Coterra Energy Inc (CTRA) 2004 Q3 法說會逐字稿

Good morning. My name is Sheila and I will be your conference facilitator for today. At this time I would like to welcome everyone to the Third-Quarter 2004 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press "*" then the number "1" on your telephone keypad. If you would like to withdraw your question press the "#" key. I would now like to turn the conference over to Dan Dinges, Chairman, President and CEO. Please go ahead, sir.

Thank you, Sheila. Good morning. Thank you for joining us for this third-quarter earnings teleconference call. With me today as usual are several members of our management team, Mike Walen, our Senior VP; Scott Schroeder, our CFO; Jeff Hutton, our VP of marketing; Chuck Smyth, our VP and Controller.

I need to read this statement prior to beginning. The statements regarding future financial performance and results and the other statements which are not historical facts made during this teleconference are forward-looking statements that involve risks and uncertainties including but not limited to market factors, the market price of natural gas and oil, results of future drilling and marketing activity, the future of production and costs, and other factors detailed in the Company's Security and Exchange Commission filings. All non-GAAP financial measures discussed during this conference call have been posted to our website at www.cabotog.com along with reconciliations to the most directly comparable GAAP financial measures.

We posted very positive results here today both operationally and financially which we'll cover and I will also discuss the significant level of activity we have remaining in the fourth quarter of this year. As most of you have probably read, last night's press release highlighted, Cabot posted what I would call clean net income of $24.2 million or 75 cents per share, which surpasses last year’s third-quarter comparable net income figure.

Additionally, the Company set a new high for quarterly discretionary cash flow of $77 million or 22% -- excuse me, 21% above last year's number and 7% higher than the previous high that Cabot had set. The main items contributing to these results were higher realized commodity prices, increased natural gas production and lower overall expenses between comparable third quarters. Commodity prices were the main driver for the third quarter with Cabot experiencing a 12% increase in realized natural gas prices and a 13% increase in realized oil prices versus last year third quarter. The impact of hedging on our third-quarter price realizations was a reduction of 59 cents per mcf for expired natural gas hedges and $10.87 per barrel on expired oil hedges.

Additionally, as the mark-to-market table in the press release highlights, our future hedge positions that required mark to market accounting treatment increased quarterly natural gas revenue by $349,000, but did reduce our quarterly oil revenue by 7.4 million. The magnitude of this figure is due to the spike in oil prices and the fact that we have in the recent history chosen to utilize range swaps which do not qualify for hedge accounting as the preferred oil derivative. The reason we use the range swaps is due to the fact that when executed the range swaps have historically been about $4 above a straight swap price.

Cabot will reconsider using range swaps in our program; instead we will make an effort to use wide collars as highlighted by recent trades. We did elect late in the third quarter to add slightly to our 2005 hedge position with wide collars on gas and oil. We executed 6 trades -- 5 gas, 1 oil -- and the trades are as follows -- in the Gulf 5000 Mmbtu a day with the collar between $5 and $9 per Mmbtu; also in the Gulf 10,000 Mmbtu between $5 and $9.25 for all of 2005; Rocky Mountains 5000 Mmbtu between $4.75 and $7 per Mmbtu, on oil at a 1000 barrels per day for all of 2005 between $40 and $50 per barrel. And we also executed 2 first quarter hedges in the Gulf each covering 10,000 Mmbtu per day -- the first between $7 and $9 per Mmbtu, the second $7.50 to $10.35 per Mmbtu. These additions bring Cabot's 2005 hedge position to 46% with 54% of that being in the first quarter and the remainder of 2005 the second through fourth quarter being 42% hedged.

