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Bill Barrett (NYSE:BBG)

Q3 2006 Earnings Call

November 7, 2006 12.30 pm EST

Executives:

William Crawford – Manager, Investor Relations

Fredrick Barrett – Chairman, Chief Executive, President

Joe Jaggers – Chief Operating Officer, President

Terry Barrett – Senior Vice President – Exploration, Northern Division

Kurt Reinecke – Senior Vice President – Exploration, Southern Division

Lynn Boone Henry – Vice President – Reservoir Engineering

Analysts:

Larry Busnardo – Petrie Parkman

Jeffrey Robertson – Lehman Brothers

David Cameron – Wachovia Securities

Eric Hagen – First Albaney Capital

Raymond Deacon – BMO Capital Markets

John Gerdes – Suntrust Robinson Humphrey

Presentation

Operator

Good afternoon. My name is Loanna, and I will be your conference operator today. At this time I would like to welcome everyone to the Bill Barrett Corporation Q3 2006 conference call. Operator instructions. Mr. Crawford, you may begin your conference.

William Crawford, Manager, Investor Relations

Thank you, Loanna. Good morning and welcome to Bill Barrett Corporation's conference call to review Q3 2006 financial results, and to update our current operating activities. My name is Bill Crawford, Manager of Investor Relations. With me today are Fred Barrett, Chairman, and Chief Executive Officer, Joe Jaggers, Chief Operating Officer and President, Terry Barrett and Kurt Reinecke, our Senior Vice Presidents of Exploration for the Northern and Southern Divisions respectively, and Lynn Boone Henry, Vice President of Reservoir Engineering. I will begin by giving a brief overview of our financial results for Q3.

These were announced before the market opened today in a press release, which may be found on our website or through financial news sources. Our Form 10-Q for Q3 was also filed with the SEC this morning. Following a brief financial review, Joe will provide an operational update on our development projects and then Fred will wrap up with an update on our exploration projects and an outlook for the remainder of 2006. We expect these discussions to last about 30 minutes, and as Loanna said, we will follow with a question and answer session.

Before we begin, please note that statements in this conference call, other than historical facts, are forward-looking statements. While the company believes these statements to be reasonable, they are subject to factors such as commodity prices, transportation, processing, competition, technology and environmental and regulatory compliance, and that our drilling schedules, costs, capital plans and other factors may cause our results to differ materially. Additional cautionary statements concerning these forward-looking statements are contained in our filings with the SEC and in our press releases. Also please note that during our discussion we make reference to discretionary cash flow, which is a non-GAAP measure. The reconciliation to the appropriate GAAP measure was provided in the earnings press release

We are again pleased to report strong results for Q3 2006. We increased production, raised our 2006 production guidance and closed several significant joint exploration agreements. In Q3, we produced an average of 137 million cubic feet equivalent per day. We had 25% production growth over Q3 2005 and a 4% increase from last quarter. As a reminder, we were curtailed in West Tavaputs from mid-May to mid-August due to lack of processing for high dew point gas.

For Q3, we realized an average price of $6.37 per MCFE, and we generated $54 million in cash flow, or about $1.23 per share. Our realized price and cash flow in Q3 and Q4 benefited from our strong hedge positions. We generated net income of $20.7 million, or $0.47 per diluted share in Q3. Included in this result were several non-recurring items. On a pre-tax basis, we had recorded gains of $23.8 million related to bringing in partners in our joint exploration projects in the Montana Overthrust, Big Horn Basin and Paradox Basin. Furthermore, we recorded dry hole and abandonment costs totaling $3.9 million, primarily related to the Williston. We also recorded an impairment of $1.2 million related to certain non-core properties in the Uinta Basin that are in the process of being sold. Without these gains on sale, or impairments, our EPS would have been $0.15.

We are proud to announce lower operating costs which in Q3 were $1.91 per MCFE, a decrease of $0.13 from last quarter. We had lower water handling and gathering expenses and our production taxes were lower by $0.03 due to lower commodity prices. G&A costs were basically flat despite nearly $500,000 of non-recurring expenses. We also lowered our 2006 expected gathering and transportation expense by $2 million, primarily due to the lower cost of fuel use. Our net capital expenditures totaled $313 million for the first three quarters of 2006, including the $80 million we spend for CH4. This does not include $37 million of non-cash deferred tax liability associated with this acquisition.

As a reminder, our capital budget is net of proceeds received from joint exploration programs and divestitures. In Q3 we received $31 million in cash for the divestiture of non core Powder River properties to Storm Cat, and we received another $31 million in cash and properties worth $9 million related to bringing in partners in joint exploration agreements. Our 2006 capital budget totaled $430 million including the $80 million for the CH4 acquisition, however we expect that our capex will be $30 million less than that due to larger than expected proceeds from divestitures.

Breaking out our capital budget, our organic capex spend is expected to be $396-400 million in addition to the $80 million we spent for CH4. These outlays are offset by $31 million in proceeds from Storm Cat and $45 million in expected joint exploration proceeds. This will all net to our $400 million expected capex spending for 2006. As Joe will give color around, we are looking at next year’s organic capex spending to be slightly higher than this years.

