SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q/A
(Amendment
No.1)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the
quarterly period ended September
30, 2006
[
]
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
|
(IRS
Employer Identification No.)
|
|||
|
incorporation
or organization)
|
|
1000
Louisiana Street, Suite 1500, Houston, TX
|
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 is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
one):
|
Large
accelerated filer [
]
|
Accelerated
filer [X]
|
Non-accelerated
filer [
]
|
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 October 31, 2006, the latest practicable date, was
25,940,361.
FORM
10-Q/A
FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER
30, 2006
INDEX
|
PART
I. FINANCIAL INFORMATION
|
|||
|
Item
4.
|
3
|
||
|
PART
II. OTHER INFORMATION
|
|||
|
Item
6.
|
6
|
||
|
7
|
|||
EXPLANATORY
NOTE
This
Amendment No. 1 to the Form 10-Q of Carrizo Oil & Gas, Inc. (the “Company”)
for the quarter ended September 30, 2006, which was originally filed on November
9, 2006, is being filed to amend and restate Item 4 of Part I, “Controls and
Procedures,” in order to clarify that there were no changes in the Company’s
internal control over financial reporting during the quarter ended September
30,
2006 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting. No other
sections were affected.
PART
I
ITEM
4 -
CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures.
We
maintain disclosure controls and procedures that are designed to provide
reasonable assurance that information required to be disclosed by us in the
reports that we file or submit to the Securities and Exchange Commission
under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
recorded, processed, summarized and reported within the time periods specified
by the Commission’s rules and forms, and that 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.
In
accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of the end of
the
period covered by this report. As described in more detail in our Form 10-K/A
filed on April 11, 2006 , we identified material weaknesses in the Company’s
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) in connection with the work related to Management’s
Annual Report on Internal Control over Financial Reporting. As a result of
these
material weaknesses, our Chief Executive Officer and Chief Financial Officer
concluded that, as of December 31, 2005, the Company’s disclosure controls and
procedures were not effective. Additionally, as a result of such material
weaknesses, the Company was not able to file its Annual Report on Form 10-K
for
the year ended December 31, 2005 with the Securities and Exchange Commission
in
the time required. Because the control deficiencies leading to such material
weaknesses were still present as of September 30, 2006, our Chief Executive
Officer and Chief Financial Officer have concluded that as of the end of
the
period covered by this report, the Company’s disclosure controls and procedures
were not effective. The Company has outlined a number of initiatives, as
discussed below, that it believes will remediate these material weaknesses
in
2006.
Hedging
For
a
description of a material weakness related to the accounting for our derivatives
and related matters, see Item 9A in our Annual Report on Form 10-K/A for
the
year ended December 31, 2005.
Year-end
Close Process and Other Controls
In
the
fourth quarter of 2005, we hired a manager of financial reporting, filling
the prior vacancy described in our Annual Report on Form 10-K for the year
ended
December 31, 2004. This manager of financial reporting subsequently left
the
Company late in the fourth quarter of 2005, creating a new vacancy. Our manager
of accounting left the Company in November 2005. In February 2006, our
controller and our director of financial planning and analysis also both
left
the Company. We attempted to fill these vacancies, but were not able to do
so as
quickly as we would have liked. We subsequently hired a new controller and
manager of operations accounting in March 2006, near the end of our year-end
closing process. During the second quarter of 2006, we hired a new manager
of
financial reporting, a manager of financial planning and analysis and a manager
of general accounting. During the third quarter of 2006, we continued to
build
our accounting staff with the addition of two senior accountants.
The
accounting and financial staff vacancies described above occurred during
the
year-end close process. While these vacancies were partially remedied by
reliance upon independent financial reporting consultants for review of critical
accounting areas and disclosures and material nonstandard transactions, these
absences, combined with our complex manual, review intensive accounting system,
placed greater burdens of detailed reviews on our remaining middle and
upper-level accounting professionals, which in turn compromised the level
of
their qualitative review of the elements of the year end close, financial
statements and disclosures. These review procedures are an important component
of our controls surrounding the closing process and in financial
reporting.
As a result, we believe that these vacancies resulted in inadequate staffing,
supervision and financial reporting expertise in our accounting and financial
areas, which constituted a material weakness in our internal control over
financial reporting as of December 31, 2005. These deficiencies ultimately
affect the accuracy of our financial statement reporting and
disclosures.