Our expenses for the quarter improved between comparable periods on the strength of lower and interest expense along with lower broker natural gas cost. The decline in exploration expense reflects a continuing wildcat success where Cabot recognized only 1 dry hole out of 3 attempts during the quarter. As pointed out in the quarterly press release, our G&A expense increased in total due to 2 categories -- stock compensation and Sarbanes-Oxley related cost. Because of its relative size, management elected to break out stock compensation as a separate line for press release purposes. Stock compensation is dominated by the performance shares that the Company put in place this year in lieu of stock options as a long term incentive. If you recall the Company awarded a 168,000 performance shares in February, and currently Cabot ranks third of the 17 in our identified peer group. This category also includes the amortization of restricted stock awards. We do feel this form of long term incentives provides a better alignment with our shareholders with total shareholder return being the measure, and also the incentive is less dilutive a program compared to stock options.

In terms of Sarbanes-Oxley, Cabot is near completion of the process which has resulted in a $600,000 cost in the third quarter and a cumulative full-year cost to implement Sarbanes-Oxley of $1.5 million. Our guidance for G&A includes the cost of Sarbanes-Oxley and restricted stock amortization. Performance shares impact is footnoted.

As we stated in the press release, each region grew its equivalent production from the second quarter of 2004 to the third quarter. The 6% increase was driven mainly by the Gulf Coast, which increased approximately 8% quarter to quarter. This growth occurred even with the impact of Hurricane Ivan which caused about 0.5 bcf of gas to be shut in over a 7 to 10 day period.

Additionally, Cabot realized a 2% year-over-year quarterly increase in natural gas volumes on the strength of our Little Horn Bayou wells in the Gulf Coast region. So our production increased. We had anticipated greater production contribution this quarter from some of our previously announced successes. Unfortunately we have continued delays in getting several of our outside operated wells online. At this time we are waiting on 6 high-potential completions to finished and turned into sales. We anticipate most of these wells will be producing by the end of the first quarter of 2005. Of the 6 wells, 1 -- actually all of them fall in the Gulf Coast region. 1 is in north Louisiana we anticipated to come on in September, but now we have delayed that first production, possibly February of '05. The other 5 wells are offshore wells we had anticipated coming online in July; now we anticipate them coming on -- in fact 1 has recently come back on in late September. The other 4 we anticipate coming on stream anywhere from October to May of 2005. Needless to say, these delays will impact our fourth-quarter production guidance. If there is good news in a delayed production, it is that we do have 20 million net per day getting ready to come online by virtue of these wells.

The west production profile was down slightly primarily due to the delays that we were concerned about relating to permitting approval regarding Wind Dancer. We are about a month late. However in the west this is the time of the year drilling wind is open and as such 4 rigs are currently running in the Rocky Mountains, along with 1 rig running and the mid-Continent. But we did experience delays in our Wind Dancer area, we believe that we will be able to finish the 6 budgeted wells and also 3 additional wells we added offsetting our recent discovery in Corral Creek in the Big Horn Basin, and we anticipate finishing those by year end.

A key well we have been following in our west region is our Gold Nugget wildcat in Wyoming. We are currently drilling below 14,000 feet and anticipate reaching total depth of 14,500 feet in the very near future. We do not have any firm information on this well at this time. However we do remain cautiously optimistic.

Our east program is Cabot's largest ever and is on track with 150 wells drilled year to date, 39 completed and 109 -- excuse me, 139 completed and 109 on production. The full year plan of approximately 175 wells should be completed by early December. We are very pleased with the progress we have seen so far in our east program. The investments we made in expanding and upgrading our pipeline system and compression is now yielding significant increases in our production throughput. Additionally we plan to again increase our program for 2005.

In Canada, the Company has 3 successes under its belt in 3 attempts. Production in Canada is expected to ramp-up during the latter half of 2005. In our first full year drilling in Canada we have seen success in our [Maslow] area where we have 24 to 40%. Our initial well is flowing approximately 2 million a day, but it is curtailed with pipeline restrained issues. We hope to alleviate those by year end. We have successfully offset this well with the Kakwa 13-13 which is waiting on completion, and we recently moved on to another development well in this area. We anticipate 3 to 5 additional wells to be drilled also. Several miles to the north west of these wells Cabot joined Burlington Resources in the recent successful drilling of the Kakwa 11-5, which we have 50%. It is also waiting on completion at this time. We see an additional 2 wells or so offsetting this discovery. Our [Stoleberg] wildcat, we have 16% interest, has reached total depth, casing has been run and it is currently being evaluated for testing. Finally we are currently drilling our Soldier [Slave Point Reef] well. We have 40% interest in this well. We are drilling at 5500 feet going to a total depth of 11500. We anticipate this well be down in mid December.

