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Cabot Oil & Gas Corporation(NYSE:COG)

Q3 2007 Earnings Call

October 26, 2007 9:30 am ET

Executives

Dan Dinges - Chairman of theBoard, President and CEO

Scott Schroeder - VP and CFO

Analysts

Brian Singer - Goldman Sachs

Ellen Hannan - Bear Stearns

Sunil Gajwani - Catapult

Jack Aydin - Keybanc

Corri Garcia - Raymond James

Michael Schmitz - Banc of America

Larry Benedetto - Howard Weil

Richard Tullis - CapitalOneSouthcoast

Presentation

Operator

Good morning. My name is Crystal and I will beyour conference operator today. At this time I would like to welcome everyoneto the Cabot Oil & Gas Third Quarter 2007 Conference Call. All lines havebeen placed on mute to prevent any background noise. After the speakers'remarks there will be a question and answer session. (Operator Instructions).

Thank you. Mr. Dinges, you maybegin your conference.

Dan Dinges

Thank you, Crystal. I appreciate everybody joining ustoday for the third quarter teleconference. I have Mike Walen, our COO; ScottSchroeder, our CFO; Chuck Smyth, our VP-Controller with me today.

Before we start, let me say thatthe statement regarding forward-looking information included in the pressrelease prior to my comments today. As you saw last night we issued two pressreleases, both illustrating our continuing success, one was the financialhighlights for the quarter and the other reporting achievements in ouroperations activity.

Financially, the company againreported solid net income of $38.4 million or $0.40 per share after removing asmall impairment for our North Louisianafield. This level of net income was Cabot Oil & Gas Corp.'s second highestfor any third quarter reported, only exceeded by last year's record effort.

Though the macro environment fornatural gas prices was somewhat weak for the quarter, Cabot did experience flatrealized natural gas prices versus last year and that was on the strength ofour hedge position for 2007.

Relating to pricing, some of thedetails, Cabot experienced a $0.40 per MCF pick up for the quarter from theCompany's hedge position. This makes the year-to-date pricing pick up $0.99 perMcf. For the quarter oil price realizations fell within our colored range of$60 to $80 per barrel and they were essentially flat with last year.

Cabot's overall hedge position ishighlighted, on our website as you are aware for both 2007 and 2008. You willnote, as it relates to 2008, if you looked at it recently, we have added, tothe position and we have done that when the NYMEX price for 2008 has been aboveof $8 per Mmbtu.

Our focus has been on the Rocky Mountains, were the recent basis blowouts havecreated extremely low cash prices. Remember our hedges at the sales indexpoints, which includes the basis.

Since our reported natural gasprices are in Mcf and we have made a change to our website and we will be convertingthis metric of our 2008 hedge disclosures on our website, better reflect actualexperience and that is converting the Mmbtu used to Mcf. However, for the restof 2007 we will show both the Mmbtu and Mcf values.

Production, as we anticipated,actually volumes were down between the third quarters and that was a result oflast year's asset sales. What are we pleased about, is our pro forma productiongrowth of approximately 15% increased over the last years third quarter and a17% increase for the year-over-year period. Our production growth has clearly beendriven a 98% success rate in our 359 well year-to-date drilling program.

Moving ahead, looking ahead, thisis our traditional time of year to establish guidance for next year. And 2008is setting up with our capital program to again deliver very good organicgrowth rates.

I want to get a little bitgranular with our guidance to help illustrate some of the changes in ourcapital allocation. Four out of our five areas, the East, Gulf coast,Mid-Continent and Canada,will deliver double-digit production growth expectations for 2008. In theRocky-Mountains we’re reducing our capital allocation, as we wrestle with thenet back prices we’ve seen in this place.

The basis differentials are entirelyunacceptable at this time and therefore do not allow us to continue allocating alot of capital in that area, particularly with the opportunities we have inother basins within our portfolio. This event is a good argument to be a littlebit diversified.

Our 2008 program was approvedyesterday at $490 million, which represents approximately 110% to 115% of ourexpected cash flow for 2008. When compared to some of our peer programs, thislevel of capital spending versus cash flow may seem a little conservative. However,Cabot's proved organic program will allow us to drill approximately 366 netwells in 2008 versus the 406 wells we anticipate stat using in 2007.