Accordingly,
in connection with the audit of our 2005 financial statements, Pannell Kerr
Forster of Texas, P.C. (“PKF”), our independent registered public accounting
firm, detected a number of errors and/or omissions that were an indication
that
the aforementioned material weaknesses were present at December 31, 2005,
increasing the likelihood to more than remote that a material misstatement
of
the Company’s annual or interim financial statements will not be prevented or
detected. The most notable of these errors included (1) our accounting for
our
derivatives as cash flow hedges rather than on a mark-to-market basis, (2)
corrections for certain computational errors in the fair value of our
derivatives previously reported in other comprehensive income in 2004 and
2005,
(3) errors related to our capital expenditures accrual, (4) errors in the
evaluation of our unproved property pool and (5) errors related to the
evaluation of our asset retirement obligation. These errors came to management's
attention in connection with the preparation of our consolidated financial
statements for the year ended December 31, 2005. The controls in place
related to items (3), (4) and (5) (“Other Controls”) were not properly designed
and/or operating to provide reasonable assurance that amounts would be properly
recorded in the Company’s consolidated financial statements. The failure
of the Other Controls constituted a third material weakness in our internal
controls as of December 31, 2005. Management determined that the
restatement of our consolidated financial statements discussed in Note 3
to our
consolidated financial statements included in Item 8 of our Annual Report
on
Form 10-K/A for the year ended December 31, 2005 was an additional effect
of the
year-end close process material weakness. All correcting adjustments were
recorded by the Company prior to the finalization of its 2005 financial
statements. The Company has implemented procedures to prevent these specific
errors from occurring in the future. However, the additional initiatives
(outlined below) are needed to remediate the material weaknesses in our internal
controls, and thus lower the risk level to remote of other potential material
errors or omissions.
Management
identified each of the three material weaknesses referred to above in March
of
2006 in connection with the preparation of the Company’s financial statements
and the work related to management’s annual report on internal control over
financial reporting. The material weakness in the Company’s 2005 year-end close
process resulted from accounting and financial staff vacancies beginning
in the
fourth quarter of 2005. Other similar vacancies existed during the 2004 year-end
close process, which resulted in a material weakness as of December 31, 2004.
The second material weakness, relating to the Company’s hedging practices, was
identified in March 2006 by management of the Company in connection with
the
preparation of the Company’s annual financial statements and the work related to
management’s annual report on internal control over financial reporting. The
underlying hedge accounting issues were identified and brought to management’s
attention by PKF and led management to identify a material weakness and
therefore conclude that such material weakness was present as of December
31,
2005 and December 31, 2004. Management’s identification of this material
weakness ultimately led to the restatement of the Company’s 2004 financial
statements and the Company’s quarterly financial statements for the first nine
months of 2005. Management determined that this financial restatement was
an
additional effect of the year-end close process material weakness. Management
also determined that the cumulative impact of the deficiencies associated
with
hedging practices was not material prior to 2004. The third material weakness
related to various errors and omissions made during the 2005 year-end close
process that were identified by PKF in March 2006 and led management to identify
these errors as a material weakness and therefore conclude that such material
weakness was present as of December 31, 2005. The material weakness began
in the
fourth quarter of 2005 and was related to the Company’s accounting and financial
staff vacancies.
As
a
result of these three material weaknesses, our management concluded in our
Annual Report on Form 10-K/A for the year ended December 31, 2005 that our
internal control over financial reporting was not effective as of December
31,
2005.
While
there can be no assurance in this regard, we expect that the following
initiatives will eliminate the material weaknesses relating to our year-end
close process and other controls in 2006: (1) increasing the level of our
professional accounting staff, including the successful placement of a
new manager of financial reporting, new controller, new manager of
operations accounting, new manager of general accounting and new manager
of
financial planning and analysis and other senior level positions, and (2)
completing our transition to a new fully-integrated accounting software system
(phase one was completed in the fourth quarter of 2005) to automate processes
and improve qualitative reviews. Until these initiatives are fully implemented,
we will continue to rely on manual processes and require additional commitment
of resources to the closing process to produce our financial records and
reports. Given our limited internal resources, we have currently elected
to
account for all new derivative contracts as non-designated derivatives. Our
project team has made significant progress towards completing the transition
to
a new fully-integrated accounting software system described in the second
initiative. We have discussed these material weaknesses and our remediation
steps with our Audit Committee.
Changes
in Internal Control over Financial Reporting. There have not been any changes
in
the Company's internal control over financial reporting during the fiscal
quarter ended September 30, 2006 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting. As described above, the Company identified material
weaknesses in the Company's internal control over financial reporting and
has
described a number of planned changes to its internal control over financial
reporting during 2006 designed to remediate these weaknesses. Some of these
changes were effected in the first nine months of 2006, including some changes
in staffing and changes in hedge accounting. This Item 4 should be read in
conjunction with Item 9A included in our Annual Report on Form 10-K/A for
the
year ended December 31, 2005.
PART
II
ITEM
6 -
EXHIBITS
|
Exhibit
Number
|
Description
|
|
|
31.1
|
—
|
|
|
31.2
|
—
|
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:
November 16, 2006
|
By:
/s/S. P. Johnson, IV
|
|
President
and Chief Executive Officer
|
|
|
(Principal
Executive Officer)
|
|
|
Date:
November 16, 2006
|
By:
/s/Paul F. Boling
|
|
Chief
Financial Officer
|
|
|
(Principal
Financial and Accounting Officer)
|
-7-