As you can tell each region has a significant level of current activity and remaining activity between now and the end of the year. Our 2004 capital program has been expanded once again to about $250 million from $227 million as we have added several new wells late in the program.

In summary our expanded program has the Gulf Coast region allocating 10 million of capital, drilling 7 additional exploration wells during the fourth quarter and into early 2005. The west exploration has 4 wells yet to drill in 2004 and has 5 rigs current drilling. While the east is scheduled to spud its Trenton-Black River wildcat in early November along with the 5 rigs currently drilling. And in Canada we have spud 3 additional -- we will spud 3 additional wells in the fourth quarter. Some of the impact wells we either had on our program or have added to our year end effort, a couple in the west region Gold Nugget, where we have again 50% interest I mentioned. A couple in Canada I mentioned Soldier and [Stoleberg]. We have 2 more in the west [Bull Horn] and Single Eagle. We have a couple offshore that we have added to our program which we'll spud in November and December. We also have 1 in north Louisiana which we'll spud in the early part of November our Clear Branch discovery. As you look at these discoveries it's exposing us to an additional 150 to 300 B’s of net resource potential.

I think 1 to keep your eye on might be Clear Branch; this prospect is in the Vernon area where Anadarko has a significant field. I think their public number on that field is anywhere from 1.2 to 1.4 tcf, that's about a 14,000 acre type of a prospect. We are about 8 miles away in Clear Branch. We have put together a 20,000 acre block. Cabot has 75% of this particular spread. We actually have 100% and we are trying to and I think we will find a partner with a number of companies that have called requesting to share this prospect. I think we will end up with 75% interest and try to find a 25% interest for what we would hope would be a similar impact type project.

Moving to some financial stats, cash in the bank at September 30 was $25 million. In spite of this increase in our capital program, I just mentioned, we still anticipate generating excess cash flow this year as we have done in the previous 2 years. In terms of share repurchase our goal remains as I have discussed for a minimum to repurchase as many shares are being exercised or awarded through grants, so no dilution occurs. To-date the new shares issued totaled approximately 520,000 shares. This week at our Board meeting we presented our spending plan for 2005, which will include the following highlights -- approximately 300 wells, 38 of those being exploration, investment dollars of $280 million well within our cash flow. Our organic production guidance is plus 2 to 8%, the guidance by region and by quarter has been posted to our website along with fourth quarter 2004 update, which was mentioned earlier in the press release. Of note is our anticipated production growth from 2 years of expanded drilling and infrastructure investment in the east which is plus 8 to 12% for 2005.

I am very pleased how our program has come together this year and our next year plan. Our strength in Cabot is its ability to provide a predictable program with our east drilling and other development drilling in each region that organically grows our reserve base each year and our combined ability put together a program that exposures our shareholders to impact up-side. I think a good example is our Clear Branch prospect. Our expanded program in the east region of over 200 wells for 2005 will accelerate its growth. Our west region is positioned to take advantage of its recent exploration successes. We are high grading those areas and expanding our development program at Wind Dancer, Osborne Spring with new 3-D. Also in the West we remain optimistic about our near term delineation drilling on our Coal Creek discovery in the Big Horn. Our Canadian operation continues to achieve milestones for Cabot with 3 successful discoveries so far and more production anticipated by year end. The Gulf Coast provides much of our exploration upside. With our inventory of prospects, it continues to provide impactful opportunities going forward, and again I mentioned not only Clear Branch but we have a couple of new offshore opportunities we have added to our program.

