Brigham Exploration Q3 2007 Earnings Call Transcript

Nov. 7.07 | About: Statoil ASA (STO)

Brigham Exploration Company (BEXP) Q3 2007 Earnings Call November 7, 2007 10:00 AM ET

Executives

Bud Brigham - President, Chairman and CEO

Gene Shepherd - CFO and EVP

Lance Langford - EVP of Operations

Jeff Larson - EVP of Exploration

Rob Roosa - Finance Manager

Analysts

Scott Hanold - RBC Capital Markets

Nick Pope - JP Morgan

Ron Mills - Johnson Rice

Marshall Carver - Tudor Pickering

Jack Aydin - KeyBanc Capital Markets

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the ThirdQuarter 2007 Brigham Exploration Company Earnings Call. My name is Stacey and Iwill be your moderator for today. (Operator Instructions). As a reminder, thisconference is being recorded for replay purposes. I would now like to turn thepresentation over to your host for today, Mr. Bud Brigham, President, Chairmanand CEO. Please proceed.

Bud Brigham

Thank you, Stacey. Thanks to each of you for participatingin Brigham Exploration Company's third quarter 2007 conference call. With metoday, we have Gene Shepherd, our Chief Financial Officer and Executive VicePresident; Lance Langford, Executive Vice President of Operations; Jeff Larson,our Executive Vice President of Exploration; and Rob Roosa, our FinanceManager.

Briefly, during this call we are going to makeforward-looking statements to help you understand our company's results. In ourcompany's SEC filings and the press releases that were issued yesterday, therewere some risk factors that should be noted that might cause our actual resultsto differ from what we talk about today, or from our projections. I encourageyou to review our filings with the SEC.

In addition, a copy of our company's press releases, as wellas other financial and statistical information about the periods to be presentedin the conference call, will be available on the company's website under thesection entitled Investor Relations at www.bexp3d.com.

We've also updated and will continue to update our corporatepresentation, which can be accessed via our website. It includes both our thirdquarter 2007 results, as well as our plans for the remainder of the year.

Also in the venture following the Mountrail County, NorthDakota Bakken Play, there is a map in the presentation that would be veryhelpful to view, as we describe the exhilarating development of that veryactive play.

To get started, I would like to summarize the highlights ofour progress thus far in 2007, much of which we will discuss in more detail,later in the call. First, our drilling successes have generated a strong yearof production growth. Through the first nine months of 2007, our production wasapproximately 43.6 million cubic feet equivalent per day, up roughly 21%relative to that of the first nine months of 2006. This growth was driven inlarge part by our continuous Vicksburg drillingprogram, as well as our success in Southern Louisiana.As a result of our strong production growth, we are on track for record levelsof annual production, annual revenues and annual EBITDA.

However, as discussed in our last two operations pressreleases, we've taken a breather in our Vicksburgdrilling program, in order to integrate our new reprocessing with our recent Vicksburg drillingsuccesses. Although our continuous Vicksburg drilling program will resume, thisbreather is the single biggest factor contributing to the forecasted sequentialdecline in our Q4 production volumes as the fourth quarter will not get thebenefit of our typical flush, high rate, but high-early decline, hyperbolicVicksburg production.

Other factors include the fact that we aren't forecastingany of our other significant wells to come online in time to materially impactthe quarter, the natural decline of our other production, and of course, ourrecent asset divestiture. All of this creates a pause in our production growth.

However, we have 11 significant wells drilling or soon to bedrilling to impact the first quarter. These include the resumption of our Vicksburg rig line later this quarter, our Southern Louisianawells, and Texas GulfCoast and Williston Red Rivercurrently underway, as well as three wells we're currently drilling in Mountrail County, North Dakota, an area that has seen quite a number ofhigh-rate Bakken drilling successes.

We, therefore, expect our production to resume its upwardmomentum in the first quarter of 2008. And of course, we expect another solidyear for production growth in 2008. The second thing I want to summarize is themost important area currently where we need to spend some time updating you onour activity in the Mountrail County, North Dakota.

In this area, we just commenced our first high workinginterest operated Bakken well, with two more operated wells spudding in thenext two weeks. Of course, this is an area where other operators are alsoaccelerating their drilling due to very strong recent results. We will coversome details about this play and how it's developing later.

But in summary, I think you'll see that if you like thisplay, you should take a look at Brigham Exploration. Our acreage position inthis play is currently about 42,600 net acres, and we expect it to grow toabout 60,000 net acres by year end. This position, relative to our size, ispotentially the most impactful position of any public company in the play, andit exposes us to a unrisked net reserve potential estimated at 27 million to 56million barrels of oil.

Further, as we refine the new drilling and completiontechniques that are working so well in the Mountrail Countyarea, we have another roughly 100,000 net acres west of the Nesson Anticline,providing very substantial additional option value for our shareholders.

With that, I'll turn the call over to Gene to review ourfinancial progress, after which I'll briefly provide more specifics on ourperformance and our operational plans for the remainder of 2007. Gene?

Gene Shepherd

Thanks, Bud. Starting with the income statement, dailyproduction volumes for the third quarter averaged 43.4 million cubic feet ofequivalents per day, a 20% increase in production from that in the thirdquarter 2006. Despite the September 1, 2007, effective date for the sale of ourAnadarko Basin Granite Washassets, we were still able to generate third quarter volumes that wereessentially at the midpoint of our production guidance that we issued inAugust.

For the month of August, the Granite Wash assets averaged1.8 million cubic feet of equivalents per day.

Our revenues, net of hedging settlements, but excludingmark-to-market gains on our derivative portfolio, were up 22% to $31.5 million,relative to that in the third quarter 2006. The 20% increase in productionvolumes positively impacted third quarter 2007 revenues by $4 million.Increased oil and natural gas prices increased revenue by an additional $1million. Including our hedging settlements, but excluding our unrealizedhedging gains and losses, average realized prices for natural gas in the thirdquarter 2007 increased by 5% to $7.31 per Mcfe, and average realized prices foroil increased by 2% to $73.43 per barrel compared to that in the third quarterlast year.

On a per-unit basis, lease operating expense decreased 20%to $0.66 per Mcfe in the third quarter 2007 from $0.82 per Mcfe in the thirdquarter 2006. A decline in operating and maintenance expense associated with adecline in saltwater disposal, chemical treating, equipment rental andcompressor rental expense accounted for the majority of the decrease and waspartially offset by higher per-unit expense workovers.

On a per-unit basis, production taxes decreased 38% to $0.24per Mcfe in the third quarter 2007 from $0.39 in the third quarter 2006. Thedecrease was due to a $246,000 increase in tax credits associated withhigh-cost gas production tax abatements. The increase in tax credits ispartially attributable to the fact that we're recording credits immediatelyupon commencing production from our Vicksburgand Mills Ranch wells, given our 100% success rate in applying for credits.

