
    Natural gas ($ per Mcf)
 
4.02

 
2.48

 
1.54

 
62
 %
        Total Natural gas and NGLs average realized price ($ per Mcfe)
 
$4.32
 
$2.62
 
$1.70
 
65
 %
Total average realized price ($ per Boe)
 
$65.83
 
$46.74
 
$19.09
 
41
 %
 
 
 
 
 
 
 
 
 
Revenues (In thousands) -
 
 
 
 
 
 
 
 
    Crude oil
 
$130,362
 
$87,482
 
$42,880
 
49
 %
    NGLs
 
5,888

 
2,741

 
3,147

 
115
 %
    Natural gas
 
20,962

 
21,678

 
(716
)
 
(3
%)
Total revenues
 
$157,212
 
$111,901
 
$45,311
 
40
 %
Lease operating expenses for the three months ended March 31, 2014 increased to $12.6 million ( $5.28 per Boe) from $10.2 million ( $4.26 per Boe) for the same period in 2013 . The increase in lease operating expenses is primarily due to increased operating costs associated with increased production from new wells in the Eagle Ford partially offset by the sale of Barnett to EnerVest. The increase in lease operating expense per Boe is primarily due to increased production from new wells in the Eagle Ford and the sale of Barnett to EnerVest.
Production taxes increased to $6.1 million ( 3.9% of revenues) for the three months ended March 31, 2014 from $4.5 million ( 4.0% of revenues) for the same period in 2013 as a result of increased oil production. The decrease in production taxes as a percentage of revenues was primarily due to increased revenues in the Marcellus, which was not subject to a state production tax.
Ad valorem taxes decreased to $1.4 million for the three months ended March 31, 2014 as compared to $1.9 million for the same period in 2013 . The decrease in ad valorem taxes is primarily due to lower actual ad valorem taxes than previously estimated for the year ended December 31, 2013.

- 20 -


Depreciation, depletion and amortization (“DD&A”) expense for the first quarter of 2014 increased to $64.6 million ( $27.05 per Boe) from $45.7 million ( $19.09 per Boe) in the first quarter of 2013 . The increase in DD&A is attributable to the increase in the DD&A rate per Boe largely due to the impact of the significant decrease in natural gas reserves in the Barnett as a result of the EnerVest sale as well as the increase in crude oil reserves, primarily in the Eagle Ford, which have a higher finding cost per Boe than our natural gas reserves. The components of our DD&A expense were as follows:
 
 
Three Months Ended
March 31,
 
 
2014
 
2013
 
 
(In thousands)
DD&A of oil and gas properties
 
$63,713
 
$45,042
Depreciation and amortization of other property and equipment
 
743

 
548

Accretion of asset retirement obligations
 
138

 
107

Total DD&A
 
$64,594
 
$45,697
General and administrative expense increased to $28.3 million for the three months ended March 31, 2014 from $16.2 million for the corresponding period in 2013 . The increase was primarily due to the award of annual bonuses to employees and executives occurring during the first quarter of 2014, whereas the award of annual bonuses to employees and executives occurred during the second quarter of 2013. The increase was also attributable to increased stock-based compensation expense associated with cash settled stock appreciation rights as a result of a larger increase in stock price during the three months ended March 31, 2014 as compared to the corresponding period in 2013 .
The loss on derivative instruments, net for the three months ended March 31, 2014 amounted to $20.7 million primarily due to the upward shift in the futures curve of forecasted commodity prices for crude oil and natural gas from January 1, 2014 to March 31, 2014. The loss on derivative instruments, net for the three months ended March 31, 2013 amounted to $14.6 million primarily due to the upward shift in the futures curve of forecasted commodity prices for natural gas from January 1, 2013 to March 31, 2013.
Interest expense, net for the three months ended March 31, 2014 was $12.4 million as compared to $15.0 million for the same period in 2013 . The decrease in interest expense, net was primarily due to the repurchase of the 4.375% convertible senior notes during the second quarter of 2013 as well as an increase in the amount of interest that was capitalized due to a higher average balance of unproved properties.
The effective income tax rate for the first quarter of 2014 and 2013 was 37.3% and 36.5%, respectively. These rates are higher than the U.S. federal statutory corporate income tax rate of 35% primarily due to the impact of state income taxes.
Liquidity and Capital Resources
2014 Capital Expenditure Plan and Funding Strategy. Our 2014 drilling and completion capital expenditure plan is $665.0 million to $685.0 million. Our 2014 leasehold and seismic capital expenditure plan is $90.0 million. We expect to allocate the majority of the land and seismic capital to acreage acquisitions in the Eagle Ford and Utica shales. We currently intend to finance the remainder of our 2014 capital expenditure plan primarily from the sources described below under “—Sources and Uses of Cash.” Our capital program could vary depending upon various factors, including the availability and cost of drilling rigs, land and industry partner issues, our available cash flow and financing, success of drilling programs, weather delays, commodity prices, market conditions, the acquisition of leases with drilling commitments and other factors. Below is a summary of capital expenditures for the three months ended March 31, 2014 :
 