We ended Q3 with $185 million outstanding under our revolving credit facility and currently have $180 million outstanding. We recently increased our bank capacity to $310 million based on our mid-year 2006 reserves, so we have plenty of liquidity to finish the year and well into next year. Our hedge position gives us further financial flexibility. We are approximately 40% plus hedged for next year and will continue to add hedges at opportune spikes in commodity prices. We continue to be committed to maintaining a conservative balance sheet that provides us with flexibility and liquidity. We review longer-term financing alternatives including asset sales, high yields, equity and equity linked as a matter of course.

However, given reasonably strong price outlook and our current hedge volume, we have sufficient flexibility to finance our capital requirements through 2007 using debt or proceeds from sales of interests and properties. However, we will always be opportunistic about other financial alternatives as the market presents them.

I will now turn it over to Joe to elaborate on our company operations.

Joe Jaggers, Chief Operating Officer, President

Thank you, Bill, and thank you for joining us today. Let me begin by saying I’m extremely pleased with the execution of our development program. In a relatively short time, we have raised production guidance, announced improved results from the Piceance, seen better than expected performance from West Tavaputs and company-wide have increased production to a record level of some $160 million cubic feet equivalent per day based on last week’s average daily rate.

It is important to note that this rate has been achieved despite facility constraints in both West Tavaputs and Piceance during much of the quarter. The improved well performance we have seen and our appliance for additional facilities position us for further production increases.

We are in the process of completing our 2007 budget and are looking to level load our development program to achieve increased operational efficiency. Obviously we will do this in context of natural gas prices. Given our portfolio of opportunities, excellent results, current hedge position and outlook on prices, we believe we are well positioned to increase investment in these development assets.

We are currently operating six conventional rigs, five of which are drilling development projects, and five CBM rigs, and look to increase activity during 2007. In Piceance, our 2007 plan is to maintain the current three-rig program, a pace of 96 gross wells during 2007; drill 29 shallow wells in West Tavaputs along with three deep wells, and drill 229 wells in the Powder River Basin. At this level of development activity, we will continue double digit reserve and production growth over the next several years.

This is from our development program alone and as Fred will elaborate, we have an extensive large-scale exploration program ahead of us. I will provide quarterly highlights and observations from each of our development areas, beginning with West Tavaputs in the Uinta Basin.

Here, we remain on track to have a published draft of our environmental impact statement during early to mid 2007. We then go to the public comments phase and expect a record of decision by the end of 2007. The EIS is of course very important to reaching optimal activity levels in West Tavaputs. I’m happy to report that during this pre-EIS period, work with the regulators in the area continues to go well. We have received indications that we will be able to drill and perform completions through the winter months of 2006 and early 2007.

Currently, we have one shallow rig and one deep rig drilling in the field. We expect to drill 30 shallow and two deep wells this year. We’ve spud 26 shallow and one deep well to date. We have produced a net 33 million cubic feet equivalent at West Tavaputs during Q3, we are currently producing 57 million cubic feet. For the first half of the quarter, we were curtailed as a result of our third party processors schedule delay in constructing a facility for dew point control. This came online in mid August. We added two compressors, which began service on October 1, these brought our field compression capacity to 68 million cubic feet gross per day.

We have well production capacity in excess of this amount, so we’re still compression facility constrained. This results from the strong oil performance we have achieved. We expect to add additional compression during Q1 2007, raising our facility compression capacity to 87 million cubic feet per day. We continue to be encouraged by EURs in the shallow program, typical EURs range from 2–2.6 BCFE in this year’s program and we’ve had several wells that are much higher than this. With well costs running at some $3 million, F&D is well less than $2 per MCFE in economics, which results are very strong.

With our extensive location inventory, we see continuing growth with very strong returns. I’ll wrap up on West Tavaputs with news in today from completion operations on the 4-12 deep well at delineations of the 6-7 deep discovery well of late 2005. The well has been completed in the Navajo sand with plans to add the Entrada sand at a later date, today the well is producing at a flowing tubing pressure of over 890 pounds on a one-inch choke. The well is still producing 24% CO2 from our completion operations and the CO2 content is declining.

We’re very excited about the results to date and expect to have measured production results later this week. Fred will update you on the rest of the Uinta exploration program later and I’ll move from here onto the Piceance.

We currently have three rigs operating near the Gibson Gulch area, we produced over 44 million cubic feed per day net in Q3, a 17% increase over Q2. We’re currently producing nearly 47 million cubic feet equivalent net. Our well performance has increased significantly as a result of improvements in our completion techniques. The last 12 wells completed has EURs that averaged 1.2 BCFE, with several that were north of 1.5 BCFE. This is compared to earlier year results of less than one BCFE per well. As an additional tool to enhanced EURs, we plan to use the results of our three component 3D survey during Q4 to select development areas.

Our drilling complete costs are averaging $2 million and we expect to reduce this figure by a combination of completion, optimization and service contracting. The Piceance provides us with significant reserve and production growth and year-round drilling opportunities. With a typical well of 1.2 BCFE and $2 million drill and complete costs, we have rates of return in the high 20% range. We can return 10%, even when Rockies prices are in low $4 range, well below the current strip and in fact only in one month in the last three years has the Rockies bid week price been below $4. With these results in hand, we are planning to run a level-loaded three rig program through the remainder of this year and throughout 2007.

