10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

Commission file number 1-10447

CABOT OIL & GAS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	04-3072771
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1200 Enclave Parkway, Houston, Texas 77077

(Address of principal executive offices including ZIP code)

(281) 589-4600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $.10 per share Rights to Purchase Preferred Stock	New York Stock Exchange New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x                     Accelerated filer  ¨                     Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of Common Stock, par value $.10 per share (“Common Stock”), held by non-affiliates (based upon the closing sales price on the New York Stock Exchange on June 30, 2006), as of the last business day of registrant’s most recently completed second fiscal quarter was approximately $2.4 billion.

As of January 31, 2007, there were 48,329,613 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held May 2, 2007 are incorporated by reference into Part III of this report.

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TABLE OF CONTENTS

PART I		PAGE
ITEM 1	Business	3
ITEM 1A	Risk Factors	19
ITEM 1B	Unresolved Staff Comments	25
ITEM 2	Properties	25
ITEM 3	Legal Proceedings	25
ITEM 4	Submission of Matters to a Vote of Security Holders	27
	Executive Officers of the Registrant	27
PART II
ITEM 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
ITEM 6	Selected Financial Data	30
ITEM 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
ITEM 7A	Quantitative and Qualitative Disclosures about Market Risk	53
ITEM 8	Financial Statements and Supplementary Data	56
ITEM 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	106
ITEM 9A	Controls and Procedures	107
ITEM 9B	Other Information	107
PART III
ITEM 10	Directors, Executive Officers and Corporate Governance	107
ITEM 11	Executive Compensation	108
ITEM 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	108
ITEM 13	Certain Relationships and Related Transactions, and Director Independence	108
ITEM 14	Principal Accountant Fees and Services	108
PART IV
ITEM 15	Exhibits and Financial Statement Schedules	108

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The statements regarding future financial and operating performance and results, strategic pursuits and goals, market prices, future hedging activities, and other statements that are not historical facts contained in this report are forward-looking statements. The words “expect,” “project,” “estimate,” “believe,” “anticipate,” “intend,” “budget,” “plan,” “forecast,” “predict,” “may,” “should,” “could,” “will” and similar expressions are also intended to identify forward-looking statements. These statements involve risks and uncertainties, including, but not limited to, market factors, market prices (including regional basis differentials) of natural gas and oil, results of future drilling and marketing activity, future production and costs, and other factors detailed in this document and in our other Securities and Exchange Commission filings. See “Risk Factors” in Item 1A for additional information about these risks and uncertainties. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, actual outcomes may vary materially from those included in this document. See “Forward-Looking Information” for further details.

CERTAIN DEFINITIONS

The following is a list of commonly used terms and their definitions included within this Annual Report on Form 10-K:

Abbreviated Term	Definition
Mcf	Thousand cubic feet
Mmcf	Million cubic feet
Bcf	Billion cubic feet
Bbl	Barrel
Mbbls	Thousand barrels
Mcfe	Thousand cubic feet of natural gas equivalents
Mmcfe	Million cubic feet of natural gas equivalents
Bcfe	Billion cubic feet of natural gas equivalents
Mmbtu	Million British thermal units
Ngl	Natural gas liquids

PART I

ITEM 1. BUSINESS

OVERVIEW

Cabot Oil & Gas Corporation is an independent oil and gas company engaged in the development, exploitation and exploration of oil and gas properties located in North America. Our five principal areas of operation are the Appalachian Basin, the Gulf Coast, including south and east Texas and north Louisiana, the Rocky Mountains, the Anadarko Basin and the deep gas basin of Western Canada. Operationally, we have four regional offices located in Houston, Texas; Charleston, West Virginia; Denver, Colorado; and Calgary, Alberta.

Net income for 2006 of $321.2 million, or $6.64 per share, exceeded the prior year’s net income of $148.4 million, or $3.04 per share, by $172.8 million, or 116% over the prior year net income. The year-over-year net income increase was achieved primarily due to the recognition of a gain of $231.2 million ($144.5 million, net of tax) in 2006 related to the disposition of our offshore and certain south Louisiana properties, along with higher realized natural gas and crude oil production revenues as a result of more favorable settlements of production hedges on natural gas and increases in crude oil prices. These increases were partially offset by higher operating expenses of $41.0 million between 2005 and 2006. Higher operating expenses were principally due to increased depreciation, depletion and amortization costs, general and administrative expenses, and direct operations expenses. In addition, income tax expenses increased by $101.5 million primarily as a result of the gain on the disposition of properties discussed above. At December 31, 2006, our debt-to-total-capital ratio was 20%, down from 36% at the end of 2005.

Operating Revenues increased by $79.2 million, or 12%, over the prior year due to increased natural gas production as well as strong realized commodity prices. Natural gas production revenues increased by $68.9 million, or 14%, over the prior year due to increased natural gas production in all regions as well as higher realized natural gas prices. Crude oil and

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condensate revenues increased by $9.0 million, or 11%, over the prior year due primarily to an increase in crude oil prices. Somewhat offsetting the crude oil price increase was the decrease in crude oil production of approximately 19% in 2006. Both of these increases were net of the effect of the loss of production due to the sale of our offshore and certain south Louisiana properties at the end of the third quarter of 2006. In addition, crude oil revenues for 2005 included an unrealized gain on crude oil derivatives of $5.5 million, and there was no unrealized impact in 2006. Brokered natural gas revenues decreased by $4.9 million due to a decrease in sales price partially offset by an increase in brokered volumes.

In 2006, energy commodity prices remained strong throughout the year. Our 2006 realized natural gas price was $7.13 per Mcf, six percent higher than the 2005 realized price of $6.74. Our realized crude oil price was $65.03 per Bbl, 47% higher than the 2005 realized price of $44.19. These realized prices include the realized impact of derivative instruments (costless collars or swaps). For information about the impact of these derivatives on realized prices, refer to the “Results of Operations” section in Item 7 of this Annual Report on Form 10-K. The continued strength in the forward curve above historical levels and our receivable hedge position allowed us to pursue our largest organic capital program ever in 2006. This program included a significant level of drilling and investment in new leaseholds for the future. While operating cash flow for the year did not cover this capital program, the proceeds from the sale of assets allowed us to fund our investment plans. We believe that as a result of the activity in 2006, we have the financial and operational flexibility to take advantage of opportunities as they arise.

On an equivalent basis, our production level in 2006 increased by five percent from 2005. We produced 88.2 Bcfe, or 241.7 Mmcfe per day, in 2006, as compared to 84.4 Bcfe, or 231.1 Mmcfe per day, in 2005. Natural gas production increased to 79.7 Bcf in 2006 from 73.9 Bcf in 2005, with increases in natural gas production occurring in all regions. This growth primarily resulted from our 2005 and 2006 drilling programs, which focused on projects in basins traditionally known for gas development. Highlights included the East region, the Minden field in the Gulf Coast and Canada. This natural gas production increase includes the effects of the divestiture of our offshore and certain south Louisiana properties. Oil production decreased by 334 Mbbls from 1,739 Mbbls in 2005 to 1,405 Mbbls in 2006 due primarily to a decrease in production in the Gulf Coast region resulting from the continued natural decline of the CL&F lease in south Louisiana as well as the sale in September 2006 of this lease and other offshore and certain south Louisiana properties.

A portion of our production was covered by oil and gas hedge instruments throughout 2006. Again during 2006 as in 2005, we employed the use of collars to hedge our price exposure on our production. For 2006, collars covered 34% of the natural gas production and had a weighted average floor of $8.25 per Mcf and a weighted average ceiling of $12.74 per Mcf. At December 31, 2006, approximately 49% of the anticipated 2007 natural gas production is hedged with a weighted average floor of $8.99 per Mcf and a weighted average ceiling of $12.19 per Mcf. For 2006, collars covered 26% of the crude oil production with an average floor of $50.00 per Bbl and an average ceiling of $76.00 per Bbl. At December 31, 2006, approximately 47% of our anticipated crude oil production is hedged for 2007 with a weighted average floor of $60.00 per Bbl and a weighted average ceiling of $80.00 per Bbl. As of December 31, 2006, no derivatives are in place for 2008. Our decision to hedge 2007 production fits with our risk management strategy and allows us to lock in the benefit of high commodity prices on a portion of our anticipated production. With greater volumes hedged for 2007 than in 2006 and hedged levels at higher prices, the market would have to soften considerably for us not to match 2006 realized prices in 2007.

For the year ended December 31, 2006, we drilled 387 gross wells with a success rate of 96% compared to 316 gross wells with a success rate of 95% for the prior year. In 2007, we plan to drill approximately 440 gross wells.

Our 2006 capital and exploration spending was $537.5 million compared to $425.6 million of total capital and exploration spending in 2005. Total 2005 capital and exploration spending included $73.1 million, primarily in the Gulf Coast, to acquire proved producing properties. We remain focused on our strategies of pursuing lower risk drilling opportunities that provide more predictable results and selectively pursuing impact exploration opportunities as we accelerate drilling on our accumulated acreage position. In 2006, we allocated our planned program for capital and exploration expenditures among our various operating regions, and we plan to continue to do so in 2007. For 2007, the East region will start the year with the largest allocation of capital, followed by the Gulf Coast, the West and Canada. This is the first time since 1997 that the Gulf Coast is not the leading capital allocation recipient. We believe these strategies are appropriate in the current industry environment and will continue to add shareholder value over the long term. In 2007, we plan to spend approximately $434 million on capital and exploration activities.

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Our proved reserves totaled approximately 1,416 Bcfe at December 31, 2006, of which 97% was natural gas. This reserve level was up by six percent from 1,331 Bcfe at December 31, 2005 on the strength of results from our drilling program and the increase in our capital spending. The reserve levels set forth below reflect the impact of approximately 68 Bcfe of proved reserves at December 31, 2005 associated with the offshore and certain south Louisiana properties sold at the end of the third quarter of 2006.

The following table presents certain reserve, production and well information as of December 31, 2006.

					West
	East		Gulf Coast		Rocky Mountains		Mid- Continent		Total		Canada		Total
Proved Reserves at Year End (Bcfe)
Developed	491.5		153.9		193.8		168.1		361.9		24.9		1,032.2
Undeveloped	212.1		81.3		62.2		24.6		86.8		3.7		383.9
Total	703.6		235.2		256.0		192.7		448.7		28.6		1,416.1
Average Daily Production (Mmcfe per day)	64.9		101.2		37.9		30.4		68.3		7.3		241.7
Reserve Life Index (In years) (1)	29.7		6.4		18.5		17.4		18.0		10.8		16.1
Gross Wells	2,926		566		638		728		1,366		28		4,886
Net Wells (2)	2,719.4		380.4		281.2		502.6		783.8		8.2		3,891.8
Percent Wells Operated (Gross)	96.8	%	77.4	%	49.8	%	76.4	%	64.0	%	53.6	%	85.1	%

⁽¹⁾ Reserve Life Index is equal to year-end reserves divided by annual production.

⁽²⁾ The term “net” as used in “net acreage” or “net production” throughout this document refers to amounts that include only acreage or production that is owned by us and produced to our interest, less royalties and production due others. “Net wells” represents our working interest share of each well.

SALE OF PROPERTIES

On September 29, 2006, we substantially completed the sale of our offshore portfolio and certain south Louisiana properties to Phoenix Exploration Company LP (Phoenix) for a gross sales price of $340.0 million. The properties sold included proved reserves of approximately 98 Bcfe, as of the August 1, 2006 effective date, including 68 Bcfe of proved reserves recorded as of December 31, 2005, and had average daily production for the first nine months of 2006 of 47.4 Mmcfe.

Pursuant to the asset purchase agreement for the sale, dated August 25, 2006, the gross sales price was offset by the net cash flow from operation of the properties from August 1, 2006 through the closing date and other purchase price adjustments. The net proceeds from the sale were used to add funding to our capital program, repurchase shares of common stock, repay outstanding debt under the revolving credit facility and pay taxes related to the transaction. Also pursuant to the agreement, we entered into certain commodity price swaps on behalf of Phoenix. At closing on September 29, 2006, these derivative instruments were assigned to Phoenix, and we were released from all rights and obligations with respect thereto. There was no ultimate impact on our financial statements due to the existence of these swaps.

Through December 31, 2006, the Company had received approximately $327.5 million in net proceeds from the sale, which reflects the $340.0 million gross sales price, reduced by purchase price adjustments of $4.0 million as well as amounts attributable to consents and preferential rights expected to be settled in the first quarter of 2007 of $8.5 million. A net gain of $231.2 million ($144.5 million, net of tax) was recorded in the Consolidated Statement of Operations in 2006 and an additional gain of approximately $12 million is expected to be recognized in the first quarter of 2007 in connection with the closing of certain property sales to Phoenix for which third party consents (including deferred amounts) had not been obtained as of December 31, 2006 and sales to other parties that exercised their contractual preferential rights. This gain will be subject to customary purchase price adjustments.

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EAST REGION

Our East activities are concentrated primarily in West Virginia. In this region, our assets include a large acreage position, a high concentration of wells, natural gas gathering and pipeline systems, and storage capacity. Capital and exploration expenditures for 2006 and 2005, respectively, were $145.4 million, or 27% of our total 2006 capital and exploration expenditures, and $99.0 million, or 23% of our total 2005 capital and exploration expenditures. Of the total company year-over-year increase in capital and exploration expenditures, 42% was attributable to an increase in the East region spending. For 2007, we have budgeted approximately $160 million for capital and exploration expenditures in the region.

At December 31, 2006, we had 2,926 wells (2,719.4 net), of which 2,833 wells are operated by us. There are multiple producing intervals that include the Big Lime, Weir, Berea and Devonian Shale formations at depths primarily ranging from 1,000 to 9,300 feet, with an average depth of approximately 3,750 feet. Average net daily production in 2006 was 64.9 Mmcfe. While natural gas production volumes from East reservoirs are relatively low on a per-well basis compared to other areas of the United States, the productive life of East reserves is relatively long. At December 31, 2006, we had 703.6 Bcfe of proved reserves (substantially all natural gas) in the East region, constituting 50% of our total proved reserves. This region is managed from our office in Charleston, West Virginia.

In 2006, we drilled 200 wells (190.7 net) in the East region, of which 197 wells (188.0 net) were development wells. In 2007, we plan to drill approximately 270 wells.

In 2006, we produced and marketed approximately 65 barrels of crude oil/condensate per day in the East region at market responsive prices.

Ancillary to our exploration, development and production operations, we operated a number of gas gathering and transmission pipeline systems, made up of approximately 2,700 miles of pipeline with interconnects to three interstate transmission systems, seven local distribution companies and numerous end users as of the end of 2006. The majority of our pipeline infrastructure in West Virginia is regulated by the Federal Energy Regulatory Commission (FERC) for interstate transportation service and the West Virginia Public Service Commission (WVPSC) for intrastate transportation service. As such, the transportation rates and terms of service of our pipeline subsidiary, Cranberry Pipeline Corporation, are subject to the rules and regulations of the FERC and the WVPSC. Our natural gas gathering and transmission pipeline systems enable us to connect new wells quickly and to transport natural gas from the wellhead directly to interstate pipelines, local distribution companies and industrial end users. Control of our gathering and transmission pipeline systems also enables us to purchase, transport and sell natural gas produced by third parties. In addition, we can engage in development drilling without relying upon third parties to transport our natural gas and incur only the incremental costs of pipeline and compressor additions to our system.

We have two natural gas storage fields located in West Virginia with a combined working capacity of approximately 4 Bcf. We use these storage fields to take advantage of the seasonal variations in the demand for natural gas and the higher prices typically associated with winter natural gas sales, while maintaining production at a nearly constant rate throughout the year. The storage fields also enable us to increase for shorter intervals of time the volume of natural gas that we can deliver by more than 40% above the volume that we could deliver solely from our production in the East region. The pipeline systems and storage fields are fully integrated with our operations.

The principal markets for our East region natural gas are in the northeast United States. We sell natural gas to industrial customers, local distribution companies and gas marketers both on and off our pipeline and gathering system.

Approximately 65% of our natural gas sales volume in the East region is sold at index-based prices under contracts with a term of one year or greater. In addition, spot market sales are made at index-based prices under month-to-month contracts, while industrial and utility sales generally are made under year-to-year contracts. Approximately two percent of East production is sold on fixed price contracts that typically renew annually.

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GULF COAST REGION

Our development, exploitation, exploration and production activities in the Gulf Coast region are primarily concentrated in north Louisiana and in south and east Texas. A regional office in Houston manages the operations. Principal producing intervals are in the Cotton Valley and Hosston formations in north Louisiana and east Texas and the Frio, Vicksburg and Wilcox formations in south Texas at depths ranging from 2,200 to 17,000 feet, with an average depth of approximately 9,600 feet. Capital and exploration expenditures were $234.8 million for 2006, or 44% of our total 2006 capital and exploration expenditures, and $233.5 million for 2005, or 55% of our total 2005 capital and exploration expenditures. For 2007, we have budgeted approximately $135 million for capital and exploration expenditures in the region. Our 2007 Gulf Coast drilling program will emphasize activity in our focus areas of east Texas, north Louisiana and south Texas.

