Moderator:  Clayton Williams

November 7, 2001

 Forward Looking Statement

Certain statements contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”).  Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements.  Such factors include, among others, the following:  the volatility of oil and gas prices, the Company’s drilling results, the Company’s ability to replace short-lived reserves, the availability of capital resources, the reliance upon estimates of proved reserves, operating hazards and uninsured risks, competition, government regulation, the ability of the Company to implement its business strategy, and other factors referenced in the Company’s public filings with the Securities and Exchange Commission.

Clayton Williams:  Howdy, folks.  We’re here to tell you we’ve had a good quarter; we’ve had a good year.  And basically what we’re going to tell you over the next period is that we’ve changed this company from an Austin Chalk oil company with a relatively short reserve life to a company that’s largely gas.

We’ve taken the net income from past successes from the better prices that we had last year, and we’ve laid a real solid foundation for the future growth of the company for our shareholders.  For example, we’ve done a good job I think in hedging our production.  We’ve maximized the prices through this year.  We made a sale of our Sonat property where GE was our partner.  We were able to make this sale when the prices were high. 

We completed the Lee Fazzino #2 well, which is flowing 10 million a day.  We completed our Dolly Well in Louisiana.  The well has 10 pays for a total of 144 feet of net pay.

We’ve basically with the new seismic acquisition that we’ve talked about, the 3,000 square miles; we have laid a foundation in South Louisiana.  With this seismic and with the people and personnel we feel very comfortable we’re going to have a solid ongoing future growth in South Louisiana. 

So basically I’m very bullish about our company, about the future we have.  And I’m real pleased with our confidence.

Having said that, I’m going to throw it to Mel and let him work through the finances and what we’ve accomplished financially, and then we’ll come back and talk a little more detail about our drilling production and we’ll be taking your questions.  So here’s Mel.

Mel Riggs: Thanks, Clayton.  As Clayton said, we’ve had a good year.  And we had a good quarter even though our results for the quarter were impacted by lower oil and gas product prices.  And I’ll talk about that in a moment.

But we had income of $6.1 million, $.65 cents per share compared to $.87 cents per share last year.  Our net income included a $10.6 million gain on the sale of the East Texas fields Clayton commented on.  Looking forward that has very little impact on future production.  We were producing about a million a day to the company’s interest in those properties.  And the sale included probably about 4 Bcf of gas.  But it was a good sale for us, and we feel like we got a good price for the property.

On the negative side we have $4.9 million in exploration cost.  We had $3.7 million we expensed for abandonment and impairments.  We had about a million in dry holes.  And we had about $2.7 million in leases that we wrote down the value on.

We also incurred $1.2 million of seismic.  And that’s associated with our ongoing Louisiana program, which we all know that’s going to bring us prospects to drill in the future even though we’re having the expense today.

At the end of the quarter we were impacted somewhat by lower gas prices.  I think the ending gas price at the end of September is about $1.90 an Mcf.  And factoring that into our FAS 121 calculation we had to impair $5 million worth of proven reserves.  And that’s spread across about half in the Sweetlake area in Louisiana, a million or so in South Texas, and $1.7 in the Bossier area.

Looking from a cash flow or EBITDAX number, for the third quarter we had $15.7 million of EBITDAX.  That’s $1.67 per share compared to $2.52 last year.

Oil production declined for the quarter about 14 percent.  And that’s due to primarily the low activity that we’ve had in the Trend area.  We added one net well in the third quarter in the Trend.  And that’s just so we’re continuing to de-emphasize the area.  And that’s not the future.  But we do have a lot of oil production there still.

Our gas production on the other side though increased 14 percent.  And the reef drilling has contributed quite a bit there too.

Product prices—our average oil price for the quarter was $26 a barrel compared to about $31 last year. And the gas price was down from last year $4 to $3 for this quarter.  So probably the prices have impacted us.

To help for the future we have done quite a bit of hedging.  And in the third quarter numbers we have included in our revenues $743,000 from gains and settlement of hedges.  And then also in the third quarter we have—on the income statement you’ll see it—a $2.9 million non-cash gain for natural gas swaps that don’t- they’re not designated as cash flow hedges under FAS 133.