We also expect to be able todeliver over 250% reserve replacement. And oil and finding cost to be aroundthe $2 range, 8% to 12% production growth and have the financial discipline tobe at approximately 26% to 27% debt-to-total cap at the end of 2008.

Additionally, we anticipate ourdrilling program to be about 95% to 98% successful, which is where we are asmentioned in our 2007 program. So in 2008, we expect a low-risk program thatmaintains our balance sheet and add significant reserves by yearend 2008 at atop-tier refining cost. That's why we're looking for to our 2008 program.

I have put the cart before thehorse a little bit in discussing 2008. However, for 2007 full year with onlyone quarter remaining, we have narrowed our guidance to about where we thinkwe're going to end up, and that is 14% to 16% anticipated pro forma productiongrowth.

Let me discuss the adjustments toour fourth quarter guidance. However, as I mentioned, we do anticipate between14% and 16% for the full year.

Gulf Coastis expected to exceed their current equivalent production levels. So we'removing their daily levels higher on the strength, mainly of our East Texas program. We are reducing slightly the Westguidance due solely to the volunteered shut-ins we had out there in October.However, for the full year, we expect west to be within our full year guidancerange.

We have reduced our guidance inthe East. That's been a result of delays in well hook-ups due to weatherissues, and we have seen a tightening of the pipeline contractors. The backlogof successful wells waiting to be turned in line has just delayed ouranticipated first production.

We have approximately 65completed wells waiting to be turned in line up there. But we do feel like wehave solved the problem for 2008, so we won't have a repeat performance. I am notparticularly pleased with the execution of this portion of our program. Butoverall, I am pleased with the drilling results where we remain 100% successfulin our East program.

Moving to expenses, overallexpenses in the fourth quarter were basically flat after moving the smallerimpairment of our North Louisiana field. Froma guidance perspective, direct operations were outside the range due to thehigher level of activity on our lease. Guidance for the next five quartersreflects the dynamics of the market and our expectations.

Now let me move to operations. Wehave added approximately $100 million as we're closing out the year and took --between now and the end of the year as capital expansion for our drillingprogram, and our associated facilities and pipeline infrastructure that isgoing to help our 2008 program. Obviously, with this additional capital beingspent towards the end of the year, the impact on 2007 is going to be somewhatlimited, but it certainly is going to help us get into 2008.

Focus of our 2008 program hasbeen prioritized with increased emphasis on East Texas, which I'll talk alittle bit detail on each area, the East and the Mid-Continent. These threeareas will drill approximately 56 wells in East Texas, 265 wells in the East, 66wells in the Mid-Continent, with the Appalachiaarea included in the 265 wells will be 20 horizontal wells and 20 verticalMarcellus wells.

Other areas, our focus will be inMayberry and Mississippi, and depending on thenatural gas prices and in the Rocky Mountains, the Moxa Arch and some activityin South Texas.

Moving to East Texas and some ofthe details of our program, the County Line field is drillingout so far extremely well and above our expectations. Drilling efforts almost26,000-acre prospect has been directed as --- for the most part as horizontalJames. We have drilled Pettet wells, and again continues -- both continued toyield exceptional results. To-date, we have drilled 7 horizontal wells, 5 ofthose in the James and 2 of those to the Pettet.

We currently have two rigsdrilling along with completion operations on another well. Since our last pressrelease we have completed the Timberstar-Worsham-1, following the sales at 12.2million cubic feet per day. We will be drilling 4 wells between now and theremainder of 2007, and we've scheduled 32 wells for our 2008 program

We are extremely high on thisprospect. The field is currently producing at approximately 19 million cubicfeet per day, and that is restricted rate due to pipeline capacity. We filledup the pipeline quicker than we had anticipated. However, we do have operationsongoing in the field right now to upgrade that pipeline between now and thefirst of the year.