Moving now to our CBM operations in the Powder River Basin, where largely with the acquisition with CH4 we’ve been actively enhancing our position and focusing our efforts on the giant Big George play. In 2006, we plan to drill 156 wells, with a total capital budget of about $21 million excluding the acquisition costs for CH4. Over the next several years, we are planning allocation of $30 million of our capital budget towards CBM and planning to drill between 200-250 wells per year. We currently have over 100 wells that are in the process of de-watering so we expect to see significant production growth in late 2007 and into 2008.

We view the CBM development play as a third low-risk part of our core development portfolio. CBM provides our best rates of return on incremental drilling dollars. We have incremental drilling F&D that is in the $0.70 range and rates of return well north of 40%. We have a four to five year drilling inventory and scale economics and economies that make us a major producer and operator in this area.

The final two areas of significant production are the Cave Gulch Bullfrog area in the Wind River Basin and the Williston Basin. Production from the Cave Gulch Bullfrog area averaged 31 million cubic feet equivalent during the quarter and our key deep wells, the 129, 14-18 and 33-19 continue to produce along forecast decline curves. The Williston produced 6 million cubic feet equivalent, 95% of course oil. There is currently no development drilling activity in either of these two areas.

These are the quarterly highlights from our development projects, and as evidenced by these results, the projects provide a very strong foundation for material growth for the company. I’m proud of the execution our organization has achieved, and I will turn it over to Fred now to provide an outlook for the company and to discuss our rich exploration program.

Fredrick Barrett, Chairman, Chief Executive, President

Thank you, Joe. Before discussing the exploration and the outlook, I would like to say a few words regarding our recent executive transitions. As many of you know, Tom Tyree, our CFO, has decided to pursue another industry opportunity to be a founder of a new company. I would like to personally thank Tom for his contribution to the company, especially in the context of taking us public, leaving our company in excellent financial shape and for contributing to the success of this company. Best wishes to Tom in his new endeavor. The company has recently engaged a well-known, reputable search firm and thus far we are very encouraged by the depth of the available talent pool we have to work with.

As you have heard from Joe’s remarks, we have demonstrated a strong execution on our development program with strong production growth, increased EURs and stable or decreasing costs. Financially, the company is well positioned for growth. We have a net debt to capital ratio of 16% and $130 million remaining available under our revolving credit facility. We have hedged nearly 68 MMBTU per day next year, with a floor in excess of $6 Rockies pricing. Strip pricing for the Rockies in 2007 is $6.25 and we plan to hedge additional volumes at opportunistic times. With this backdrop and the potential Joe just reviewed in our development projects, we are excited to embark on a 2007 capital program that will showcase the value of our assets.

We see continued double digit growth in reserves and production and improved returns in metrics. We are finalizing our 2007 budget as we speak and we will give specifics over the next two months. Suffice it to say we have high expectations for next year.

We have established a strong track record of exploration discoveries in 2005 and 2006. We expect this trend will only be additive to our strong expected development growth. For the last part of my discussion I would like to bring you up to date on a number of our high potential exploration programs. As I’ve said before, we have one of the richest and most diverse exploration portfolios in the Rocky Mountain region. This was demonstrated by the proceeds we received from joint exploration agreements. We are proud to announce that thus far this year, we received over $47 million, primarily for the Montana Overthrust, Bighorn and Yellowjacket prospects from high quality industry partners.

Along with these proceeds, we maintain operatorship with substantial working interests in each program, at little to no cost. Our exploration portfolio at this time can be classified as those programs where we have established discoveries and are thus in a delineation phase and as those new exploration programs where we have recently finished drilling or are preparing to drill over the coming weeks and months.

First I will address our delineation programs. Joe already talked about two of these delineation programs, the exciting deep West Tavaputs program in the Uinta Basin and also our deep Cave Gulch Bullfrog program in the Wind River Basin. Another delineation program where we are beginning to commercialize our exploration success is the Lake Canyon area. We and our partners are 100% successful in the first seven wells drilled. Recall that our industry partner is operating a shallow Green River program with average depths of 4,000-5,000 feet.

The last four wells recently completed by our partner each had average IPs of 140 BOE per day and continues to validate our original concept of extending the Green River trend westwards, across the eastern portion of Lake Canyon. As a reminder we have an 18-25% working interest in the Green River play. The company’s number one BLB Wasatch discovery has produced a total of 20,100 barrels of oil over 205 days and it is currently producing close to 80 barrels of oil per day. You’ll also recall this well is geologically significant in that the nearest Wasatch production out of the same Wasatch zones occurs almost nine miles to the north in the giant Altamont?Bluebell complex.

As a reminder, our Lake Canyon position covers almost 430 square miles and with our discovery, we believe the Wasatch potential could cover a significant portion of our acreage position. We will commence the drilling of three new Wasatch delineation tests between our discovery well and the Altamont?Bluebell complex over the coming weeks. Depending on the results of these wells, we could significantly ramp up activity in 2007 as an emerging development program. We operate with a 56-75% working interest in the Wasatch program with average depths ranging from 7,000-9,000 feet.

A few quick comments on our delineation program in the tri-state area. After acquiring and interpreting four new 3D surveys and drilling our first test wells this year, we have established gas production in all areas. The 3D surveys and the wells drilled to date have clearly suggested a regional gas composite of significant magnitude, but the results today and future expectation s no longer fit in our portfolio. We are pursuing strategic alternatives. As I mentioned, the company has multiple other new exploration projects which are in various stages of preparation and I will now address these in chronological order.