We book credits immediately now, rather than deferringrecognition until receiving approval from the relevant government authority.Our per unit general and administrative expense increased 5% to $0.64 per Mcfein the third quarter 2007 from that in the third quarter 2006 as higherproduction volumes helped to offset increases in employee compensation andtravel expense. Roughly 87% of the increase in compensation expense wasattributable to an increase in non-cash share-based compensation expense underFAS 123R.

Our per unit depletion expense increased by 3% to $3.78 inthe third quarter 2007 from $3.67 in the third quarter 2006. The higherdepletion rate was due to an increase in finding and development costs,incurred in the first nine months of 2007 relative to that in prior periods.

Our higher production volumes and higher realized pricescontributed to a 26% increase in the EBITDA during the third quarter 2007 to$26.4 million.

You'll notice on our income statement that interest expenseincreased in the quarter. Our higher level of debt outstanding and a higherweighted average cost of debt attributable to our April 2007 $35 million add-onto our existing senior notes resulted in a $1.3 million increase in interestexpense in the current quarter to $4 million.

And finally, third quarter 2007 adjusted after-tax earnings,a non-GAAP financial measure, which excludes the after-tax impact of non-cashhedging losses, was $4.4 million or $0.10 per diluted share. Third quarter 2006adjusted after-tax earnings, which excludes the impact of both non-cash hedginggains and non-cash gains on the ineffective portion of our cash flow hedges,was $3.7 million or $0.08 per diluted share.

Please see the financial tables included within yesterday'searnings release for the reconciliation of GAAP net income to adjustedafter-tax earnings. Moving to the balance sheet, in September, we closed thesale of our Granite Wash assets, consisting of roughly 5,000 net acres and 47active wells, all located in Hemphill and Roberts Countiesin the Texas Panhandle.

The net proceeds of $35.4 million allowed us to repay oursenior credit facility in its entirety and place the remaining funds ondeposit. Overall, this transaction provides significant incremental liquidityas we begin to lay out our 2008 drilling plans.

In terms of our leverage statistics, benefiting from theproceeds from the asset sale, we ended the third quarter with a total debt-to-bookcapitalization ratio of 38% and a total debt-to-latest 12-month EBITDA ratio of1.65 to 1. At the present time, we have roughly $3 million outstanding underour senior credit facility that has a borrowing base of $101 million, which islimited by the covenants under our senior notes to roughly $90 million.

Covenants under the senior notes require us to use year-end2006 SEC pricing to determine the credit facility availability for the entiretyof 2007. To the extent that natural gas and oil prices exceed year end 2006prices of $5.48 per Mcf and $61.06 per barrel at the end of 2007, our access tothe borrowing base could be enhanced.

In the third quarter, oil and gas capital expenditurestotaled $26.4 million, of which $18.8 million went to drilling, $4.5 millionwent to land and G&G activities, and $2.9 million for capitalized interestand overhead expenses. Excluding the proceeds from the asset sale in the thirdquarter, we funded close to 100% of our oil and gas capital expenditures out ofoperating cash flow.

In our earnings release yesterday, we provided productionguidance for the fourth quarter. In terms of our expectations for the quarter,we're forecasting production volumes to average between 33 million and 37million cubic feet of equivalents per day. As Bud stated, this guidancereflects the fact that we think it's unlikely that any significant wells willcome online in time during the fourth quarter to materially impact production.

As a result, our forecasted production is a byproduct of thedecline in flush production from recently completed Vicksburgwells, decline in our Southern Louisianaproduction and of course, the asset divestiture.

Given that our Vicksburgprogram is resuming later this quarter, and given that our current drilling in Southern Louisiana, as well as the accelerating earlydrilling in our very exciting horizontal Bakken play, we expect our productionto resume it’s upward momentum in the first quarter.

In conclusion, we're pleased with our ability to control ouroperating and G&A costs over the last several quarters. Further, over thelast two quarters, we've largely funded the company's oil and gas capitalexpenditures out of operating cash flow.

Lastly, with the sale of our Granite Wash assets completedfor a very attractive price, we have paid off our credit facility and in effecthave pre-funded a meaningful portion of our 2008 drilling CapEx. At the presenttime, we're formulating our 2008 CapEx budget, but expect that our 2008drilling CapEx, subject to commodity prices, will likely increase relative toour 2007 drilling CapEx.

As has been the case over the last several years, the continuationof what is largely development drilling in the Vicksburg will constitute a significantportion of the 2008 plan, as will the continuation of our drilling program inthe Mountrail Bakken. This comes on the heels of our drilling three 2007 fourthquarter Mountrail wells, one of which has recently spud, with the other twoexpected to spud before the end of the month.

Other focus areas that are expected to constitute ameaningful portion of the 2008 drilling budget are conventional plays in the Gulf Coastand the Anadarko Basin and potentially our Mowry shaleplay.

As has been the case for our 2007 plan, the 2008 plan willbe funded out of cash flow; the availability under our senior credit facility,which at the present time has approximately $87 million of availability; andnon-strategic asset sales such as the recently completed Granite Washsale.

That concludes my remarks, and I will now turn the call backover to Bud.

Bud Brigham

Thanks, Gene. I'm going to be brief in covering ourconventional plays, in which most of you who have followed us are veryfamiliar, so that I can spend a little more time discussing the significantamount of activity in the Bakken play.

I'll start in the GulfCoast with the Vicksburg, where we've taken a break from ourcontinuous drilling program since August, but where we plan to resumecontinuous drilling in December. We have already proposed two additional wellshere, and we will be proposing two more in the next several weeks. So, we areabout to get very busy in the Vicksburgagain.

We're continuing to interpret our recently reprocessed 3Ddata volume and to integrate this with our recent well results, which havechanged our picture somewhat in this area. As a result, we've generated someexciting new ideas here, which we believe provides us with some real upside in2008. We are also continuing to look outside our existing fields for othergrowth opportunities in the Vicksburg.

We plan to resume our Vicksburgdrilling in December with the commencement of the Sullivan C-38. This well willbe drilled to develop the north end of the Floyd Fault Block. The Floyd FaultBlock has been the most prolific of the three fault blocks we're developing. Infact, of the 43 Vicksburgwells we've completed in the area, the three most prolific are in the FloydFault Block.

Our most recent Floyd Fault Block well, the Sullivan C-33,which was drilled very late in 2006, produced at an early rate of over 10million cubic feet equivalent per day and has an estimated ultimate recovery ofabout 10.7 Bcfe. So we're pleased to be resuming our Vicksburg drilling and the Sullivan C-38should get us off to a strong start as we enter 2008.

Now, I'll move up the GulfCoast briefly to the Frio in Brazoria County, Texas,where we have begun drilling the Randall Unit #2. This well is proximal toexcellent Frio production and it has a reservepotential of 15 billion cubic feet equivalent or about 11 Bcfe net to our 94%working interest. This is in an area where we've drilled some of our strongest Frio wells, so it provides us some relatively low-risk,but good reserve and production exposure prior to year end.