As you may recall, our firsthorizontal Pettet well has been hooked up, and it's been tested at a rate of1.2 million a day and 48 barrels of oil per day, the Pettet has a little bitmore oil associated with it than the James. And additional development in thePettet will occur, as we continue to enhance the infrastructure to take care ofthe oil. However, right now, we are concentrating our efforts on the horizontalJames.

We have just recently announcedour completion of a trade in our Trawick field. Our deal with a major companythere has been kicked off with the completion of our first operated wildcat inthe field, and we are drilling our second operated well in the field as wespeak.

This project is going to be along-term opportunity for us. We have targeted gas, reservoirs from the Jamesline through the Jurassic Haynesville at about 12,000 feet. We anticipatedrilling several hundred wells in this project with multiple take-points anyeach well. For 2008, as we gather information in the lightly drilled deepersection in the field, we'll schedule about 12 wells initially for this field.

In South Texas, we continue to see positive results in our McCampbellfield. Even though we've been developing this field for many years, we haverecently completed two very good gas wells from multiple frio sands, the GibsonSign well, just came on producing at about 2.2 million a day plus 200 barrelsof oil per day from Frio section, and we other zones behind the pipe. Whileanother Gibson Sign well is flowing approximately 1.8 million a day and 100barrels of oil from D2 sand also with behind-pipe zones.

Earlier in the year we completeda flan unit well down there, at about 2.8 million a day and 360 barrelsoverall. We plan to drill at least one more well between now and the remainderof the year.

Finally, we continued to evaluateour tight sand Floyd Shale play in a large area in the Black Warrior basin of Mississippi. We have finished some ofour -- actually we really have some ongoing rock geochemistry work going. We’vefinished some of that work and some completion work on our most recent well. Ican say that we are encouraged, but what we have seen in this most recent welland we do plan on allocating additional capital in this area for one more wellin 2007, and we have additional wells planned in 2008.

In the east our horizontal lowerHerron program which we call, hurricane. As you are aware this program has beenslow down with our issues on nitrogen and the hydrocarbon DuPont problems, andthis is one of the reasons for our revised fourth quarter guidance in the east.

However in that area today we'vedrilled eight horizontal wells and have five of those wells producing though atcurtailed rate, as we continue to deal with the nitrogen issues. As far as ourexpectations out there, our first 30 days of production from several of thesewells suggest that, we anticipate these wells to come over Bcf each and we arecompleting these wells at around $1 million. This area certainly has great dealof upside potential once we get it lined out.

Operationally, we continue towork on the nitrogen and hydrocarbon DuPont issues. We have multiple programsout there in the field and new well-tap on the remaining sales line. A J.T.unit we are putting in there, and we anticipate to get all this lined out inthe near term.

We have also taken delivery ofour new rig, [Speedstar] 185 for work out there in the Hurricane field. Thisrig is one of five rigs. Our contractor is bringing to cap it in this basin. Weplan to drill a couple of more horizontal Herron wells between now and theremainder of the year, and we have a 20 horizontal well program schedule in2008.

Now I am anxious, there have beenthe delays in this project, but I am anxious to get this project movingforward. In Southern West Virginia, in more ofour traditional vertical type sand drilling area, we have two rigs working andhave drilled 56 wells through the third quarter towards a total of 91 wells forour 2007 program.

Historically in that area, wewere a little bit delayed in getting to some of those wells in South West Virginia. Historically, in that area we hit afew exceptional wells, and this year's no exception though, they did occur alittle bit later this year.

We've recently completed a wellon our Pocahontas lease that tested at 7 million cubic foot day after frac, andon our lines lease the well tested at 10 million per day after frac. Both ofthose wells, have recently been turned in line are currently producing at about3 million per day in the sale.

Our 2008 budget, has a little bitdifferent mix in the vertical and horizontal wells that we have in total 265wells scheduled at this time. As mentioned, a number of these wells will behorizontal here on well, and we are also starting a new initiative for us inthe deep Marcellus. So, with the little bit of the mix the 20 lower horizontalwells that are horizontal and 19 new Marcellus well that we're going to bedrilling. It really equates to our larger program if you compare to ourvertical well program that we drilled -- our total program we drilled in 2007.In an equivalence basis, it's equivalent to about 330 vertical well programs.In our new initiate up there in Marcellus to support what we are doing. We haveaccumulated over 86,000 net acres so far in this area.