For the Three Months Ended
 
March 31, 2014
 
(In thousands)
Drilling and completion
 
Eagle Ford
$128,870
Niobrara
24,204

Utica
2,238

Marcellus
13,736

Other
1,649

     Total drilling and completion
170,697

Leasehold and seismic
27,268

Total
$197,965

- 21 -


Our capital expenditure plan and the capital expenditures included above exclude capitalized general and administrative expense, capitalized interest and asset retirement obligations.
Sources and Uses of Cash . Our primary use of cash is capital expenditures related to our drilling and completion programs and, to a lesser extent, our lease and seismic data acquisition programs. For the three months ended March 31, 2014 , we funded our capital expenditures with cash provided by operations and cash on hand. Potential sources of future liquidity include the following:
Cash provided by operations and cash on hand. Cash flows from operations are highly dependent on commodity prices. As such, we hedge a portion of our forecasted production to mitigate the risk of a decline in oil and gas prices.
Borrowings under our revolving credit facility. At April 30, 2014 , we had no borrowings outstanding and $0.9 million in letters of credit outstanding under the revolving credit facility, which reduce the amounts available under our revolving credit facility. The amount we are able to borrow with respect to the borrowing base of the revolving credit facility, which borrowing base is $570.0 million as of April 10, 2014, is subject to compliance with the financial covenants and other provisions of the credit agreement governing our revolving credit facility.
Asset sales. In order to fund our capital expenditure plan, we may consider the sale of certain properties or assets that are not part of our core business or are no longer deemed essential to our future growth, provided we are able to sell such assets on terms that are acceptable to us.
Securities offerings. As situations or conditions arise, we may choose to issue debt, equity or other instruments to supplement our cash flows. However, we may not be able to obtain such financing on terms that are acceptable to us, or at all.
Joint ventures. Joint ventures with third parties through which such third parties fund a portion of our exploration activities to earn an interest in our exploration acreage or purchase a portion of interests, or both.
Lease purchase option arrangements. Lease option agreements and land banking arrangements, such as those we have previously entered into in other plays.
Other sources. We may consider sale/leaseback transactions of certain capital assets, such as our remaining pipelines and compressors, which are not part of our core oil and gas exploration and production business.
Overview of Cash Flow Activities. Net cash provided by operating activities from continuing operations was $102.8 million and $91.2 million for the three months ended March 31, 2014 and 2013 , respectively. The increase was primarily due to increased crude oil revenues, partially offset by an increase in cash operating and general and administrative expenses, net cash paid for derivative settlements and a net decrease in working capital related to operating activities.
Net cash used in investing activities from continuing operations were $195.1 million and $192.0 million for the three months ended March 31, 2014 and 2013 , respectively and relate primarily to oil and gas capital expenditures associated with our capital expenditure plan.
Net cash provided by and net cash used in financing activities from continuing operations was not significant for the three months ended March 31, 2014 and 2013 , respectively.
Liquidity and Cash Flow Outlook
Economic downturns may adversely affect our ability to access capital markets in the future. We currently believe that cash on hand, cash provided by operating activities and borrowings under our revolving credit facility will be sufficient to fund our immediate cash flow requirements. Cash provided by operating activities is primarily driven by production and commodity prices. To manage our exposure to commodity price risk and to provide a level of certainty in the cash flows to support our drilling and completion capital expenditure program, we hedge a portion of our forecasted production and, as of March 31, 2014 , we had hedged 50,000 MMBtu/d of natural gas and 12,350 Bbls/d of crude oil for the remainder of 2014 . At April 30, 2014, our borrowing base under our revolving credit facility is $570.0 million with no borrowings outstanding. Additionally, as described under “—Sources and Uses of Cash” above, the amount we are able to borrow with respect to the borrowing base is subject to compliance with the financial covenants and other provisions of the credit agreement governing the revolving credit facility. The borrowing base under our revolving credit facility is affected by our lenders’ assumptions with respect to future oil and gas prices. Our borrowing base may decrease if our lenders reduce their expectations with respect to future oil and gas prices from those assumptions used to determine our existing borrowing base. The next borrowing base redetermination is expected to occur in the Fall of 2014.
If cash provided by operating activities from continuing operations, cash on hand and borrowings under our revolving credit facility and the other sources of cash described under “—Sources and Uses of Cash” are insufficient to fund the remainder of our 2014 capital expenditure plan, we may need to reduce our capital expenditure plan or seek other financing alternatives. We may not be able to obtain financing needed in the future on terms that would be acceptable to us, or at all. If we cannot obtain adequate

- 22 -


financing, we may be required to limit or defer a portion of our planned 2014 capital expenditure plan, thereby adversely affecting the recoverability and ultimate value of our oil and gas properties. Subject in each case to then existing market conditions and to our then expected liquidity needs, among other factors, we may use a portion of our internally generated cash flows, cash on hand, proceeds from asset sales or borrowings to reduce debt prior to scheduled maturities through debt repurchases, either in the open market or in privately negotiated transactions, through debt redemptions or tender offers, or through repayments of bank borrowings.
Contractual Obligations
The following table sets forth estimates of our contractual obligations as of March 31, 2014 (in thousands):
 
April-December 2014
 
2015
 
2016
 
2017
 
2018
 
2019 and Thereafter
 
Total
Long-term debt (1)

 

 

 

 
$604,425
 
$300,000
 
$904,425
Interest on long-term debt (2)
63,194

 
74,444

 
74,444

 
74,444

 
74,347

 
45,000

 
405,873

Operating leases
1,243

 
1,792

 
1,770

 
1,770

 
1,770

 
6,194

 
14,539

Drilling and completion services (3)
21,017

 
9,892

 
1,165

 

 

 