Looking forward, the company has the following hedge position.  We’ve got gas swaps in place for the fourth quarter and all the way out through the second quarter of 2003.  That’s 13,330,000 MMBtu at a weighted average price of $3.32. 

On the oil side we have- from November of this year to December of 2002 we have 1,452,000 barrels of oil with the floor set at $19 and a cap at $25.45.

Our bank debt at the end of the quarter—the outstanding was $57 million; our borrowing base was $75 million.  And it’s being re-determined this month.

And, of course, interest rates at this point in time are very low.  We’re currently borrowing at roughly 4.4 percent.  So that’s a good rate.

Our capex for the third quarter was about $18.2 million.  That’s down dramatically from the $82 million we spent in the first half of the year.  Clayton will talk about kind of what we did- the drilling we did, and also kind of what we foresee for the next quarter.  That $18 million was pretty much split between about $15 million for drilling and $3.4 million for leasing and seismic.

And with that, I’ll turn it back to Clayton.

Clayton Williams:  So let’s take financial questions for Mel before we go into the general business. Questions for Mel please?

Operator:  Okay.  At this time, if you have a question, just press the 1 on your touch-tone phone. You can remove that by pressing the pound key.  Again, if you do have a question, just press the 1 on your phone.

And we have a question from Mike Scialla with A.G. Edwards.  Go ahead.

Michael Scialla:  Thanks.  Mel, I just wanted to ask you about- it looked like your production costs jumped up in the quarter on a per unit basis.  I would have expected with service costs possibly rolling over that they might actually come down.  What was the reasoning behind that?

Mel Riggs:  I think we were still- you know; we really hadn’t seen a decline in costs in third quarter.  I think we’ll start seeing more of that in the fourth quarter.  But through the third quarter we had not seen a real- I mean, that just basically looked like just increase in the costs the industry was undergoing at the time.  It hadn’t really filtered through yet.  I think we’ll see it come down some in the future.

Michael Scialla:  Okay.  There’s nothing specific to any of the wells as far as…?

Mel Riggs:  Mike, no, there’s not anything…

Michael Scialla:  Workovers or anything like that?

Mel Riggs:  No.

Michael Scialla: Okay.  Thanks.

Operator:  Okay.  Again for questions, just press the 1 on your phone at this time.

Okay.  We’ll go to Larry Flood with Wellington Management.  Go ahead please.

Larry Flood:  Good afternoon, gentlemen. 

Clayton Williams:  Hello.

Larry Flood:  About gas.  How much of your 13.3 is in the 2002?

Clayton Williams:  I’m not sure we can hear you.  Could you please speak a little louder?

Larry Flood: Sorry. 

Clayton Williams:  Thank you.  That’s better.

Larry Flood:  I had you on speaker.  Here we go.  How much of the gas hedges in 2002?

Mel Riggs:  The majority of it—let me- hold on just for a moment.  I’ll give you what the ….

Clayton Williams:  While he’s getting specific, basically what we attempted to do, and I think we came pretty close, was to hedge all current production through the year 2002 and in the six months of 2003.  Mel’s quantified it in each month because you have obviously declining production.

Mel Riggs: Yeah, about 10 million MMBtu for the- would be in the 2002 period.

Clayton Williams:  And we might add we have not hedged any of the production in South Louisiana, the wells there that are shut in waiting completion of pipeline and marketing facilities.  So what we have hedged is only existing gas production and none that we’ve completed that’ll be coming on later on.

Larry Flood:  Good.  Okay.  Thank you.

Mel Riggs:  Thank you.

Operator:  Okay, Mr. Williams, no further questions for you at this time.

Clayton Williams:  Okay.  Let’s go ahead then.  Let’s talk then to 1) we have completed the Lee Fazzino #2.  As in all of these Cotton Valley wells, we tend to be a little cautious.  We think we’ve got a commercial well.  When we look back at some of the wells we thought were commercial, they didn’t hold up as well.  So we’re just withholding judgment on that.