We will continue to expand ourpipeline infrastructure. As mentioned, we are allocating some additionalcapital this year to get ahead of the programs, so we won't have a repeatproblem with the turning wells in line. And we are also enhancing some of ourcompression up there in the East. In the West, exploration continues to befocused on large impact prospects in the ParadoxBasin, the Eastern Utah and Southwest Colorado. We are currently drilling the secondwell in our McKenna prospect it’s a 770 foot (wildcat) and we will test theMarcellus Shale in the upper Paradox group. The well offset a recentlycompleted competitive well about at mile away which is reportedly flowing atabout 3 million per day from Lassa section.

If we are successful the wellshould set up a significant development program for us where we have about38000 acres in this plot. A second Paradox Wildcat in has just begun, the SouthGibson Leadville Wildcat is at 8000 for test that we expect this week.

The well exposed Cabot toprospect size of about 25 to 100 Bcfe in the Leadville plus additional upsidein the S-May in the crack and sandstone

Excuse me in the Moxa Arch areawe will face this year’s program and evaluate the movement in the basis pricingto determine our total year activity in 2008. We began the year with a reducedprogram in the Moxa for 2008 because of the basis.

We are very pleased though withour drilling results for our 2007 program in the Moxa, however, as I mentionedthe basis blowout in this area we reduced our 2008 capital should theenvironment materially change throughout 2008 we’ll certainly be prepared toramp up our program again back up there.

In Canada, the company is currentlydrilling ahead on our Hinton 9-6 well. We have reached TD and we should belogging, this well currently, as in fact as we speak. For 2008, our program in Canada,will mainly focus in the Hinton area and our Musreau area.

So, in summary while we have,some well hook up delays in the East overall 2007, is going to be good a yearfor Cabot. And we know our 2007, year-end reserves will be impressive. Theorganic program, has exceeded reserve expectations. We will hit our productiontargets, within our guidance and we expect our finding cost to be in the $2plus range.

We have laid down our initial to2008 program, that delivers similar numbers as our 2007 capital outline. And asI mentioned, with a capital outlay right at our cash flow numbers. Imagine ifyou look at our 2008 outlay as a percent of cash flow, this is going to be oneof the lowest in our space.

This will allow us to evaluateall opportunities we see throughout 2008, and potentially increase ourexpectations, in regard to reserves, and production. With that being said,thank you for your support. I will look forward to answering any question thegroup has, Crystal I will turn it back to you.

Question-and-Answer Session

Operator

(Operator Instructions). Sir,your first question comes from the line of Brian Singer with Goldman Sachs.

Brian Singer - Goldman Sachs

Thank you. Good morning.

Dan Dinges

Hey, Brian.

Brian Singer - Goldman Sachs

Can you talk more to the backlogin the east region and what you believe is the net production rates ultimatelythat you can achieve from the 65 wells behind pipe and as you look your ’08drilling program. Can you talk any further mid-stream risks?

Dan Dinges

Yeah. If you say 65 wells behindpipe, if you bring in, say your average initial turned inline rates over 150,200 a day. That’s approximately 10 million a day net to Cabot.

Brian Singer - Goldman Sachs

Okay. And do you see, go ahead.

Dan Dinges

Yeah. In our 2008 program we’vedone some things that I think internally have mitigated any risk in our 2008program. We’ve taken a deep look at our process and our budgeting, whether it'dbe the risking, whether it'd be the initial rates. And reserve aspects, whatreserves we are initially assigning. And one of the most important areas is therisking of success and the timing associated with our risking. And I think whatwe have done for 2008 is put together what I hope will prove out to beconservative guidance.

We have for example in the CountyLine area, we have 32 wells, several wells scheduled between now and in the endof the year we have 32 wells scheduled in the County Line, which in oneparticular field, County Line is taking up the largest percentage of capitalfor Cabot in 2008. It is a, as we've seen we have some large initial productionrates, those wells currently that we have established for the first 30 days areseeing production average for the first 30 days over 5 million cubic foot perday. But in our guidance, because we don’t know the full extent of the geologyon our 26,000 acres and as we move out, we're just lucky in hitting the exactcore of the field, we don’t know, but we have taken some of that risk inconsideration when we put together our production guidance on those particularwells. And actually we've used about half of the 30 day average that we've seenin these initial wells in our 2008 guidance.