Moving further east to Southern Louisiana, as announced awhile ago, we unfortunately drilled a dry hole with our Cotten Land#2S2 well. Prior to drilling this well, we believed the risk was not findingreservoir quality sands, but instead, we found plenty of sands -- we thoughtthe risk was not finding reservoir-quality sands, but instead we found plentyof sand and a structurally high, but apparently oscillated fault block that waswet.

Fortunately, the three previous wells we drilled continue tooutperform, exceeding the production and reserves reflected in our reservereport substantially. These three wells are currently making roughly 46 millioncubic feet equivalent per day or about 10 million cubic feet equivalent per daynet to our interest.

We're currently assessing the viability of an additionallocation in the field. We're nearing total depth on the first of two wells weare drilling in Southern Louisiana withPetroQuest. The Blue Heron #1 should be down soon. It's an exploratory well inthe Lake Arthur area, which has generatedprolific production. In the same area, we will immediately follow the BlueHeron #1 with the (inaudible), which tests anadjacent fault block.

We hope to get this well down around year end, and on acombined basis, both wells expose us to between 7 billion and 9 billion cubicfeet equivalent in net reserve potential. We also have the option toparticipate in a third prospect following the (inaudible) well.

Moving to the Anadarko Basin Hunton play, we are continuingour interpretation of our process in pre-stack migrated 180 square mileproprietary high-resolution Laker project 3D seismic data. We're very pleasedwith the early indications. We have an excellent acreage position and expect todrill several of these opportunities in 2008.

Lastly, for the Anadarko Basin, we divested ourGranite Wash reserves and acreage, generating net proceeds of $35.4 million. Wewere very pleased with this transaction. While the project provided asignificant inventory of low-risk drilling locations, they were not competitiverelative to the rest of our drilling inventory. We will use this capital tosupplement our cash flow as we enter 2008.

Lastly, I want to finish up by updating you on ourunconventional plays, the Bakken of the WillistonBasin and the Mowry of the Powder River Basin. I will start with the Williston Basin,Bakken. We continue to grow our acreage positions to the east of the NessonAnticline, primarily in Mountrail County, North Dakota.This area has enjoyed a steady flow of positive well results, including recentstrong horizontal drilling successes by EOG, Whiting and several privateoperators.

I encourage you to view the map of the Mountrail Countyarea in our updated corporate presentation, as we have the key wells spotted,and we have outlines of the general areas to help you delineate our acreageposition relative to the accelerating drilling activity. Today, we have beenparticipating with very small working interests as a non-operator, and that hasgiven us the opportunity to see firsthand how the operators are drilling andcompleting wells in this trend.

As far as our near-term drilling is concerned, we'replanning to drill and complete our wells using swell packer technology,single-section laterals and other operational techniques that have generatedEOG's strong recent completions in the area. Given what we have learned and thepositive results of late in the area, we're very excited to be drilling ourfirst operated Mountrail County Bakken well, the Bergstrom Family Trust. Thiswell is in a good area, roughly 6.5 miles northeast of the Parshall Field andabout six miles southeast of EOG's most recent announced discoveries, theAustin #1-02H and the Austin #2-03H wells.

As many of you know, EOG announced that the Austin#1-02H tested at 2000 barrels of oil per day and that they expected the Austin #2 to producecomparably. EOG is drilling a third Austinwell near the first two discoveries. We have approximately 170 net acresdirectly offsetting these wells, so about 27% of the net well. So this acreageis becoming proven and it's likely we will be participating in additional wellsoffsetting the EOG Austin discovery soon.

In addition, EOG recently permitted another well between theAustindiscoveries in the Parshall Field due west of our Bergstrom well. The EOGAustin #8-26H is located about 4 miles south of the two recent Austin discoveries and about3 milesnorth of the northernmost Parshall Field discovery drilled to date. We have aminor amount of acreage directly offsetting this well, and our Bergstrom wellis roughly 4 milesdue east. So activity is accelerating in this area, and if we have the successwe expect to have, we will be prepared with additional locations ready so thatwe can drill another well subsequent to finishing the Bergstrom.

In the next two weeks, we expect to spud two additionaloperated wells to the west of this area, again, as shown in the map in ourcorporate presentation. The Bakken 23 #1H is located about 12 mileswest-northwest of the EOG's recent Austincompletions. The Bakken location is also about 13 miles north of Whiting'saccelerating drilling activity. Our third operated well, which will also spudin the next two weeks, is the Hynek 2 #1H, which is located roughly 6 milesnorthwest of the Bakken.

As shown on our map, EOG has permitted two wells about 4 miles to thenorth-northeast of the Hynek, and we have acreage directly offsetting these EOGpermitted locations as well. We're very excited about both of these locations.We believe that they have similar geologic characteristics to the ParshallField area. So, it will be a very busy fourth quarter for us drilling in Mountrail County, and we expect to have resultsfor all three wells during the first quarter of 2008. As discussed in our pressrelease, our acreage position continues to grow. Currently, we control about42,600 net acres in Mountrail County and the surroundingarea.

And we expect that by year end, based primarily on pendingacquisitions, we will control around 60,000 net acres. Approximately, 28,600net acres are located in Mountrail County while, roughly14,000 acres are located in extensional areas where horizontal Bakken wellshave yet to be drilled. Our Mountrail County area map in ourcorporate presentation helps delineate our acreage position and the currentactivity.

Of our 28,600 acres in MountrailCounty, about 4600 acres are locatedin eastern Mountrail County in the general area where the Parshall Fieldand EOG's recent Austindiscoveries are located, and this area is outlined on our map in yellow.Although it's early, based on the production performance to date from thesewells, we estimate the average gross reserves recovered by these wells will besomewhere between 700,000 and 950,000 barrels of oil.

Assuming 800,000 barrels of oil per well at an 80% averagenet revenue interest, although in reality the average is probably quite a bitbetter, provides about 640,000 barrels of oil per net well. If you assume a$5.2 million completed well cost, the drilling in this area appears to generatea potential finding cost of roughly $8.13 per barrel, or converted on asix-to-one equivalent basis, roughly $1.35 per proved developed Mcfe. Given thecurrent value of a barrel of oil, these wells are providing better than aneight-to-one undiscounted coverage, and as EOG has stated, they could begenerating rates of return around or even over 100%.

At this point, the economics of this area look outstanding.As discussed in the press release, we control about 4,600 net acres in thisarea proximal to the Parshall Field and EOG's Austin wells, which provides us with seven to14 net locations, assuming 640 acre and 320 acre spacing, respectively. So inthis area, it appears that we are exposed to unrisked net potential reserves of4.5 million to 9 million barrels of oil, again, depending on the spacing.

Our remaining 24,000 net acres in MountrailCounty are generally to the west ofthis area, between the Parshall Field area and the Nesson Anticline, asoutlined in red on the Mountrail County map in ourinvestor presentation. The results in this large area have been more variable,probably in part due to different operators utilizing different drilling andcompletion techniques, but also because it's a large area geographically andthere's likely quite a bit of variability in the reservoir quality.