We are drilling- this was a south offset of the Lee Fazzino #1 and we’re moving to a north offset, which is Scamardo #1.  We think we’ve got a good potential there.  And we’ll just be drilling these one by one until, obviously, we get a dry hole.  We’re very hopeful about this well.  But we’re not promising great things yet.

Going into Louisiana, our prospect we call the Dolly, which is the one that we announced in this press

release, that well had 10 separate pays at 177 feet of gross sand and 140 feet of net sand.  These are the good Miocene sands that have good reserves, good recovery.  The bulk of these sands for this purpose are gas sands where we’re affecting a multiple completion.  The well is being tested now.  It is commercial.  We’re going to have some nice volumes.  We expect some nice reserves.  We won’t announce what we think the reserves are until we produce the well a while.  But we’re very happy with this well.

This gives us four discoveries out of 10 wells.  Five of these wells are dry holes—and we talked about this some—were drilled on three-way closures with a fault trap.  And these fault traps had no production on the trap.  These five dry holes had no amplitude, no anomalies.  So we felt like basically that we’re not going to drill any more like the five. 

I think what’s exciting to me is that we have five more of high-graded prospects to drill in the next three or four months.  And these come from the old approach to data that we were using.  And we have eight more that have evolved from our new data set.  That’s the 3,000 square miles.  So we have 12 high quality prospects to drill in the next 10 or 12 months.  And I’m very pleased with our progress.

Now I’ll also talk about the progress in our Houston office where we manage our South Louisiana that we are slowly- we’ve worked some knots out of some of the seismic acquisitions.  We are moving ahead there.  We’ve added one more team.  So we have three teams going forward, which include three geologists and five geophysicists as first team and then another geologist and geophysicist going forward in the next area.

So we’re just very upbeat.  We think we’ve past the bulk of the learning curve.  We think we’ve made money down in South Louisiana.  And we’ve got, I believe, a very bright future.  We may have maybe three to five years of drilling in South Louisiana.  We have our team put together and feel real good about it.

Let’s see, we’ve done a good job hedging.  I think we’ve done a good job running the company this period of time. 

We announced we might buy some stock.  We have bought over this period 62,500 shares.  We’ll be very cautious whether we buy more or not.  But that still is an option for the Company.

We’re drilling our first Montoya horizontal well in Block 16 where we have a one-seventh interest.

Basically I just feel very good about the company.  I believe we’re well positioned.  With a drop in drilling and completion prices I think our economics are back where they were some time back.

Mel did mention that our drilling in recent months has been very slow because it cost too much to drill.  And the price was going down, so we thought it would be better to stop, husband our resources, and position ourselves to go forward when the climate was right.  I’m telling you today I think the climate is right.  I’m particularly bullish about the future of gas long time and our company will be- when we complete the Louisiana well, we will be substantially a more gas producing company than oil.

With that, I’ll take your questions, and come ahead.  I’m glad you guys took the time to tune in today. 

Operator:  Again, if you have a question, press the 1 on your phone.  You may remove that, if you need to, by pressing the pound key.  For questions press the 1 on your phone now.

Okay, we’ll go back to Michael Scialla with A.G. Edwards.  Go ahead.

Michael Scialla:  Thanks.  I wonder- you talked about the production on the Lee Fazzino #1.  Could you give us an idea of how the other reef wells are doing now?

Clayton Williams:  The Lee Fazzino #1 well is holding up very good.  We’re producing 10 million a day.  We’d like to produce a little more.  So the two wells are producing at 10 million a day each.  The reason- and I might just use this occasion to say, if you look back at the other wells, the first J.C. Fazzinos were on the east side.  One of those wells, the J.C. Fazzino #1 is now producing 700 thousand a day.  The best one, the J.C. Fazzino #2, the one we drilled with the vendors, is producing a little over 6 million a day.  The Varisco is producing 2.5 million a day.  The McGrew is producing 1.5 million.  The Muse is probably about done for producing 300 thousand a day.  The Lee Fazzino #1 is producing I believe it’s 9.4 million a day.  And the Lee Fazzino #2 today is producing 9.0 million a day.