 
32,074

 Pipeline volume commitments (3)
938

 
1,400

 
3,563

 
2,911

 
2,857

 
9,684

 
21,353

Asset retirement obligations and other (4)
7,566

 
10,672

 
5,890

 
2,351

 
936

 
7,192

 
34,607

Total Contractual Obligations
$93,958
 
$98,200
 
$86,832
 
$81,476
 
$684,335
 
$368,070
 
$1,412,871
 

(1)
Long-term debt consists of the principal amounts of the 8.625% Senior Notes due 2018, the 7.50% Senior Notes due 2020 and other long-term debt due 2018.
(2)
Cash payments for interest on the 8.625% Senior Notes due 2018, the 7.50% Senior Notes due 2020 and other long-term debt due 2018 are estimated assuming no principal repayments until the due dates of the instruments. No cash interest payments are assumed on the credit facility as there were no borrowings outstanding as of March 31, 2014.
(3) Drilling and completion services and pipeline volume commitments represent gross contractual obligations and accordingly, other joint owners in the properties operated by the Company will generally be billed for their working interest share of such costs.
(4)
Asset retirement obligations and other are based on estimates and assumptions that affect the reported amounts as of March 31, 2014 . Certain of such estimates and assumptions are inherently unpredictable and will differ from actuals results. See Note 2. Summary of Significant Accounting Policies - Use of Estimates for further discussion of estimates and assumptions that may affect the reported amounts.
Financing Arrangements
Senior Secured Revolving Credit Facility
We are party to a senior secured revolving credit facility with Wells Fargo Bank, National Association as the administrative agent. The revolving credit facility is secured by substantially all of our U.S. assets and is guaranteed by all of our existing Material Domestic Subsidiaries (as defined in the credit agreement governing the revolving credit facility). Any subsidiary of ours that does not currently guarantee our obligations under our revolving credit facility that subsequently becomes a Material Domestic Subsidiary will be required to guarantee our obligations under our revolving credit facility.
As of March 31, 2014, the borrowing base was $470.0 million. As a result of the Spring 2014 borrowing base redetermination, effective April 10, 2014, the borrowing base was increased to $570.0 million . The borrowing base will be redetermined by the lenders at least semi-annually on each May 1 and November 1, with the next redetermination expected in Fall 2014. The amount we are able to borrow with respect to the borrowing base is subject to compliance with the financial covenants and other provisions of the credit agreement governing the revolving credit facility.
We are subject to certain covenants under the terms of the revolving credit facility, as amended, which include, but are not limited to, the maintenance of the following financial covenants: (1) a ratio Total Debt to EBITDA of not more than 4.00 to 1.00 and (2) a Current Ratio of not less than 1.00 to 1.00 (each of the capitalized terms used in the foregoing clauses (1) and (2) being as defined in the credit agreement governing the revolving credit facility). At March 31, 2014 , the ratio of Total Debt to EBITDA was 2.03 to 1.00 and the Current Ratio was 2.10 to 1.00 . As defined in the credit agreement governing the revolving credit facility, Total Debt is net of cash and cash equivalents and the Current Ratio includes an add back of the available borrowing capacity.
Our revolving credit facility also places restrictions on us and certain of our subsidiaries with respect to additional indebtedness, liens, dividends and other payments to shareholders, repurchases or redemptions of our common stock, redemptions of senior notes, investments, acquisitions, mergers, asset dispositions, transactions with affiliates, hedging transactions and other matters.
Our revolving credit facility is subject to customary events of default, including a change in control (as defined in the credit agreement governing our revolving credit facility). If an event of default occurs and is continuing, the Majority Lenders (as defined

- 23 -


in the credit agreement governing our revolving credit facility) may accelerate amounts due under the revolving credit facility (except for a bankruptcy event of default, in which case such amounts will automatically become due and payable).
At March 31, 2014 , we had no borrowings outstanding under the revolving credit facility and had $0.9 million in letters of credit outstanding which reduced the amounts available under the revolving credit facility. Future availability under the $570.0 million borrowing base is subject to the terms and covenants of the revolving credit facility. The revolving credit facility is generally used to fund ongoing working capital needs and the remainder of our capital expenditure plan to the extent such amounts exceed the cash flow from operations, cash on hand proceeds from the sale of oil and gas properties and securities offerings.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods reported. Certain of such estimates are inherently unpredictable and will differ from actual results. We have identified the following critical accounting policies and estimates used in the preparation of our financial statements: use of estimates, oil and gas properties, oil and gas reserve estimates, derivative instruments, income taxes and commitments and contingencies. These policies and estimates are described in our Annual Report on Form 10-K for the year ended December 31, 2013 . We evaluate subsequent events through the date the financial statements are issued.
The table below presents results of the full cost ceiling test as of March 31, 2014 along with various pricing scenarios to demonstrate the sensitivity of our cost center ceiling to changes in 12 month average benchmark oil and gas prices underlying our average realized prices. This sensitivity analysis is as of March 31, 2014 , and, accordingly, does not consider drilling results, production and prices subsequent to March 31, 2014 that may require revisions to our proved reserve estimates.
 
 
12 Month Average Realized Prices
 
Excess of cost center ceiling over net capitalized costs
 
Increase/(Decrease) in excess of cost center ceiling over net capitalized costs
Full Cost Pool Scenarios
 
Crude Oil ($/Bbl)
 
Natural Gas ($/Mcf)
 
 (in millions)
 
(in millions)
March 31, 2014 Actual
 
$99.76
 
$3.26
 
$495
 
 
 
 
 
 
 
 
 
 
 
Oil and Gas Price Sensitivity
 
 
 
 
 
 
 
 
Oil and Gas +10%
 
$109.59
 
$3.67
 
$732
 
$237
Oil and Gas -10%
 
$89.94
 
$2.85
 
$258
 
($237)
 
 
 
 
 
 
 
 
 
Oil Price Sensitivity
 
 
 
 
 
 
 