Over the last 12 months, it appears that nine wells havebeen completed by operators in this area, and it's apparent that the strongestproducers are among the most recent wells drilled, which we believe indicatesthat operators are finding more optimal operational techniques for drilling andcompleting these wells. Although the numbers will move over time as more wellsare drilled and likely with results varying by area, at this point it appearsthat the average estimated reserves to be recovered by the recent wells in thiswestern Parshall area could be between 400,000 and 600,000 barrels per well.

Assuming the midpoint of 500,000 barrels per well and anaverage net revenue of 80% implies an approximate $13 per barrel drilling --finding cost or roughly $2.17 per equivalent Mcfe. Therefore, though theresults are likely to vary by area and operators will likely find more prolificand less prolific areas, it appears that the economics of this western area,east of the Nesson Anticline, at least to this point, look very good as well.Assuming the average net recovery of 400,000 barrels per well and 37.5 to 75net locations on our acreage, depending on spacing, our current acreage in thiswestern area could yield 15 million to 30 million barrels of unrisked potentialreserves, depending on whether the acreage could be developed on 640 or 320acre spacing.

Lastly, we believe that our 14,000 net acres in extensionalareas east of the Nesson Anticline have similar attributes to that of theBakken in the Parshall Field area. Obviously, for competitive reasons, we can'tidentify where this acreage is. However, we do expect to commence drilling totest these areas early in 2008. With success, this acreage could provide 21 to43 net locations, depending on whether the ultimate spacing would be 640 or 320acres.

Assuming a net of 400,000 barrels per well, this acreageprovides us with the unrisked potential for 8 million to 17 million barrels ofoil. So looking at our acreage position in total, with success, we have thepotential to drill 340 to 680 gross locations or 66 to 133 net wells, dependingon the spacing. Utilizing the previously discussed assumptions, we believe thatwe are exposed to an unrisked reserve potential of between 28 million and 56million barrels of oil.

That being said, it's early, and these potential numbers arebased on wells that have been drilled by other operators in various areas. Weexpect drilling results to vary geographically, and though we think wepurchased our acreage in the right areas, we think that there will be sweetspots that provide more prolific production, such as that seen in the ParshallField area.

Obviously, on the other hand, there will be areas that arenot as attractive economically. Further, we want to point out that there'sadditional optional value in the Bakken beyond the initial expectations andearly production performance, particularly when you consider the tremendousamount of oil in place in this reservoir and the associated low recoveryfactors currently contemplated, even in the very substantial potential reservenumbers I just ran through.

Therefore, the Bakken provides very meaningful long-termoption value via future opportunities, such as those provided by improveddrilling and completion technologies, refracing, and of course, higher oil andgas prices.

As I said early in the call, all things considered, if youlike this play then you need to take a look at Brigham Exploration. Given oursize, we believe we have the most impactful position in the play of any publiccompany, and we have attached a slide to our presentation to help illustratethat.

One last comment on the Bakken, which I also alluded toearly on, currently higher oil prices and the technological advances that arehaving such a positive impact on Mountrail County have made us morepositive about the approximately 100,000 net acres we control west of theNesson Anticline. At some point in 2008, we or one of our competitors will testthese technologies, including swell packers, west of the Nesson Anticline.Obviously, our very large acreage position there provides us with additionaland very substantial option value.

Before I move out of the WillistonBasin, I should also mention thatwe're drilling the Richardson 25 #1 in Sheridan County, Montana,with Northern Oil and Gas. We have a 90% working interest in this well, whichtargets the Red River and the Mission Canyon. It's in an areathat has generated good Red River production,including a well we drilled in the 1990s that will produce over 300,000 barrelsof oil.

We have a large 3D data set here and a number of otherprospects to pursue. So we have other plays to pursue on our acreage in theWilliston beyond the very active Bakken play.

Lastly, I will finish up by briefly updating our activity inthe Powder River Basin Mowry shale play. There are a number of differencesbetween the Williston Basin Bakken play and our Powder River Basin Mowry play,and one of them is the number of operators active. Unlike the Williston BasinBakken play, where we have benefited from numerous operators who have been drillinghorizontal wells and experimenting with various drilling and completiontechniques, to date we have been the only operator in the Mowry making ameaningful effort to figure out how to drill, complete and produce thesubstantial amount of oil in place.

However, that is slowly changing. There are a few operatorswith drilling either underway or plans for the Mowry in the Basin. For example,one private operator with whom we've had fairly extensive discussions, iscurrently drilling a horizontal Mowry well may prove beneficial to our effortshere.

Without going into the details regarding our four Mowrywells drilled to date, these initial wells have provided us with bothencouragement and frustration. So, we're glad to see other operators involvedin the play. We are also very much looking forward to applying the knowledgewe've gained from our previous drilling and completions, including the coreanalysis from our (inaudible) well drilled earlier this year and combining thatknowledge with the swell packers and the other drilling and completiontechnologies that are having such a positive impact on the Williston BasinBakken play.

In the next few weeks, we will spud the Krejci #1-32H, andin doing so we plan to implement the best technologies, including swellpackers, and all that we have learned thus far. As you may recall, we attemptedto utilize the swell packers on our prior well, the State #1-16H, but we wereunable to get the swell packers through the curved section and into thelateral.

Our casing program on the Krejci #1-32H should allow us toutilize the swell packers. We are updating our matrix for current prices, butwhen you look at it, it's apparent that the higher oil prices have a dramaticimpact on the potential economics here. The combination of the shallow depthand the associated lower well costs are real advantages to this play. TheKrejci #1-32H is a significant well for us, and we hope to report a successfulcompletion during the first quarter of 2008.

Lastly, as I mentioned on our last call, we may add anotherpotential resource play. Given that we have two unconventional oil projectsunderway, it's more likely that our next project would be gas. We're currentlydeveloping other potential resource, large-scale drilling projects. Given howcompetitive some of these are, we might not disclose some of them until we'vedrilled at least one proof-of-concept well. That completes our operationalreview.

In closing, thus far in 2007, we are on track to achieverecord production volumes, record revenue and record EBITDA. Although we havehad a several-month lull in our drilling program, including a pause in ourcontinuous Vicksburgprogram, that's over, and we're now very busy in the field, with 11 significantwells either drilling or soon to be spud.

We expect our drilling activity to generate a resumption ofour growth in production volumes during the first quarter. More importantly,our year-end drilling in the Bakken and the Mowry has the potential to verymaterially impact our growth in shareholder net asset value, potentiallyproviding us with the multi-year inventory of predictable, low-risk andattractive rate of return resource projects that we've been looking for.

That concludes our call. I'd like to thank everyone fortheir participation. We very much look forward to reporting on our fourthquarter results. In the meantime, we'd be happy to answer any questions.