The Neyland well, which we announced is producing 9 million a day.  That’s a reef up Trend.  But we’re a little concerned about the pressure drops on that well, so we think maybe we don’t have a lot of reserves there.

The total production then is 39 million a day from our Cotton Valley area.  That’s the gross.  And the net is generally right at 80 percent, maybe slightly less.

Michael Scialla: And you said you think you do have some more drilling to do there.  Can you give us an idea of…?

Clayton Williams:  We’ll move into a- the first backreef well was the Lee Fazzino #1 on the west side.  And we drilled south of it with the Lee Fazzino #2.  We think the well is commercial.  So now we’re moving to a north offset of the first well.  So we’re just, you know, step by step.  And hopefully we’ll make a well there, and then we’ll see where we go from there.

Michael Scialla:  If that is successful, what would the inventory potentially look like?

Clayton Williams: You know, it’s very difficult to say.  We’re drilling on a large mound.  And we’ve had different sands show up in different areas.  So there’s topography involved on the feature that we’re drilling that we might have good wells on two or three more.  We could run out of sand or maybe enough lower quality sand that we might just have one more well, but we might have a couple more wells.  So it’s difficult to predict, as you might in some cases.

We think it’s commercial.  And we’re happy with it.  But we’re not banging the drum because we don’t have a production history.  And, as you’ve seen with the illustrations I gave you, the Cotton Valley wells are variable.

Michael Scialla: Right.  How about the southern acreage block—does that still look prospective to you at this point?  Do you still have any plans of maybe shooting seismic down there?

Clayton Williams:  You’re talking about the block way further south?

Michael Scialla:  Right.

Clayton Williams: We have- we’re reworking the 3-D seismic we shot last year.  And we think we see some prospects there.  And we think it might be maybe of similar age and maybe some similarity to these most recent Lee Fazzino wells.  So, as we watch them further and if they turn out to be commercial, then we’ll probably drill a wildcat on the south block.  There’s on pretty large feature there.  Of course, it’s wildcat.

Michael Scialla:  Okay.  And then over in Louisiana it sounds like you’ve built up a pretty good inventory now.  Could you kind of characterize those wells?  Are they mostly the deep Miocene type like your Dolly prospect or…?

Clayton Williams:  The bulk of the 12 prospects we have today—and I expect that we will be developing prospects faster than we drill them—are basically all Miocene.  Miocene is a young sand with good porosity, generally good permeability, water driven so you have very good recoveries.  And the Dolly we’re affecting multiple completions there.  And there’ll be quite a few wells we will have several sands and have multiple completions.

I’m very bullish about it.  And let me stress this.  We started the program on some older seismic data and information, and we drilled three commercial discoveries out of nine.  Then we said this isn’t working.  And so we said the wells that are dry holes, why are they, and we evaluated that and said we’re not going to drill that type of prospect anymore.

Then our first well back to the drawing board after we evaluated how we were fairing, it’s probably the best well we’ve drilled.  So we’ve drilled four out of five of what I’m calling high-graded prospects.

Now I doubt we can continue at that success rate.  But we have 12 more in different categories that have eliminated drilling three-way fault traps that don’t have shows or bright spots so to speak.  So I expect to do substantially better than what we’ve done on the high-graded.  I doubt we’ll be able to maintain 80 percent success.  But I’d hope for 50 percent.  And I expect we’ll get 50 percent.  But, you know, it’s still the oil pad.  So I’m an optimist, or I wouldn’t be in it.

Michael Scialla:  Right.  One last question—as part of the timing of the hookups there, any progress being made there?

Clayton Williams: We’ve made some progress.  We relied on some situation that didn’t evolve.  I think we should have all four wells- we’ve got one well producing out of four.  I think we’ll have the other three producing by May 1^st and hopefully sooner. 

We’ve kind of had to admit that we made some mistakes early.  We’ve corrected them.  We’re coming in a different direction.  And we’re spending more time evaluating the hookup of a prospect and the cost and the difficulty before we drill them.  So that’s become a larger part of our judgment on to drill or not to drill.