 
Oil +10%
 
$109.59
 
$3.26
 
$705
 
$210
Oil -10%
 
$89.94
 
$3.26
 
$285
 
($210)
 
 
 
 
 
 
 
 
 
Gas Price Sensitivity
 
 
 
 
 
 
 
 
Gas +10%
 
$99.76
 
$3.67
 
$522
 
$27
Gas -10%
 
$99.76
 
$2.85
 
$468
 
($27)
Volatility of Oil and Gas Prices
Our revenues, future rate of growth, results of operations, financial position and ability to borrow funds or obtain additional capital are substantially dependent upon prevailing prices of oil and gas.
We review the carrying value of our oil and gas properties on a quarterly basis using the full cost method of accounting. See “Summary of Critical Accounting Policies—Oil and Gas Properties,” in our Annual Report on Form 10-K for the year ended December 31, 2013 .
We use commodity derivative instruments, primarily fixed price swaps and costless collars, to reduce our exposure to commodity price volatility for a substantial, but varying, portion of our forecasted oil and gas production up to 60 months and thereby achieve a more predictable level of cash flows to support our drilling and completion capital expenditure program. Costless collars are designed to establish floor and ceiling prices on anticipated future oil and gas production. While the use of these derivative instruments limits the downside risk of adverse price movements, they may also limit future revenues from favorable price movements. We do not enter into derivative instruments for speculative or trading purposes.

- 24 -


We typically have numerous hedge positions that span several time periods and often result in both fair value asset and liability positions held with that counterparty, which positions are all offset to a single fair value asset or liability at the end of each reporting period. We net our derivative instrument fair value amounts executed with the same counterparty pursuant to ISDA master agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. The fair value of derivative instruments where we are in a net asset position with our counterparties at March 31, 2014 and December 31, 2013 totaled $6.7 million and $9.3 million , respectively, and is summarized by counterparty in the table below:
Counterparty
 
March 31, 2014
 
December 31, 2013
Credit Suisse
 
41
%
 
46
%
Wells Fargo
 
33
%
 
23
%
Societe Generale
 
26
%
 
31
%
Total
 
100
%
 
100
%
The counterparties to our derivative instruments are lenders under our credit agreement. Because each of the lenders have investment grade credit ratings, we believe we have minimal credit risk and accordingly do not currently require our counterparties to post collateral to support the net asset positions of our derivative instruments. As such, we are exposed to credit risk to the extent of nonperformance by the counterparties to our derivative instruments. Although we do not currently anticipate such nonperformance, we continue to monitor the financial viability of our counterparties. The fair value of derivative instruments where we are in a net liability position with our counterparties at March 31, 2014 and December 31, 2013 totaled $21.5 million and $10.1 million , respectively. We use only credit agreement participants to hedge with, since these institutions are secured equally with the holders of our bank debt, which eliminates the potential need to post collateral when we are in a net derivative liability position.
For the three months ended March 31, 2014 and 2013 , we recorded in the consolidated statements of income a loss on derivative instruments, net of $20.7 million and $14.6 million , respectively.
The following sets forth a summary of our crude oil derivative positions at average NYMEX prices as of March 31, 2014 :
Period    
 
Type of Contract
 
Volumes
(in Bbls/d)
 
Weighted
Average
Floor Price
($/Bbl)
 
Weighted
Average
Ceiling Price
($/Bbl)
 
Weighted
Average
Short Put  Price
($/Bbl)
 
Weighted
Average
Put Spread
($/Bbl)
April - December 2014
 
Swaps
 
8,850

 
$92.53
 

 
 
 
 
 
 
Collars
 
3,000

 
$88.33
 
$104.26
 
 
 
 
 
 
Three-way collars
 
500

 
$85.00
 
$107.75
 
$65.00
 
$20.00
January - December 2015
 
Swaps
 
5,200

 
$91.44
 

 
 
 
 
 
 
Collars
 
700

 
$90.00
 
$100.65
 
 
 
 
 
 
Three-way collars
 
1,000

 
$85.00
 
$105.00
 
$65.00
 
$20.00
January - December 2016
 
Three-way collars
 
667

 
$85.00
 
$104.00
 
$65.00
 
$20.00
The following sets forth a summary of our natural gas derivative positions at average NYMEX prices as of March 31, 2014 :
Period    
 
Type of Contract
 
Volumes
(in MMBtu/d)
 
Weighted
Average
Floor Price
($/MMBtu)
 
Weighted
Average
Ceiling Price
($/MMBtu)
April - December 2014
 
Swaps
 
50,000

 
$4.10
 

 
 
Calls
 
10,000

 

 
$5.50
January - December 2015
 
Swaps
 
20,000

 
$4.27
 

Forward-Looking Statements
The statements contained in all parts of this document, including, but not limited to, those relating to the Company’s or management’s intentions, beliefs, expectations, hopes, projections, assessment of risks, estimations, plans or predictions for the future, including our schedule, targets, estimates or results of future drilling, including the number, timing and results of wells, budgeted wells, increases in wells, the timing and risk involved in drilling follow-up wells, timing and amounts of production, expected working or net revenue interests, planned expenditures, prospects budgeted and other future capital expenditures, risk profile of oil and gas exploration, capital expenditure plans, planned evaluation of prospects, probability of prospects having oil and gas, expected production or reserves, pipeline connections, increases in reserves, acreage, working capital requirements, commodity price risk management activities and the impact on our average realized prices, the availability of expected sources of liquidity to implement the Company’s business strategies, accessibility of borrowings under our credit facility, future exploration activity, drilling, completion and fracturing of wells, land acquisitions, production rates, forecasted production, growth in