Question-and-AnswerSession

Operator

(Operator Instructions). Your first question comes from theline of Scott Hanold with RBC Capital Markets. Please proceed.

Scott Hanold - RBCCapital Markets

Good morning.

Bud Brigham

Good morning.

Scott Hanold - RBCCapital Markets

On those Granite Wash assets you sold, you sold it for,what, $35 million, I think you said? What was the reserves attributed to thatsale?

Gene Shepherd

At the end of the year, end of '06, I guess, correct me --it was about 13?

Bud Brigham

About 13 Bcfe, and at the time of the sale, it was a littleover 16 Bcfe.

Scott Hanold - RBCCapital Markets

Okay. Thank you. And so what had your activity been there?Remind me. Have you been doing much there? If I remember right, it's an areayou liked when gas prices are high, but it did become challenged when they didsort of dip in this, say, sub $7 level. Is that a fair statement?

Bud Brigham

I'm sorry, Scott, we have one correction on the number wejust put out there, and Gene, if you don't mind repeat it them.

Gene Shepherd

At the time of the sale, the Granite Wash was 23 Bcfe. So 13at the end of '06 and 23 at the time of the asset sale.

Bud Brigham

So, I'm sorry, Scott, if you don't mind summarizing thatquestion, we would --

Scott Hanold - RBCCapital Markets

I guess taking a look at your activity there, can you cangive us a sense of what you had been doing prior to the sale there? And if mymemory serves me right, and correct me if I am wrong, you thought that areasort of was challenged when gas prices were below $7?

Bud Brigham

That's correct, Scott. This is Bud. I'll start, but theseguys may want to add to what I say. But yes, we drilled some real nice wellsduring the course of 2006. That, I think, proved up additional opportunitiesout there, but it's a higher operating cost play that in a sub $7 priceenvironment, the locations are certainly not competitive and become marginal,but a nice option value and higher prices. And just when we looked at itrelative to our other projects, they were not competitive. The rates of returnwere not competitive. And so we did not foresee an active drilling program inthere, given our other inventory. So it made a lot of sense for us to divest itto another operator who had a lot of expertise in that area and was active.

Gene Shepherd

And one other comment, I think it's an area where itrequires some scale and the benefits from scale and getting out and drilling alot of wells and bringing on a lot of wells onto production and the scale interms of operating costs, the benefits from scale in terms of operating costs.For example, one of the reasons our operating costs were down in the thirdquarter was that we closed the Granite Wash asset sale on September 1. So therewas some very slight benefit we saw in terms of operating costs. And we willsee, in this next quarter obviously a bigger benefit from having sold thoseassets and really getting rid of the associated higher operating costs.

Scott Hanold - RBCCapital Markets

Okay. Thank you, that's good. Kind of moving up to theBakken, obviously, Bud, you gave a pretty good overview here. You've answeredmost of my questions, but just kind of a clarification on one point. I guessyou're looking to expand your acreage position. Can you give us a littleinsight into -- is there much more to pick up there? Again, how do you guysthink you're going to be able to add additional acreage there? I know it'sbecoming very competitive, given where oil prices have been and what results todate have been?

Bud Brigham

Scott, this is Bud. I'll start and Jeff may want to add toit. But, basically, in Mountrail County, if you're notalready on the ground, it's pretty much done. We're picking up -- we have guyson the ground and we have a lot of going concern there, so we are picking upsome small tracts, additional acreage in Mountrail County.I think that the larger portion of our additional acreage acquired will be inthe extensional areas that we, having been out in the play early and done a lotof mapping, we're really excited about it.

We think they have the key attributes comparable to theParshall area that provides excellent potential. So, I would expect goingforward that, but we do have a lot of pending acreage that's going to coming inMountrail County that gets us up around that60,000 net acre number. Growth substantially beyond that would primarily be outsideof that area. Jeff, do you want to add anything to that?

Jeff Larson

I would just add quickly that in the extensional areas, wedo see what we view are similar potential geologic attributes to some of thesuccess that's been happening in Mountrail. And we hope to report in early '08that we have established a couple of nice blocks in different extensionalareas, which really give us some option value.

Scott Hanold - RBCCapital Markets

Okay. Yes, we would be very interested to see those results,and we probably should hear about, what, the first quarter, I guess you said?

Bud Brigham

I think so. I mean, all three wells, I mean, the Bergstromis at 6,000 feet or so, and it's still, I think, likely that the mostsignificant news, of course, will be subsequent to production testing. And so Ithink first quarter is probably reasonable for all three wells.

Scott Hanold - RBCCapital Markets

And Gene, I think when you talked about potential '08 CapExallocation -- you indicated Vicksburgwas going to be a focus and obviously potentially the Bakken. You didn't reallysay much about South Louisiana. Can you giveus a little bit of color there? Obviously, success in the past 12 months hasbeen pretty good there. Is it, sort of, you are just looking at where you caninvest capital to get your better rates of return, or is it prospectivitydriven? Can you kind of give us a little bit of color there?

Gene Shepherd

Well, it's going to be meaningful. It's going to be ameaningful part of our budget. Let me just say upfront that we're just tryingto give you some sense as to where we might be spending capital next year, butwe haven't presented any of this to the Board yet. So that's why we're being alittle bit vague. But we've had a lot of success recently.

I guess, I don't know, Jeff, if you have anything to add interms of constraints there. Obviously, we're trying to add to our inventory.We've been looking at a number of opportunities, and certainly the wells thatwe're drilling are going to have a -- could, if they're successful, have apositive impact on that inventory.

Jeff Larson

Yes, I think that's right. We've got a number of ongoingdiscussions with South Louisiana operators.We're trying to align ourselves with experts in the trend. I mean, clearly, asyou look parish to parish, South Louisiana canbe extremely variable, and I think it behooves companies to try to positionthemselves with experts. And then in the Frio trend, we've got a number ofprospects in inventory in the Frio that we'reactively selling down to the industry.

And as we sell these prospects down, the economics getstronger and stronger. You will see us have Frioactivity in '08. A lot of it will be not as much CapEx exposure for ourcompany, but it will give us some nice upside.

Scott Hanold - RBCCapital Markets

Okay, thank you. And one more and I'll let somebody elsejump. But I think, Bud or Gene, one of you said, I think, in the [well pastdrilling] area, I think you said the wells on a gross basis are around 46 aday, if I'm not mistaken, 10 net to you all. Now that they're in decline, wheredo you think we will be, say, six months from now on those wells? What is yoursort of projection at this point?

Bud Brigham

Hi, Scott, this is Bud. What we're doing is, it should be updatednow or within the next hour or two is, our production graphs by play, wherewe've got the Vicksburg and south Louisiana and the Huntonbroken out. And you can see those, as I said in the conference call text, thatthose wells are significantly outperforming our expectations on production. Andas you said, they are producing the three wells, 46 million a day gross andabout 10 million a day net.

