March 20 - Standard & Poor's Ratings Services today said it raised it issue rating on Houston-based Carrizo Oil & Gas Inc.'s (Carrizo) senior unsecured notes to 'B' (same as the corporate credit rating on the company) from 'B-', and revised its recovery rating on the notes to '4' from '5', indicating our expectation of average (30% to 50%) recovery in the event of a payment default. The 'B' corporate credit rating on the company remains unchanged. The improved recovery expectation reflects an updated valuation of Carrizo's midyear 2012 reserves following recent reserve development despite the divestiture of a portion of the company's properties in the Barnett Shale. Our updated valuation is based on a company-provided PV10 report, using Standard & Poor's recovery methodology and stressed price deck assumptions of $45 per barrel for West Texas Intermediate crude oil and $4 per million Btu for Henry Hub natural gas. This update results in a modest increase to the valuation, triggering the revision in our recovery rating. The upgrade on the notes reflects the higher recovery rating, which previously had been one notch down from the corporate credit rating. The ratings on Carrizo reflect what Standard & Poor's categorizes as Carrizo's "aggressive" financial risk and "vulnerable" business risk, as our criteria define the terms. With current leverage of 4.2x at year-end 2011, Carrizo has a levered balance sheet, but we expect this ratio to decrease to below 3.5x in 2012 as the company ramps up production and continues to switch to more liquids-rich production. As a participant in the highly cyclical and competitive oil and gas exploration and production (E&P) industry, Carrizo is susceptible to commodity prices, particularly with respect to natural gas, the company's principal product and one that continues to suffer from weak prices. Finally, ratings reflect Carrizo's modest-sized reserve and production base concentrated in a few resource plays. RELATED RESEARCH AND CRITERIA -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009. -- Corporate Ratings Criteria 2008, published April 15, 2008. -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 RATINGS LIST Carrizo Oil & Gas Inc. Corporate credit rating B/Stable/-- To From Upgrade; Revised Recovery Rating Senior unsecured notes B B- Recovery rating 4 5 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.