- 25 -


production, development of new drilling programs, participation of our industry partners, exploration and development expenditures, the impact of our business strategies, the benefits, results, effects, availability of and results of new and existing joint ventures and sales transactions, receipt of receivables, drilling carry, proceeds from sales, and all and any other statements regarding future operations, financial results, business plans and cash needs and other statements regarding future operations, financial results, business plans and cash needs and other statements that are not historical facts are forward looking statements. When used in this document, the words “anticipate,” “estimate,” “expect,” “may,” “project,” “plan,” “believe” and similar expressions are intended to be among the statements that identify forward looking statements. Such statements involve risks and uncertainties, including, but not limited to, those relating to the worldwide economic downturn, availability of financing, our dependence on our exploratory drilling activities, the volatility of and changes in oil and gas prices, the need to replace reserves depleted by production, operating risks of oil and gas operations, our dependence on our key personnel, factors that affect our ability to manage our growth and achieve our business strategy, results, delays and uncertainties that may be encountered in drilling, development or production, interpretations and impact of oil and gas reserve estimation and disclosure requirements, actions and approvals of our partners and parties with whom we have alliances, technological changes, capital requirements, borrowing base determinations and availability under our credit facility, evaluations of the Company by lenders under our credit facility the potential impact of government regulations, including current and proposed legislation and regulations related to hydraulic fracturing, and natural gas drilling, air emissions and climate change, regulatory determinations, litigation, competition, the uncertainty of reserve information, property acquisition risks, availability of equipment, actions by our midstream and other industry partners, weather, availability of financing, actions by lenders, our ability to obtain permits and licenses, the existence and resolution of title defects, new taxes and impact fees, delays, costs and difficulties relating to our joint ventures, actions by joint venture partners, results of exploration activities, the availability of and completion of land acquisitions, completion and connection of wells, and other factors detailed in the “Item 1A. Risk Factors” and other sections of our Annual Report on Form 10-K for the year ended December 31, 2013 and in our other filings with the SEC, including this quarterly report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement and we undertake no obligation to update or revise any forward-looking statement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding our exposure to certain market risks, see “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2013 . There have been no material changes to the disclosure regarding our exposure to certain market risks made in our Annual Report on Form 10-K for the year ended December 31, 2013 .
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures . Our Chief Executive Officer and Chief Financial Officer performed an evaluation of our disclosure controls and procedures, which have been designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. They concluded that the controls and procedures were effective as of March 31, 2014 to provide reasonable assurance that the information required to be disclosed by the Company in reports it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. While our disclosure controls and procedures provide reasonable assurance that the appropriate information will be available on a timely basis, this assurance is subject to limitations inherent in any control system, no matter how well it may be designed or administered.
Changes in Internal Controls . There was no change in our internal control over financial reporting during the quarter ended March 31, 2014 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is 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 currently expect these matters to have a materially adverse effect on the financial position or results of operations of the Company.

- 26 -


Item 1A. Risk Factors
There were no material changes to the factors discussed in “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013 .
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are required by Item 601 of Regulation S-K and are filed as part of this report:  
Exhibit
Number
  
Exhibit Description
*10.1
Form of Employee Performance Share Award Agreement (Officer) under the Incentive Plan of Carrizo Oil & Gas, Inc. 
*31.1
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101
Interactive Data Files
 
* Filed herewith.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
Carrizo Oil & Gas, Inc.
(Registrant)
 
 
 
 
 
Date:
May 7, 2014
 
By:
/s/ Paul F. Boling
 
 
 
Chief Financial Officer, Vice President, Secretary and Treasurer
(Principal Financial Officer)
 
 
 
 
Date:
May 7, 2014
 
By:
/s/ David L. Pitts
 
 
 
Vice President and Chief Accounting Officer
(Principal Accounting Officer)

- 28 -

Exhibit 10.1
INCENTIVE PLAN
OF
CARRIZO OIL & GAS, INC.
PERFORMANCE SHARE AWARD AGREEMENT
(Officer)
THIS AGREEMENT (the “Agreement”) is effective as of the _____ day of _____, 20__ (the “Grant Date”), by and between Carrizo Oil & Gas, Inc., a Texas corporation (the “Company”), and _____________ (the “Grantee”).
The Company has adopted the Incentive Plan of Carrizo Oil & Gas, Inc., as amended and restated effective April 30, 2009 (as amended, modified or supplemented from time to time, the “Plan”), by this reference made a part hereof, for the benefit of eligible employees, directors and independent contractors of the Company and its Subsidiaries. Capitalized terms used and not otherwise defined herein shall have the meaning ascribed thereto in the Plan.
Pursuant to the Plan, the Committee, which has generally been assigned responsibility for administering the Plan, has determined that it would be in the interest of the Company and its stockholders to grant the performance shares provided herein in order to provide Grantee with the potential to earn additional remuneration for services rendered, to encourage Grantee to remain in the employ of the Company or its Subsidiaries and to increase Grantee’s personal interest in the continued success and progress of the Company.
The Company and Grantee therefore agree as follows:
1. Grant of Performance Shares . Pursuant to the Plan and subject further to the terms and conditions herein, the Company and Grantee enter into this Agreement pursuant to which the Grantee has a target of ________ performance shares (the “Target Award”) where each performance share represents the value of one share of Common Stock or the cash equivalent thereof (“Performance Shares”). The range of Performance Shares which may be earned by the Grantee is 0 to 200% of the Target Award. Based on the Total Shareholder Return Performance Goal and the Production Performance Goal set forth in this Agreement (together, the “Performance Goals”), the Performance Shares will vest, if at all, and result in the right to receive cash or shares of Common Stock in accordance with the terms of this Agreement.
2.      Total Shareholder Return Performance Goal . Subject further to the Production Performance Goal set forth in paragraph 3 below, awards of Performance Shares will be paid to the Grantee, if at all, following the close of the _____ year period beginning on the Grant Date and ending on  ____________, 20___ (the “Performance Period”) based upon the TSR (as defined below) of the Company relative to the TSR for the Peer Companies for the Performance Period (the "Total Shareholder Return Performance Goal").
“Peer Companies” means the companies listed on Schedule A. Any of the Peer Companies that cease to be publicly traded on a recognized stock exchange during the Performance Period will be removed from the Peer Companies for the Performance Period. No companies may be added to the Peer Companies for the Performance Period.