Overall our future lies, I think, in a diversified portfolio of assets. It provides long-lived opportunity balanced program that I think step change exposure on the upside. With that Sheila I will turn it back over to you and answer any questions the audience might have.

If you would like to ask a question please press "*" then the number "1" on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Thank you, your first question comes from Brian Singer of Goldman Sachs.

Good morning.

Hi, Brian.

Could you just characterize in a little more detail the nature of the delays in the Gulf; are these Hurricane related, is it just -- could you just add a little more detail there? And also I may have missed it, the less the implication from the Hurricane if any on Q3 and Q4 production?

Okay. We mentioned our immediate shut in on Hurricane Ivan was about a half a B, Brian. We have the majority of that back on stream, and the delays in the 5 Gulf operations were I guess indirectly affected by the Hurricane with rig shut ins, equipment delays, securing equipment and things like that but -- and 1 in particular in Breton Sound was a direct delay of Ivan and we're still seeing a little bit of delays out there. We have 1 that has a revamping of a platform. Because of the nature of our production, that is just taking a little bit longer to get that platform in shape. We had tested a well out in the Eugene Island area that has a fairly significant test of 15 million a day and over 1000 barrels of oil per day. The surprise on that test, Brian, was the amount of oil and we had an issue dealing with pipeline specs, so we are having to add additional facilities to remedy the amount of oil that we are producing from that particular deal. And we also have another pipeline delay getting that line in place and that I think is indirectly associated with the equipment utilization out there -- associated with the Hurricane taking care of some of the major pipeline problems.

That's helpful. Switching to Canada, could you just kind of put your thoughts on the Canada opportunity in the context to the overall Company, you know what you see there, what the potential size is beyond and kind of what you've talked about for '05? And is capital that's going into Canada kind of coming out of Appalachia? I notice that the production in the fourth quarter at least was a little bit below kind of where you were forecasting before.

Canada, Brian has been a -- actually exceeded our expectations on the pace that it has moved. We have always stated that Canada was a longer-term project for us, though our initial focus was to drill wells in infrastructure areas, in other words wells that we wouldn't have stranded capital for any extended period of time. And fortunately we have had 3 out of 3 successes and we have in fact been able to turn 1 of those wells in line a little bit sooner than we anticipated. We have offset that well with a very nice compliment to that discovery, and we are drilling another well in that area. And there is capacity. We have some constraints right now that we are dealing with and expect to remedy fairly near term.

The impact of the projects that we have up there, frankly, are larger than I had anticipated originally. We have again the 3 discoveries that we have mentioned. We have the [Stoleberg] well that we have now cased up there. We have 16% of that particular project. We are not at liberty to discuss all the details of that, but we are going to be testing it and it is a fairly significant project if it works for us. Again we have 16%. It was over a $10 million well and we thought 16% on our venture up there was adequate and we are pleased with that at this stage. Soldier is drilling and we have some high expectations for that well, also though it's still a risk project. So if I had to summarize Canada, we have been pleased with our effort. We have exceeded our results year-to-date. We have maintained the level of capital, we have anticipated putting up there. Our 2005 program has 6% of our capital allocated to the Canadian area, and again I have my fingers crossed that we can continue on the stream that we are on right now.

As far as our guidance we've posted our guidance on our website and some of these delays were not anticipated and it will affect our fourth-quarter numbers and certainly in the beginning of 2005 numbers with these delays and get some of the impact projects on stream. But overall I think we are on track. Our program is gaining momentum. We have 44% of our exploration effort for 2004 still in front of us. We have a great deal of activity currently as I mentioned, on the rigs. And we still have quite a bit of excitement between now and year end.

Thank you very much, that's helpful.

Thanks

Thank you. Your next question comes from Frank Bracken of Jefferies & Company.