In our Cooper Deep program in the Wind River Basin, we finished drilling our Cooper Deep #1 to a total depth of 16,895 feet. There are three key targets: the Lakota, the Muddy and the Frontier formations, and a fourth unexpected (shell zone upholding?) in the Niobrara/Cody section, which we encountered while drilling. Right now we are not encouraged by the Lakota and the Muddy. Our recent tests suggest these zones to be tight and wet respectively, though we found good sand development – the history and nature of the Muddy sand reservoir in this region can be risky and unpredictable at times, but also at times can be rewarding and to that end we are not necessarily surprised by these results.

The company, however, still recognizes several (promising sand benches?) with gas shows in the Frontier, which tends to be more continuous and reliable than the Muddy formation. In addition, the company will be testing an intriguing gas and oil show encountered in the Niobrara/Cody section. While drilling this zone we had to shut in an increased mud weight due to the ever pressured gas shows and at the same time experience a flow of over 100 barrels of oil to the pits. We will continue with completion of evaluation in these zones over the coming weeks.

Over the next week or so, we will spud our first two wells in an exciting new shale gas program called the Yellowjacket in the Paradox Basin of southwest Colorado. We have assembled nearly 120,000 gross acres at Yellowjacket and recently sold a 45% working interest in this program to a well-known industry partner. We will maintain operations. Our target is the Gothic Shale around 6,500 feet and we will conduct extensive shoring and geologic evaluations to help optimize future completion procedures. As a result, there may be a lag between when these wells are TD’d and when we commence evaluation procedures which will likely be late in Q1 2007. After drilling our two Yellowjacket wells, we will move the same rig north to drill our Woodside prospect in the southwest portion of the Uinta Basin.

Woodside is a 12 mile long, 2D defined structural dome with 1,500 feet of closure where we will be targeting the Pennsylvanian formation that showed indications of gas in a well drilled over 40 years ago. We have nearly 18,000 net undeveloped acres in this area and expect to spud our first well in December of this year.

Just north of our Woodside area, the company is making preparations for H1 2007 to drill several wells in its Hook prospect areas. Hook is another shale gas program where we have 75,000 net undeveloped acres and we are targeting both shallow shale gas zone at depths less than 4,000 and the deeper shale gas zone at a depth of around 9,000. The deeper shale gas zone is an age equivalent interval to the prolific Barnett shale in Texas.

We will keep you up to date over the coming months as we proceed with this program. Before I wrap up my discussion on explorations, let me also update you on two other exciting large scale exploration programs which are scheduled for drilling during Q1, Q2 and Q3 2007. First, our Circus project in the Overthrust belt of southwest Montana. This play has emerged as a major structural exploration position for the company with a 50% working interest in over 340,000 gross acres. Like many of our projects, the utilization of 3D seismic technology is an integral part of our exploration assessment.

In addition to the 64 square miles we shot last year and early this year, we are nearly 90% finished with an additional 102 square miles which will then give us about 155 square miles of contiguous seismic coverage, about 10 square miles of overlap of last year’s and this year’s survey. We are very encouraged by the data we’ve seen to date suggesting the presence of multiple, large-scale structural features. This is our objective, to target multi-TCF type features analogous to the prolific structures found in the Canadian and Wyoming Overthrust trends.

We expect to drill two Mississippian Devonian tests in the 10,000-12,000 foot range during Q2 and Q3 2007. Again, we’ll keep you up to date as we proceed with this exciting project. Finally, in our Bighorn Basin project in north central Wyoming, we are targeting a multi-TCF basin-centered gas concept. Like the Circus area we are finishing up with a 42 square mile, 3D seismic program in our Sellers Draw area where we initially identified a large structural feature with 2D seismic. We see several targets, including the deep Muddy formation, which has proven productive in the Sellers Draw #1 well and we also recognize Mesa Verde and Lance potential. Although we won’t drill our first well until Q2 2007, we will re-enter the Sellers Draw #1 to re?complete the Mesa Verde over the coming months.

With the upsides from our robust exploration programs, our track record of exploration success and the visibility of double digit production growth from our development program, we are extremely pleased at the outlook for the company. We continue to be bullish about the long-term natural gas fundamentals and will pursue our growth strategy accordingly. Our share price suffered in Q3 as some investors became nervous about the potential of Rockies bases blow outs and involuntary shut-ins. Neither of these occurred and it looks like we may be out of injection season as last week saw the earliest seasonal withdrawal since 1994.

There were a few days in September when cash prices in the Rockies fell to around $1.50 at Opal Hub, but overall CIG bid week pricing has been reasonably strong given the relatively high storage levels. Overall, we have approximately 90% of our gas marketed under term sales for firm transportation contracts including contracts for markets on Cheyenne Plains, Kern River and other pipelines carrying gas out of the Rockies, including the upcoming new Rockies Express. Other than routine and planned pipeline maintenance, we do not have any material issues transporting our production over the last few months related to the (high line pack?).

We’ve given you a significant amount of information here about our core developments and exploration basins and we look to continue the significant production growth that we have achieved since inception. We have a strategic objective to be the premier E&P company in the Rockies by any measure and with our track record of exploration, our increasing guidance to show a 30% production growth this year and having visibility on double digit production growth for the foreseeable future, we are on track to achieve that objective.