-1-


Except as otherwise provided in paragraphs 4 and 5 below, total shareholder return (“TSR”) for a company, including the Company, will be the result of the average Fair Market Value (as defined in the Plan) for the [describe number of days] prior to the end of the Performance Period, minus the Fair Market Value on the Grant Date, plus dividends (cash or stock based on ex-dividend date) paid per share of common stock during the Performance Period, divided by the Fair Market Value on the Grant Date.
Following the close of the Performance Period, the Peer Companies and the Company shall be ranked together based on their TSR for the Performance Period from the highest TSR being number 1 to the lowest TSR being the number of Peer Companies, including the Company. Based on the Company's relative TSR rank among the Peer Companies for the Performance Period, Grantee will have earned Performance Shares, subject to the Production Performance Goal set forth below, as determined by the Company's rank as follows:
If the Company is ranked number 1, 200% of the Target Award
If the Company is ranked at the 75 th percentile of the Peer Companies, including the Company, 150% of the Target Award
If the Company is ranked at the 50 th percentile or median of the Peer Companies, including the Company, 100% of the Target Award
If the Company is ranked at the 25 th percentile of the Peer Companies, including the Company, 50% of the Target Award
If the Company is ranked below the 25 th percentile of the Peer Companies, including the Company, 0% of the Target Award
If the Company is ranked between any of these payout levels, the percentage multiple of the Target Award will be linearly interpolated based on the actual percentile ranking of the Company in relation to the payout levels. Any partial shares will be rounded up to the next whole number.
3.      Production Performance Goal . Subject further to the Total Shareholder Return Performance Goal set forth in paragraph 2 above, Awards of Performance Shares will be paid to the Grantee, if at all, following the close of the Performance Period, provided that the Committee has certified that [ Describe Production Performance Goal ] (the “Production Performance Goal”).
4.      Payment of Performance Shares . Performance Shares earned for the Performance Period will be issued to the Grantee only following (i) the Committee's certification of the Company’s actual TSR relative to the Peer Companies actual TSR for the Performance Period pursuant to the Total Shareholder Return Performance Goal and (ii) the Committee’s certification that the Company’s Production Performance Goal was achieved. If the Committee does not certify that the Production Performance Goal was achieved, all Performance Shares awarded under this Agreement shall be forfeited.
Notwithstanding the foregoing, subject to the provisions of paragraph 5 and the applicable written employment agreement between the Grantee and the Company or any Subsidiary, if any (the “Employment Agreement”), no Performance Shares shall be payable unless the Grantee has been in the continuous employment of the Company and its Subsidiaries through the last day of the Performance Period. A change of employment is continuous employment within the meaning of

-2-


this paragraph 4 provided that, after giving effect to such change, the Grantee continues to be an employee of the Company or any Subsidiary.
Performance Shares payable to a Grantee will be paid in a lump sum distribution of shares of Common Stock to the Grantee no later than thirty (30) days following the last day of the Performance Period, except that (i) in the event of a death that occurs during the first two (2) years of the Performance Period, payment will be made on the thirtieth (30 th ) day following the date of death and (ii) in the event of a Change in Control, payment will be made on the thirtieth (30 th ) day following the date of the Change in Control. In the event this paragraph is applicable, payout of the Performance Shares will be calculated as described in paragraph 5 below.
For purposes of this paragraph 4, a lump sum distribution of shares of Common Stock to the Grantee shall mean that the Company will deliver to the Grantee one of the following, as determined in the Committee’s sole discretion: (i) certificates representing the applicable number shares of Common Stock or cause the applicable number of shares of Common Stock to be evidenced in book-entry form in the Grantee’s name in the stock register of the Company maintained by the Company’s transfer agent, (ii) cash equal to the Fair Market Value of the applicable number of shares of Common Stock, or (iii) any combination of (i) or (ii).
5.      Termination of Employment or Change in Control Prior to End of Performance Period . Upon termination of the Grantee’s employment with the Company or any Subsidiary (or the successor of any such company) for any reason prior to the end of the Performance Period, all Performance Shares shall be immediately forfeited to the Company; subject , however , to the provisions of the Employment Agreement. Notwithstanding the provisions of the Employment Agreement, if (a) a Change of Control has not occurred and (b) the Grantee (i) is terminated without Cause (as defined in the Employment Agreement) or (ii) resigns for Good Reason (as defined in the Employment Agreement) prior to the satisfaction of the Performance Goals, no Performance Shares will be payable unless and until the Performance Goals have been satisfied.
Notwithstanding the foregoing, in the event of the death or disability of the Grantee during the Performance Period, either of which occurs before a Change in Control, the Grantee (or estate) will receive a pro-rata payment (based on the number of completed months during the Performance Period compared to the total number of months in the Performance Period) based on actual results at the end of the Performance Period. Notwithstanding, in the event of a death that occurs during the first two (2) years of the Performance Period, such pro-rata payment will be based on actual results through the date of death with the TSR calculated based upon the average Fair Market Value for the fifteen (15) trading days ending eleven (11) calendar days prior to the date of death.
In the event of a Change in Control, if less than one-half of the Performance Period has elapsed with respect to an award of Performance Shares, then one hundred percent (100%) of the Target Award for the Performance Period will be paid to the Grantee, otherwise the greater of (i) one hundred percent (100%) of the Target Award or (ii) the percentage corresponding to the actual performance level achieved as of the date of the Change in Control, with the TSR calculated based upon the average Fair Market Value for the fifteen (15) trading days ending eleven (11) calendar days prior to the date of the Change in Control, will be paid to the Grantee.
6.      No Ownership Rights Prior to Issuance of Shares of Common Stock; Dividend Equivalents . Neither the Grantee nor any other person shall become the beneficial owner of the