In 2006, we drilled 64 wells (50.8 net) in the Gulf Coast region, of which 52 wells (41.4 net) were development and extension wells. In 2007, we plan to drill 51 wells. We had 566 wells (380.4 net) in the Gulf Coast region as of December 31, 2006, of which 438 wells are operated by us. Average daily production in 2006 was 101.2 Mmcfe. At December 31, 2006, we had 235.2 Bcfe of proved reserves (89% natural gas) in the Gulf Coast region, which represented 16% of our total proved reserves.

Our principal markets for Gulf Coast region natural gas are in the industrialized Gulf Coast area and the northeast United States. We sell natural gas to intrastate pipelines, natural gas processors and marketing companies. Currently, approximately 50% of our natural gas sales volumes in the Gulf Coast region are sold at index-based prices under contracts with terms of one to three years. The remaining 50% of our sales volumes are sold at index-based prices under short-term agreements. The Gulf Coast properties are connected to various processing plants in Texas and Louisiana with multiple interstate and intrastate deliveries, affording us access to multiple markets.

In 2006, we produced and marketed approximately 3,177 barrels of crude oil/condensate per day in the Gulf Coast region at market responsive prices.

WEST REGION

Our activities in the West region are managed by a regional office in Denver, Colorado. At December 31, 2006, we had 448.7 Bcfe of proved reserves (96% natural gas) in the West region, constituting 32% of our total proved reserves.

Rocky Mountains

Activities in the Rocky Mountains are concentrated in the Green River and Washakie Basins in Wyoming and Paradox Basin in Colorado. At December 31, 2006, we had 256.0 Bcfe of proved reserves (95% natural gas) in the Rocky Mountains area, or 18% of our total proved reserves. Capital and exploration expenditures in the Rocky Mountains were $66.2 million for 2006, or 12% of our total 2006 capital and exploration expenditures, and $45.4 million for 2005, or 11% of our total 2005 capital and exploration expenditures. For 2007, we have budgeted approximately $59 million for capital and exploration expenditures in the area.

We had 638 wells (281.2 net) in the Rocky Mountains area as of December 31, 2006, of which 318 wells are operated by us. Principal producing intervals in the Rocky Mountains area are in the Almond, Frontier, Dakota and Honaker Trail formations at depths ranging from 4,500 to 14,200 feet, with an average depth of approximately 10,950 feet. Average net daily production in the Rocky Mountains during 2006 was 37.9 Mmcfe.

In 2006, we drilled 63 wells (27.6 net) in the Rocky Mountains, of which 61 wells (25.9 net) were development wells. In 2007, we plan to drill 55 wells.

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Mid-Continent

Our Mid-Continent activities are concentrated in the Anadarko Basin in southwest Kansas, Oklahoma and the panhandle of Texas. Capital and exploration expenditures were $39.8 million for 2006, or seven percent of our total 2006 capital and exploration expenditures, and $23.7 million for 2005, or six percent of our total 2005 capital and exploration expenditures. For 2007, we have budgeted approximately $43 million for capital and exploration expenditures in the area.

As of December 31, 2006, we had 728 wells (502.6 net) in the Mid-Continent area, of which 556 wells are operated by us. Principal producing intervals in the Mid-Continent are in the Chase, Morrow and Chester formations at depths ranging from 2,200 to 17,500 feet, with an average depth of approximately 7,050 feet. Average net daily production in 2006 was 30.4 Mmcfe. At December 31, 2006, we had 192.7 Bcfe of proved reserves (97% natural gas) in the Mid-Continent area, or 14% of our total proved reserves.

In 2006, we drilled 50 wells (32.5 net) in the Mid-Continent, all of which were development and extension wells. In 2007, we plan to drill 53 wells.

Our principal markets for West region natural gas are in the northwest and midwest United States. We sell natural gas to power generators, natural gas processors, local distribution companies, industrial customers and marketing companies. Currently, approximately 75% of our natural gas production in the West region is sold primarily under contracts with a term of one to three years at index-based prices. Another 23% of the natural gas production is sold under short-term arrangements at index-based prices, and the remaining two percent is sold under certain fixed-price contracts. The West region properties are connected to the majority of the midwest and northwest interstate and intrastate pipelines, affording us access to multiple markets.

In 2006, we produced and marketed approximately 573 barrels of crude oil/condensate per day in the West region at market responsive prices.

CANADA REGION

Our activities in the Canada region are managed by a regional office in Calgary, Alberta. Our Canadian exploration, development and producing activities are concentrated in the Provinces of Alberta and British Columbia. At December 31, 2006, we had 28.6 Bcfe of proved reserves (98% natural gas) in the Canada region, constituting two percent of our total proved reserves.

Capital and exploration expenditures in Canada were $49.0 million for 2006, or nine percent of our total 2006 capital and exploration expenditures, and $22.9 million for 2005, or five percent of our total 2005 capital and exploration expenditures. For 2007, we have budgeted approximately $35 million for capital and exploration expenditures in the area.

We had 28 wells (8.2 net) in the Canada region as of December 31, 2006, of which 15 wells are operated by us. Principal producing intervals in the Canada region are in the Falher, Bluesky, Cadomin, Dunvegan and the Mountain Park formations at depths ranging from 9,500 to 12,000 feet. Average net daily production in Canada during 2006 was 7.3 Mmcfe.

In 2006, we drilled 10 wells (5.4 net) in Canada, of which 7 wells (3.6 net) were development and extension wells. In 2007, we plan to drill 11 wells.

In 2006, we produced and marketed approximately 32 barrels of crude oil/condensate per day in the Canada region at market responsive prices.

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RISK MANAGEMENT

From time to time, when we believe that market conditions are favorable, we use certain derivative financial instruments to manage price risks associated with our production in all of our regions. While there are many different types of derivatives available, in 2006 we employed natural gas and crude oil price collar agreements to attempt to manage price risk more effectively. The collar arrangements are put and call options used to establish floor and ceiling commodity prices for a fixed volume of production during a certain time period. They provide for payments to counterparties if the index price exceeds the ceiling and payments from the counterparties if the index price is below the floor. In 2005, we employed natural gas and crude oil price collars along with natural gas and crude oil price swap agreements. The price swaps call for payments to, or receipts from, counterparties based on whether the market price of natural gas or crude oil for the period is greater or less than the fixed price established for that period when the swap is put in place. At December 31, 2006, we have natural gas and crude oil price collar arrangements in place for 2007.

We will continue to evaluate the benefit of employing derivatives in the future. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk” for further discussion concerning our use of derivatives.

RESERVES

Current Reserves

The following table presents our estimated proved reserves at December 31, 2006.

	Natural Gas (Mmcf)			Liquids (1) (Mbbl)			Total (2) (Mmcfe)
	Developed	Undeveloped	Total	Developed	Undeveloped	Total	Developed	Undeveloped	Total
East	488,790	212,107	700,897	456	—	456	491,528	212,107	703,635
Gulf Coast	137,250	71,337	208,587	2,782	1,654	4,436	153,941	81,259	235,200
Rocky Mountains	184,156	59,934	244,090	1,600	383	1,983	193,753	62,234	255,987
Mid-Continent	162,202	24,409	186,611	984	40	1,024	168,109	24,646	192,755
Canada	24,452	3,656	28,108	73	1	74	24,891	3,661	28,552
Total	996,850	371,443	1,368,293	5,895	2,078	7,973	1,032,222	383,907	1,416,129

⁽¹⁾ Liquids include crude oil, condensate and natural gas liquids.

⁽²⁾ Natural gas equivalents are determined using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil, condensate or natural gas liquids.

The proved reserve estimates presented here were prepared by our petroleum engineering staff and reviewed by Miller and Lents, Ltd., independent petroleum engineers. Miller and Lents concluded the following: In their judgment we have an effective system for gathering data and documenting information required to estimate our proved reserves and project our future revenues; we used appropriate engineering, geologic and evaluation principles in making our estimates and projections and our total proved reserves are reasonable. For additional information regarding estimates of proved reserves, the review of such estimates by Miller and Lents, Ltd., and other information about our oil and gas reserves, see the Supplemental Oil and Gas Information to the Consolidated Financial Statements included in Item 8. A copy of the review letter by Miller and Lents, Ltd. has been filed as an exhibit to this Form 10-K. Our estimates of proved reserves in the table above are consistent with those filed by us with other federal agencies. During 2006, we filed estimates of our oil and gas reserves for the year 2005 with the Department of Energy. These estimates differ by 5 percent or less from the reserve data presented. Our reserves are sensitive to natural gas and crude oil sales prices and their effect on economic producing rates. Our reserves are based on oil and gas index prices in effect on the last day of December 2006. If we had considered the impact of our hedging activities, which were in a receivable position at December 31, 2006, in our proved reserves, there would not have been any significant effect.

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For additional information about the risks inherent in our estimates of proved reserves, see “Risk Factors—Reserve estimates depend on many assumptions that may prove to be inaccurate. Any material inaccuracies in our reserve estimates or underlying assumptions could cause the quantities and net present value of our reserves to be overstated” in Item 1A.

Historical Reserves

The following table presents our estimated proved reserves for the periods indicated.

	Natural Gas		Oil & Liquids		Total
	(Mmcf)		(Mbbl)		(Mmcfe) (1)
December 31, 2003	1,069,484		12,103		1,142,108
Revision of Prior Estimates	(7,850	)	185		(6,739	)
Extensions, Discoveries and Other Additions	140,986		1,074		147,426
Production	(72,833	)	(2,002	)	(84,847	)
Purchases of Reserves in Place	5,384		24		5,525
Sales of Reserves in Place	(1,090	)	—		(1,090	)
December 31, 2004	1,134,081		11,384		1,202,383
Revision of Prior Estimates	(1,543	)	1,073		4,892
Extensions, Discoveries and Other Additions	185,884		334		187,891
Production	(73,879	)	(1,747	)	(84,361	)
Purchases of Reserves in Place	17,567		419		20,083
Sales of Reserves in Place	(14	)	—		(14	)
December 31, 2005	1,262,096		11,463		1,330,874
Revision of Prior Estimates (2)	(17,675	)	673		(13,640	)
Extensions, Discoveries and Other Additions	246,197		1,066		252,594
Production	(79,722	)	(1,415	)	(88,212	)
Purchases of Reserves in Place	1,946		38		2,176
Sales of Reserves in Place	(44,549	)	(3,852	)	(67,663	)
December 31, 2006	1,368,293		7,973		1,416,129
Proved Developed Reserves
December 31, 2003	812,280		9,405		868,712
December 31, 2004	857,834		8,652		909,747
December 31, 2005	944,897		9,127		999,661
December 31, 2006	996,850		5,895		1,032,222

⁽¹⁾ Includes natural gas and natural gas equivalents determined by using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil, condensate or natural gas liquids.

⁽²⁾ The majority of the revisions were the result of the decrease in the natural gas price on December 31, 2006 from the price on December 31, 2005.

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Volumes and Prices: Production Costs

The following table presents regional historical information about our net wellhead sales volume for natural gas and crude oil (including condensate and natural gas liquids), produced natural gas and crude oil realized sales prices, and production costs per equivalent.

	Year Ended December 31,
	2006		2005		2004
Net Wellhead Sales Volume
Natural Gas (Bcf)
East		23.5		21.4		19.4
Gulf Coast		30.0		28.1		31.3
West		23.6		23.2		21.9
Canada		2.6		1.2		0.2
Crude/Condensate/Ngl (Mbbl)
East		24		27		27
Gulf Coast		1,164		1,530		1,809
West		214		172		163
Canada		13		18		3
Produced Natural Gas Sales Price ($/Mcf) (1)
East	$	7.99	$	8.02	$	5.60
Gulf Coast		7.37		6.38		5.27
West		6.05		6.00		4.75
Canada		6.18		6.79		4.69
Weighted Average		7.13		6.74		5.20
Crude/Condensate Sales Price ($/Bbl) (1)	$	65.03	$	44.19	$	31.55
Production Costs ($/Mcfe) (2)	$	1.31	$	1.23	$	0.99

⁽¹⁾ Represents the average realized sales price for all production volumes and royalty volumes sold during the periods shown, net of related costs (principally purchased gas royalty, transportation and storage).

⁽²⁾ Production costs include direct lifting costs (labor, repairs and maintenance, materials and supplies), the costs of administration of production offices, insurance and property and severance taxes, but is exclusive of depreciation and depletion applicable to capitalized lease acquisition, exploration and development expenditures.

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Acreage

The following tables summarize our gross and net developed and undeveloped leasehold and mineral acreage at December 31, 2006. Acreage in which our interest is limited to royalty and overriding royalty interests is excluded.

	Developed		Undeveloped		Total
	Gross	Net	Gross	Net	Gross	Net
Leasehold Acreage by State
Alabama	0	0	5,391	3,965	5,391	3,965
Arkansas	1,981	425	0	0	1,981	425
Colorado	16,268	14,053	204,594	131,896	220,862	145,949
Kansas	29,067	27,745	0	0	29,067	27,745
Louisiana	8,367	6,189	52,652	51,427	61,019	57,616
Mississippi	0	0	565,916	322,095	565,916	322,095
Montana	397	210	9,982	9,085	10,379	9,295
New York	2,379	961	621	256	3,000	1,217
Ohio	6,260	2,384	20,152	18,963	26,412	21,347
Oklahoma	176,303	122,978	23,334	15,912	199,637	138,890
Pennsylvania	111,496	63,549	19,213	19,148	130,709	82,697
Texas	108,748	75,082	41,350	26,884	150,098	101,966
Utah	2,820	1,609	191,404	99,412	194,224	101,021
Virginia	22,298	20,201	2,854	1,770	25,152	21,971
West Virginia	591,571	558,578	297,758	276,661	889,329	835,239
Wyoming	139,103	72,034	273,704	152,638	412,807	224,672
Total	1,217,058	965,998	1,708,925	1,130,112	2,925,983	2,096,110
Mineral Fee Acreage by State
Colorado	0	0	2,899	271	2,899	271
Kansas	160	128	0	0	160	128
Montana	0	0	589	75	589	75
New York	0	0	6,545	1,353	6,545	1,353
Oklahoma	16,580	13,979	730	179	17,310	14,158
Pennsylvania	524	524	1,573	502	2,097	1,026
Texas	207	135	1,012	511	1,219	646
Virginia	17,817	17,817	100	34	17,917	17,851
West Virginia	97,455	79,488	51,603	49,671	149,058	129,159
Total	132,743	112,071	65,051	52,596	197,794	164,667
Aggregate Total	1,349,801	1,078,069	1,773,976	1,182,708	3,123,777	2,260,777
	Developed		Undeveloped		Total
	Gross	Net	Gross	Net	Gross	Net
Canada Leasehold Acreage by Province
Alberta	8,320	3,627	99,931	34,099	108,251	37,726
British Columbia	700	280	11,988	4,730	12,688	5,010
Saskatchewan	0	0	9,903	9,903	9,903	9,903
Total	9,020	3,907	121,822	48,732	130,842	52,639

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Total Net Leasehold Acreage by Region of Operation

	Developed	Undeveloped	Total
East	645,673	316,798	962,471
Gulf Coast	54,419	404,243	458,662
West	265,906	409,071	674,977
Canada	3,907	48,732	52,639
Total	969,905	1,178,844	2,148,749

Total Net Undeveloped Acreage Expiration by Region of Operation

The following table presents our net undeveloped acreage expiring over the next three years by operating region as of December 31, 2006. The figures below assume no future successful development or renewal of undeveloped acreage.

	2007	2008	2009
East	52,924	33,405	24,494
Gulf Coast	49,242	18,907	5,601
West	68,998	158,124	47,164
Canada	19,781	11,856	4,289
Total	190,945	222,292	81,548

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Well Summary

The following table presents our ownership at December 31, 2006, in productive natural gas and oil wells in the East region (consisting of various fields located in West Virginia, Virginia and Ohio), in the Gulf Coast region (consisting primarily of various fields located in Louisiana and Texas), in the West region (consisting of various fields located in Oklahoma, Kansas, Colorado and Wyoming) and in the Canada region (consisting of various fields located in the Province of Alberta). This summary includes natural gas and oil wells in which we have a working interest.

	Natural Gas		Oil		Total (1)
	Gross	Net	Gross	Net	Gross	Net
East	2,901	2,707.4	25	12.0	2,926	2,719.4
Gulf Coast	455	278.0	111	102.4	566	380.4
West	1,311	749.6	55	34.2	1,366	783.8
Canada	28	8.2	0	0.0	28	8.2
Total	4,695	3,743.2	191	148.6	4,886	3,891.8

⁽¹⁾ Total does not include service wells of 50 (49.0 net).

Drilling Activity

We drilled wells, participated in the drilling of wells, or acquired wells as indicated in the region table below.