So I think we've built in alittle bit of mitigation in the risk, in particular in that particular area andI pick that because that has the very large impact, because of the higherinitial rates coming from that. But I think also in the way we've risk our 2008program, anticipating a great deal of success, as I mentioned between 95% and98% success, we are I think in very good position to certainly meet or exceedthe numbers.

Brian Singer - Goldman Sachs

That’s helpful. Thank you. Youmentioned at the end of your comments that relative low level of reinvestmentthat you expect versus your peers and potential to get a little moreaggressive. Did you mean that from an acquisition perspective and if so whatkind of size in areas would you be looking at?

Dan Dinges

Well, no in the opportunity areasI was not meaning it from the M&A sides and as you are aware Brian, we havea good organic program that delivering very good growth. We haven't focused onthe M&A side. If we see opportunities that would be very close to our areaof activity we would certainly look at those and make every effort to acquire,that's not our focus. Our focus is really in looking at how well we execute ourprogram through the beginning of the year and if we see the opportunity, forexample in the master area to increase our activity up there, because we thinkthe basis is coming inline for whatever reason and delivering the cost net backto us that we want to see, then we'll jump up there and we will be prepared tojump there and increase our capital programs without reducing our capitalprogram in the rest of the area.

So it's mainly focused onoperations, expansion potentially in the master or if we are able to executeand fulfill some of the drilling expectations in our core areas, we mightincrease our activity towards the year end 2008, which we have historically bythe way done.

Brian Singer - Goldman Sachs

Great, thank you.

Dan Dinges

You bet.

Operator

Your next question comes from theline of Ellen Hannan with Bear Stearns.

Ellen Hannan - Bear Stearns

Good morning.

Dan Dinges

Good morning, Ellen.

Ellen Hannan - Bear Stearns

I just want to follow up on acouple of things. I want to make sure I heard you correctly, first on thepotential on the Floyd shale. Do I understand you correctly that you areencouraged additionally?

Dan Dinges

Yes, we are.

Ellen Hannan - Bear Stearns

Okay.

Dan Dinges

We've seen what we've been tryingto do out there, Ellen, is pick up additional information, if they rank area,the well spacing out there from, say, where we're drilling several of our wellsto the closest well. That's been over 20 miles. So the data we're gathering isnew data and in different areas of the place. Some areas have not been asencouraging as other areas. But we're certainly encouraged to continueallocating capital to deploy as mentioned.

Ellen Hannan - Bear Stearns

Are you finding anything abovethe Floyd shale in terms of the [lengths or] depths?

Dan Dinges

Yes, we have seen some interestin the shallower place. And that's why I couch it as a tight sand play in Floydshale play.

Ellen Hannan - Bear Stearns

Another question I had for you onyour recent transaction that you announced about a month or so ago in East Texas with the two major oil companies. Can you talkabout what kind of commitment you had to give for that? And you mentioned thatreserve potential quote could be substantial, could you sort of put someparameters around that?

Dan Dinges

Excuse me, Ellen. Yeah, sure Iwill. Let me start first in -- one of the areas with a major was in our County Linearea. We picked up additional acreage. I think it was about 8,000 net acres inthe County Line area. And as you can see now thatwe've had got that acreage now part of our field and prospect out there, wewere recently -- in fact, we are currently drilling our first well on some ofthat new acreage. We've accumulated out there adjacent to the acreage we hadalready had.

And I mentioned our results fromour most recent County Line wells that the five County Linewells that we have, horizontal wells in the James right now, the IPs haveaveraged about 10 million a day. As I mentioned, what we've turned to sales thefirst 30 days, couple of the wells have averaged over 5 million a day. Sothat's one area.