So, they are on a decline, but it's not nearly as steep aswhat we had anticipated, and we are going to get -- it's going to help us onreserves here at year end. I think you can look and see the visible declinethere. The down dip wells have not, to our knowledge, started cutting water.And we will get some heads-up on that prospect with those wells being significantlydown dip, 250, I think, to 320 feet down dip. And so we'll get a real heads-up beforethat might happen, which it may not happen.

And if so, you can take that decline that you see there andproject it out and see where you might otherwise expect it to be. One otherthing, Scott, to remind everybody about is that the reserve loss for the[inaudible] will be extended because we are producing some 30 feet of pay andthat well is making, I believe it's 21 million cubic feet per day, and we'vegot 50 feet of pay right up above that has yet to be produced.

So, when that well, does ultimately complete, we will becompleting that zone, and so that will stretch out the production profile forthat well.

Scott Hanold - RBCCapital Markets

Okay. Thank you, guys.

Bud Brigham

You are welcome. Thank you.

Operator

Your next question comes from the line of Nick Pope with JPMorgan.

Nick Pope - JP Morgan

Good morning.

Bud Brigham

Good morning.

Nick Pope - JP Morgan

Something you all could clarify a little about the timetableon the Mowry so that -- with that next well, what kind of timetable you willlook at to see production and then I guess for 2008 were you thinking about fora potential number of wells there looks interesting?

Bud Brigham

Well, the Krejci well, Jeff, do you want to take that?

Jeff Larson

It looks like the Krejci well -- that's the 1-32 -- shouldspud. We're looking at probably a couple of weeks. And obviously that's a realimportant well for us, Nick, and we're trying to bring in some of thetechnologies that are being employed in the Bakken, the swell packertechnology. We're set casing through the current section, which should preventus from stacking it out. So, we're definitely using best practices there. Wealso took a core in the [State] well. We've done a lot of earth model rockmechanics, some real hard engineering and G&G analysis on that well, andthat has been very enlightening to us.

We're actually changing the azimuth direction on ourwellbore. So, we are actually going to drill in a different azimuth on ourhorizontal well. So we are very excited about that. So we're definitely tryingsome new things. And clearly, with success there, I think you'll see us drill anumber of Mowry wells in '08. I think maybe if we're not as successful, we willprobably scale back the program and maybe potentially look to the industry.

Bud Brigham

I think we still remain encouraged, though, as I mentionedon the call, we have of course been frustrated by our prior wells, thedifferent things that we have tried and had real encouragement at times, andthen we had the formation collapse from the open hole in the Krejci that wasdoing so well. So, I think part of the pain is that we've been the onlyoperator trying to figure out how to plumb the oil in place out there, and it'sgreat that we've got some other operators getting active, and hopefully Abraxaswill be drilling some wells here soon.

But we're real excited about applying the swell packers hereand having the opportunity to aculeate the fracture stimulation over thesevarious intervals. And I think this will be a really important test for thecompany. One thing is, when you look, it's pretty surprising when you look atthe updated pricing, the kind of impact that that has on the economics. The barkeeps getting lower and lower where we need to get in that play for that playto be viable and to deliver attractive rates of return.

So, we are updating the matrix on our website, and you cantake a look at that, and you can see that if we get 50 to 100 barrels a day,we've got an economic well there, and of course north of that, just betterrates of return. So, we are cautiously optimistic that this well will be a keywell for us.

Nick Pope - JP Morgan

All right, thanks. And jumping around a little here, itsounds like you are moving back into the Frioa little bit. Can you give a little more detail on like the number of prospectsyou will have, in this area in BrazoriaCounty with the Frio?

Jeff Larson

The Frio obviously is aplay that extends probably six or eight counties. A lot of the activity in thelast several years was actually further down the coast in Matagorda, Calhoun, Jackson and thosecounties. So Brazoria is back up the coast a bit. It's by Danbury Salt Dome.

Bud Brigham

That's where we had a lot of early success.

Jeff Larson

Excellent -- I mean, the Lower Frioup there has outstanding reservoir quality. And this prospect actually hasproduction in the shallow targets, and we're basically drilling underneathproduction, which is always a good thing -- traps, work shallow in one of theseshallower zones, and the drilling is below that, and we've got about threetargets. It's a good-looking prospect. It's got some nice upside.

Bud Brigham

And it's an area where we've drilled some of our better Friowells, probably three to five years ago, some of our better Frio wells, wellsthat come on at 2 million to 8 million a day, and with potentially some nicereserves. As we said, the reserve potential of this well is 15 Bcf or about 11Bcf net. So it can have a nice impact on reserves and production as we exit theyear.

Jeff Larson

The second part of your question, we're currently.

Nick Pope - JP Morgan

Of the inventory, yes?

Jeff Larson

The inventory, we've got significant inventory. Rememberwe've got a number of proprietary 3D data mines in the Frio.We're actively marketing 12 prospects right now to the industry in the Frio, and we're getting good traction there. And again,we've got the opportunity with the way the well [carriers] work and thecarriers to casing and the recovery of land and seismic dollars to really notexpose ourselves to much capital of these wells, but with some real nicereserve upside. So, I think you'll see us drill some, certainly some Frio wells in '08, but with just not a lot of capitalexposure.

Bud Brigham

Just the way we leverage our CapEx and enhance our rates ofreturn, one of the key wells that we will be drilling in '08 will be our SunsetReef well, which we're still excited to be drilling. We'll probably keep about50% in that well, but that's about 140 Bcf target, and so it looks like that'sgoing to be early to mid '08 well for us.

Nick Pope - JP Morgan

All right. That's all I had. Thanks a lot.

Bud Brigham

Thank you.

Operator

Your next question comes from the line of Ron Millsrepresenting Johnson Rice.

Ron Mills - JohnsonRice

Good morning.

Bud Brigham

Good morning.

Ron Mills - JohnsonRice

Just a one follow-up question on the Bakken. The partial Austin area, the 700,000to 900,000 barrels of potential reserves, matches what I think EOG said ontheir call. The areas to the west of that area that you used the 400,000 to600,000 barrels of gross potential per location, is that based off of wellresults from companies like Whiting and Continental, or how was that numberarrived at?

Bud Brigham

Yeah, Ron. Let me first, this is Bud. The Parshsall area, wedid our own reserve analysis of all the wells that have been completed out hereand are producing, and EOG's number that they have quoted has been 900,000barrels gross, 700,000 barrels net. So, primarily because we didn't operate andare not in those wells, we maybe using a broader range on that, 700,000 to950,000 gross, so 640,000 is a midpoint net. And anyway, but we came out --generally, when we look at the production curves agreeing with their number inthat East Parshall area.