	Year Ended December 31, 2006
	East		Gulf Coast		West		Canada		Total
	Gross	Net	Gross	Net	Gross	Net	Gross	Net	Gross	Net
Development Wells
Successful	195	186.0	40	29.8	107	56.0	5	2.7	347	274.5
Dry	2	2.0	2	1.9	3	2.3	1	0.2	8	6.4
Extension Wells
Successful	0	0.0	10	9.7	1	0.1	0	0.0	11	9.8
Dry	0	0.0	0	0.0	0	0.0	1	0.7	1	0.7
Exploratory Wells
Successful	2	2.0	8	6.2	0	0.0	2	0.8	12	9.0
Dry	1	0.7	4	3.2	2	1.7	1	1.0	8	6.6
Total	200	190.7	64	50.8	113	60.1	10	5.4	387	307.0
Wells Acquired	5	5.0	0	0.0	0	0.0	1	0.4	6	5.4
Wells in Progress at End of Year	0	0.0	4	3.9	1	0.5	2	1.3	7	5.7

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Competition

Competition in our primary producing areas is intense. Price, contract terms and quality of service, including pipeline connection times and distribution efficiencies, affect competition. We believe that in the East region our extensive acreage position, existing natural gas gathering and pipeline systems, services and equipment that we have secured for the upcoming year and storage fields enhance our competitive position over other producers who do not have similar systems or facilities in place. We also actively compete against other companies with substantially larger financial and other resources, particularly in the West and Gulf Coast regions and Canada.

OTHER BUSINESS MATTERS

Major Customer

In 2006, no customer accounted for more than 10% of our total sales. In each of 2005 and 2004, approximately 11% of our total sales were made to one customer.

Seasonality

Demand for natural gas has historically been seasonal, with peak demand and typically higher prices occurring during the colder winter months.

Regulation of Oil and Natural Gas Exploration and Production

Exploration and production operations are subject to various types of regulation at the federal, state and local levels. This regulation includes requiring permits to drill wells, maintaining bonding requirements to drill or operate wells, and regulating the location of wells, the method of drilling and casing wells, the surface use and restoration of properties on which wells are drilled, and the plugging and abandoning of wells. Our operations are also subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units or proration units, the density of wells that may be drilled in a given field, and the unitization or pooling of oil and natural gas properties. Some states allow the forced pooling or integration of tracts to facilitate exploration while other states rely on voluntary pooling of lands and leases. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells, generally prohibiting the venting or flaring of natural gas and imposing certain requirements regarding the ratability of production. The effect of these regulations is to limit the amounts of oil and natural gas we can produce from our wells, and to limit the number of wells or the locations where we can drill. Because these statutes, rules and regulations undergo constant review and often are amended, expanded and reinterpreted, we are unable to predict the future cost or impact of regulatory compliance. The regulatory burden on the oil and gas industry increases its cost of doing business and, consequently, affects its profitability. We do not believe, however, we are affected differently by these regulations than others in the industry.

Natural Gas Marketing, Gathering and Transportation

Federal legislation and regulatory controls have historically affected the price of the natural gas we produce and the manner in which our production is transported and marketed. Under the Natural Gas Act of 1938 (NGA), the FERC regulates the interstate sale for resale of natural gas and the transportation of natural gas in interstate commerce, although facilities used in the production or gathering of natural gas in interstate commerce are generally exempted from FERC jurisdiction. Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act deregulated natural gas prices for all “first sales” of natural gas, which definition covers all sales of our own production. In addition, as part of the broad industry restructuring initiatives described below, the FERC has granted to all producers such as us a “blanket certificate of public convenience and necessity” authorizing the sale of gas for resale without further FERC approvals. As a result, all of our produced natural gas may now be sold at market prices, subject to the terms of any private contracts that may be in effect. In addition, under the provisions of the Energy Policy Act of 2005, the NGA has been amended to prohibit any forms of market manipulation in connection with the purchase or sale of natural gas, and the FERC has been directed to establish new regulations that are intended to increase natural gas pricing transparency through, among other things, expanded dissemination of information about the availability and prices of gas sold. The 2005 Act also significantly increases the penalties for violations of the NGA.

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Our natural gas sales prices nevertheless continue to be affected by intrastate and interstate gas transportation regulation, because the prices we receive for our production are affected by the cost of transporting the gas to the consuming market. Through a series of comprehensive rulemakings, beginning with Order No. 436 in 1985 and continuing through Order No. 636 in 1992 and Order No. 637 in 2000, the FERC has adopted regulatory changes that have significantly altered the transportation and marketing of natural gas. These changes were intended by the FERC to foster competition by, among other things, transforming the role of interstate pipeline companies from wholesale marketers of gas to the primary role of gas transporters, and by increasing the transparency of pricing for pipeline services. The FERC has also established interim rules governing the relationship of pipelines with their marketing affiliates, and has initiated a rulemaking proceeding to consider whether to make those rules permanent. The FERC has also implemented standards relating to the use of electronic data exchange by the pipelines to make transportation information available on a timely basis and to enable transactions to occur on a purely electronic basis.

In light of these statutory and regulatory changes, most pipelines have divested their gas sales functions to marketing affiliates, which operate separately from the transporter and in direct competition with all other merchants, and most pipelines have also implemented the large-scale divestiture of their gas gathering facilities to affiliated or non-affiliated companies. Interstate pipelines thus now generally provide unbundled, open and nondiscriminatory transportation and transportation-related services to producers, gas marketing companies, local distribution companies, industrial end users and other customers seeking such services. Sellers and buyers of gas have gained direct access to the particular pipeline services they need, and are better able to conduct business with a larger number of counterparties. We believe these changes generally have improved our access to markets while, at the same time, substantially increasing competition in the natural gas marketplace.

Certain of our pipeline systems and storage fields in West Virginia are regulated for safety compliance by the U.S. Department of Transportation (DOT) and the West Virginia Public Service Commission. In 2002, Congress enacted the Pipeline Safety Improvement Act of 2002 (2002 Act), which contains a number of provisions intended to increase pipeline operating safety. The DOT’s final regulations implementing the act became effective February 2004. Among other provisions, the regulations require that pipeline operators implement a pipeline integrity management program that must at a minimum include an inspection of gas transmission and non-rural gathering pipeline facilities within the next ten years, and at least every seven years thereafter. In December 2006, Congress enacted the Pipeline Inspection, Protection, Enforcement and Safety Act of 2006, which reauthorizes the programs adopted under the 2002 Act, proposes enhancements for state programs to reduce excavation damage to pipelines, establishes increased federal enforcement of one-call excavation programs, and establishes a new program for review of pipeline security plans and critical facility inspections. In addition, beginning in October 2005, the DOT’s Pipeline and Hazardous Materials Safety Administration commenced a rulemaking proceeding to develop rules that would better distinguish onshore gathering lines from production facilities and transmission lines, and to develop safety requirements better tailored to gathering line risks. On March 15, 2006, the DOT revised its regulations to define more clearly the categories of gathering facilities subject to DOT regulation, establish new safety rules for certain gathering lines in rural areas, revise the current regulations applicable to safety and inspection of gathering lines in non-rural areas, and adopt new compliance deadlines. We are not able to predict with certainty the final outcome of these new rules on our facilities or our business.

We cannot predict what new or different regulations the FERC and other regulatory agencies may adopt, or what effect subsequent regulations may have on our activities. Similarly, it is impossible to predict what proposals, if any, that affect the oil and natural gas industry might actually be enacted by Congress or the various state legislatures and what effect, if any, such proposals might have on us. Similarly, and despite the recent trend toward federal deregulation of the natural gas industry, whether or to what extent that trend will continue, or what the ultimate effect will be on our sales of gas, cannot be predicted.

Federal Regulation of Petroleum

Our sales of oil and natural gas liquids are not regulated and are at market prices. The price received from the sale of these products is affected by the cost of transporting the products to market. Much of that transportation is through interstate common carrier pipelines. Effective January 1, 1995, the FERC implemented regulations generally grandfathering all previously approved interstate transportation rates and establishing an indexing system for those rates by which adjustments are made annually based on the rate of inflation, subject to certain conditions

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and limitations. These regulations may tend to increase the cost of transporting oil and natural gas liquids by interstate pipeline, although the annual adjustments may result in decreased rates in a given year. Every five years, the FERC must examine the relationship between the annual change in the applicable index and the actual cost changes experienced in the oil pipeline industry. In March 2006, to implement this required five-yearly re-determination, the FERC established an upward adjustment in the index to track oil pipeline cost changes and determined that the Producer Price Index for Finished Goods plus 1.3 percent should be the oil pricing index for the five-year period beginning July 1, 2006.

Another FERC proceeding that may impact our transportation costs relates to an ongoing proceeding to determine whether and to what extent pipelines should be permitted to include in their transportation rates an allowance for income taxes attributable to non-corporate partnership interests. Following a court remand, the FERC has established a policy that a pipeline structured as a master limited partnership or similar non-corporate entity is entitled to a tax allowance with respect to income for which there is an “actual or potential income tax liability,” to be determined on a case by case basis. Generally speaking, where the holder of a partnership unit interest is required to file a tax return that includes partnership income or loss, such unit-holder is presumed to have an actual or potential income tax liability sufficient to support a tax allowance on that partnership income.

We are not able to predict with certainty the effect upon us of these periodic reviews by the FERC of the pipeline index, or of the application of the FERC’s new policy on income tax allowances.

Environmental Regulations

General. Our operations are subject to extensive federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. Permits are required for the operation of our various facilities. These permits can be revoked, modified or renewed by issuing authorities. Governmental authorities enforce compliance with their regulations through fines, injunctions or both. Government regulations can increase the cost of planning, designing, installing and operating oil and gas facilities. Although we believe that compliance with environmental regulations will not have a material adverse effect on us, risks of substantial costs and liabilities related to environmental compliance issues are part of oil and gas production operations. No assurance can be given that significant costs and liabilities will not be incurred. Also, it is possible that other developments, such as stricter environmental laws and regulations, and claims for damages to property or persons resulting from oil and gas production could result in substantial costs and liabilities to us.

The transition zone and shallow-water areas of the U.S. Gulf Coast are ecologically sensitive. Environmental issues have led to higher drilling costs and a more difficult and lengthy well permitting process. U.S. laws and regulations applicable to our operations include those controlling the discharge of materials into the environment, requiring removal and cleanup of materials that may harm the environment, requiring consistency with applicable coastal zone management plans, or otherwise relating to the protection of the environment.

Solid and Hazardous Waste. We currently own or lease, and have in the past owned or leased, numerous properties that were used for the production of oil and gas for many years. Although operating and disposal practices that were standard in the industry at the time may have been utilized, it is possible that hydrocarbons or other solid wastes may have been disposed of or released on or under the properties currently owned or leased by us. State and federal laws applicable to oil and gas wastes and properties have become more strict over time. Under these increasingly stringent requirements, we could be required to remove or remediate previously disposed wastes (including wastes disposed or released by prior owners and operators) or clean up property contamination (including groundwater contamination by prior owners or operators) or to perform plugging operations to prevent future contamination.

We generate some hazardous wastes that are already subject to the Federal Resource Conservation and Recovery Act (RCRA) and comparable state statutes. The Environmental Protection Agency (EPA) has limited the disposal options for certain hazardous wastes. It is possible that certain wastes currently exempt from treatment as hazardous wastes may in the future be designated as hazardous wastes under RCRA or other applicable statutes. We could, therefore, be subject to more rigorous and costly disposal requirements in the future than we encounter today.

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Superfund. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as the “Superfund” law, imposes liability, without regard to fault or the legality of the original conduct, on certain persons with respect to the release of hazardous substances into the environment. These persons include the owner and operator of a site and any party that disposed of or arranged for the disposal of hazardous substances found at a site. CERCLA also authorizes the EPA, and in some cases, private parties, to undertake actions to clean up such hazardous substances, or to recover the costs of such actions from the responsible parties. In the course of business, we have generated and will continue to generate wastes that may fall within CERCLA’s definition of hazardous substances. We may also be an owner or operator of sites on which hazardous substances have been released. As a result, we may be responsible under CERCLA for all or part of the costs to clean up sites where such wastes have been disposed.

Oil Pollution Act. The Federal Oil Pollution Act of 1990 (OPA) and resulting regulations impose a variety of obligations on responsible parties related to the prevention of oil spills and liability for damages resulting from such spills in waters of the United States. The term “waters of the United States” has been broadly defined to include inland water bodies, including wetlands and intermittent streams. The OPA assigns liability to each responsible party for oil removal costs and a variety of public and private damages. We believe that we substantially comply with the Oil Pollution Act and related federal regulations.

Clean Water Act. The Federal Water Pollution Control Act (Clean Water Act) and resulting regulations, which are implemented through a system of permits, also govern the discharge of certain contaminants into waters of the United States. Sanctions for failure to comply strictly with the Clean Water Act are generally resolved by payment of fines and correction of any identified deficiencies. However, regulatory agencies could require us to cease construction or operation of certain facilities that are the source of water discharges. We believe that we substantially comply with the Clean Water Act and related federal and state regulations.

Clean Air Act. Our operations are subject to local, state and federal laws and regulations to control emissions from sources of air pollution. Payment of fines and correction of any identified deficiencies generally resolve penalties for failure to comply strictly with air regulations or permits. Regulatory agencies could also require us to cease construction or operation of certain facilities that are air emission sources. We believe that we substantially comply with the emission standards under local, state, and federal laws and regulations.

Employees

As of December 31, 2006, we had 374 active employees. We recognize that our success is significantly influenced by the relationship we maintain with our employees. Overall, we believe that our relations with our employees are satisfactory. The Company and its employees are not represented by a collective bargaining agreement.

Website Access to Company Reports

We make available free of charge through our website, www.cabotog.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC). Information on our website is not a part of this report. In addition, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information filed by the Company.

Corporate Governance Matters

The Company’s Corporate Governance Guidelines, Corporate Bylaws, Code of Business Conduct, Corporate Governance and Nominations Committee Charter, Compensation Committee Charter and Audit Committee Charter are available on the Company’s website at www.cabotog.com, under the “Corporate Governance” section of “Investor Relations” and a copy will be provided, without charge, to any shareholder upon request. Requests can also be made in writing to Investor Relations at our corporate headquarters at 1200 Enclave Parkway, Houston, Texas, 77077. We have filed the required certifications of our chief executive officer and our chief financial officer under Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits 31.1 and 31.2 to this Form 10-K. In 2006, we submitted to the New York Stock Exchange the chief executive officer certification required by Section 303A.12(a) of the NYSE’s Listed Company Manual.

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ITEM 1A. RISK FACTORS

Natural gas and oil prices fluctuate widely, and low prices for an extended period of time are likely to have a material adverse impact on our business.

Our revenues, operating results, financial condition and ability to borrow funds or obtain additional capital depend substantially on prevailing prices for natural gas and, to a lesser extent, oil. Lower commodity prices may reduce the amount of natural gas and oil that we can produce economically. Historically, natural gas and oil prices and markets have been volatile, with prices fluctuating widely, and they are likely to continue to be volatile. Depressed prices in the future would have a negative impact on our future financial results. Because our reserves are predominantly natural gas, changes in natural gas prices have a particularly large impact on our financial results.

Prices for natural gas and oil are subject to wide fluctuations in response to relatively minor changes in the supply of and demand for natural gas and oil, market uncertainty and a variety of additional factors that are beyond our control. These factors include:

• the level of consumer product demand;

• weather conditions;

• political conditions in natural gas and oil producing regions, including the Middle East;

• the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;

• the price of foreign imports;

• actions of governmental authorities;

• pipeline capacity constraints;

• inventory storage levels;

• domestic and foreign governmental regulations;

• the price, availability and acceptance of alternative fuels; and

• overall economic conditions.

These factors and the volatile nature of the energy markets make it impossible to predict with any certainty the future prices of natural gas and oil. If natural gas prices decline significantly for a sustained period of time, the lower prices may adversely affect our ability to make planned expenditures, raise additional capital or meet our financial obligations.

Drilling natural gas and oil wells is a high-risk activity.

Our growth is materially dependent upon the success of our drilling program. Drilling for natural gas and oil involves numerous risks, including the risk that no commercially productive natural gas or oil reservoirs will be encountered. The cost of drilling, completing and operating wells is substantial and uncertain, and drilling operations may be curtailed, delayed or cancelled as a result of a variety of factors beyond our control, including:

• unexpected drilling conditions, pressure or irregularities in formations;

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• equipment failures or accidents;

• adverse weather conditions;

• compliance with governmental requirements; and

• shortages or delays in the availability of drilling rigs or crews and the delivery of equipment.