The other area is the TrawickField. It is a large complex we have contiguous. It's probably one of thelargest peer contiguous block in East Texas.It's almost 36,000, 40,000 or so acres in East Texascontiguous. And we're going to be looking from the James all the way down tothe Haynesville.

The field proper itself, whichrepresents a portion of this 36,000, 40,000 acres, is mainly a Pettet field inthe shallower section and a Travis Peak field. It has beenvery lightly drilled below the Pettet. And our main focus is going to be belowthe Pettet in the field proper areas to the CottonValley, the Haynesville, but that'salso on the outside of the field proper area anywhere from the Travis Peakdown to the Haynesville.

We certainly anticipate, wedrilled now two outside operated wells on the -- where our acreage wascontributed to these two wells by outside operated companies, which weresuccessful in the Travis Peak at between -- came online between 1 million and 3million a day each. And we are completing our first operated well in thecomplex, which is actually on the fridge -- excuse me, on the fringe and not inthe field proper.

We are now moving to the fieldproper area where we're drilling this second well. And we are going to continueto work with the major company and work with the Belmont in expanding the opportunities outthere. We need to work with them because they have some activities going onstill in their shallow portions of the field. And we just want to make sure weintegrate operations well.

Ellen Hannan - Bear Stearns

And are you carrying the owner ofthe fields on your wells or what this means?

Dan Dinges

I am sorry, I didn't answer thatpart. Our entry into the area and be able to get into this large acreageposition is carrying the major on like first eight wells in the area wheresubsequent to that they need to make their election whether they are going tobe in or out.

Ellen Hannan - Bear Stearns

Great. Thank you very much.

Dan Dinges

You bet.

Operator

Your next question comes from theline of [Sunil Gajwani] with Catapult.

Sunil Gajwani - Catapult

Good morning, guys.

Dan Dinges

Good morning.

Sunil Gajwani - Catapult

And congratulations. I have twoquick questions. Firstly, on East Texas withthese acreage changes, my guess would be that your location inventory hasincreased significantly as well as the unbooked potential. Can you frame thatfor us because I'm not very good at counting acres?

Dan Dinges

It has increased significantly.And we have right now, we think, as far as potential in the County Linearea. We think we have potential of anywhere from 170 to 220 horizontallocations in the James depending on what spacing you want to use. And we alsohave, which I mentioned, we are not developing the Pettet at this time. But wealso have an incremental 150 to 170 Pettet locations in the field also. So weare excited and we are going to be out there in that area for an extendedperiod of time.

In the Trawick area -- if youlook at the Trawick area and you just do the extrapolations say in the CottonValley based on what you've seen a lot of the east Texas is being drilled inthe Cotton Valley. We'll have 200, 300, 400 locations in the Cotton Valleyalone, and what we are going to be able to do similarly with those wells iswhen we drill up we are also probably going to take some of those wells down tothe Haynesville, as a potential. But we are also going to be able to see asadditional take point potentials once we look at the CottonValley, an additional potential in theTravis Peak, the James and the Pettet, and hopeto maybe could mingle compellation or plug-back completions in a multi-zonesection.

Sunil Gajwani - Catapult

Well that's fantastic. I do haveone other quick question on the Eastern region in Appalachia.Not withstanding the nitrogen completion issue that you've talked about, theactual cost per wells and the EURs that you had spoken about in the past havebeen very encouraging. How would you compare the Marcellus potential andreturns on a per well basis with the horizontal that you are drilling in theDevonian?

Dan Dinges

That’s a good question. Withoutsaying a great deal, but certainly saying enough that we were encouraged withour comments, that we have drilled two Marcellus wells. We are encouraged withwhat we see in the Marcellus section. We have actually three Marcellus areasthat we've accumulated acerage on. Right now we are looking at the Marcellus asa vertical opportunity for us.

The Marcellus has a little bitgreater pressure attached to it. What the Marcellus is going to allow us to dowe think is to tweak the completion techniques with a little bit moretechnology, possibly using a higher pressure frac and possibly usingslick-water fracs with the Marcellus which we can't do in the shallowerDevonian shale section, because the pressures are slightly lower. But on a costper well basis, might be slightly higher than $1 million, but we think we aregoing to be close to that. And though we do expect that EUR could come in abovethe horizontal wells in the lower [Heron] section.