But I think we’ve got a really bright future there.  You know, you say, well, Williams, you’ve never been there.  I’ve been drilling wells in South Louisiana for nearly 30 years.  But I’ve always realized that that’s not my area. And I’ve tried to get people with experience and a good success record to operate the area.  And by golly we’ve done that.  I’m just very pleased with the team of scientists we have, pleased with their success.  And it will be a core area for us.  And I think we’ve shown that.

Michael Scialla: Great.  Thanks, Clayton.

Clayton Williams:  You bet.

Operator:  Okay.  We have a question from Steve Orr, private investor.  Go ahead please.

Steve Orr:  Thank you, Mr. Williams and others.  I was curious if you could share with us the status of the Neyland well, where that stands and what it might be producing, if you didn’t mention that already?

Clayton Williams:  Yeah, I did, but I’ll repeat it.  The Neyland well is producing 9 million a day, but the pressure is dropping.  So we’re not too optimistic about the Neyland.  It looks like it may be a limited reservoir.  We’ll know as we get more production history.  But the call today is that it’s not going to be a good well.  That’s my judgment, and I think it’s right.

Steve Orr:  And there was some discussion about reducing the debt in the second half of the year.  I’m wondering what the outlook for that is.

Clayton Williams:  Sure.  Mel, do you want to take that?

Mel Riggs:  Well, at this point in time with what we have going on and with current product prices it will be very difficult to reduce the debt with the drilling program we have.  I think we’ll end the year with slightly higher debt than we have currently—higher than the 57 million.  But what we’ve done is we’ve added a lot of value in a bunch of new wells I think.  So the debt to value is going to be a lot less than where we began the year.

Clayton Williams:  That’s a good point.  One thing I was- we were- this might be of interest to you guys and gals, if there are gals on here.  That wasn’t politically correct, was it?  We looked at our cash flow.  And to pay off our debt was just a little over one year of cash flow.  We said let’s be still for a year, just about a one-year payout of debt.  Isn’t that right, Mel?

Mel Riggs:  That’s right.

Clayton Williams:  So we’re solid.  We’re in good shape.  With the prices of drilling and completing wells and less competition, as the rate count goes down, we’re moving back into activity again.  And we backed away from drilling because we weren’t getting the drilling results.  We weren’t getting the efficiencies when the boom was on.  So we said let’s stop, fine tune, and then be ready to go when it gets where we think it’s better.  The prices aren’t better, but the net profits, the profitability of our drilling, should be better now than it was when the prices were higher.  And we can do a lot better job with our drilling and completion efforts.

I got wound up on that, didn’t I?

Steve Orr:  Thank you.

Operator:  Okay.  Again, for any final questions just press the 1 on your phone now.

Okay, we’ll go back to Michael Scialla with A.G. Edwards.  Go ahead.

Michael Scialla:  Mel, one more question on your budget as far as next year, if you start putting that together—can you tell us in general ballpark terms what kind of budget we’re looking at?

Mel Riggs:  We’re still working on guidance for the fourth quarter, Mike, which will be coming out shortly.  You know, as Clayton mentioned, we have I think he said roughly 13 wells next year in Louisiana we have today we could drill.  And we’ll be identifying more obviously.  It also will depend on how the Scamardo Gas Unit at the next rig well turns out.  If that works, then obviously we’ll probably be continuing to drill at least another well. 

Beyond that we really haven’t- we’ll try to get something out late this year for, you know, kind of guidance for next year.  But we’re not quite there yet.

Clayton Williams: I might add to that that so when do we get the three Louisiana wells on production.  They’re going to be I think substantial gas production.  So we’re having to time and coordinate some of our new drilling to when we get the wells hooked up, etc., and watching the production from our old wells. But we have secured some things.  In other words, we know what we’re going to get for the gas.  We’ve got a floor on our oil in case the price drops lower.  So we’ve got security in our income by virtue of our hedges.  So we can adjust drilling to that.

But let me give you one good example.  In Louisiana not long ago a jack up rig was costing $48,000 a day.  Today it’s $19,000.  You see why I say I’m using that example.  We have a better profitability on our drilling at today’s prices than we did three or four months ago.