Our future drilling activities may not be successful and, if unsuccessful, such failure will have an adverse effect on our future results of operations and financial condition. Our overall drilling success rate or our drilling success rate for activity within a particular geographic area may decline. We may ultimately not be able to lease or drill identified or budgeted prospects within our expected time frame, or at all. We may not be able to lease or drill a particular prospect because, in some cases, we identify a prospect or drilling location before seeking an option or lease rights in the prospect or location. Similarly, our drilling schedule may vary from our capital budget. The final determination with respect to the drilling of any scheduled or budgeted wells will be dependent on a number of factors, including:

• the results of exploration efforts and the acquisition, review and analysis of the seismic data;

• the availability of sufficient capital resources to us and the other participants for the drilling of the prospects;

• the approval of the prospects by other participants after additional data has been compiled;

• economic and industry conditions at the time of drilling, including prevailing and anticipated prices for natural gas and oil and the availability of drilling rigs and crews;

• our financial resources and results; and

• the availability of leases and permits on reasonable terms for the prospects.

These projects may not be successfully developed and the wells, if drilled, may not encounter reservoirs of commercially productive natural gas or oil.

High demand for field services and equipment and the ability of suppliers to meet that demand may limit our ability to drill and produce our natural gas and oil properties.

Due to current industry demands, well service providers and related equipment and personnel are in short supply. This may cause escalating prices, delays in drilling and other exploration activities, the possibility of poor services coupled with potential damage to downhole reservoirs and personnel injuries. Such pressures would likely increase the actual cost of services, extend the time to secure such services and add costs for damages due to any accidents sustained from the over use of equipment and inexperienced personnel.

Reserve estimates depend on many assumptions that may prove to be inaccurate. Any material inaccuracies in our reserve estimates or underlying assumptions could cause the quantities and net present value of our reserves to be overstated.

Reserve engineering is a subjective process of estimating underground accumulations of natural gas and crude oil that cannot be measured in an exact manner. The process of estimating quantities of proved reserves is complex and inherently uncertain, and the reserve data included in this document are only estimates. The process relies on interpretations of available geologic, geophysic, engineering and production data. As a result, estimates of different engineers may vary. In addition, the extent, quality and reliability of this technical data can vary. The degree of uncertainty varies among the four regions in which we operate. The estimation of reserves for certain properties sold

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in 2006 as well as a small number of properties currently held in the Gulf Coast region requires more estimates than in Canada and the East and West regions and inherently has more uncertainty surrounding reserve estimation. The differences in the reserve estimation process are substantially due to the geological conditions in which the wells are drilled. The process also requires certain economic assumptions, some of which are mandated by the SEC, such as natural gas and oil prices. Additional assumptions include drilling and operating expenses, capital expenditures, taxes and availability of funds. The accuracy of a reserve estimate is a function of:

• the quality and quantity of available data;

• the interpretation of that data;

• the accuracy of various mandated economic assumptions; and

• the judgment of the persons preparing the estimate.

Results of drilling, testing and production subsequent to the date of an estimate may justify revising the original estimate. Accordingly, initial reserve estimates often vary from the quantities of natural gas and crude oil that are ultimately recovered, and such variances may be material. Any significant variance could reduce the estimated quantities and present value of our reserves.

You should not assume that the present value of future net cash flows from our proved reserves is the current market value of our estimated natural gas and oil reserves. In accordance with SEC requirements, we base the estimated discounted future net cash flows from our proved reserves on prices and costs in effect on the date of the estimate, holding the prices and costs constant throughout the life of the properties. Actual future prices and costs may differ materially from those used in the net present value estimate, and future net present value estimates using then current prices and costs may be significantly less than the current estimate. In addition, the 10% discount factor we use when calculating discounted future net cash flows for reporting requirements in compliance with the Financial Accounting Standards Board in Statement of Financial Accounting Standards No. 69 may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the natural gas and oil industry in general.

Our future performance depends on our ability to find or acquire additional natural gas and oil reserves that are economically recoverable.

In general, the production rate of natural gas and oil properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Unless we successfully replace the reserves that we produce, our reserves will decline, eventually resulting in a decrease in natural gas and oil production and lower revenues and cash flow from operations. Our future natural gas and oil production is, therefore, highly dependent on our level of success in finding or acquiring additional reserves. We may not be able to replace reserves through our exploration, development and exploitation activities or by acquiring properties at acceptable costs. Low natural gas and oil prices may further limit the kinds of reserves that we can develop economically. Lower prices also decrease our cash flow and may cause us to decrease capital expenditures.

Exploration, development and exploitation activities involve numerous risks that may result in dry holes, the failure to produce natural gas and oil in commercial quantities and the inability to fully produce discovered reserves.

From time to time, we may identify and evaluate opportunities to acquire natural gas and oil properties. We may not be able to successfully consummate any acquisition, to acquire producing natural gas and oil properties that contain economically recoverable reserves, or to integrate the properties into our operations profitably.

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We face a variety of hazards and risks that could cause substantial financial losses.

Our business involves a variety of operating risks, including:

• blowouts, cratering and explosions;

• mechanical problems;

• uncontrolled flows of natural gas, oil or well fluids;

• fires;

• formations with abnormal pressures;

• pollution and other environmental risks; and

• natural disasters.

In addition, we conduct operations in shallow offshore areas (largely coastal waters), which are subject to additional hazards of marine operations, such as capsizing, collision and damage from severe weather. Any of these events could result in injury or loss of human life, loss of hydrocarbons, significant damage to or destruction of property, environmental pollution, regulatory investigations and penalties, impairment of our operations and substantial losses to us.

Our operation of natural gas gathering and pipeline systems also involves various risks, including the risk of explosions and environmental hazards caused by pipeline leaks and ruptures. The location of pipelines near populated areas, including residential areas, commercial business centers and industrial sites, could increase these risks. As of December 31, 2006, we owned or operated approximately 2,900 miles of natural gas gathering and pipeline systems. As part of our normal maintenance program, we have identified certain segments of our pipelines that we believe periodically require repair, replacement or additional maintenance.

In accordance with customary industry practice, we maintain insurance against some, but not all, of these risks and losses. We do not carry business interruption insurance. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial position and results of operations.

We have limited control over the activities on properties we do not operate.

Other companies operate some of the properties in which we have an interest. We have limited ability to influence or control the operation or future development of these non-operated properties or the amount of capital expenditures that we are required to fund with respect to them. The failure of an operator of our wells to adequately perform operations, an operator’s breach of the applicable agreements or an operator’s failure to act in ways that are in our best interest could reduce our production and revenues. Our dependence on the operator and other working interest owners for these projects and our limited ability to influence or control the operation and future development of these properties could materially adversely affect the realization of our targeted returns on capital in drilling or acquisition activities and lead to unexpected future costs.

Terrorist activities and the potential for military and other actions could adversely affect our business.

The threat of terrorism and the impact of military and other action have caused instability in world financial markets and could lead to increased volatility in prices for natural gas and oil, all of which could adversely affect the markets for our operations. Future acts of terrorism could be directed against companies operating in the United States. The U.S. government has issued public warnings that indicate that energy assets might be specific targets of terrorist organizations. These developments have subjected our operations to increased risk and, depending on their ultimate magnitude, could have a material adverse effect on our business.

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Our ability to sell our natural gas and oil production could be materially harmed if we fail to obtain adequate services such as transportation and processing.

The sale of our natural gas and oil production depends on a number of factors beyond our control, including the availability and capacity of transportation and processing facilities. Our failure to obtain these services on acceptable terms could materially harm our business.

Competition in our industry is intense, and many of our competitors have substantially greater financial and technological resources than we do, which could adversely affect our competitive position.

Competition in the natural gas and oil industry is intense. Major and independent natural gas and oil companies actively bid for desirable natural gas and oil properties, as well as for the equipment and labor required to operate and develop these properties. Our competitive position is affected by price, contract terms and quality of service, including pipeline connection times, distribution efficiencies and reliable delivery record. Many of our competitors have financial and technological resources and exploration and development budgets that are substantially greater than ours, particularly in the Rocky Mountains, Mid-Continent, Canada and Gulf Coast areas. These companies may be able to pay more for exploratory projects and productive natural gas and oil properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, these companies may be able to expend greater resources on the existing and changing technologies that we believe are and will be increasingly important to attaining success in the industry.

We may have hedging arrangements that expose us to risk of financial loss and limit the benefit to us of increases in prices for natural gas and oil.

From time to time, when we believe that market conditions are favorable, we use certain derivative financial instruments to manage price risks associated with our production in all of our regions. While there are many different types of derivatives available, in 2006 we primarily employed natural gas and crude oil price collar agreements to attempt to manage price risk. The collar arrangements are put and call options used to establish floor and ceiling commodity prices for a fixed volume of production during a certain time period. They provide for payments to counterparties if the index price exceeds the ceiling and payments from the counterparties if the index price is below the floor. In addition, we employed natural gas and crude oil price swap agreements during 2005. The price swaps call for payments to, or receipts from, counterparties based on whether the market price of natural gas or crude oil for the period is greater or less than the fixed price established for that period when the swap is put in place.

These hedging arrangements limit the benefit to us of increases in prices. In addition, these arrangements expose us to risks of financial loss in a variety of circumstances, including when:

• a counterparty is unable to satisfy its obligations;

• production is less than expected; or

• there is an adverse change in the expected differential between the underlying price in the derivative instrument and actual prices received for our production.

We will continue to evaluate the benefit of employing derivatives in the future. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A for further discussion concerning our use of derivatives.

The loss of key personnel could adversely affect our ability to operate.

Our operations are dependent upon a relatively small group of key management and technical personnel, and one or more of these individuals could leave our employment. The unexpected loss of the services of one or more of these individuals could have a detrimental effect on us. In addition, our drilling success and the success of other activities

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integral to our operations will depend, in part, on our ability to attract and retain experienced geologists, engineers and other professionals. Competition for experienced geologists, engineers and some other professionals is extremely intense. If we cannot retain our technical personnel or attract additional experienced technical personnel, our ability to compete could be harmed.

We are subject to complex laws and regulations, including environmental regulations, which can adversely affect the cost, manner or feasibility of doing business.

Our operations are subject to extensive federal, state and local laws and regulations, including tax laws and regulations and those relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. These laws and regulations can adversely affect the cost, manner or feasibility of doing business. Many laws and regulations require permits for the operation of various facilities, and these permits are subject to revocation, modification and renewal. Governmental authorities have the power to enforce compliance with their regulations, and violations could subject us to fines, injunctions or both. These laws and regulations have increased the costs of planning, designing, drilling, installing and operating natural gas and oil facilities. In addition, we may be liable for environmental damages caused by previous owners of property we purchase or lease. Risks of substantial costs and liabilities related to environmental compliance issues are inherent in natural gas and oil operations. It is possible that other developments, such as stricter environmental laws and regulations, and claims for damages to property or persons resulting from natural gas and oil production, would result in substantial costs and liabilities.

Provisions of Delaware law and our bylaws and charter could discourage change in control transactions and prevent stockholders from receiving a premium on their investment.

Our bylaws provide for a classified board of directors with staggered terms, and our charter authorizes our board of directors to set the terms of preferred stock. In addition, Delaware law contains provisions that impose restrictions on business combinations with interested parties. Our bylaws prohibit stockholder action by written consent and limit stockholder proposals at meetings of stockholders. We also have adopted a stockholder rights plan. Because of our stockholder rights plan and these provisions of our charter, bylaws and Delaware law, persons considering unsolicited tender offers or other unilateral takeover proposals may be more likely to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. As a result, these provisions may make it more difficult for our stockholders to benefit from transactions that are opposed by an incumbent board of directors.

The personal liability of our directors for monetary damages for breach of their fiduciary duty of care is limited by the Delaware General Corporation Law and by our certificate of incorporation.

The Delaware General Corporation Law allows corporations to limit available relief for the breach of directors’ duty of care to equitable remedies such as injunction or rescission. Our certificate of incorporation limits the liability of our directors to the fullest extent permitted by Delaware law. Specifically, our directors will not be personally liable for monetary damages for any breach of their fiduciary duty as a director, except for liability:

• for any breach of their duty of loyalty to the company or our stockholders;

• for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

• under provisions relating to unlawful payments of dividends or unlawful stock repurchases or redemptions; and

• for any transaction from which the director derived an improper personal benefit.

This limitation may have the effect of reducing the likelihood of derivative litigation against directors, and may discourage or deter stockholders or management from bringing a lawsuit against directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefited our stockholders.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

See Item 1. Business.

ITEM 3. LEGAL PROCEEDINGS

We are a defendant in various legal proceedings arising in the normal course of our business. All known liabilities are accrued based on management’s best estimate of the potential loss. While the outcome and impact of such legal proceedings on us cannot be predicted with certainty, management believes that the resolution of these proceedings through settlement or adverse judgment will not have a material adverse effect on our consolidated financial position or cash flow. Operating results, however, could be significantly impacted in the reporting periods in which such matters are resolved.

West Virginia Royalty Litigation

In December 2001, we were sued by two royalty owners in West Virginia state court for an unspecified amount of damages. The plaintiffs have requested class certification and allege that we failed to pay royalty based upon the wholesale market value of the gas, that we had taken improper deductions from the royalty and that we failed to properly inform royalty owners of the deductions. The plaintiffs also claimed that they are entitled to a 1/8th royalty share of the gas sales contract settlement that we reached with Columbia Gas Transmission Corporation in 1995 bankruptcy proceedings.

Discovery and pleadings necessary to place the class certification issue before the state court have been ongoing. The Court entered an order on June 1, 2005 granting the motion for class certification. The parties have negotiated a modification to the order which will result in the dismissal of the claims related to the gas sales contract settlement in connection with the Columbia Gas Transmission bankruptcy proceedings and that will limit the claims to those arising on and after December 17, 1991. The Court postponed the trial date from April 17, 2006, in light of the case involving an unrelated party pending before the West Virginia Supreme Court of Appeals described below. We intend to challenge the class certification order by filing a Petition for Writ of Prohibition with the West Virginia Supreme Court of Appeals.

The West Virginia Supreme Court of Appeals issued a decision in 2006 in a case against another producer (the Tawney case) that raised some of the same issues as are raised in our case. This recent decision may negatively impact some of the defenses we have raised in our litigation with respect to the issue of deductibility of post-production expenses under certain leases, but we believe that in a significant number of leases we have lease language, factual distinctions and defenses that are not implicated by the ruling.

The Tawney case involves claims concerning the deductibility of post-production expenses and the failure to properly inform, issues shared with our case, but also involves additional claims not raised in our case. The most significant additional claims are related to sales under long-term, fixed-price agreements at prices considered significantly below market value, as well as claims for certain volume reductions and unmetered production. The Tawney case went to trial in January 2007, and the jury returned a verdict against the producer for $130 million in compensatory damages and $270 million in punitive damages. Judgment has not yet been entered in the Tawney case, and an appeal is expected. We are closely monitoring developments in the Tawney case, and we continue to investigate how this recent ruling may impact our defense of our case. The case against us has been re-activated to the docket and trial is set for August 13, 2007.

We are vigorously defending the case. A reserve has been established that management believes is adequate based on its estimate of the probable outcome of this case.

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Texas Title Litigation

On January 6, 2003, we were served with Plaintiffs' Second Amended Original Petition in Romeo Longoria, et al. v. Exxon Mobil Corporation, et al. in the 79th Judicial District Court of Brooks County, Texas. Plaintiffs filed their Second Supplemental Original Petition on November 12, 2004 and their Third Supplemental Original Petition on February 22, 2005 (which added Wynn-Crosby 1996, Ltd. and Dominion Oklahoma Texas Exploration & Production, Inc.). Plaintiffs filed their Third Amended Original Petition on February 21, 2006, which incorporated all prior supplemental petitions. Plaintiffs allege that they are the owners of a one-half undivided mineral interest in and to certain lands in Brooks County, Texas. Cody Energy, LLC, our subsidiary, acquired certain leases and wells in 1997 and 1998.

The plaintiffs allege that they are entitled to be declared the rightful owners of an undivided interest in minerals and all improvements on the lands on which we acquired these leases. The plaintiffs also assert claims for trespass to try title, action to remove a cloud on the title, failure to properly account for royalty, fraud, trespass and conversion, all for unspecified actual and exemplary damages. Plaintiffs claim that they acquired title to the property by adverse possession. Plaintiffs also assert the discovery rule and a claim of fraudulent concealment to avoid the affirmative defense of limitations. In August 2005, the case was abated until late February 2006, during which time the parties were allowed to amend pleadings or add additional parties to the litigation. Plaintiffs did not join additional parties by the abatement deadline. Defendants, including us, re-urged our motion to dismiss, and on April 5, 2006, the Court granted the motion, dismissing the oil company defendants, without prejudice. Because all defendants were not dismissed at that time, the order dismissing us was not then final. A motion to finalize the proceedings in the trial court via severance of the dismissed defendants was filed April 25, 2006, and the remaining defendants moved to join the motions that led to the dismissal of us. In 2006, the Court dismissed the claims. Plaintiffs have filed a Notice of Appeal. Although the record is not yet complete and, therefore, specific appellate deadlines have not been set, we expect that, following briefing and oral argument, the appellate court will issue its decision by the end of 2007 or early 2008.