Sunil Gajwani - Catapult

So just I guess to summarize, ifwere to just to look at it from the return perspective and I know they are bothearly stage. It's looks like Devonian Shale has progresses more just because ofmore time spent on it, but how would compare returns between the two places?

Dan Dinges

Let me just clear this pointhere. Both of them are Devonian Shale

Sunil Gajwani - Catapult

I meant shallow Devonian versusMarcellus.

Dan Dinges

Yeah, one is shallower, one isdeep, and Marcellus being deeper. But I would not just count at all the returnsthat the Marcellus is going to deliver to us compared to the shallowerDevonian. I would discount them. I am optimistic about what we might see outthere

Sunil Gajwani - Catapult

Thank you

Dan Dinges

You bet.

Operator

Our next question comes from theline of Richard Tullis with CapitalOne Southcoast.

Dan Dinges

Hello, Richard. Richard you mighthave your mute button on.

Operator

Okay, would you like me to go tothe next question?

Dan Dinges

Yeah Richard might plug back inthe queue.

Operator

Okay your next question comesfrom Jack Aydin with Keybanc.

Jack Aydin - Keybanc

Hi guys

Dan Dinges

Hi Jack

Jack Aydin - Keybanc

Regarding Appalachia,the wells that the horizontal well you drilled in Heron that they are waitingfor the nitrogen treatment and everything. Could you give us a he timeline whenthose wells will be back on the production, and give the timeline to get thepipeline in the place and so you could pick up the drilling activities?

Dan Dinges

Okay Mike is going to pass on me.I will tell you what, we did up speed with the details. One thing that just nowhappened is, this happened on September 17 and we don’t have Jeff Hutton herewith us today, our marketing guy. But on October 17, we got a new waiver fromthe pipeline companies which has increased the amount of nitrogen that we wereallowed to put into the pipeline, that is going to help and also on October 7thwe have let see here, no that's the new waver we got, it has expired on October7th then we got, the new waver now for 180 days.

Our JT unit, is going to beonline. I am started over to buy that I kind of reading from this, Jack.

Scott Schroeder

Yes Jack, the JT unit isinstalled and online and operating and we got the waver for the end to, fromthe pipeline and we describe to you a little bit more lining out of some little(mismatch) and that should be slowing at pretty hopefully descent rates here,very soon within a matter of days.

Jack Aydin - Keybanc

Okay, how much volume do we have,waiting to be flowing?

Scott Schroeder

Maybe 1.5 to 2 million a day.

Jack Aydin - Keybanc

Okay and are you picking up, areyou start to drill now there or you going to wait until you get the pipeline inplace?

Scott Schroeder

No Jack, we have already drilledtwo additional wells out there this fall. And we are on our third well withthat new rig, that Dan mentioned and we kind of drill a couple more after thesewells when third one is done.

And then we will pick up, rightover in the first year to drill our '08 horizontal program out there.

Jack Aydin - Keybanc

When are you going to give thepipeline in a place?

Scott Schroeder

Well the, let me just say that weare looking at this scenario. Depending on how these wells in the first part of'08 drill out, Jack and complete we’re considering laying a line down to themain pipeline systems about 3 to 5 mile south of us. And lay that line downthere so we would have to fight with this end to issue anymore.

Jack Aydin - Keybanc

Okay. Thank you.

Operator

(Operator Instructions). Yournext question comes from the line of (Corri Garcia) with Raymond James.

Corri Garcia - Raymond James

Good morning guys.

Dan Dinges

Good morning.

Corri Garcia - Raymond James

Hi. Lotof my questions have been answered. But if we head back to the County Lineplace just a second. The higher rates that you guys are seeing. Can you provideanymore color or I guess how are you thinking about any upside to your EURsthat you guys laid out?

Dan Dinges

Well. Corri it's a good question,the engineers we’ve score around 5 if I got too bold with any projections butcertainly its rate time on the declines and it’s very, very early in the gamewith these type of high initial rates. So, where I can 2.5 to 4 basis is in therange of what we ought to expect out of these wells. And it’s still early inthe game and is our upside to that kind of depends on, how these wells hold upwhich would we dictate kind a facture system where we hook up to.