2 questions. 1, I'd love to get a little more detail on the wells that are going to be drilled between now and the end of the year in the Gulf. And secondly in reviewing your guidance, 1 of the things I am puzzled by is the apparent flatness in the western region forecast. I would have anticipated with the drilling activity level at Wind Dancer and Coal Creek that that would have yielded some sort of production increase and that doesn't appear to be the case. I was hoping you could maybe give us some of the details on your thinking on why that's flat and not up, whether it's permitting or well timing or declines in Anadarko or whatever. So if you could cover both of those for me I would appreciate it.

Okay. Frank on the Gulf coast drilling we have 2 [Biaskanol] offshore wells that we will be initiating in November and December. 1 of them will be at status as a 2005 -- at least 1 of them will be status as a 2005 well. 1 will be status I think this year. We call the prospect Impala, it is Chevron operated, and we have 20% of it. It's a fairly large prospect anywhere on a net basis 20 to 40 bcf for us.

What kind of water depths?

It's on the shelf. It's -- I don't have it exactly in front of me. I'd say a 100 and -- I'd say 200 feet. And Cadillac also. Cadillac we have 10% of and that prospect is 1 that I am familiar with from a former life. It is a -- it's a Deep Cotton Valley. It is a significant 4-way structure that Chevron Novel (ph) Energy had drilled a number of years ago. They lost the bottom portion of the hole and could not -- did not end up testing the bottom portion of the hole and plug back into the [James] lines. This well is in an effort to go back and drill into the Cotton Valley and drill more section of the Cotton Valley to a total depth of approximately 25,000 feet. And we will be testing that section. It's pretty exciting project. It's over a 30,000 acre closure. And with that type of prospect, a 10% range for Cabot is still significant

Regarding the west, we did get delayed in the Wind Dancer. We were delayed over a month by BLM permits. So that has affected the profile. And in Corral Creek, we drilled our discovery well up there, we put it online and we were and are evaluating the production profile of that. Frank, we did not go back up and immediately offset it though we had anticipated we might do that. We waited to look at the production profile to do that. We are pleased with the production profile, we have seen in that well and hence we have added 3 additional wells between now and year end to offset and delineate hopefully a large accumulation out there. If it works as we anticipate in the Corral Creek, we think we could add on 320 acre spacing, 60 more wells to that particular area on 320. So yes, the west is flat. We got delayed in Wind Dancer, and that is basically the reason for it. More delays as opposed for operationally.

How many producers do you anticipate having at Wind Dancer by the end of the year?

Let see, I think we have what 4, 5 are online -- only 4 or 5 are online right now. We think we will have by year end. We have drilled 3, we are in the process of completing those, we have 3 more to drill and complete; on production by year end, 8 or 9.

Okay, so yeah --

8 or 9. Mike is saying maybe, maybe we will get to 12. Of course he is a geologist though.

Right. I got you. And then what kind of rate would we -- should we expect out of those wells collectively?

We tested our last well over out of the Almond and Lewis and we are still evaluating frac techniques and we put some plunger lifts in kind of where we set our string. We will come on stream and I think we've come on stream for this last well at about 2 million a day. And we do anticipate with some of the hard rock reservoirs, and tight reservoirs, we do anticipate that to fall off but initial production rates we are anticipating to be in that range.

Then how many well will you drill over the course of 2005 at Wind Dancer?

Well, Frank we get shut in at the -- well, in December, we start having drilling steps again and the next year we are going to try to increase our program in Wind Dancer. And we'll have Mike look at the exact number of wells that we anticipate in not only Wind Dancer but with the 3-D, we shot off there, we will also be looking at Osborne Spring to increase our program in Osborne Spring. We still only have our 1 well in Osborne Spring at this time because we did shoot our 3-D out there. And we are interpreting that right now. We think, as Mike said it, in Wind Dancer at least 6 more wells in Wind Dancer in '05.

Thanks.

Thank you. Your next question comes from Kenneth Beer of Johnson Rice.

Good morning guys.

Hi, Ken.