Raymondville Area

In April 2004, our wholly owned subsidiary, Cody Energy, LLC, filed suit in state court in Willacy County, Texas against certain of our co-working interest owners in the Raymondville Area, located in Kenedy and Willacy Counties. In early 2003, we had proposed a new prospect under the terms of the Joint Operating Agreement. Some of the co-working interest owners elected not to participate. The initial well was successful and subsequent wells have been drilled to exploit the discovery made in the first well.

The working interest owners who elected not to participate notified us that they believed that they had the right to participate in wells drilled after the initial well. We contend that the working interest owners that elected not to participate are required to assign their interest in the prospect to those who elected to participate. The defendants filed a counter claim against us, and one of the defendants filed a lien against our interest in the leases in the Raymondville Area.

We have signed a settlement agreement with certain of the defendants representing approximately three percent of the interest in the area. Cody and the remaining defendant filed cross motions for summary judgment. In August 2005, the trial judge entered an order granting our Motion for Summary Judgment requiring the remaining defendant to assign to us all of its interest in the prospect and to remove the lien filed against our interest.

On July 12, 2006, we entered into a Purchase and Sale Agreement to acquire all of the defendant’s interest in the Raymondville Field. The agreement would make the summary judgment ruling by the trial judge a final order, dismiss, with prejudice, all pending counter claims filed by such defendant and remove the lien against our properties filed by such defendant. We completed the acquisition in the third quarter of 2006. The lien has been removed, the summary judgment has become a final order and all of the defendant’s claims have been dismissed.

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Commitment and Contingency Reserves

We have established reserves for certain legal proceedings. The establishment of a reserve involves an estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to be adequate, it is reasonably possible that we could incur approximately $9.1 million of additional loss with respect to those matters in which reserves have been established. Future changes in the facts and circumstances could result in the actual liability exceeding the estimated ranges of loss and amounts accrued.

While the outcome and impact on us cannot be predicted with certainty, management believes that the resolution of these proceedings through settlement or adverse judgment will not have a material adverse effect on our consolidated financial position or cash flow. Operating results, however, could be significantly impacted in the reporting periods in which such matters are resolved.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of 2006.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table shows certain information as of February 16, 2007 about our executive officers, as such term is defined in Rule 3b-7 of the Securities Exchange Act of 1934, and certain of our other officers.

Name	Age	Position	Officer Since
Dan O. Dinges	53	Chairman, President and Chief Executive Officer	2001
Michael B. Walen	58	Senior Vice President, Chief Operating Officer	1998
Scott C. Schroeder	44	Vice President and Chief Financial Officer	1997
J. Scott Arnold	53	Vice President, Land and Associate General Counsel	1998
Robert G. Drake	59	Vice President, Information Services and Operational Accounting	1998
Abraham D. Garza	60	Vice President, Human Resources	1998
Jeffrey W. Hutton	51	Vice President, Marketing	1995
Thomas S. Liberatore	50	Vice President, Regional Manager, East Region	2003
Lisa A. Machesney	51	Vice President, Managing Counsel and Corporate Secretary	1995
Henry C. Smyth	60	Vice President, Controller and Treasurer	1998

All officers are elected annually by our Board of Directors. All of the executive officers have been employed by Cabot Oil & Gas Corporation for at least the last five years.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The common stock is listed and principally traded on the New York Stock Exchange under the ticker symbol “COG.” The following table presents the high and low closing sales prices per share of the common stock during certain periods, as reported in the consolidated transaction reporting system. Cash dividends paid per share of the common stock are also shown. A regular dividend has been declared each quarter since we became a public company in 1990.

On February 28, 2005, we announced that our Board of Directors had declared a 3-for-2 split of our common stock in the form of a stock distribution. The stock dividend was distributed on March 31, 2005 to stockholders of record on March 18, 2005. In lieu of issuing fractional shares, we paid cash based on the closing price of the common stock on the record date. All common stock accounts and per share data, including cash dividends per share, have been retroactively adjusted to give effect to the 3-for-2 split of our common stock.

	High		Low		Dividends
2006
First Quarter	$	52.01	$	43.18	$	0.04
Second Quarter		54.44		38.42		0.04
Third Quarter		55.15		44.15		0.04
Fourth Quarter		65.71		44.38		0.04
2005
First Quarter	$	38.04	$	27.78	$	0.027
Second Quarter		38.13		28.29		0.04
Third Quarter		50.81		36.05		0.04
Fourth Quarter		51.54		40.48		0.04

As of January 31, 2007, there were 590 registered holders of the common stock. Shareholders include individuals, brokers, nominees, custodians, trustees, and institutions such as banks, insurance companies and pension funds. Many of these hold large blocks of stock on behalf of other individuals or firms.

ISSUER PURCHASES OF EQUITY SECURITIES

On August 13, 1998, we announced that our Board of Directors authorized the repurchase of two million shares of our common stock in the open market or in negotiated transactions. As a result of the 3-for-2 stock split effected in March 2005, this figure has been adjusted to three million shares. On October 26, 2006, we announced that our Board of Directors increased the number of shares of our common stock authorized for repurchase by an additional two million shares. All purchases executed have been through open market transactions. There is no expiration date associated with the authorization to repurchase our securities. We did not repurchase any shares under the program in the fourth quarter of 2006. As of December 31, 2006, 2,397,650 shares remained authorized for repurchase under the plan.

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PERFORMANCE GRAPH

The following graph compares our common stock performance (“COG”) with the performance of the Standard & Poors’ 500 Stock Index and the Dow Jones Secondary Oils-US Index for the period December 2001 through December 2006. The graph assumes that the value of the investment in our common stock and in each index was $100 on December 31, 2001 and that all dividends were reinvested.

Calculated Values	2001	2002	2003	2004	2005	2006
S&P 500	100.0	76.6	96.9	105.6	108.7	123.5
COG	100.0	104.1	124.4	189.1	290.6	392.2
DJ Secondary Oils-US	100.0	100.8	130.4	183.2	300.6	314.6

The performance graph above is furnished and not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933 unless specifically identified therein as being incorporated therein by reference. The performance graph is not soliciting material subject to Regulation 14A.

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ITEM 6. SELECTED FINANCIAL DATA

The following table summarizes our selected consolidated financial data for the periods indicated. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7, and the Consolidated Financial Statements and related Notes in Item 8.

	Year Ended December 31,
(In thousands, except per share amounts)	2006		2005		2004			2003		2002
Statement of Operations Data
Operating Revenues	$	761,988	$	682,797	$	530,408		$	509,391	$	353,756
Impairment of Oil and Gas Properties (1)		3,886		—		3,458			93,796		2,720
Gain / (Loss) on Sale of Assets (2)		232,017		74		(124	)		12,173		244
Income from Operations		528,946		258,731		160,653			66,587		49,088
Net Income		321,175		148,445		88,378			21,132		16,103
Basic Earnings per Share (3) (4)	$	6.64	$	3.04	$	1.81		$	0.44	$	0.34
Dividends per Common Share (3)	$	0.160	$	0.147	$	0.107		$	0.107	$	0.107
Balance Sheet Data
Properties and Equipment, Net	$	1,480,201	$	1,238,055	$	994,081		$	895,955	$	971,754
Total Assets		1,834,491		1,495,370		1,210,956			1,055,056		1,100,947
Current Portion of Long-Term Debt		20,000		20,000		20,000			—		—
Long-Term Debt		220,000		320,000		250,000			270,000		365,000
Stockholders’ Equity		945,198		600,211		455,662			365,197		350,657

⁽¹⁾ For discussion of impairment of oil and gas properties, refer to Note 2 of the Notes to the Consolidated Financial Statements.

⁽²⁾ Gain on Sale of Assets for 2006 reflects $231.2 million related to the sale of offshore and certain south Louisiana properties in the third quarter of 2006.

⁽³⁾ All Earnings per Share and Dividends per Common Share figures have been retroactively adjusted for the 3-for-2 split of our common stock effective March 31, 2005.

⁽⁴⁾ Year 2003 includes a cumulative effect of a change in accounting principle loss of $0.14 per share related to the adoption of SFAS No. 143 “Accounting for Asset Retirement Obligations.”

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist you in understanding our results of operations and our present financial condition. Our Consolidated Financial Statements and the accompanying Notes to the Consolidated Financial Statements included elsewhere in this Form 10-K contain additional information that should be referred to when reviewing this material.

Statements in this discussion may be forward-looking. These forward-looking statements involve risks and uncertainties, including those discussed below, which could cause actual results to differ from those expressed. Please read “Forward-Looking Information” for further details.

We operate in one segment, natural gas and oil development, exploitation and exploration, exclusively within the United States and Canada.

OVERVIEW

Cabot Oil & Gas and its subsidiaries are a leading independent oil and gas company engaged in the development, exploitation, exploration, production and marketing of natural gas, and to a lesser extent, crude oil and natural gas liquids from its properties in North America. We also transport, store, gather and produce natural gas for resale. Our exploitation and exploration activities are concentrated in areas with known hydrocarbon resources, which are conducive to multi-well, repeatable drilling programs. Our program is designed to be disciplined and balanced with a focus on achieving strong financial returns.

At Cabot, there are three types of investment alternatives that constantly compete for available capital: drilling opportunities, acquisition opportunities and financial opportunities such as debt repayment or repurchase of common stock. Depending on circumstances, we allocate capital among the alternatives based on a rate-of-return approach. Our goal is to invest capital in the highest return opportunities available at any given time. At any one time, one or more of these may not be economically feasible.

Our financial results depend upon many factors, particularly the price of natural gas and crude oil and our ability to market our production on economically attractive terms. Price volatility in the commodity markets has remained prevalent in the last few years. Throughout 2005 and 2006, the futures market reported strong natural gas and crude oil contract prices. Our realized natural gas and crude oil price was $7.13 per Mcf and $65.03 per Bbl, respectively, in 2006. These realized prices include the realized impact of derivative instruments. In an effort to manage commodity price risk, we entered into a series of crude oil and natural gas price collars. These financial instruments are an important element of our risk management strategy and assisted in the increase in our realized natural gas price from 2005 to 2006.

Commodity prices are impacted by many factors that are outside of our control. Historically, commodity prices have been volatile and we expect them to remain volatile. Commodity prices are affected by changes in market demands, which are impacted by overall economic activity, weather, pipeline capacity constraints, inventory storage levels, basis differentials and other factors. As a result, we cannot accurately predict future natural gas, natural gas liquids and crude oil prices, and therefore, we cannot determine what effect increases or decreases will have on our capital program, production volumes and future revenues. In addition to production volumes and commodity prices, finding and developing sufficient amounts of crude oil and natural gas reserves at economical costs are critical to our long-term success. See “Risk Factors—Natural gas and oil prices fluctuate widely, and low prices for an extended period of time are likely to have a material adverse impact on our business” and “Risk Factors—Our future performance depends on our ability to find or acquire additional natural gas and oil reserves that are economically recoverable” in Item 1A.

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The tables below illustrate how natural gas prices have fluctuated by month over 2005 and 2006. “Index” represents the first of the month Henry Hub index price per Mmbtu. The “2005” and “2006” price is the natural gas price per Mcf realized by us and includes the realized impact of our natural gas price collar and swap arrangements, as applicable:

	Natural Gas Prices by Month - 2006
(In $ per Mcf)	Jan		Feb		Mar		Apr		May		Jun		Jul		Aug		Sep		Oct		Nov		Dec
Index	$	11.45	$	8.46	$	7.13	$	7.25	$	7.22	$	5.93	$	5.89	$	7.04	$	6.82	$	4.20	$	7.16	$	8.33
2006	$	9.79	$	7.83	$	7.11	$	6.90	$	7.02	$	6.37	$	6.49	$	7.10	$	6.71	$	5.45	$	7.27	$	7.64
	Natural Gas Prices by Month - 2005
(In $ per Mcf)	Jan		Feb		Mar		Apr		May		Jun		Jul		Aug		Sep		Oct		Nov		Dec
Index	$	6.21	$	6.29	$	6.30	$	7.33	$	6.77	$	6.13	$	6.98	$	7.65	$	10.97	$	13.93	$	13.85	$	11.21
2005	$	5.78	$	5.84	$	5.52	$	6.28	$	6.19	$	5.55	$	6.05	$	6.58	$	7.76	$	8.94	$	8.53	$	7.78

Prices for crude oil have continued to maintain strength in 2005 and rose further in 2006. The tables below contain the NYMEX monthly average crude oil price (Index) and our realized per barrel (Bbl) crude oil prices by month for 2005 and 2006. The “2005” and “2006” price is the crude oil price per Bbl realized by us and includes the realized impact of our crude oil derivative arrangements:

	Crude Oil Prices by Month - 2006
(In $ per Bbl)	Jan		Feb		Mar		Apr		May		Jun		Jul		Aug		Sep		Oct		Nov		Dec
Index	$	65.54	$	61.93	$	62.97	$	70.16	$	70.96	$	70.97	$	74.46	$	73.08	$	63.90	$	59.14	$	59.40	$	62.09
2006	$	63.53	$	60.83	$	59.28	$	68.27	$	68.56	$	68.12	$	74.03	$	73.01	$	60.87	$	53.88	$	55.97	$	59.47
	Crude Oil Prices by Month - 2005
(In $ per Bbl)	Jan		Feb		Mar		Apr		May		Jun		Jul		Aug		Sep		Oct		Nov		Dec
Index	$	46.85	$	48.05	$	54.63	$	53.22	$	49.87	$	56.42	$	59.03	$	64.99	$	65.55	$	62.27	$	58.34	$	59.45
2005	$	38.18	$	40.57	$	47.30	$	44.95	$	41.88	$	44.58	$	46.24	$	46.62	$	45.05	$	45.92	$	45.59	$	43.70

We reported earnings of $6.64 per share, or $321.2 million, for 2006. This is up from the $3.04 per share, or $148.4 million, reported in 2005. Earnings increased from 2005 to 2006 due to the $231.2 million ($144.5 million, net of tax) gain recorded in 2006 related to the sale of our offshore and certain south Louisiana properties. In addition, the stronger price environment, favorable natural gas hedge settlements and increased natural gas production were primary contributors to the earnings increase due to the increase in natural gas and oil revenues. Prices, including the realized impact of derivative instruments, rose six percent for natural gas and 47% for oil.

We drilled 387 gross wells with a success rate of 96% in 2006 compared to 316 gross wells with a 95% success rate in 2005. Total capital and exploration expenditures increased by $111.9 million to $537.5 million in 2006, of which $6.7 million was for property acquisitions, compared to $425.6 million in 2005, of which $73.1 million was for property acquisitions. We believe our operating cash flow in 2007 will be sufficient to fund a substantial portion of our budgeted capital and exploration spending of approximately $434 million, with minimal borrowings from our credit facility.

Our 2007 strategy will remain consistent with 2006. We will remain focused on our strategies of pursuing lower risk drilling opportunities that provide more predictable results and selectively pursuing impact exploration opportunities as we accelerate drilling on our accumulated acreage position. In the current year we have allocated our planned program for capital and exploration expenditures among our various operating regions. We believe these strategies are appropriate in the current industry environment and will continue to add shareholder value over the long term.

The preceding paragraphs, discussing our strategic pursuits and goals, contain forward-looking information. Please read “Forward-Looking Information” for further details.

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FINANCIAL CONDITION

Capital Resources and Liquidity

Our primary sources of cash in 2006 were from funds generated from the sale of natural gas and crude oil production and proceeds from the sale of our offshore and certain south Louisiana properties and, to a lesser extent, proceeds from the exercise of stock options under our stock plans. We generate cash from the sale of natural gas and crude oil. Operating cash flow fluctuations are substantially driven by commodity prices and changes in our production volumes. Prices for crude oil and natural gas have historically been volatile, including seasonal influences characterized by peak demand and higher prices in the winter heating season; however, the impact of other risks and uncertainties have also influenced prices throughout the recent years. Working capital is also substantially influenced by these variables. During 2005, approximately 1.4 Bcfe of expected production in our Gulf Coast region was deferred due to the impacts of Hurricanes Katrina and Rita. These hurricanes did not have a material adverse impact on our capital resources nor liquidity. Fluctuation in cash flow may result in an increase or decrease in our capital and exploration expenditures. See “Results of Operations” for a review of the impact of prices and volumes on sales. Cash flows provided by operating activities were primarily used to fund exploration and development expenditures and to pay dividends. Proceeds from the disposition of our offshore and certain south Louisiana properties were used to fund additional capital expenditures, reduce borrowings under our revolving credit facility and to purchase treasury stock. Proceeds from the exercise of stock options under stock option plans and the tax benefit of stock based compensation during 2006 partially offset our repurchase of 1,088,500 treasury shares of common stock at a weighted average purchase price of $42.71. See below for additional discussion and analysis of cash flow.