The Lee Fazzino #2 well that we’ve just completed, that was costing us about $21,000 a day.  And now we have a contract on the same rig going to the north offset for $11,000 a day and we pay the fuel.  So it’s not- that’s nearly half, in some cases more, of drilling cost alone.  So that’s one of the reasons we’re bullish.  Yes, the product prices are lower, but our cost of doing business is going to be lower with it.  And we just feel like we’ve got things under pretty good control.  If for some reason, you know, we had- our production we’ve lined out is pretty solid.  The hedges are solid.  So we’ve got a control over our business that we probably never had before.

Michael Scialla: Okay.  I guess one other last question—you may not have an answer for this one yet either.  But do you have an idea of reserve adds for this year—again just a ballpark type range?

Clayton Williams: Well, we hesitate to do that until the independent engineers complete their evaluation.  But I think that it’s going to be pretty good.  And I don’t know- they tell me not to just pick a number because things can change.  But I’m going to say that they’re going to be good, that we’re going to be producing nearly twice as much gas as we were—not quite.  So that’s speculating. I’d better stay away from that.  But I can tell you I’m bullish.

Michael Scialla:  Okay.  Thanks again.

Mel Riggs:  Thank you.

Clayton Williams:  Sorry for that answer.

Operator:  We have another question from Larry Flood with Wellington Management.  Go ahead.

Larry Flood: I’ll start you off with a compliment, Clayton.  And that is I really appreciate the breakdown of production that you provide us.  Very few companies do in such detail, and I find it very helpful.

Clayton Williams:  Well, you know, I think it was important to do that.  As you bring in new wells, some of them have just done real well and some of them have been disappointments.  So I felt it was important to the shareholder to recognize that there is a variability in these wells.  And the logs do not always tell us the story.  The initial pressures do not tell us the story.  So, as it worked out, we’ve got 39 million a day coming from the Cotton Valley reefs.  Conversely, we’ve got some encouragement.  But I just have to say that we have to be cautious until we get more production history.

Larry Flood: Yeah.  Just to clarify—your 39 million, that is…

Clayton Williams:  That’s gross. That doesn’t exclude the royalty.

Larry Flood:  Correct.

Clayton Williams:  And we would have about- and the vendors…

Mel Riggs:  The vendors would come of that too.

Clayton Williams:  The vendors come out of that.  Do you want to talk about that end, the vendors, what we’ve planned?

Mel Riggs:  Yeah.  As you recall, we’d had the vendor-financing program in place.  Now our plans are to pay that off before the end of the year.  And it’ll clear up a lot of this.  We’ve got several wells that are under the vendor-financing program of which we get about 40 percent of the gas volumes currently.  And we owe a couple of million dollars I believe.

Clayton Williams:  So that vendor program was a success.  I think all the participants were happy with us.  And we regard that as a potential opportunity down the road when the business situation arises that fits.  That was good. I might just add, if you have roughly 80 percent times 39, it’s a little over 31 million a day net to us.

Larry Flood: Well, isn’t it- excuse me.  The 80 percent is the royalty, is that what you’re saying?

Clayton Williams:  Generally our working interest—I just horse backed that—our working interest in this area generally is about 80 percent.  So I said 80 times 39 would be—take out 20 percent either way—give you 31.5 million a day.  That’d be pretty close.

Larry Flood: Okay.  And, as far as- you live by the sword, you die by the sword.  So as far as your guidance that you gave us, the actual production in the Cotton Valley was around 18 million for the quarter- 18 million a day against- and you have it going up to 24 or 25 million in the final quarter. Now, is that…?

Clayton Williams:  It’s got to be out to that- we talked about the Neyland earlier.  That’s making 9 million a day.  And I think that’s soft.  So I’d say that the 39 is on the optimistic side because of that one well.  So it’s probably some less than that because of that well.

Larry Flood:  So are you saying as far as the netting out to the 24 to 25 million for the fourth quarter, that that is possibly on the optimistic side?

Mel Riggs:  Okay.  What we had- let me go back to that guidance for a moment and talk about what was in that number.  It had the existing wells at that time.  This was back at the end of June when this was put out.  Actually it was filed early August.  But we had the Neyland.  We forecasted it in the numbers.  And that’s how we came up really with the 24 million for the fourth quarter.  We did not have the new Lee Fazzino #2 forecasted.