Actually a couple of questions. 1, just in the east when you are looking to drill your 200 plus well program any additional pipeline or infrastructure CapEx needed to go along with that or was most of what you did kind of the front half of this year setting up for '05 and '06?

We will have little bit more. It will not be anything like our 2003. We had $8 million in 2003 for our infrastructure enhancements. We do have several million dollars attached to our infrastructure enhancements in 2005, and we do anticipate with a 200 well plus program in 2005, again, an 8 to 12% production run or increase up there. And Mike just indicated that we do have 1 major pipeline expansion also and that's in our Danville area.

Are you putting the money in for that or someone else is putting in the money?

No, we are putting our money into it.

Okay. And then let me just shift gears for 1 second on Clear Lake, you know which Dan you were talking about as kind of a Vernon analog.

Yes, Clear Branch.

I am sorry Clear Branch. Is that 1 where you have got to drill a bunch of wells just to get your arms around it? I mean obviously Vernon for Anadarko was not a single structure so much as a multi-well program. Is that what you are getting -- hoping to do in terms of getting into position for '05?

Yes. We have 2 wells that are several miles apart scheduled for Clear Branch right now. The first 1 we will spud in November. It is what we anticipate from a structural -- gross structural look it is very similar to Vernon Field, and the section is equivalent section to Vernon, and if we are successful in our initial well, and then offset that with our second well we will drill, we do anticipate moving rapidly on a program that would further delineate what we have. It's a -- again when you look at it from a geologic perspective and you look at an offset well that we have as a control point, it's a pretty exciting prospect. This is 1 with Cabot I think going to be drilling both these wells with at least a 75% interest. It's 1 that would move the needle for us.

Although in terms of a per well reserves and expected production would be what? What are you thinking about? What would be a positive result out of the first well?

Well, on a first production, Mike, I will just revert back to where Anadarko is drilling now in Vernon. Some of those wells that are in -- and again in the sweet spot -- and the sweet spot does not cover all 14,000 acres of Vernon field, so don't let me mislead you there. But in the sweet spots they are seeing rates over 20 million a day as far as initial rates. On a well that we would see on production down here we'll have to find the sweet spot, and hopefully we have 1 but if we saw 5 to 8 million a day down here we would be very excited about a rate like that. And on a reserve basis, again in Vernon they are drilled on 80's for the most part and some drilling has now taken place on 40's in Vernon field, and the cummes up there are 5 to 6 to 10 bcf per well. So that is a --

Although for you all, if you get 2 to 5, is that -- would that be the --?

I think we would still -- we'd look at certainly the drilling and the cost of frac and the economics of that. A5 Bcf well in this environment would be a tremendous economic success.

Okay. And then lastly, just what kind of acreage position do you have? Is that locked up and so you have got a bunch of acre -- you have got a strong acreage position; if it works you can begin your program pretty quickly?

Yes. We have -- we got in there by virtue of our warehouser option agreement we put together on October 2002. We have exercised some of that acreage but we have been in the last year, year and a half been putting together an acreage spread that is a very solid acreage spread of 20,000 plus acres that we maintain and control 100%.

Great.

We do have some offset acreage on the North and South of us that Anadarko owns, but as far as controlling the structure we own it 100%.

Sounds good. Sounds like you’re keeping busy. Thank you, guys.

Thanks, Ken.

Thank you. Your next question comes from Shawn Reynolds of Petrie Parkman.

Good morning, guys.

Good morning.

Looking at the profile for the Gulf Coast and I think you might have touched on this, but it looks you had a little production pause in the first and second quarter and then it ramps up in the second half. Is that related to these delays?

Yes. It is directly related to the delays and we also have a -- with some of our drilling being in the fourth quarter, we have exploration layer if you will -- risk exploration layer in that guidance.

How much would that account for, do you think?

Gosh, Shawn, I don't have that at the tip of my fingers.

But that's really just the fourth quarter of '05?

'04 or '05?

'05.

He’s talking about the production guidance range is up in ’05.