	Year-Ended December 31,
(In thousands)	2006			2005			2004
Cash Flows Provided by Operating Activities	$	357,104		$	364,560		$	273,022
Cash Flows Used in Investing Activities		(187,353	)		(412,150	)		(255,357	)
Cash Flows (Used in) / Provided by Financing Activities		(138,523	)		48,190			(8,363	)
Net Increase in Cash and Cash Equivalents	$	31,228		$	600		$	9,302

Operating Activities. Net cash provided by operating activities in 2006 decreased by $7.5 million over 2005. This decrease was primarily due to an increase in current income tax expense related to the sale of our offshore and certain south Louisiana properties, partially offset by an increase in earnings and an increase in working capital changes. Other factors impacting net operating cash flows are commodity prices, production volumes and operating costs. Average realized natural gas prices increased six percent over 2005, while crude oil realized prices increased 47% over the same period. Equivalent production increased by five percent in 2006 compared to 2005. While we believe 2007 commodity production may exceed 2006 levels, we are unable to predict future commodity prices and, as a result, cannot provide any assurance about future levels of net cash provided by operating activities.

Net cash provided by operating activities in 2005 increased $91.5 million over 2004. This increase was primarily due to higher commodity prices. Key components impacting net operating cash flows were commodity prices, production volumes and operating costs. Average realized natural gas prices increased 30% over 2004, while crude oil realized prices increased 40% over the same period. Production volumes declined slightly, with a less than one percent reduction of equivalent production in 2005 compared to 2004. See “Results of Operations” for a discussion on commodity prices and a review of the impact of prices and volumes on sales revenue.

Investing Activities. The primary uses of cash in investing activities were capital spending and exploration expenses. We established the budget for these amounts based on our current estimate of future commodity prices. Due to the volatility of commodity prices, our capital expenditures may be periodically adjusted during any given year. Cash flows used in investing activities decreased by $224.8 million from 2005 to 2006 and increased by $156.8 million from 2004 to 2005. Cash flows used in investments in capital and exploration expenditures were $516.8 million in 2006 compared to $413.1 million used in 2005, in response to higher commodity prices. This increase of $103.7 million in investments in capital and exploration expenses was entirely offset by the increase of $328.5 million in proceeds from the sale of assets, primarily as a result of the sale of our offshore and certain south Louisiana properties.

The increase from 2004 to 2005 was primarily due to an increase in drilling activity in the East region and the Rocky Mountains area of our West region in response to higher commodity prices. Our continued drilling activity in Canada also contributed to the increase. In addition, we spent $73.1 million in proved property acquisitions, primarily in the Gulf Coast.

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Financing Activities. Cash flows used in financing activities were $138.5 million for 2006, and were comprised of payments made to decrease outstanding debt under our revolving credit facility, to purchase treasury stock and to pay dividends. Partially offsetting these cash uses were inflows from the exercise of stock options and the tax benefit received from stock-based compensation. Cash flows provided by financing activities were $48.2 million for 2005, resulting from borrowings under the credit facility, partially offset by the purchase of treasury stock and dividend payments. Cash flows used in financing activities for 2004 were $8.4 million, resulting from proceeds from the exercise of stock options, offset by the purchase of treasury shares and dividend payments.

At December 31, 2006, we had $10 million of debt outstanding under our credit facility. The credit facility provides for an available credit line of $250 million, which can be expanded up to $350 million, either with the existing banks or new banks. The available credit line is subject to adjustment on the basis of the present value of estimated future net cash flows from proved oil and gas reserves (as determined by the banks’ petroleum engineer) and other assets. The revolving term of the credit facility ends in December 2009. We strive to manage our debt at a level below the available credit line in order to maintain excess borrowing capacity. Management believes that we have the ability to finance through new debt or equity offerings, if necessary, our capital requirements, including potential acquisitions.

In August 1998, we announced that our Board of Directors authorized the repurchase of two million shares of our common stock in the open market or in negotiated transactions. As a result of the 3-for-2 stock split effected in March 2005, this figure was adjusted to three million shares. In October 2006, we announced that our Board of Directors increased the number of shares of our common stock authorized for repurchase by an additional two million shares for a total of five million shares. During 2006, we repurchased 1,088,500 shares of our common stock at a weighted average price of $42.71. All purchases executed to date have been through open market transactions. There is no expiration date associated with the authorization to repurchase our securities. The maximum number of shares that may yet be purchased under the plan as of December 31, 2006 was 2,397,650. See Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for additional information.

Capitalization

Information about our capitalization is as follows:

	December 31,
(In millions)	2006			2005
Debt (1)	$	240.0		$	340.0
Stockholders’ Equity		945.2			600.2
Total Capitalization	$	1,185.2		$	940.2
Debt to Capitalization		20	%		36	%
Cash and Cash Equivalents	$	41.9		$	10.6

⁽¹⁾ Includes $20.0 million of current portion of long-term debt at both December 31, 2006 and 2005. Includes $10 million and $90 million, respectively, of borrowings under our revolving credit facility at December 31, 2006 and 2005.

For the year ended December 31, 2006, we paid dividends of $7.8 million on our common stock. A regular dividend of $0.04 per share of common stock, or $0.027 per share for dividends prior to the 3-for-2 stock split as adjusted for the split, has been declared for each quarter since we became a public company in 1990.

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Increase in Authorized Shares

On May 4, 2006, our stockholders approved an increase in the authorized number of shares of our common stock from 80 million to 120 million shares. We correspondingly increased the number of shares of Series A Junior Participating Preferred Stock reserved for issuance from 800,000 to 1,200,000. The shares of Series A Junior Participating Preferred Stock are issuable pursuant to our Rights Agreement with The Bank of New York, as Rights Agent.

Capital and Exploration Expenditures

On an annual basis, we generally fund most of our capital and exploration activities, excluding significant oil and gas property acquisitions, with cash generated from operations and, when necessary, our revolving credit facility. We budget these capital expenditures based on our projected cash flows for the year.

The following table presents major components of our capital and exploration expenditures for the three years ended December 31, 2006.

(In millions)	2006		2005		2004
Capital Expenditures
Drilling and Facilities	$	406.9	$	249.3	$	174.0
Leasehold Acquisitions		42.6		22.1		18.3
Pipeline and Gathering		24.2		17.9		13.5
Other		7.7		1.4		1.6
		481.4		290.7		207.4
Proved Property Acquisitions		6.7		73.1		4.0
Exploration Expense		49.4		61.8		48.1
Total	$	537.5	$	425.6	$	259.5

We plan to drill approximately 440 gross wells in 2007 compared with 387 gross wells drilled in 2006. This 2007 drilling program includes approximately $434 million in total capital and exploration expenditures, down from $537.5 million in 2006. We will continue to assess the natural gas price environment and may increase or decrease the capital and exploration expenditures accordingly.

There are many factors that impact our depreciation, depletion and amortization (DD&A) rate. These include reserve additions and revisions, development costs, impairments and changes in anticipated production in a future period. In 2007, management expects an increase in our DD&A rate due to higher capital costs, partially as a result of inflationary cost pressures in the industry over the last three years, and downward reserve revisions. This change is currently estimated to be approximately 15% greater than 2006 levels. This increase will not have an impact on our cash flows.

Contractual Obligations

Our known material contractual obligations include long-term debt, interest on long-term debt, firm gas transportation agreements, drilling rig commitments and operating leases. We have no off-balance sheet debt or other similar unrecorded obligations.

During 2006, we assisted certain non-executive employees in obtaining loans to purchase interests offered under our Mineral, Royalty and Overriding Royalty Interest Plan by providing a guarantee of repayment should the non-executive employee fail to repay the loan. The repayment term for all of these loans is five years. All loans are collateralized by the interests transferred to the employees in the producing properties. The outstanding loan balances are approximately $0.3 million in the aggregate, and the fair value of these guarantees are immaterial to our financial statements.

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A summary of our known contractual obligations as of December 31, 2006 are set forth in the following table:

	Total		Payments Due by Year
(In thousands)			2007		2008 to 2009		2010 to 2011		2012 & Beyond
Long-Term Debt (1)	$	240,000	$	20,000	$	50,000	$	75,000	$	95,000
Interest on Long-Term Debt (2)		91,888		17,596		30,878		24,914		18,500
Firm Gas Transportation Agreements (3)		85,118		9,864		15,356		7,140		52,758
Drilling Rig Commitments (3)		120,261		54,382		63,629		2,250		—
Operating Leases (3)		14,076		5,014		8,254		808		—
Total Contractual Cash Obligations	$	551,343	$	106,856	$	168,117	$	110,112	$	166,258

⁽¹⁾ Including current portion. At December 31, 2006, we had $10 million of debt outstanding under our revolving credit facility. See Note 4 of the Notes to the Consolidated Financial Statements for details of long-term debt.

⁽²⁾ Interest payments have been calculated utilizing the fixed rates of our $230 million long-term debt outstanding at December 31, 2006. Interest payments on the $10 million of outstanding borrowings on our revolving credit facility were calculated by assuming that the December 31, 2006 outstanding balance of $10 million will be outstanding through the 2009 maturity date and by assuming a constant interest rate of 8.25%, which was the December 31, 2006 interest rate. Actual results will likely differ from these estimates and assumptions.

⁽³⁾ For further information on our obligations under firm gas transportation agreements, drilling rig commitments and operating leases, see Note 7 of the Notes to the Consolidated Financial Statements.

Amounts related to our asset retirement obligations are not included in the above table given the uncertainty regarding the actual timing of such expenditures. The total amount of asset retirement obligations at December 31, 2006 was $22.7 million, down from $43.0 million at December 31, 2005, primarily due to the sale of the offshore and certain south Louisiana properties during the end of the third quarter of 2006.

Potential Impact of Our Critical Accounting Policies

Readers of this document and users of the information contained in it should be aware of how certain events may impact our financial results based on the accounting policies in place. The most significant policies are discussed below.

Oil and Gas Reserves

The process of estimating quantities of proved reserves is inherently uncertain, and the reserve data included in this document are only estimates. The process relies on interpretations of available geologic, geophysic, engineering and production data. The extent, quality and reliability of this technical data can vary. The degree of uncertainty varies among the four regions in which we operate. The estimation of reserves for certain properties sold in 2006 as well as a small number of properties currently held in the Gulf Coast region requires more estimates than in Canada and the East and West regions and inherently has more uncertainty surrounding reserve estimation. The differences in the reserve estimation process are substantially due to the geological conditions in which the wells are drilled. The process also requires certain economic assumptions, some of which are mandated by the SEC, such as oil and gas prices. Additional assumptions include drilling and operating expenses, capital expenditures, taxes and availability of funds. The accuracy of a reserve estimate is a function of:

• the quality and quantity of available data;

• the interpretation of that data;

• the accuracy of various mandated economic assumptions; and

• the judgment of the persons preparing the estimate.

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Since 1990, 100% of our reserves have been reviewed by Miller & Lents, Ltd., an independent oil and gas reservoir engineering consulting firm, who in their opinion determined the estimates presented to be reasonable in the aggregate. We have not been required to record a significant reserve revision in the past three years. For more information regarding reserve estimation, including historical reserve revisions, refer to the “Supplemental Oil and Gas Information.”

Our rate of recording DD&A expense is dependent upon our estimate of proved reserves, which is utilized in our unit-of-production method calculation. If the estimates of proved reserves were to be reduced, the rate at which we record DD&A expense would increase, reducing net income. Such a reduction in reserves may result from lower market prices, which may make it non-economic to drill for and produce higher cost fields. A five percent positive or negative revision to proved reserves throughout the Company would decrease or increase the DD&A rate by approximately $0.05 to $0.06 per Mcfe. Revisions in significant fields may individually affect our DD&A rate. It is estimated that a positive or negative reserve revision of 10% in one of our most productive fields would have a $0.01 impact on our total DD&A rate. These estimated impacts are based on current data, and actual events could require different adjustments to our DD&A rate.

In addition, a decline in proved reserve estimates may impact the outcome of our annual impairment test under Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Due to the inherent imprecision of the reserve estimation process, risks associated with the operations of proved producing properties and market sensitive commodity prices utilized in our impairment analysis, management cannot determine if an impairment is reasonably likely to occur in the future.

Carrying Value of Oil and Gas Properties

We evaluate the impairment of our oil and gas properties on a lease-by-lease basis whenever events or changes in circumstances indicate an asset’s carrying amount may not be recoverable. We compare expected undiscounted future cash flows to the net book value of the asset. If the future undiscounted cash flows, based on our estimate of future crude oil and natural gas prices, operating costs and anticipated production from proved reserves are lower than the net book value of the asset, the capitalized cost is reduced to fair value. Commodity pricing is estimated by using a combination of historical and current prices adjusted for geographical location and quality differentials, as well as other factors that management believes will impact realizable prices. Fair value is calculated by discounting the future cash flows. In 2006, 2005 and 2004, there were no unusual or unexpected occurrences that caused significant revisions in estimated cash flows which were utilized in our impairment test.

Costs attributable to our unproved properties are not subject to the impairment analysis described above; however, a portion of the costs associated with such properties is subject to amortization based on past experience and average property lives. Average property lives are determined on a regional basis and based on the estimated life of unproved property leasehold rights. Historically, the average property lives in each of the regions have not significantly changed. If the average unproved property life decreases or increases by one year, the amortization would increase by approximately $2.1 million or decrease by approximately $2.0 million, respectively per year.

In the past, the average leasehold life in the Gulf Coast region has been shorter than the average life in the East and West regions. Average property lives in the East, Gulf Coast and West regions have been six, three and seven years, respectively. Average property lives in Canada are estimated to be four years. As these properties are developed and reserves are proven, the remaining capitalized costs are subject to depreciation and depletion. If the development of these properties is deemed unsuccessful, the capitalized costs related to the unsuccessful activity is expensed in the year the determination is made. The rate at which the unproved properties are written off depends on the timing and success of our future exploration program.

Accounting for Derivative Instruments and Hedging Activities

Periodically, we enter into derivative commodity instruments to hedge our exposure to price fluctuations on natural gas and crude oil production. We follow the accounting prescribed in SFAS No. 133. Under SFAS No. 133, the fair value of each derivative instrument is recorded as either an asset or liability on the balance sheet. At the end of each quarterly period, these instruments are marked-to-market. The gain or loss on the change in fair value is recorded as Accumulated Other

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Comprehensive Income, a component of equity, to the extent that the derivative instrument is designated as a hedge and is effective. Under SFAS No. 133, effectiveness is a measurement of how closely correlated the hedge instrument is with the underlying physical sale. For example, a natural gas price swap that converts Henry Hub index to a fixed price would be perfectly correlated, and 100% effective, if the underlying gas were sold at the Henry Hub index. The ineffective portion, if any, of the change in the fair value of derivatives designated as hedges, and the change in fair value of all other derivatives, is recorded currently in earnings as a component of Natural Gas Production and Crude Oil and Condensate Revenue, as appropriate in the Consolidated Statement of Operations.

Long-Term Employee Benefit Costs

Our costs of long-term employee benefits, particularly pension and postretirement benefits, are incurred over long periods of time, and involve many uncertainties over those periods. The net periodic benefit cost attributable to current periods is based on several assumptions about such future uncertainties, and is sensitive to changes in those assumptions. It is management’s responsibility, often with the assistance of independent experts, to select assumptions that in its judgment represent best estimates of those uncertainties. It also is management’s responsibility to review those assumptions periodically to reflect changes in economic or other factors that affect those assumptions.

The current benefit service costs, as well as the existing liabilities, for pensions and other postretirement benefits are measured on a discounted present value basis. The discount rate is a current rate, related to the rate at which the liabilities could be settled. Our assumed discount rate is based on average rates of return published for a theoretical portfolio of high-quality fixed income securities. In order to select the discount rate, we use benchmarks such as the Moody’s Aa Corporate Rate, which was 5.8% annualized for 2006, and the Citigroup Pension Liability Index, which was 5.9% at the end of 2006. We look to these benchmarks as well as considering durations of expected benefit payments. We have determined based on these assumptions that a discount rate of 5.75% at December 31, 2006 is reasonable.

In order to value our pension liabilities, we use the RP-2000 Combined Mortality Table. This is a widely accepted table used for valuing pension liabilities. This table represents a more recent and conservative mortality table than the 1983 Group Annuity Mortality Table, and appears to be an appropriate table based on the demographics of our benefit plans. Another consideration that is made is a salary scale selection. We have assumed that salaries will increase four percent based on our expectation of future salary increases.

The benefit obligation and the periodic cost of postretirement medical benefits also are measured based on assumed rates of future increase in the per capita cost of covered health care benefits. As of December 31, 2006, the assumed rate of increase was 8.0%. The net periodic cost of pension benefits included in expense also is affected by the expected long-term rate of return on plan assets assumption. The expected return on plan assets rate is normally changed less frequently than the assumed discount rate, and reflects long-term expectations, rather than current fluctuations in market conditions. The actual rate of return on plan assets may differ from the expected rate due to the volatility normally experienced in capital markets. Management’s goal is to manage the investments over the long term to achieve optimal returns with an acceptable level of risk and volatility.