Thank you, and I’ll turn it over to the operator for questions.

Questions and Answers

Operator

Operator instructions. Your first question comes from Larry Busnardo.

Q – Larry Busnardo, Petrie Parkman

With regards to the Muddy program in both the Bullfrog and the Cooper areas, given the results of the second Bullfrog well and then now at Cooper Deep, can you just talk about your strategy going forward, and also what you think you’ve seen there? Your first well in the Bullfrog area was successful, but now you’ve had two mixed results there. Can you talk about the differences you’re seeing geologically and how that will impact your strategy going forward in that area?

A – Fredrick Barrett

Right now our strategy in the Deep Cave Gulch Bullfrog area is one where we see a tremendous amount of upside and a large number of potential drillable locations. The Muddy has and always will be a target that is of higher risk than say, for example, the frontier formation. Statistically and on average, over the whole life cycle of the program going forward, we expect to see the potential of anywhere from six to eight BCF on a through well basis. Some wells will have the Muddys, some wells won’t. To that end, we are looking at continuing a program in the Cave Gulch Bullfrog area next year, potentially two to three deep wells. We’re still assessing exactly when and how we will proceed with that program, but we are looking at proceeding with such a program. The Cooper Deep, and again we know that this Muddy zone is present over about an 19-20 mile stretch of Muddy trends here, you can be within the trend and still not hit the sand, but when you do hit it and you trap it it’s a very good well. We have drilled other dry holes in here, but again we have others known as the Frontier and the Lakota. We’re currently assessing what’s happening here at the Cooper Deep #1 but we’re also looking forward to completing the Frontier and the Niobrara zone here some time starting this week. As we get the results in, we’ll share them with the public.

Q – Larry Busnardo, Petrie Parkman

Do you wait for the results on the Cooper Deep in your evaluation of that before determining where you’re going to drill next year?

A - Fredrick Barrett

As it relates to Cave Gulch and Bullfrog, no. We already know a number of locations that we would go drill in that area. Certainly, as it relates to areas south of the Cooper Deep area, we want to get this tested and understand what’s going on there. We do have other locations where we have identified where we think the Muddy is and could potentially drill there.

Q – Larry Busnardo, Petrie Parkman

The six to eight barrels per well that you just stated, that includes the Muddy, correct?

A - Fredrick Barrett

Yes.

Q – Larry Busnardo, Petrie Parkman

Shifting over to West Tavaputs, Joe, when you were talking about the production capacity there, with the compressors coming on in Q2, is that going to be enough? How long after that do you think will you max out at the 87 million per day gross, and will you need to add additional compression in order to stay on top of that production growth?

A – Joe Jaggers

The 87, we’ll max that out when it’s installed and our planning for 2007 includes adding further compression. The issue that we begin to encounter is not field compression, it’s dew point control. To that end and in tackling that issue, we’re in conversations with a number of folks that either construct additional hydrocarbon dew point facilities or install something of our own out there in 2007.

Q – Larry Busnardo, Petrie Parkman

Okay, so you get to the 87 pretty quickly, and then you need to wait and see after that, depending on the additional facilities?

A – Joe Jaggers

That’s right.

Q – Larry Busnardo, Petrie Parkman

Looking at the Piceance Basin, can you talk a little bit about what’s changed? Is it as simple as your completion techniques that you’ve employed, or is there something more to that?

A – Joe Jaggers

It’s largely completion techniques. There’s probably an element of well selection and area involved in addition. The techniques, we’ve gone to much larger fluid volumes, double the amount of water in a well completion and gone to a lower sand concentration, so on a typical seven-stage well completion out there, we’re now pumping about 1.2 million pounds of sand and about 2.5 million gallons of water.

Q – Larry Busnardo, Petrie Parkman

What is the additional cost of that? I mean, the bigger jobs?

A – Joe Jaggers

It’s a couple of hundred thousand dollars, it’s well worth the incremental. The EUR we received through a series of pumping service renegotiations were attacking that end and our overall drilling completion costs.

Q – Larry Busnardo, Petrie Parkman

What do you see in non-service costs in the area? Are they at least starting to level out? There’s been some talk about that.

A – Joe Jaggers

You’ve got increased capacity by all three of the major providers in the area as well as a number of new, start-up entrants, so obviously what you’d expect from that additional supply is more competition and better prices and we’re seeing that.

Operator

Your next question comes from Jeffrey Robertson - Lehman Brothers.

Q - Jeffrey Robertson - Lehman Brothers

Thanks. Joe, can you talk a little bit more about the compression issues in West Tavaputs? With the expanded capacity, how long do you think your drilling program will take to fill that up and then what would the plans be if there are some beyond that?

A – Joe Jaggers

The compression facility at West Tavaputs is air permitted to 100 million cubic feet per day. The gas heat content there is 1.05 so we obviously get about 110 million cubic feet equivalent through the facility when it’s completely installed. We’ve got seven machines installed currently, two more to be done during Q1 for start up, approximately April 2007 and then the one final machine which given my remarks earlier about hydrocarbon dew point control may be substituted for a propane compressor to take care of the issues of hydrocarbon dew points. That’s some of the thinking we need to go through during the rest of this 2007 planning process and we don’t have it completely gelled at this point.