To the west, we also looked at all the wells. There's ninewells to the west of it in that West Parshallarea. And looking at the profile, there's more variable, because you aregeographically dispersed with different operators using different techniques.It is wells drilled by Whiting, wells drilled by Petro-Hunt, wells drilled byHess, and probably a couple other operators that I can't recall right off thehead. But, so we've got historical production data and did a decline curveanalysis on those, and that's why we used that number that I talked about, Ithink 400,000 to 600,000 barrels, with 500,000 being the midpoint, and ouractual number that we came up with using decline was a little bit better thanthat midpoint, and it's been moving up as we get more history on those wells.

But there is quite a variety on those wells and there aresome that are just really outstanding and some that are not as good aproducers, and we think the area is going to be quite a bit variable.

Ron Mills - JohnsonRice

Okay. And on the Vicksburg,it sounds like you're going to restart your drilling program there in December.Can you walk through, kind of like you've done on the Frio,what some of your inventory is in that area? And I know you've had arelationship in the past with Exxon in terms of farm-ins. Is that anotherpotential area of growth?

Bud Brigham

Yeah, Jeff will take this.

Jeff Larson

Hi, Ron its Jeff. I think you'll see us continue to developthe fields. There is activity that you'll see in Home Run Field in 2008.Remember, that's the field to the west. And obviously, this Floyd Fault Block,we're real excited about the new interpretation. It's really opened up thefault block, and we think there's, opportunities for multiple locations in theFloyd Fault Block. We really like to look at what this new processing isshowing us. And as you go to the east, Triple Crown, clearly you'll see usdrill some additional Triple Crown wells in 2008. And also, in theseextensional areas that Bud has mentioned, we're starting to get some traction.You may see us drill a well or two in some Vicksburg areas you may not have heard ofbefore in 2008.

Ron Mills - JohnsonRice

Okay. And then Gene, just a couple of quick ones for you.The fourth-quarter production guidance being lower, do you know how much ofthat is related to just a slowdown in your Vicksburgactivity versus either natural declines or risk production from that last wellin south Louisiana?

Gene Shepherd

We have broken it down, and about 12% of the decline isasset sale, and then the Vicksburg piece, which is a combination of notbringing on new wells and the plans we're seeing in the Vicksburg are roughly36%, somewhere in the 35% range, and then somewhere in the 30% range, what'sleft is, another component of that is southern Louisiana, which might be in theneighborhood of 30%. These are sort of ballpark numbers.

Ron Mills - JohnsonRice

Right.

Gene Shepherd

And the remainder is just sort of normal declines that we'reseeing in the base production.

Ron Mills - JohnsonRice

Okay. And how quickly from a production contributionstandpoint from the drilling activity that starts up in December do you expectto be able to return to that sequential growth? In other words, are we lookingat -- is first quarter going to be a time that you can expect some growth, oris it going to be more or later first quarter and into the second quarter,before you really have the startup of the Vicksburgprogram again really start to hit?

Bud Brigham

Ron, really -- it's Bud -- it's not just the Vicksburg. I mean, we'vegot 11 significant wells that are drilling or that will be drilling here by theend of the quarter that will impact the first quarter. And it's really unusualthat this quarter, the fourth quarter that we didn't have any material -- orwe're not forecasting, anyway, any material wells to impact the quarter.

So, in terms of that Vicksburgdecline, you're seeing that plus Vicksburgdecline net amount that Gene talked about, 31%, plus not having new wellscoming online in the Vicksburgto offset that.

So, the lost production in the quarter for the Vicksburg is moresignificant than the net volumes in the decline, as the production we wouldhave brought on. But it’s 11 significant wells that we are drilling that willimpact the first quarter, so that's a lot of material wells. It's commencingthe C-33, aFloyd well, which has been -- where we've had 10 million a day wells comeonline, and that well should be online to impact part of the quarter.

But it's also the southern Louisiana well that's currently drilling.It's a [Randall] that's in a great producing area for us in the Frio that's currently drilling. It's the three Bakkenwells that will be drilling and the Mowry well should contribute as well. We'vegot a West Texas well that is [a spud] that isdrilling. So, when you add them up, there's 11 total wells that will impact.

Ron Mills - JohnsonRice

The Red River wells?

Bud Brigham

The Red River wells andWilliston.

Jeff Larson

Hi, there Ron, its Jeff, just real quick also, Bud mentionedit in the prepared text, we're also positioning for success in the Bakken.We've got, if you look at our slide that we've got on the website, with successin any of these three areas that we're drilling in the Mountrail County,we're positioning to quickly be able to move rigs and drill offset wells.

Bud Brigham

So, specifically on your question, I think, Ron, clearly theproduction should be up from the fourth quarter to the first quarter. How muchit is will depend on the timing of all these wells coming online.

Ron Mills - JohnsonRice

Okay and then finally, Bud or Gene, just on the 2007 versus2008 capital, you spent roughly $90 million year to date. What are you planningon spending in the fourth quarter?

Gene Shepherd

Well we are not -- we haven't really updated our budget. Ithink what we were talking about at the beginning of the year was $114 million,$115 million of total CapEx for '07, and I think roughly $91 million of thatwas going to go towards drilling CapEx. So it's going to be in thatneighborhood. There's going to be -- you're not going to see a significantvariation from what we announced at the beginning of the year. Obviously, themix is going to change.

Ron Mills - JohnsonRice

Okay, and then given your comments, it sounds like you'llprobably increase your capital budget next year relative to this year, and theavailability that you have on your borrowing base and the expected cash flows-- do you all see that getting you all through the 2008 program?

Gene Shepherd

Yes. If you just take -- we currently have almost [$90million] of availability under the credit facility, if you put that aside for asecond, just based on the production -- you just take the guidance for thefourth quarter, and I think you can back into a roughly $15 million cash flownumber and annualize that at [$64 million], $50 million to $60 million of cashflow, and then add the proceeds from the Granite Wash asset sale, you areapproaching $100 million, and that's without dipping into the incrementalavailability under the credit facility that existed prior to the Granite Washsale.

Ron Mills - JohnsonRice

And that excludes any sequential growth from a productionstandpoint?

Gene Shepherd

Obviously, that's a function of the guidance we issuedyesterday. We issued guidance based on the current pricing environment, andobviously prices will have an impact on cash flow.

Ron Mills - JohnsonRice

Right.

Gene Shepherd

So, I think we're in a good position to see an increase, andhow big of an increase will be a function of commodity prices and what kind ofimpact we see from -- certainly a big impact from the current very high levelof activity in the deal. There's some other, certainly nothing in the magnitudeof Granite Wash, but there's some other asset sales that we went to market withlate, probably a couple of months ago that could generate some nominal dollars.

And again, a lot of the Granite Wash and those transactions,we embarked on those transactions because we were concerned about the stockprice and at the same time wanted to be in a position to increase our drillingCapEx in '08. So in effect, we were looking at the asset sales as sort of asource of equity capital to balance the availability under the credit facility.

Ron Mills - JohnsonRice

Okay. All right, thank you guys.

Bud Brigham

Thank you.

Operator

Your next question comes from the line of Marshall Carverwith Tudor Pickering. Please proceed.