We have established objectives regarding plan assets in the pension plan. We attempt to maximize return over the long-term, subject to appropriate levels of risk. One of our plan objectives is that the performance of the equity portion of the pension plan exceed the Standard and Poors’ 500 Index by a minimum of two percent annually over the long term. We also seek to achieve a minimum five percent annual real rate of return (above the rate of inflation) on the total portfolio over the long-term. In our pension calculations, we have used eight percent as the expected long-term return on plan assets for 2006, 2005 and 2004. A Monte Carlo simulation was run using 5,000 simulations based upon our actual asset allocation and liability duration, which has been determined to be approximately 16 years. This model uses historical data for the period of 1926-2003 for stocks, bonds and cash to determine the best estimate range of future returns. The median rate of return, or return that we expect to achieve over 50 percent of the time, is approximately nine percent. We expect to achieve a minimum 6.4% annual real rate of return on the total portfolio over the long term at least 75 percent of the time. In addition, the actual rate of return on plan assets annualized over the past ten years is approximately six percent. We believe that the eight percent chosen is a reasonable estimate based on our actual results.

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We generally target a portfolio of assets utilizing equity securities, fixed income securities and cash equivalents that are within a range of approximately 50% to 80% for equity securities and approximately 20% to 40% for fixed income securities. Large capitalization equities may make up a maximum of 65% of the portfolio. Small capitalization equities and international equities may make up a maximum of 30% and 15%, respectively, of the portfolio. Fixed income bonds may make up a maximum of 40% of our portfolio. The account will typically be fully invested; however, as a temporary investment or an asset protection measure, part of the account may be invested in money market investments up to 20%. One percent of the portfolio is invested in short-term funds at the designated bank to meet the cash flow needs of the plan. No prohibited investments, including direct or indirect investments in commodities, commodity futures, derivatives, short sales, real estate investment trusts, letter stock, restricted stock or other private placements, are allowed without prior committee approval.

Stock-Based Compensation

Effective January 1, 2006, we adopted the accounting policies described in SFAS No. 123(R), “Share Based Payment (revised 2004).” We chose to use the modified prospective method of transition, and accordingly, no adjustments to prior period financial statements were made. Prior to January 1, 2006, we accounted for stock-based compensation in accordance with the intrinsic value based method prescribed by Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees.” Under this method, we recognized compensation cost as the excess, if any, of the quoted market price of our stock at the grant date over the amount an employee must pay to acquire the stock. In addition, SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” outlines a fair value based method of accounting for stock options or similar equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the value of an award and is recognized over the service period, which is usually the vesting period. To calculate the fair value, either a binomial or Black-Scholes valuation model may be used.

One primary difference in our method of accounting after the adoption of SFAS No. 123(R) is that unvested stock options are now expensed as a component of Stock-Based Compensation cost in General and Administrative Expense in the Consolidated Statement of Operations. This expense is based on the fair value of the award at the original grant date and is recognized over the vesting period. Prior to the adoption of SFAS No. 123(R), we included this amount as a pro-forma disclosure in the Notes to the Consolidated Financial Statements. The expense resulting from the expensing of stock options was $0.3 million for the year ended December 31, 2006. Another change relates to the accounting for our performance share awards. Certain of these awards are now accounted for by bifurcating the equity and liability components. A Monte Carlo model is used to value the liability component, rather than accounting for the award using the average closing stock price at the end of each reporting period. All other awards are accounted for in substantially the same way as they were or would have been in prior periods, with the exception of the differences noted below.

Other differences in the way we account for stock-based compensation after January 1, 2006, result from the application of a forfeiture rate to all grants rather than recording actual forfeitures as they occur. We are now required to estimate forfeitures on all equity-based compensation and adjust periodic expense. Upon adoption, we did not record a cumulative effect adjustment for these forfeitures as the amount was immaterial. In addition, this change in accounting for forfeitures resulted in an immaterial change in overall compensation cost for the year ended December 31, 2006. Furthermore, we are required to expense certain awards to retirement-eligible employees in the month an employee becomes retirement eligible, depending on the structure of each individual plan. The retirement-eligibility provision only applies to new grants that were awarded after January 1, 2006. The total expense that we recognized related to restricted stock awards granted to retirement-eligible employees in 2006 was $0.6 million.

We issued stock appreciation rights to executive employees for the first time during the first quarter of 2006. The grant date fair value of these awards is measured using a Black-Scholes model and compensation cost is expensed over the three year graded-vesting service period. Expense related to these awards was $1.0 million, before the effect of taxes, for 2006. In addition, a new type of performance share was issued to non-executive employees. These awards measure our performance based on three internal metrics, rather than a peer group’s stock performance which we use to measure our other performance share awards. These awards cliff vest at the end of the three year service period. Compensation cost related to these new internal-metric based performance share awards granted to

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employees was $1.4 million, before the effect of taxes, for 2006. In addition, we incurred a $0.6 million ($0.4 million, net of tax) cumulative effect charge in the first quarter of 2006, which is included within General and Administrative Expenses due to its immateriality, as a result of changes made in our accounting for performance shares. For further information on the accounting for these and our other stock-based compensation awards, please refer to Notes 1 and 10 of the Notes to the Consolidated Financial Statements.

During the third quarter of 2006, we adopted the provisions outlined under FASB Staff Position (FSP) FAS No. 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” which discusses accounting for taxes for stock awards using the APIC Pool concept. We made a one time election as prescribed under the FSP to use the shortcut approach to derive the initial windfall tax benefit pool. We chose to use a one-pool approach which combines all awards granted to employees, including non-employee directors.

Our Compensation Committee of our Board of Directors made one modification to our stock option awards in 2005. It approved the acceleration to December 15, 2005 of the vesting of 198,799 unvested stock options awarded in February 2003 under our Second Amended and Restated 1994 Long-Term Incentive Plan and 24,500 unvested stock options awarded in April 2004 under our 2004 Incentive Plan.

The 198,799 shares awarded to employees under the 1994 plan at an exercise price of $15.32 would have vested in February 2006. The 24,500 shares awarded to non-employee directors under the 2004 plan at an exercise price of $23.32 would have vested 12,250 shares in each of April 2006 and April 2007. The decision to accelerate the vesting of these unvested options, which we believed to be in the best interest of our shareholders and employees, was made solely to reduce compensation expense and administrative burden associated with our adoption of SFAS No. 123(R). The accelerated vesting of the options did not have an impact on our results of operations or cash flows for 2005. The acceleration of vesting reduced our compensation expense related to these options by approximately $0.2 million for 2006.

OTHER ISSUES AND CONTINGENCIES

Corporate Income Tax. We have benefited in the past and may benefit in the future from the alternative minimum tax (AMT) relief granted under the Comprehensive National Energy Policy Act of 1992 (the Act). The Act repealed provisions of the AMT requiring a taxpayer's alternative minimum taxable income to be increased on account of certain intangible drilling costs (IDC) and percentage depletion deductions for corporations other than integrated oil companies. The repeal of these provisions generally applies to taxable years beginning after 1992. The repeal of the excess IDC preference cannot reduce a taxpayer's alternative minimum taxable income by more than 40% of the amount of such income determined without regard to the repeal of such preference.

Regulations. Our operations are subject to various types of regulation by federal, state and local authorities. See “Regulation of Oil and Natural Gas Exploration and Production,” “Natural Gas Marketing, Gathering and Transportation,” “Federal Regulation of Petroleum” and “Environmental Regulations” in the “Other Business Matters” section of Item 1 “Business” for a discussion of these regulations.

Restrictive Covenants. Our ability to incur debt and to make certain types of investments is subject to certain restrictive covenants in the Company's various debt instruments. Among other requirements, our revolving credit agreement and our senior notes specify a minimum annual coverage ratio of operating cash flow to interest expense for the trailing four quarters of 2.8 to 1.0. At December 31, 2006, we are in compliance in all material respects with all restrictive covenants on both the revolving credit agreement and notes. In the unforeseen event that we fail to comply with these covenants, the Company may apply for a temporary waiver with the lender, which, if granted, would allow us a period of time to remedy the situation. See further discussion in “Capital Resources and Liquidity.”

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Operating Risks and Insurance Coverage. Our business involves a variety of operating risks. See “Risk Factors—We face a variety of hazards and risks that could cause substantial financial losses” in Item 1A. In accordance with customary industry practice, we maintain insurance against some, but not all, of these risks and losses. The occurrence of any of these events not fully covered by insurance could have a material adverse effect on our financial position and results of operations. The costs of these insurance policies are somewhat dependent on our historical claims experience and also the areas in which we choose to operate. During the past few years, we have invested a significant portion of our drilling dollars in the Gulf Coast, where insurance rates are significantly higher than in other regions such as the East.

Commodity Pricing and Risk Management Activities. Our revenues, operating results, financial condition and ability to borrow funds or obtain additional capital depend substantially on prevailing prices for natural gas and, to a lesser extent, oil. Declines in oil and gas prices may have a material adverse effect on our financial condition, liquidity, ability to obtain financing and operating results. Lower oil and gas prices also may reduce the amount of oil and gas that we can produce economically. Historically, oil and gas prices and markets have been volatile, with prices fluctuating widely, and they are likely to continue to be volatile. Depressed prices in the future would have a negative impact on our future financial results. In particular, substantially lower prices would significantly reduce revenue and could potentially impact the outcome of our annual impairment test under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Because our reserves are predominantly natural gas, changes in natural gas prices may have a particularly large impact on our financial results.

The majority of our production is sold at market responsive prices. Generally, if the commodity indexes fall, the price that we receive for our production will also decline. Therefore, the amount of revenue that we realize is partially determined by factors beyond our control. However, management may mitigate this price risk with the use of derivative financial instruments. Most recently, we have used financial instruments such as price collars and, in previous years, swap arrangements to reduce the impact of declining prices on our revenue. Under both arrangements, there is also risk that the movement of the index prices will result in the Company not being able to realize the full benefit of a market improvement.

Recently Issued Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140.” SFAS No. 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and also resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” SFAS No. 155 was issued to eliminate the exemption from applying SFAS No. 133 to interests in securitized financial assets so that similar instruments are accounted for in a similar fashion, regardless of the instrument’s form. We do not believe that our financial position, results of operations or cash flows will be impacted by SFAS No. 155 as we do not currently hold any hybrid financial instruments.

In July 2006, the FASB issued FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109.” FIN No. 48 provides guidance for recognizing and measuring uncertain tax positions, as defined in SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a two-step process for accounting for income tax uncertainties. First, a threshold condition of “more likely than not” should be met to determine whether any of the benefit of the uncertain tax position should be recognized in the financial statements. If the recognition threshold is met, FIN No. 48 provides additional guidance on measuring the amount of the uncertain tax position. Guidance is also provided regarding derecognition, classification, interest and penalties, interim period accounting, transition and disclosure of these uncertain tax positions. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. We are completing our evaluation of the impact of the adoption of FIN No. 48 and believe that the impact will not have a material effect on our financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a formal framework for measuring fair values of assets and liabilities in financial statements that are already required by U.S. generally accepted accounting principles (GAAP) to be measured at fair value. SFAS No. 157 clarifies guidance in

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FASB Concepts Statement (CON) No. 7 which discusses present value techniques in measuring fair value. Additional disclosures are also required for transactions measured at fair value. No new fair value measurements are prescribed, and SFAS No. 157 is intended to codify the several definitions of fair value included in various accounting standards. However, the application of this Statement may change current practices for certain companies. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating what impact SFAS No. 157 may have on our financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158 requires recognition of the funded status of a benefit plan in the balance sheet and the recognition through other comprehensive income of gains, losses, prior service costs and credits, net of tax, arising during the period but not included as a component of periodic benefit cost. In addition, the measurement date of plan assets and obligations must be as of a company’s balance sheet date. Additional disclosures in the notes to the financial statements are required and guidance is prescribed regarding the selection of discount rates to be used in measuring the benefit obligation. For public companies, the effective date of SFAS No. 158 is as of the end of the fiscal year ending after December 15, 2006. The effective date of the new measurement date provision is for fiscal years ending after December 15, 2008; however, our measurement date is currently our balance sheet date, so no change will be required. The incremental effect of SFAS No. 158, as discussed in Note 5 of the Notes to the Consolidated Financial Statements, was an increase to total long-term liabilities of $21.7 million, an increase to current liabilities of $0.6 million, an increase to total assets of $8.2 million and a decrease to total stockholders’ equity of $14.1 million based on actuarial reports as of December 31, 2006.

In September 2006, the SEC Staff issued Staff Accounting Bulletin (SAB) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” in an effort to address diversity in the accounting practice of quantifying misstatements and the potential for improper amounts on the balance sheet. Prior to the issuance of SAB No. 108, the two methods used for quantifying the effects of financial statement errors were the “roll-over” and “iron curtain” methods. Under the “roll-over” method, the primary focus is the income statement, including the reversing effect of prior year misstatements. The criticism of this method is that misstatements can accumulate on the balance sheet. On the other hand, the “iron curtain” method focuses on the effect of correcting the ending balance sheet, with less importance on the reversing effects of prior year errors in the income statement. SAB No. 108 establishes a “dual approach” which requires the quantification of the effect of financial statement errors on each financial statement, as well as related disclosures. Public companies are required to record the cumulative effect of initially adopting the “dual approach” method in the first year ending after November 16, 2006 by recording any necessary corrections to asset and liability balances with an offsetting adjustment to the opening balance of retained earnings. The use of this cumulative effect transition method also requires detailed disclosures of the nature and amount of each error being corrected and how and when they arose. We have adopted the provisions of SAB No. 108 and there was no impact to our financial position, results of operations and cash flows as a result of this pronouncement.

Forward-Looking Information

The statements regarding future financial and operating performance and results, market prices, future hedging activities, and other statements that are not historical facts contained in this report are forward-looking statements. The words “expect,” “project,” “estimate,” “believe,” “anticipate,” “intend,” “budget,” “plan,” “forecast,” “predict,” “may,” “should,” “could,” “will” and similar expressions are also intended to identify forward-looking statements. Such statements involve risks and uncertainties, including, but not limited to, market factors, market prices (including regional basis differentials) of natural gas and oil, results for future drilling and marketing activity, future production and costs and other factors detailed herein and in our other Securities and Exchange Commission filings. See “Risk Factors” in Item 1A for additional information about these risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated.

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RESULTS OF OPERATIONS

2006 and 2005 Compared

We reported net income for the year ended December 31, 2006 of $321.2 million, or $6.64 per share. During 2005, we reported net income of $148.4 million, or $3.04 per share. Net income increased in the current period by $172.8 million primarily due to an increase in operating income as a result of the gain of $231.2 million ($144.5 million, net of tax) recorded in 2006 related to the disposition of our offshore and certain south Louisiana properties as well as an increase in natural gas and oil production revenues. This increase is partially offset by an increase in total operating expenses of $41.0 million and an increase of $101.5 million in income tax expense. Operating income increased by $270.2 million compared to the prior year, from $258.7 million in 2005 to $528.9 million in 2006.

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Natural Gas Production Revenues

Our average total company realized natural gas production sales price for 2006, including the realized impact of derivative instruments, was $7.13 per Mcf compared to $6.74 per Mcf for the prior year. These prices include the realized impact of derivative instruments, which increased these prices by $0.35 per Mcf in 2006 and reduced these prices by $1.33 per Mcf in 2005. The following table excludes the unrealized gain from the change in derivative fair value of $1.1 million for the year ended December 31, 2005. There was no unrealized impact from the change in derivative fair value for the year ended December 31, 2006. These unrealized changes in fair value have been included in Natural Gas Production Revenues in the Consolidated Statement of Operations.

	Year Ended December 31,					Variance
	2006			2005		Amount			Percent
Natural Gas Production (Mmcf)
East		23,542			21,435		2,107		10	%
Gulf Coast		29,973			28,071		1,902		7	%
West		23,633			23,224		409		2	%
Canada		2,574			1,149		1,425		124	%
Total Company		79,722			73,879		5,843		8	%
Natural Gas Production Sales Price ($/Mcf)
East	$	7.99		$	8.02	$	(0.03	)	0	%
Gulf Coast	$	7.37		$	6.38	$	0.99		16	%
West	$	6.05		$	6.00	$	0.05		1	%
Canada	$	6.18		$	6.79	$	(0.61	)	(9	%)
Total Company	$	7.13		$	6.74	$	0.39		6	%
Natural Gas Production Revenue (In thousands)
East	$	188,111		$	171,902	$	16,209		9	%
Gulf Coast		221,020			179,061		41,959		23	%
West		143,058			139,298		3,760		3	%
Canada		15,908			7,802		8,106		104	%
Total Company	$	568,097		$	498,063	$	70,034		14	%
Price Variance Impact on Natural Gas Production Revenue (In thousands)
East	$	(692	)
Gulf Coast		29,822
West		1,189
Canada		(1,572	)
Total Company	$	28,747
Volume Variance Impact on Natural Gas Production Revenue (In thousands)
East	$	16,901
Gulf Coast		12,137
West		2,571
Canada		9,678
Total Company	$	41,287

The increase in Natural Gas Production Revenue is due to the increase in natural gas sales production and, to a lesser extent, the increase in realized natural gas prices. Production increased in all regions and prices were up in the Gulf Coast and West. The increase in the total realized natural gas price and production resulted in a net revenue increase of $70.0 million, excluding the unrealized impact of derivative instruments. This growth primarily resulted from our 2005 and 2006 drilling programs, which focused on projects in basins traditionally known for gas development, including the East region, the Minden field in the Gulf Coast and Canada. This natural gas production increase includes the effects of the divestiture of our offshore and certain south Louisiana properties. For the year ended December 31, 2006, natural gas volumes from the properties sold in the third quarter 2006 disposition were 9,037 Mmcf and natural gas revenues from those properties were approximately $70.5 million.