In our guidance, which we’re getting ready to put out here pretty quick, the next day or so hopefully, if not early next week, you know, we will revise that number for what’s happening with the Neyland, what we believe as far as the production profile, and we’ll be adding in the Lee Fazzino #2.

I think at the end of the day where we’re going to end up is a number very similar to what we pretty much forecasted give or take you know…

Clayton Williams: Yeah, I bet it will be.

Mel Riggs: I mean, I think that’s still a fairly decent number right now.  And I hope it’s a conservative number.

Clayton Williams: All right, sir?

Larry Flood: Okay.  Now here’s a tougher question for you.  And that is, if you could go out on a limb a little bit, could you give us a thought as far as your Louisiana wells and the production, and the assumption that.  Put it this way, it’s not unreasonable for it to reach 10 million a day from a combination of wells.  And if that’s the case, when is a good target for that to occur?

Clayton Williams:  I’m going to say May 1^st.  That’s the target we have to hook up these other three wells.  I’ll be disappointed if it doesn’t beat 10 million a day from the three wells.  I’m expecting substantially more than that.  Now I don’t know that.  And I don’t represent it will do that.  But I’m expecting substantially more than 10 million a day.

Larry Flood: Okay.  That’s helpful.  Thank you.

Clayton Williams:  Yeah.

Operator:  Okay.  We have a follow-up from Steve Orr.  Go ahead please.

Steve Orr:  Just a follow-up—did you say that all the vendor financing would be finished by the end of the year and that we’d be getting the gross number in effect with the existing wells starting early next year?

Mel Riggs: Yeah, we plan to pay that off before the end of the year.  It does several things.  We can book the reserves remaining on those wells.  And it won’t be exactly the gross number.  You’ll have to factor in- currently we get about 40 percent of the revenues or the gas off the vendor wells.  When that’s all done, we’ll be getting 80 percent because you’ve got the royalty still to take 20 percent off the top.  It’ll clean that whole thing up.  When we put these numbers out, you can pretty much use 80 percent.  We give you a gross.  Eighty percent is a pretty good way to get to the net.

Clayton Williams:  So you’re roughly saying you’ll double income from the vendor package when you do that.

Mel Riggs:  That’s right.  It’ll make the reporting a lot clearer, I think.  And plus we’d like to book the reserves.  And the program’s been a success.  We want to finish it.

Steve Orr:  Does that mean that the reserves will change accordingly?  Is that what you’re saying, Mel?

Mel Riggs: Yes, we will have some reserve additions on those vendor wells.  There are five wells I believe.  So we’ll get to pick up some reserves from those wells, what’s left.  And there’s some reserves on- one of the wells is the JC Fazzino #2, which is a good well for us.

Steve Orr:  Very good.  Thank you.

Mel Riggs: Thank you.

Operator:  Okay, Mr. Williams, no further questions for you—I’ll hand it back over to you.

Clayton Williams: All right.  Well, I just thank you for tuning in.  As you can tell, we’ve had a good quarter, a good year so far.  We’ve positioned ourselves with the hedges, with hopefully the drilling we’ll have in the Fazzino area, with the very substantial future we see in South Louisiana.

And basically we’re proud to tell you that three years ago we basically were an Austin Chalk company with a short reserve life.  And now the Austin Chalk is going to be a third or less of our cash flow, and basically we are a gas producing company.  And as we drill more in the gas prone areas, the Miocene areas of South Louisiana, that will accelerate.  And we expect to continue to have a larger percent of our production and reserves from the Miocene in South Louisiana.

So we feel good about it.  We feel good about the prices of drilling and completion are down.  We think long-term gas is good.  We haven’t had enough to drink to have any idea what the oil price is going to do.  We think we’re doing a good job, and we’re happy with where we’re headed.

I want to thank you for tuning in.  And we’ll talk to you next time.

Operator: Thank you.  That does conclude our program for today.  You may all disconnect at this time.  And thank you for dialing in.

END