-3-


shares of Common Stock underlying the Performance Shares, nor have any rights of a shareholder (including, without limitation, dividend and voting rights) with respect to any such shares of Common Stock, unless and until and after such shares of Common Stock have been delivered to the Grantee as described in the last subparagraph of paragraph 4.
7.      Transfer Restrictions . Except as expressly provided herein, the Performance Shares are not transferable (voluntarily or involuntarily) other than 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 (a “QDRO”), and may not otherwise be assigned, pledged, hypothecated or otherwise disposed of and shall not be subject to execution, attachment or similar process. Upon any attempt to effect any such disposition, or upon the levy of any such process, the award provided for herein shall immediately become null and void, and the Performance Shares shall be immediately forfeited.
Notwithstanding the foregoing, the Performance Shares are transferable by the Grantee to (i) the children or grandchildren of the Grantee (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership or partnerships in which such Immediate Family Members have at least ninety‑nine percent (99%) of the equity, profit and loss interests. Subsequent transfers of Performance Shares shall be prohibited except by will or the laws of descent and distribution or pursuant to a QDRO, unless such transfers are made to the original Grantee or a person to whom the original Grantee could have made a transfer in the manner described herein. No transfer shall be effective unless and until written notice of such transfer is provided to the Committee, in the form and manner prescribed by the Committee. Following transfer, the Performance Shares shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, and, except as otherwise provided herein, the term “Grantee” shall be deemed to refer to the transferee. The consequences of termination of employment shall continue to be applied with respect to the original Grantee.
8.      Adjustments . As provided in Section 15 of the Plan, certain adjustments may be made to the Performance Shares upon the occurrence of events or circumstances described in Section 15 of the Plan.
9.      Mandatory Withholding of Taxes . Grantee acknowledges and agrees that the Company shall deduct from the shares of Common Stock or cash otherwise payable or deliverable an amount of cash and/or number of shares of Common Stock (valued at their Fair Market Value) that is equal to the amount of all federal, state and local taxes required to be withheld by the Company, as determined by the Committee. In the event the Company, in its sole discretion, determines that the Grantee’s tax obligations will not be satisfied under the methods otherwise expressly described above, the Grantee, subject to compliance with the Company’s insider trading policies, authorizes the Company or the Company’s Stock Plan Administrator, currently UBS Financial Services Inc., to (i) sell a number of shares of Common Stock issued or outstanding pursuant to the award, which number of shares of Common Stock the Company determines has at least the market value sufficient to meet the tax withholding obligations, plus additional shares of Common Stock to account for rounding and market fluctuations and (ii) pay such tax withholding to the Company. The shares of Common Stock may be sold as part of a block trade with other Participants such that all Participants receive an average price.

-4-


10.      Restrictions Imposed by Law . Without limiting the generality of Section 16 of the Plan, the Grantee agrees that the Company will not be obligated to issue or deliver any shares of Common Stock if counsel to the Company determines that such delivery would violate any applicable law or any rule or regulation of any governmental authority or any rule or regulation of, or agreement of the Company with, any securities exchange or association upon which the Common Stock is listed or quoted. The Company shall in no event be obligated to take any affirmative action in order to cause the issuance or delivery of shares of Common Stock to comply with any such law, rule, regulation or agreement.
11.      Notice . Unless the Company notifies the Grantee in writing of a different procedure, any notice or other communication to the Company with respect to this Agreement shall be in writing and shall be (a) delivered personally to the following address:
Carrizo Oil & Gas, Inc.
500 Dallas Street, Suite 2300
Houston, Texas 77002
Attention: Human Resources
with a copy to:
Carrizo Oil & Gas, Inc.
500 Dallas Street, Suite 2300
Houston, Texas 77002
Attention: Law Department
or (b) sent by first class mail, postage prepaid and addressed as follows:
Carrizo Oil & Gas, Inc.
500 Dallas Street, Suite 2300
Houston, Texas 77002
Attention: Human Resources
with a copy to:
Carrizo Oil & Gas, Inc.
500 Dallas Street, Suite 2300
Houston, Texas 77002
Attention: Law Department
Any notice or other communication to the Grantee with respect to this Agreement shall be in writing and shall be delivered personally, or shall be sent by first class mail, postage prepaid, to Grantee’s address as listed in the records of the Company on the Grant Date, unless the Company has received written notification from the Grantee of a change of address.
12.      Amendment . Notwithstanding any other provisions hereof, this Agreement may be supplemented or amended from time to time as approved by the Committee as contemplated by Section 6 of the Plan. Without limiting the generality of the foregoing, without the consent of the Grantee, (a) this Agreement may be amended or supplemented (i) to cure any ambiguity or to correct