Corri Garcia - Raymond James

Thank you.

Dan Dinges

You bet.

Operator

Your next question comes from theline of Michael Schmitz with Banc of America.

Michael Schmitz - Banc of America

(Question Inaudible).

Dan Dinges

Man I didn’t get all of that,would you…

Chuck Smyth

Michael, you were breaking-up…

Michael Schmitz - Banc of America

Sorry. Dan you mentioned 250%reserve replacement in $2 finding gross targets for next year. Can you justupdate us on what you are thinking for this year?

Dan Dinges

Yeah. I am thinking that we aregoing to be in the 270 or higher range for reserve replacement for 2007, and Ithink our cost of fine number is going to be in the $2 plus range right aroundthat range.

Michael Schmitz - Banc of America

Okay, thanks.

Dan Dinges

You bet.

Operator

Your next question comes from theline of Larry Benedetto with Howard Weil.

Larry Benedetto - Howard Weil

Thank you. Dan, in the Timberstarwell, which you announced this morning. The length of that was 4600 feet, isthat consistent with the other horizontal James lime wells?

Dan Dinges

Yeah, Mike was just saying that,it is consistent with our other wells; our other wells have been right at about5000 feet.

Larry Benedetto - Howard Weil

And well cost to store around 3.5million completed.

Dan Dinges

Yes, 3.1 million to 3.5 million.

Larry Benedetto - Howard Weil

And then in the Black Warrior Basin in '08, do you planto drill in the horizontal wells in the Floyd?

Dan Dinges

Larry, we're still gatheringinformation, but with the information we have so far, the horizontal would belogical next year.

Larry Benedetto - Howard Weil

And do you have three deals withacreage?

Dan Dinges

No we don’t at this time becauseit's still such a large acreage position.

Larry Benedetto - Howard Weil

Okay. Thank you.

Dan Dinges

You bet.

Operator

Your next question comes from theline of Richard Tullis with CapitalOne Southcoast.

Richard Tullis - CapitalOne Southcoast

Hey, good morning. How is itgoing?

Dan Dinges

Great. Thanks.

Richard Tullis - CapitalOne Southcoast

Most of my questions have beenanswered as well; I just had a couple of more on the County Linewells. The latest win to Timberstar, number one, how long is that been on?

Dan Dinges

Less than a week.

Richard Tullis - CapitalOne Southcoast

Okay. Which is producing rightnow?

Dan Dinges

Well, as we turned it in land at12 million a day and well we had to do to turn it inline in 12 million a daywas cut the other wells back a little bit.

Richard Tullis - CapitalOne Southcoast

Okay.

Dan Dinges

Because we have 19 million a daycapacity right now.

Richard Tullis - CapitalOne Southcoast

I see.

Dan Dinges

So, I couldn't answer you exactlywhat its doing right now because I don't know exactly what they did on tweakingthe other wells and just balancing everything else out in the field.

Richard Tullis - CapitalOne Southcoast

Sure. What will be the cost onthat one?

Dan Dinges

Little over $3 million, right at$3.5 million.

Richard Tullis - CapitalOne Southcoast

Okay. And that was one to sevenstage frac if I remember right.

Dan Dinges

Yeah.

Richard Tullis - CapitalOne Southcoast

Pretty long lateral. And jumpinto the Floyd rig any rates that you can give us on any recent test?

Dan Dinges

No, we are not talking about thatat this stage.

Richard Tullis - CapitalOne Southcoast

Okay. Alright. Well that's it forme today. Thanks so much.

Dan Dinges

Alright. Thank you.

Operator

At this time there are no furtherquestions in queue.

Dan Dinges

Very good, Crystal I appreciateit. Thank everybody for your interest in Cabot and we look forward to continueexecuting our program. Thank you.

Operator

This concludes today's Cabot Oil& Gas third quarter 2007 conference call. You may now disconnect.

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Source: Cabot Oil & Gas Q3 2007 Earnings Call Transcript

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