Q - Jeffrey Robertson - Lehman Brothers

Does the EIS out there cover additional capacity if it’s needed down the road, or is that just related to the impact of actual drilling in the area?

A - Fredrick Barrett

It does include more compression. We won’t be able to put it in the bottom of Nine Mile Canyon but we’re able to put production and compression facilities on top of each of the plateaus that we’re currently drilling from. We shouldn’t be restricted ultimately by how much compression we can have.

Q - Jeffrey Robertson - Lehman Brothers

Lastly on the oil you mentioned up on Lake Canyon, do you have a plan yet as you think about 2007 for either the Green River or I’m sure the Wasatch will be dependent on what you find in terms of how many wells you would plan, assuming the next three Wasatch wells are encouraging?

A - Fredrick Barrett

We do, we’re not disclosing how many that would be, but let me just say that as you mentioned, given the results of the next three to four wells, we could be looking within the Lake Canyon area proper from a Wasatch standpoint, anywhere from five to 10 wells. Who knows. Again we’re utilizing our 3D survey in there to help us identify where those would be in addition to the wells that we’ll drill in there. It would be at a minimum a sustenance program that really begins to define the scope and scale of what we perceive as a potentially large development program. Likewise our partner in there has drilled six Green River wells to date. Those are working real good and I would suspect that they would ramp up over and above where they are at this year with the six Green River wells.

Q - Jeffrey Robertson - Lehman Brothers

Two last questions, Fred, are the Utes participating in these wells now, and secondly are there any marketing issues with this oil combined with the oil from Altamont?Bluebell and the Brundage Canyon area?

A - Fredrick Barrett

The Utes are participating in the shallow. We’ve yet to hear anything – they’ll participate in one Wasatch well thus far as we know it, so as we move forward in this program, we just have to wait and see what the Utes will do. As far as the oil and the capacity and the processing capacity goes, right now we have no curtailment as it relates to the oil that we’re currently producing and we know that there are plans in the works for both the Salt Lake City refinery community there, there’s a whole suite of refiners in Salt Lake City looking at seriously upgrading refineries and processing capacity for black wax. Black wax has almost doubled in production over the past several years in this Basin. Even the Utes have verbally contemplated the potential future processing and refinery capacity as it relates to Black Wax production.

Operator

Your next question comes from David Cameron – Wachovia Securities.

Q - David Cameron – Wachovia Securities

Congratulations on a good quarter. A couple of questions. Getting back to Lake Canyon, it looks like the recent wells have come in and you’re saying now the average is 140 barrels per day? That’s up from the first initial IP. Is that correct?

A – Joe Jaggers

I believe so, yes.

Q - David Cameron – Wachovia Securities

Are you still targeting EURs of 80-100 out there?

A – Joe Jaggers

Yes.

Q - David Cameron – Wachovia Securities

So even with the higher rate…

A – Joe Jaggers

On Wasatch it could be higher than that.

Q - David Cameron – Wachovia Securities

Okay. As we look into 2007 for production guidance, if you take your current run rate, I guess you guys said you had 165 million. You take that into 2007, I know you’re not prepared to comment on it officially today, but can you give us some guidance or just a feel of what you’re looking at for 2007 as far as coming off a year where you had 30% production growth?

A – Joe Jaggers

David, we’re early in that 2007 planning process, but clearly from what we’ve seen in Piceance and West Tavaputs and with the anticipated de-watering completion in the Powder River Basin, we see strong production growth in 2007. Will it be at the 30% level that 2006 increased from 2005? It’s really too early to say at this point.

Q - David Cameron – Wachovia Securities

Okay, so we’ll look for that in January/February?

A – Joe Jaggers

That’s right, yes.

Q - David Cameron – Wachovia Securities

In the Piceance, what has changed in the last few months that has resulted in the higher EURs? Is it just completion technique or what have you changed?

A – Joe Jaggers

That’s it exactly. The largest part of that improvement is completion techniques, as I described in answer to Jeff’s question. The three component 3D seismic is being used now to help high-grade locations, so there’s an element of that involved as well. We would anticipate 2007 results to be a continuation of what we seen in 2006.

Q - David Cameron – Wachovia Securities

Moving up to Montana, in the joint venture, did Devon give you additional 3D seismic? It looked like a 3D seismic number, you said post closing it was going to ramp up. What was the acquisition exactly? You told them interest, did they give you cash and assets or what were the terms of that deal?

A - Fredrick Barrett

That was described more fully in our 10-Q. It was for cash and a non-cash acreage position. It’s in the Powder River Basin, but we’re not necessarily disclosing exactly where that it. The seismic we acquire ourselves. On the seismic, we initially shot over 64 squares and had that in hand as we brought in an industry partner. As part of our joint venture, we knew we wanted to shoot more seismic. We initiated the second shoot which really is a bolt-on to the original back in the mid-summer of this year. That shoot adds a little over 100 square miles in addition to the 64 squares that we shot. There is an overlap there, giving us a total of about 155 squares. This is a joint effort, if you will, as it relates to the 3D seismic.

Q - David Cameron – Wachovia Securities

One more question and I’ll jump off – I know Patriot disclosed for everyone that they were your partner I think in the Bighorn. Have you disclosed or has your partner disclosed who the Paradox partner is?