-5-


or supplement any provision herein which may be defective or inconsistent with any other provision herein, or (ii) to add to the covenants and agreements of the Company for the benefit of Grantee or surrender any right or power reserved to or conferred upon the Company in this Agreement, subject , however , to any required approval of the Company’s stockholders and, provided , in each case, that such changes or corrections shall not adversely affect the rights of Grantee with respect to the award evidenced hereby without the Grantee’s consent, or (iii) to make such other changes as the Company, upon advice of counsel, determines are necessary or advisable because of the adoption or promulgation of, or change in or of the interpretation of, any law or governmental rule or regulation, including any applicable federal or state securities laws; and (b) subject to Section 6 of the Plan and any required approval of the Company’s stockholders, the award evidenced by this Agreement may be canceled by the Committee and a new award made in substitution therefor, provided that the award so substituted shall satisfy all of the requirements of the Plan as of the date such new award is made and no such action shall adversely affect the Performance Shares without the Grantee’s consent.
13.      Grantee Employment . Nothing contained in this Agreement, and no action of the Company or the Committee with respect hereto, shall confer or be construed to confer on the Grantee any right to continue in the employ of the Company or any of its Subsidiaries or interfere in any way with the right of the Company or any employing Subsidiary to terminate the Grantee’s employment at any time, with or without cause; subject , however , to the provisions of the Employment Agreement.
14.      Governing Law . This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Texas.
15.      Construction . References in this Agreement to “this Agreement” and the words “herein,” “hereof,” “hereunder” and similar terms include all exhibits and schedules appended hereto, including the Plan. This Agreement is entered into, and the award evidenced hereby is granted, pursuant to the Plan and shall be governed by and construed in accordance with the Plan and the administrative interpretations adopted by the Committee thereunder. All decisions of the Committee upon questions regarding the Plan or this Agreement shall be conclusive. Unless otherwise expressly stated herein, in the event of any inconsistency between the terms of the Plan and this Agreement, the terms of the Plan shall control. The headings of the paragraphs of this Agreement have been included for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.
16.      Duplicate Originals . The Company and the Grantee may sign any number of copies of this Agreement. Each signed copy shall be an original, but all of them together represent the same agreement.
17.      Rules by Committee . The rights of the Grantee and obligations of the Company hereunder shall be subject to such reasonable rules and regulations as the Committee may adopt from time to time hereafter.
18.      Entire Agreement . Subject to the provisions of the Employment Agreement, Grantee and the Company hereby declare and represent that no promise or agreement not herein expressed has been made and that this Agreement contains the entire agreement between the parties hereto with respect to the Performance Shares and replaces and makes null and void any prior

-6-


agreements, oral or written, between Grantee and the Company regarding the Performance Shares. To the extent of any conflict between this Agreement and the Employment Agreement, the terms of the Employment Agreement shall control; provided, however, that the parties acknowledge and agree that to the extent set forth in the last sentence of the first subparagraph of paragraph 5, the provisions of this Agreement modify and supersede the terms of the Employment Agreement with respect to the consequences to this award of Performance Shares of a termination of employment without Cause or a resignation for Good Reason prior to a Change of Control.
19.      Section 409A . Payments under this Agreement are designed to be made in a manner that is exempt from Section 409A of the Code as a “short-term deferral,” and the provisions of this Agreement will be administered, interpreted and construed accordingly (or disregarded to the extent such provision cannot be so administered, interpreted, or construed).
20.      Grantee Acceptance . Grantee shall signify acceptance of the terms and conditions of this Agreement by signing in the space provided at the end hereof and returning a signed copy to the Company.
ATTEST:                        CARRIZO OIL & GAS, INC.
By:                         
Secretary                             S. P. Johnson, IV    
President

ACCEPTED:


    
[Name]            



-7-


Schedule A to Performance Share Award Agreement dated as of _________, 20___
SCHEDULE A
PEER COMPANIES

The following companies compromise the Peer Companies for the Performance Period:

[ Describe Peer Companies ]

-1-


Exhibit 31.1
CERTIFICATION
PRINCIPAL EXECUTIVE OFFICER
I, S.P. Johnson, IV, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Carrizo Oil & Gas, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:
May 7, 2014
/s/ S.P. Johnson, IV


 
 
S.P. Johnson, IV
President and Chief Executive Officer




Exhibit 31.2
CERTIFICATION
PRINCIPAL FINANCIAL OFFICER
I, Paul F. Boling, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Carrizo Oil & Gas, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:
May 7, 2014
/s/ Paul F. Boling


 
 
Paul F. Boling
Chief Financial Officer, Vice President, Secretary and Treasurer





Exhibit 32.1
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, S.P. Johnson, IV, President and Chief Executive Officer of Carrizo Oil & Gas, Inc., a Texas corporation (the “Company”), hereby certify, to my knowledge, that:
1.
the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:
May 7, 2014
/s/ S.P. Johnson, IV


 
 
S.P. Johnson, IV
President and Chief Executive Officer
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to Carrizo Oil & Gas, Inc. and will be retained by Carrizo Oil & Gas, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.




Exhibit 32.2
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Paul F. Boling, Chief Financial Officer, Vice President, Secretary and Treasurer of Carrizo Oil & Gas, Inc., a Texas corporation (the “Company”), hereby certify, to my knowledge, that:
1.
the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:
May 7, 2014
/s/ Paul F. Boling


 
 
Paul F. Boling
Chief Financial Officer, Vice President, Secretary and Treasurer
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to Carrizo Oil & Gas, Inc. and will be retained by Carrizo Oil & Gas, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.