I thought he was talking about the delays. Yes. That would ---

No, you said it includes the risk exploration component and I am just presuming that that shows up in the later half of '05 guidance.

Yes, exactly.

Right, okay. And what about Little Horn Bayou? What's the assumption in the profile there?

Mike, why don't you --?

Yes, Shawn, Little Horn Bayou is doing extremely well for us right now. Those 2 wells are producing over 40 million a day equivalent 8-8s (ph) right now. But they are on a very steep decline and we anticipate that we're going to start seeing some significant depletion during '05. That's 1 of our challenges, is to replace that production.

So that is baked into the guidance numbers?

Yes, it is.

Okay. And you've hit Corral Creek pretty hard but just to kind of put a ring around it, if you are pretty successful in these 3 wells that you are kind of going after right now, would that be a big program say in the later part of '05 because you've got that little map that you have shown that has maybe 50 some proposed locations and if you got after that pretty aggressively it might be fairly interesting?

Yes, is we would -- if we do have success on those delineation wells and I think you might be able to see on what we've shown a couple of times Shawn, those 3 wells that we're drilling are not direct offset.

Right.

And the reason we have done that is to be able to keep a rig out there and start drilling on that program as rapidly as we possibly can where we have confidence that that section is extensive, so we will move forward on that rapidly if successful.

Right. And just final thing, [Bull Horn] and the [Single Eagle] those are in progress or yet to --?

Yes. Bull Horn, we just started a week ago or so and [Single Eagle] we will spud in November -- I think around the 1st of November.

Okay. Great, thanks a lot guys.

Thank you. Your next question comes from Ellen Hannan of Bear Stearns.

Yes, most of my questions have been answered but just a couple. Dan with the changes you have made over the past couple of years particularly with the ramp up in the drilling in the east area, do you have a feel for what your base decline rate for the Company is now?

Let me look over here to Mr. Lenameno (phonetic), that is -- our base decline in the past and I don't have that handy, I would say 13% to 15% is -- are you talking about the east now?

I am talking about the total Company.

Total Company, yes. I would say plus or minus 10%

And do you happen to know what the contribution that Etouffee currently brings to you?

Yeah Mike that has that sheet in front of him.

Yes Ellen, Cabot's net right now on an equivalent basis is about 17 million a day, and this is being forecast to essentially go away by the end of January. The field itself is making about 69 million a day equivalent and 7000 barrels of water per day.

And 1 last thing. Did you -- and if you mentioned it, I apologize. Did you give an update on your drilling activity in Howard Ranch?

Dan Dinges I am sorry Ellen I couldn’t hear you.

Did you give an update on any drilling activity in Howard Ranch?

No. Ellen that's not ours.

Not yours, okay sorry about that.

Okay

Great thank you

If there is any room it in we might take it though.

Okay, thanks.

Thank you. Your next question comes from Ray Deacon of Harris Nesbitt.

Yes, hey, I was wondering if you could talk a little bit about the budget allocation next year and any big changes versus this year.

We will allocate approximately 44% to the Gulf Coast. We will have about 32% to the east, 17% to the west and about 6% to Canada.

Okay, got it, and --

It will be -- in the east, Ray it will be – again, this year was Cabot's largest program we have ever put together in the east and we are going to ramp it up again next year to over 200 wells. So we are --

Right

We want to see how strong their shoulders are up there.

Right, okay. And if -- you know, if you were going to characterize, could you kind of give a similar of an answer to what you mentioned about Canada before as far as the west –goes? I mean I know you have taken a very exploration-oriented approach. Just you drilled 80 wells this year; how has it turned out? Is there any changes in strategy there or do you have a big enough prospect inventory now or are you still looking to acquire acreage or --?

Now, on your drilling, Ray, on the 80 wells, are you referring to our west?

Yes exactly, right -- yes just in the west.

Yes so far in the west we have -- year-over-to-date, we have only drilled 20 wells.

Okay.