A - Fredrick Barrett

We have not.

Operator

Your next question comes from Eric Hagen – First Albaney Capital.

Q - Eric Hagen – First Albaney Capital

Starting off in the Big George, what’s your total acreage position there right now and are you giving any estimates on reserve potential there?

A - William Crawford

Eric, we’ll probably have to do a follow up on that one. We’ve given Powder River Basin 3P before, especially at the time of the acquisition, but as we’ve kind of gone through the 2007 budgeting process, we plan to update all of our 3P from our development projects and we’ll be releasing that in the January timeframe.

A - Fredrick Barrett

Let me just add some color to that. The bulk majority of our positions in the Powder River Basin are in the Big George Fairway. In fact, really if you look at it right now, anything that we’re developing or will be developing is in the Big George. The 3P plus potential upside, we think this is a play that gets us close to a quarter TCF if you will. We’re still running through – that includes additional upside, additional coal seams and what not. But somewhere north of 200 BCFE. That is Bill Barrett Corporation. We’ve become about the fourth or fifth largest player in there in the Big George. When you look at BBC, we’re predominantly Big George.

Q - Eric Hagen – First Albaney Capital

Moving to the Paradox, it seems like mixed results from other operators. I think I heard some encouraging comments about the Gothic Shale from EnCana, but some more discouraging ones from Cabot. Do you have any comments on that or any color to add to that?

A - Fredrick Barrett

My understanding of some of the recent wells that have been drilled in the Gothic as well as other zones is that they were drilled in a position that geologically dissimilar to where we’re drilling. We’re in a different rock type, in the Gothic. I won’t get into the hairy details of the geology, but that’s the basis behind where they’re drilling and where we’re going to be drilling. It’s a little bit different type of basis in terms of what we think the true shale gas position is in the space.

Q - Eric Hagen – First Albaney Capital

Delta announced a good well, I think they’re calling it the Salt Classic Break play or something like that, but do you have any acreage perspective for that and any plans to drill a well there in 2007?

A - Fredrick Barrett

Yes, we do. We have several positions, one of which is a look-alike to what Delta has on the kind of distil extremities of the salt protrusions in the Paradox Basin. Our most recent program, the one where we’re going to be shooting 3D on Pine Ridge, is more of a salt flank position rather than a salt extremity, if you will. We hope to get our 3D seismic underway here in the near future. We’re also accepting this look?alike play that we have of Delta’s, and we’ll be addressing that as we move through 2007.

Q - Eric Hagen – First Albaney Capital

The final question was in Montana, at Circus, can you provide any more color as to the nature of the play? Is it oil, gas and how did you generate the concept? Is it based on an old well bore?

A - Fredrick Barrett

Regionally, this play has been around for quite some time. The overall Rocky Mountain Overthrust play. If you look down in the Wyoming Overthrust belt, back in the 1970s and 1980s, there were some big deals that were established there. Likewise, up in the Canadian Overthrust belt. Circus lies right in between those two regional plays and you know, up to this point very little drilling had been done in the area and the wells that were drilled in there were drilled by Amoco did encounter free oil and gas shows. To answer the first part of your question, we expect potentially both oil and gas in there. It’s possible there could be a small component of sour gas in there which would require processing. To that end, it’s similar to those types of plays, the Canadian and the Wyoming Overthrust, in that you’re dealing with structural features and anaclinal features that are fault bounded. The overall structural picture itself can be fairly complex in a trend that we call thin skin deformation, where the beds really get folded and you can have extremely high dips on these beds. Because of that complexity early on, the 2D seismic we believe simply was not adequate enough to image the current structural features that we now see in this area. We are beginning to image actual structural closures in here with the initial 60 squares that we had in this area and we’re adding to that understanding if you will with this additional 100 plus square miles that we’re shooting in here. It’s a structural play, we’re going after features that can be fairly sizeable in nature, multi-TCF type features and so we’re excited and we look forward to getting this thing drilled.

Operator

Your next question comes from Raymond Deacon – BMO Capital Markets.

Q - Raymond Deacon – BMO Capital Markets

Could you remind me what the 2P number was on the Wasatch field near Altamont-Bluebell and how you got there?

A - Fredrick Barrett

The 2P number on the Wasatch field? You mean…

Q - Raymond Deacon – BMO Capital Markets

Sorry, near Altamont-Bluebell.

A - Fredrick Barrett

Near Altamont-Bluebell? At you talking about Brundage Canyon or Altamont-Bluebell?

Q - Raymond Deacon – BMO Capital Markets

Sorry, Brundage Canyon.

A - Fredrick Barrett

I believe we had – we can get you a proven number on that, but as far as probable goes, that depends on what those operators feel the probable number is that’s in there. I don’t recall if their published probable possible number is in there. I do know that if you look at Brundage Canyon and Monument Butte, you’re looking at a minimum of 80-90 million barrels of oil, a little over a quarter TCF in that area. Up in the Altamont-Bluebell complex, when you at that total complex you’re looking at about 600 million barrels of oil between three and four TCFE that is cumulative. Both of those numbers are cumulative. We always draw people’s attention to the overall oil and gas in place in this area, which really is pretty staggering. Most of the wells that you see in the Altamont-Bluebell complex and in the Monument Butte typically recover about 8-9% of the reserves in place so you can do some back of the envelope math on that. The oil in place that covers Lake Canyon, Monument Butte and the Altamont?Bluebell complex is literally in the billions of barrels of oil in place. What excites us about this area is that not only do we have two plays that are beginning to emerge in here, but these areas, particularly in the Altamont-Bluebell area, have never had modern day technology applied to the Wasatch formation, which is really our main interest at this point in time. Technology may begin to ramp up those recoveries. So we’re excited.