Marshall Carver -Tudor Pickering

Yes. Good morning. I had a few questions for you. On thefourth quarter production number, it's a pretty wide range. What would causeyou all to be at the high end versus what would put you all at the low end?

Bud Brigham

This is Bud. It's just timing. It just depends on the South Louisiana well getting done and coming online. It'sjust the timing of these wells late in the quarter, and if some of them dohappen to impact. Also, there's potential in South Louisiana to put those wells, in fact, I think Gene was talkingabout putting those wells on compression.

Marshall Carver -Tudor Pickering

Okay.

Bud Brigham

Obviously, if we get those wells on compression, you'regoing to see a real bump-up in the rate there. We're refracing some wells hereand there. So there's a number of primarily of workovers Bayou Postillioncompressions and things like that that could have an impact on it.

Marshall Carver -Tudor Pickering

Okay. Any feel for F&D costs for the year? We're 80% ofthe way through the year at this point, so any feel for that?

Bud Brigham

No, Marshall. A lot is really happening right now. You lookin terms of we've had some good results, when you look at the potentialnon-developed impact, a lot of it's happening here in the fourth quarter. Andof course, a couple of big exploratory wells, these two exploratory wells withPetroQuest in South Louisiana, the Randallwould a be nice reserve add for us. That's a pretty low-risk shot, gives us agood opportunity. Of course, in the Bakken, we're adding reserves. Otheroperators are proving up reserves for us, and of course our three wells arevery significant, as is our Mowry well. So, a lot's happening in the field forus right now in that area.

Marshall Carver -Tudor Pickering

With the Bakken wells probably not reaching TD until afteryear end, I guess those would not be part of the reserve report, right?

Bud Brigham

No, Marshall, those reach TD by year end, and we will becompleting them right about that time. So they should get in the reservereport. It's just unlikely we'll have definitive results to report to themarket till we get a reasonable production test on it of some duration.

Marshall Carver -Tudor Pickering

Right. You've talked a lot about these Bakken wells and arevery optimistic out there. What do you think are the biggest risks? Is itgeological or completion, or what would be the most likely forces if you didn'thave a 750,000 barrel well?

Bud Brigham

Marshall,this is Bud. Maybe I'll stop, and Lance and Jeff may want to add to it. Thegreat thing about this place, you're not going to drill a dry hole. I think inthese two areas that we are drilling, you're going to make commercial wells. Ifyou look in -- one thing I should've mentioned earlier, if you look at, forexample, that West Parshall area, the EOG has kind of been out in front, in ourview, as far as how to drill and complete these wells, as evidenced by theimprovements they've seen using the swell packer technology and drilling thesingle laterals.

And we think if you look at that West Parshall area, a lotof that technology has not been implemented, but technology is improving, andthat's why the recent results have been stronger for wells over in that area.So, I think the probability is extremely high that we're going to make goodwells here, in my view. It's just my view. And the question is how good willthey be, and I would think -- Lance, you guys tell me, I would think the biggest risk factor mightbe operationally. What do you guys think?

Lance Langford

Well, I think operationally, I really don't think it's a bigrisk. I think there is some risk. There always is when you're drilling new typewells in new areas. But I personally just think the risk is what is the rangeof the reserves per well.

Marshall Carver -Tudor Pickering

What do you think the good wells that are 700,000 to 900,000barrels, what would be the lower end?

Bud Brigham

It's hard to say. I mean if you look, based on our -- it'searly. We don't have a lot of history, but wells that have come online in thelast 12 months or so in that west area, it looks like they are about 500,000barrel wells on average. But you've got a big spread. You've got some 1 millionbarrel-plus wells and then you have some wells that are poor performing, which,by the way, generally the wells that were poor performing are right over by theNesson and probably not using, or it appears to us they're not using a lot ofthe latest drilling and completion technology.

So there's a big variability, and it looks like to us thatthe technology being utilized is a big differentiator in this play. So I wouldthink, to answer your question, I would think that 200,000 to 300,000 barrels mightbe kind of the lower end of expectations, and 200,000 would certainly bedisappointing for us. Jeff, Lance, I don't know if you want to add to that.

Lance Langford

I think if you go back and look at some of the poorer areasand using the poorer technology, you're kind of looking at a baseline of100,000 barrels, and moving into an area that's obviously better using bettertechnology to complete the wells, I think you could expect a multiple of that.

Marshall Carver -Tudor Pickering

Okay. That's very helpful. Thank you, guys.

Bud Brigham

You are welcome.

Operator

Your final question is from Jack Aydin with KeyBanc CapitalMarkets. Please proceed.

Jack Aydin - KeyBancCapital Markets

The benefits of being last is that every question has been asked.That's okay. My question to you, Bud, is this -- I see you participated withEOG in the Parshall sales with about 1.3% working interest. I assume I amcorrect on that?

Bud Brigham

Yes, we have a very small working interest in Horizon, whichis a successful EOG well, and we have 1%, and it's comparable to the otherParshall Field wells in the area.

Jack Aydin - KeyBancCapital Markets

My question to you is this, are they sharing with you allthe information and you have a window -- you have a look on everything they do?

Lance Langford

Jack, this is Lance. I can't say that they are sharingeverything, because we don't know exactly what everything is, but we do have aninterest in the well. Our operations people in drilling and completion aretalking to their people that are actually doing the drilling and completions.We've drill acted there, sharing the information on the well that we have aninterest in, because we have the rights to that information.

So, we think they're freely sharing that information. As faras the operational side, we also have all the service companies. Although theywon't tell you who is doing what, they will tell you what is being donesuccessfully in the area. So I think we have a really good feel. We also have apartner that we are sharing information with, has a lot of interest with theEOG in multiple wells, and they're getting a lot of information. So I thinkthere is a lot of sharing going on between everybody out there.

Bud Brigham

I might add just a couple of things to that. I mean,basically, we're using the same service with the same service contractors outthere. And for example, the well that's drilling in the Bergstrom Family Trust,just drilled a well for our partner, Hunter Oil, in the north end of the ParshallField, with the same techniques, using the single laterals and the swellpackers. So I think we're going to be going about this essentially the same waythat EOG is.

Jack Aydin - KeyBancCapital Markets

Did you run a 3D on your acreage?

Bud Brigham

No. We have a lot of 2D seismic that we're utilizing prettyextensively out here. I think at some point we will probably be shooting 3D outhere, and we think that would be helpful. But fortunately, we have key 2D linesalong the profile that we needed to orient these wells.

Jack Aydin - KeyBancCapital Markets

Okay. Well, I appreciate it. Thank you.

Bud Brigham

Thank you.

Operator

There are no further questions in the queue.

Bud Brigham

Again, this is Bud Brigham. We want to thank everybody forparticipating in our third quarter call and we look forward to reporting onwhat should be a very exciting finish to the year. Thank you.

Operator

Thank you for your participation in today's conference. Thisconcludes your presentation. You may now disconnect, and have a good day.

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