Yes. And so the problem out there is the delays --

Right

And you can't start unit late in the year. And when I say west, that's the pure west and the Rocky Mountains. We have also drilled 17 wells in our Mid-Continent region.

Okay, great. Now and I guess just as far as results go, are you happy with how things are going? Is it still kind of early stages -- too early to judge the success?

Yes we are pleased. It is still a little bit early. We still have a lot of activity between now and year end. In Wind Dancer for example we offset that -- our discovery well, we offset a couple of miles to the north as a number of locations step out, if you will, and that was the 1 of the wells that we tested over 2 million a day. So we had the section we were looking at; in some ways it improved, and so we were very pleased with that. And now what we are hoping to do in Corral Creek is something similar. 1 of our offsets is a 4-mile step out in Corral Creek. We have not offset yet Osborne Spring because we shot a 3-D in both Wind Dancer and Osborne Spring, and we are going to be I think and from what the early indications are high grading our locations and hopefully assisting not only our cummes but our rates by the placement of our wells in both of those fields.

Okay.

So it's still early but we have been pleased so far though the number of wells that we have been able to get done this year is somewhat limited.

Okay I got it. And what about the shales in the east? I didn't hear you mention anything on that. Do you have any test plan there?

We have not, Ray, come out with all of the details of our 2005 program in the east besides the well count and a couple of million dollars that we will direct towards our infrastructure. However, in our program we do have several if you will R&D efforts to see how we might be able to enhance what has always been done in the east. And as you might be aware under -- a great deal of our acreage in West Virginia is the Ohio shale. The Ohio shale as far as in place gas has tcfs of potential, and we are going to be exploring and evaluating some of that but we have not had much discussion on that yet.

Okay. And any can you make any kind of guess on F&D cost this year?

2004?

Yes.

If you look at it I would say we are going to be -- to cover me, let me give you a range of anywhere from a $1.40 to $1.60.

Okay alright. Then I know this -- I guess Scott is there. Is that – well, I guess I can look at the guidance. The DD&A rate, the reason that it jumped sequentially, was there a specific --?

It's the Gulf Coast Ray. It's all the activity of the Gulf Coast, the cost of doing business in the Gulf Coast, they drilled additions versus the cost of those additions recently.

Okay, alright. Got it. Thanks a lot.

Thank you, Ray.

Thank you. Your next question comes from Jack Aydin of KeyBanc Capital Markets.

Good morning guys.

Good morning Jack.

You mentioned on the Trenton-Black River you are going to drill a well. Could you give us little bit more where, how far have you grown the Talisman drilling activities, the cost, the depth and what kind of acreage you have in that (indiscernible)?

Yes we are going to be moving on that and we have several prospects up there as you might be aware, Jack. We are in very close proximity to the Trenton-Black River activity that has been going on up there. Our prospects are just overlays of the type of prospects that have been drilled up there. We are in Steuben County is where we are, and we are excited about the play.

Do you have the same -- I mean do you have the people that can -- I mean it looks like Talisman has some kind technology know-how. Do you have the people, the experience to do that kinds of drilling?

Yes we do, we are very confident with our level of expertise, with the regional information that we have available to us and the technical assessment that we have put into not only the initial prospect up there, Jack, but the entire area. Our dry hole cost for this prospect is about $1.2 million.

Not bad.

Yes.

Thanks.

Okay, thanks for the question.

Thank you. At his time there are no further questions.

Okay well I appreciate you joining us for this teleconference. Again I'd reiterate I like the level of activity that we've been able to put together between the beginning of 2004 and current. We have a significant amount of our programs still in front of us and that's by virtue of adding to our capital program. And going forward our opportunity base is 1 that I think will expose our shareholders to again as I mentioned a step change and a return to our shareholders if we can add just a little bit of success. We remain focused on the execution of our remaining program at 2004 and have already implemented effort to get our 2005 program off to a quick start. Again, appreciate your interest.

Thank you. This concludes today's conference call. You may now disconnect.