Q - Raymond Deacon – BMO Capital Markets

One more on the budget, you talked about the ramp up that will take place in year end in the Piceance – I was just curious – have you given any specific thoughts to the budget for next year, maybe an annualized Q4 number or something higher than that? Also, where would you have to be curtailing inventory between November and March with winter stips coming in the place?

A - Fredrick Barrett

I’ll take the last question first, Ray, in terms of the stips and the restrictions – we’ve gotten indications from the BLM, we’ll continue our West Tavaputs activity so that’s not at risk from stips. We’ll have two rigs in there through the winter months. One drilling deep wells, and one shallow. Our Piceance operation is largely on free land so there’s no impact there. Our other big producers, the Powder River Basin, will have completed all of our necessary 2007 work on pipelines and difficult locations before the stips kick in. We plan to get out there and pull activity in Q2 when the stips lift. The question about 2007 capital, Bill mentioned in his remarks, perhaps in the same region or slightly above where we expect to be year end 2006.

Operator

Your next question comes from John Gerdes – Suntrust Robinson Humphrey.

Q - John Gerdes – Suntrust Robinson Humphrey

On this Hook area, have you brought in a partner there, or is that still something you’re in process?

A – Joe Jaggers

We have not brought in a partner there. We are in the process of looking at that potentially. There are a number of things that we’re finishing up if you will, before we put a drill rig in that area.

Q - John Gerdes – Suntrust Robinson Humphrey

So you’re really not looking to do anything until the early part of next year, most probably?

A – Joe Jaggers

That’s correct.

Q - John Gerdes – Suntrust Robinson Humphrey

Just a recap on the Bakken rack, some of the horizontal work you’ve done over the course of this year, what’s your sense, what’s your takeaway and where do you go from there with that whole play concept?

A – Joe Jaggers

I think the whole play concept is in its early infancy. You have the sleeping giant trend in there that’s well established, you’re getting excellent wells in that trend. Some of these other developing resources plays, the Barnett, so on and so forth – I think it’s going to take a little bit of time and more horizontal drilling in some of these different rock types that you see develop in the Bakken play that are equivalent to the sleeping giant that need to have more drilling associated with them. I think it’s a giant play in the making. In my opinion, I think it is going to take more time and I know several of our acreage positions are targeting some exploratory positions in the Bakken. In the main trend, we only have 16-17 locations in there anyway, and some of those are non-operable. We’ll be drilling those or would eventually drill those, but the Bakken is a big source rock in the Williston Basin. Keep in mind the Williston is the biggest basin in the Rocky Mountain region and so, I have high hopes for it. It’s just going to take a little bit of time. Keep in mind, the Bakken play, you know, it took 14-15 years to get off the ground. I think you’re seeing a little bit of that here with the Bakken.

Q - John Gerdes – Suntrust Robinson Humphrey

Some of your issues there have been water encroachment on some of these laterals. Is that correct?

A – Joe Jaggers

In some of the wells we’ve drilled, yes.

Q - John Gerdes – Suntrust Robinson Humphrey

Okay. Shifting gears to West Tavaputs, you mentioned the need for some additional compression in the timetable. How much production do you think you have pent up, that’s being constrained at present in West Tavaputs?

A – Joe Jaggers

That depends largely on the West Tavaputs Deep, which is coming on now. We’re seeing higher pressures than we’d like as a result of having too much gas in the system and not enough compression. It’s a difficult number to estimate, but clearly higher than our compression capacity.

Q - John Gerdes – Suntrust Robinson Humphrey

So maybe just as a rough guesstimate, maybe…

A – Joe Jaggers

Somewhere in that 10 range.

Operator

We have a follow up question from David Cameron – Wachovia Securities.

Q - David Cameron – Wachovia Securities

I just want a detailed question here. On the capex budget, Bill, I think you said in the prepared remarks your total capex was $313 million for the first three quarters, and that included the CH4 acquisition?

A - William Crawford

That is correct.

Q - David Cameron – Wachovia Securities

If we net out the acquisitions and some of the joint exploration proceeds, do you know what that number is?

A - William Crawford

For the whole year, we expect our organic capex to be about $395 million to $400 million for this year.

Q - David Cameron – Wachovia Securities

So that is organic, and does not include any acquisitions or joint ventures?

A - William Crawford

Correct, that’s before all the proceeds and that’s before all the acquisitions.

Operator

Thank you. At this time there are no further audio questions. Mr. Crawford, are there any closing remarks?

William Crawford

Thank you all for participating in our Q3 conference call. As I mentioned earlier, we filed our form 10-Q with the SEC this morning. I encourage you to read it for a more complete review of our Q3 2006 results. Thank you very much for participating. This concludes our conference call.

Operator

Thank you. This concludes today’s conference call, you may now disconnect.

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