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Brokered Natural Gas Revenue and Cost

	Year Ended December 31,					Variance
	2006			2005		Amount			Percent
Sales Price ($/Mcf)	$	8.14		$	9.14	$	(1.00	)	(11	%)
Volume Brokered (Mmcf)		11,502			10,793		709		7	%
Brokered Natural Gas Revenues (In thousands)	$	93,651		$	98,605
Purchase Price ($/Mcf)	$	7.25		$	8.08	$	(0.83	)	(10	%)
Volume Brokered (Mmcf)		11,502			10,793		709		7	%
Brokered Natural Gas Cost (In thousands)	$	83,375		$	87,183
Brokered Natural Gas Margin (In thousands)	$	10,276		$	11,422	$	(1,146	)	(10	%)
(In thousands)
Sales Price Variance Impact on Revenue	$	(11,434	)
Volume Variance Impact on Revenue		6,480
	$	(4,954	)
(In thousands)
Purchase Price Variance Impact on Purchases	$	9,537
Volume Variance Impact on Purchases		(5,729	)
	$	3,808

The decreased brokered natural gas margin of $1.1 million was driven by a decrease in sales price that outpaced the decrease in purchase cost, offset in part by an increase in volume.

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Crude Oil and Condensate Revenues

Our average total company realized crude oil sales price for 2006 was $65.03 per Bbl. There was no realized impact of crude oil derivative instruments in 2006. Our average total company realized crude oil sales price was $44.19 per Bbl for 2005, including the realized impact of derivative instruments, which reduced the price by $9.93 per Bbl. The following table excludes the unrealized gain from the change in derivative fair value of $5.5 million for the year ended December 31, 2005. There was no unrealized impact from the change in derivative fair value for the year ended December 31, 2006. These unrealized changes in fair value have been included in Crude Oil and Condensate Revenues in the Consolidated Statement of Operations.

	Year Ended December 31,					Variance
	2006			2005		Amount			Percent
Crude Oil Production (Mbbl)
East		24			27		(3	)	(11	%)
Gulf Coast		1,160			1,528		(368	)	(24	%)
West		209			166		43		26	%
Canada		12			18		(6	)	(33	%)
Total Company		1,405			1,739		(334	)	(19	%)
Crude Oil Sales Price ($/Bbl)
East	$	62.03		$	53.84	$	8.19		15	%
Gulf Coast	$	65.44		$	42.81	$	22.63		53	%
West	$	63.36		$	55.37	$	7.99		14	%
Canada	$	60.55		$	43.39	$	17.16		40	%
Total Company	$	65.03		$	44.19	$	20.84		47	%
Crude Oil Revenue (In thousands)
East	$	1,474		$	1,463	$	11		1	%
Gulf Coast		75,894			65,427		10,467		16	%
West		13,253			9,155		4,098		45	%
Canada		759			791		(32	)	(4	%)
Total Company	$	91,380		$	76,836	$	14,544		19	%
Price Variance Impact on Crude Oil Revenue (In thousands)
East	$	195
Gulf Coast		26,242
West		1,672
Canada		198
Total Company	$	28,307
Volume Variance Impact on Crude Oil Revenue (In thousands)
East	$	(184	)
Gulf Coast		(15,775	)
West		2,426
Canada		(230	)
Total Company	$	(13,763	)

The increase in the realized crude oil price offset by the decline in production resulted in a net revenue increase of $14.5 million, excluding the unrealized impact of derivative instruments. The decrease in oil production is primarily the result of decreased Gulf Coast production from the sale of properties in the third quarter of 2006 and the continued natural decline of the CL&F lease in south Louisiana, which was part of the sale. For the year ended December 31, 2006, crude oil and condensate volumes from the properties sold in the third quarter disposition were 707 Mbbl and crude oil and condensate revenues from those properties were approximately $47.4 million.

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Impact of Derivative Instruments on Operating Revenues

The following table reflects the realized impact of cash settlements and the net unrealized change in fair value of derivative instruments:

	Year Ended December 31,
	2006				2005
(In thousands)	Realized		Unrealized		Realized			Unrealized
Operating Revenues - Increase/(Decrease) to Revenue
Cash Flow Hedges
Natural Gas Production	$	28,266	$	—	$	(98,223	)	$	1,114
Crude Oil		—		—		(2,430	)		(6	)
Total Cash Flow Hedges		28,266		—		(100,653	)		1,108
Other Derivative Financial Instruments
Crude Oil		—		—		(14,842	)		5,518
Total Other Derivative Financial Instruments		—		—		(14,842	)		5,518
	$	28,266	$	—	$	(115,495	)	$	6,626

We are exposed to market risk on derivative instruments to the extent of changes in market prices of natural gas and oil. However, the market risk exposure on these derivative contracts is generally offset by the gain or loss recognized upon the ultimate sale of the commodity.

Other Operating Revenues

Other operating revenues increased by $6.2 million from 2005 to 2006. This change was primarily a result of an increase in revenues from net profits interest that originated in 2006 as well as a decrease in our payout liability associated with a favorable legal ruling in the first quarter of 2006, which correspondingly increased other revenues, and favorable settlements of state severance tax audits. This variance also results, to a lesser extent, from changes in our wellhead gas imbalances over the previous year period.

Operating Expenses

Total costs and expenses from operations increased by $41.0 million for the year ended December 31, 2006 compared to the year ended December 31, 2005. The primary reasons for this fluctuation were as follows:

• Depreciation, Depletion and Amortization increased by $20.5 million in 2006. This was primarily due to increased production during 2006, an increase in finding costs and an increase in the DD&A rate associated with one field in East Texas as well as the commencement of offshore production in late 2005.

• General and Administrative expense increased by $20.5 million in 2006. This increase was primarily due to increased stock compensation costs of $11.6 million. During 2006, performance share and restricted stock amortization expense increased by $9.6 million and $0.7 million, respectively, primarily due to new grants issued in 2006 and changes in the accounting for the value of performance shares. During 2006, expense related to SARs, which were granted for the first time in 2006, and stock options, which were being expensed in 2006 due to the adoption of SFAS No. 123(R), increased by $1.3 million in total. In addition, there were increases in salaries and incentive compensation related to employee bonuses over the prior year as well as reserves for litigation expenses.

• Exploration expense decreased by $12.4 million in 2006, primarily as a result of decreased dry hole expense of $12.2 million, mainly as a result of a decrease in the Gulf Coast attributable to a more successful drilling program in 2006 compared to 2005 and, to a lesser extent, better success in Canada, partially offset by increased dry hole expense in the West region. In addition, geological and geophysical expenses were down by $1.9 million. Partially offsetting this overall decrease was an increase in employee expenses for salaries and benefits of approximately $1.2 million for employees in the exploration division as well as increased delay rental expenses of $0.6 million.

• Direct Operations expense in 2006 increased by $13.0 million over 2005. This was primarily the result of an increase over the prior year in incentive compensation and personnel related charges, insurance costs, and outside operated properties expense mainly from increases in the Gulf Coast region, largely from repairs related to a plant damaged by the hurricanes that occurred in 2005 and also, to a lesser extent, in the West region. Additional increases occurred in disposal costs, compressor expenses, and treating and pipeline costs. Partially offsetting these increases were decreased workover charges and outside operated plant operations expenses.

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• Impairment of Oil and Gas Properties increased by $3.9 million as a result of an impairment recorded in 2006 for a marginally productive gas well in Colorado County, Texas in the Gulf Coast region compared to no impairments of oil and gas properties in 2005. Further analysis of this impairment is discussed in Note 2 of the Notes to the Consolidated Financial Statements.

• Brokered Natural Gas Cost decreased by $3.8 million from 2005 to 2006. See the preceding table labeled “Brokered Natural Gas Revenue and Cost” for further analysis.

Interest Expense, Net

Interest expense, net decreased by $3.4 million due to lower borrowings on our 7.19% fixed rate debt and increased interest on our short term investments as well as the commencement of regulatory interest capitalization on our pipeline in the East region, offset partially by higher average credit facility borrowings as well as an increasing interest rate environment. Weighted average borrowings based on daily balances were approximately $61 million during 2006 compared to $32 million during 2005. In addition, the weighted average effective interest rate on the credit facility increased to 7.9% during 2006 from 6.9% during the prior year.

Income Tax Expense

Income tax expense increased by $101.5 million due to a comparable increase in our pre-tax income, primarily as a result of the gain on the sale of assets recorded in the third quarter of 2006. The effective tax rates for 2006 and 2005 were 37.1% and 37.2%, respectively.

2005 and 2004 Compared

We reported net income for the year ended December 31, 2005 of $148.4 million, or $3.04 per share. During 2004, we reported net income of $88.4 million, or $1.81 per share. Operating income increased by $98.0 million compared to the prior year, from $160.7 million to $258.7 million. The increase in operating income from 2004 to 2005 was principally due to an increase in natural gas and oil production revenues partially offset by an increase in total operating expenses. Net income increased from 2004 to 2005 by $60.0 million due to an increase in operating income partially offset by an increase of $37.6 million in income tax expense.

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Natural Gas Production Revenues

Our average total company realized natural gas production sales price, including the realized impact of derivative instruments, was $6.74 per Mcf compared to $5.20 per Mcf for the comparable period of the prior year. These prices include the realized impact of derivative instruments, which reduced these prices by $1.33 per Mcf in 2005 and $0.76 per Mcf in 2004. The following table excludes the unrealized gain from the change in derivative fair value of $1.1 million and $0.9 million for the years ended December 31, 2005 and 2004, respectively. These unrealized changes in fair value have been included in Natural Gas Production Revenues in the Consolidated Statement of Operations.

	Year Ended December 31,					Variance
	2005			2004		Amount			Percent
Natural Gas Production (Mmcf)
East		21,435			19,442		1,993		10	%
Gulf Coast		28,071			31,358		(3,287	)	(10	%)
West		23,224			21,866		1,358		6	%
Canada		1,149			167		982		588	%
Total Company		73,879			72,833		1,046		1	%
Natural Gas Production Sales Price ($/Mcf)
East	$	8.02		$	5.60	$	2.42		43	%
Gulf Coast	$	6.38		$	5.27	$	1.11		21	%
West	$	6.00		$	4.75	$	1.25		26	%
Canada	$	6.79		$	4.69	$	2.10		45	%
Total Company	$	6.74		$	5.20	$	1.54		30	%
Natural Gas Production Revenue (In thousands)
East	$	171,902		$	108,935		62,967		58	%
Gulf Coast		179,061			165,177		13,884		8	%
West		139,298			103,851		35,447		34	%
Canada		7,802			784		7,018		895	%
Total Company	$	498,063		$	378,747	$	119,316		32	%
Price Variance Impact on Natural Gas Production Revenue (In thousands)
East	$	51,798
Gulf Coast		31,200
West		28,997
Canada		2,414
Total Company	$	114,409
Volume Variance Impact on Natural Gas Production Revenue (In thousands)
East	$	11,170
Gulf Coast		(17,317	)
West		6,448
Canada		4,606
Total Company	$	4,907

The increase in Natural Gas Production Revenue is due substantially to the increase in natural gas sales prices. In addition, the slight increase in production was due to the successful drilling programs in the East, West and Canada. Partially offsetting this was the decrease in the Gulf Coast production. The increase in the realized natural gas price combined with the increase in production resulted in a net revenue increase of $119.3 million.

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Brokered Natural Gas Revenue and Cost

	Year Ended December 31,
						Variance
	2005			2004		Amount			Percent
Sales Price ($/Mcf)	$	9.14		$	6.56	$	2.58		39	%
Volume Brokered (Mmcf)		10,793			12,876		(2,083	)	(16	%)
Brokered Natural Gas Revenues (In thousands)	$	98,605		$	84,416
Purchase Price ($/Mcf)	$	8.08		$	5.84	$	2.24		38	%
Volume Brokered (Mmcf)		10,793			12,876		(2,083	)	(16	%)
Brokered Natural Gas Cost (In thousands)	$	87,183		$	75,217
Brokered Natural Gas Margin (In thousands)	$	11,422		$	9,199	$	2,223		24	%
(In thousands)
Sales Price Variance Impact on Revenue	$	27,852
Volume Variance Impact on Revenue		(13,664	)
	$	14,188
(In thousands)
Purchase Price Variance Impact on Purchases	$	(24,130	)
Volume Variance Impact on Purchases		12,165
	$	(11,965	)

The increased brokered natural gas margin of $2.2 million was driven by an increased sales price that outpaced the increase in purchase cost, offset in part by a decrease in volume.

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Crude Oil and Condensate Revenues

Our average total company realized crude oil sales price for 2005, including the realized impact of derivative instruments, was $44.19 per Bbl compared to $31.55 per Bbl for 2004. These prices include the realized impact of derivative instruments, which reduced these prices by $9.93 per Bbl in 2005 and $8.98 per Bbl in 2004. The following table excludes the unrealized gain from the change in derivative fair value of $5.5 million and the unrealized loss from the change in derivative fair value of $2.9 million for the years ended December 31, 2005 and 2004, respectively. These unrealized changes in fair value have been included in Crude Oil and Condensate Revenues in the Consolidated Statement of Operations.

	Year Ended December 31,					Variance
	2005			2004		Amount			Percent
Crude Oil Production (Mbbl)
East		27			27		—		—
Gulf Coast		1,528			1,805		(277	)	(15	%)
West		166			159		7		4	%
Canada		18			4		14		350	%
Total Company		1,739			1,995		(256	)	(13	%)
Crude Oil Sales Price ($/Bbl)
East	$	53.84		$	38.28	$	15.56		41	%
Gulf Coast	$	42.81		$	30.67	$	12.14		40	%
West	$	55.37		$	40.29	$	15.08		37	%
Canada	$	43.39		$	37.93	$	5.46		14	%
Total Company	$	44.19		$	31.55	$	12.64		40	%
Crude Oil Revenue (In thousands)
East	$	1,463		$	1,049	$	414		39	%
Gulf Coast		65,427			55,357		10,070		18	%
West		9,155			6,404		2,751		43	%
Canada		791			129		662		513	%
Total Company	$	76,836		$	62,939	$	13,897		22	%
Price Variance Impact on Crude Oil Revenue (In thousands)
East	$	423
Gulf Coast		18,547
West		2,496
Canada		100
Total Company	$	21,566
Volume Variance Impact on Crude Oil Revenue (In thousands)
East	$	—
Gulf Coast		(8,492	)
West		299
Canada		524
Total Company	$	(7,669	)

The increase in the realized crude oil price combined with the decline in production resulted in a net revenue increase of $13.9 million. The decrease in oil production is primarily the result of the decrease in the Gulf Coast region production due to the continued natural decline of the CL&F lease in south Louisiana, as well as the impact of hurricanes which included the shutting in and deferring of production at the Breton Sound offshore lease, one of our largest areas of offshore oil production.

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Impact of Derivative Instruments on Operating Revenues

The following table reflects the realized impact of cash settlements and the net unrealized change in fair value of derivative instruments:

	Year Ended December 31,
	2005						2004
(In thousands)	Realized			Unrealized			Realized			Unrealized
Operating Revenues - Increase/(Decrease) to Revenue
Cash Flow Hedges
Natural Gas Production	$	(98,223	)	$	1,114		$	(54,564	)	$	137
Crude Oil		(2,430	)		(6	)		—			6
Total Cash Flow Hedges		(100,653	)		1,108			(54,564	)		143
Other Derivative Financial Instruments
Natural Gas Production		—			—			(444	)		777
Crude Oil		(14,842	)		5,518			(17,908	)		(2,923	)
Total Other Derivative Financial Instruments		(14,842	)		5,518			(18,352	)		(2,146	)
	$	(115,495	)	$	6,626		$	(72,916	)	$	(2,003	)

We are exposed to market risk to the extent of changes in market prices of natural gas and oil. However, the market risk exposure on these derivative contracts is generally offset by the gain or loss recognized upon the ultimate sale of the commodity.

Other Operating Revenues

Other operating revenues decreased $3.6 million. This change was primarily a result of an increase in our payout liability associated with the reduction of our interest due to customary reversionary interest owned by others, which correspondingly decreased other operating revenues. In addition, our revenues from net profits interest declined over the prior year. This revenue variance also results, to a lesser extent, from changes in our wellhead gas imbalances over the previous year.

Operating Expenses

Total costs and expenses from operations increased $54.5 million for the year ended December 31, 2005 compared to the year ended December 31, 2004. The primary reasons for this fluctuation are as follows:

• Exploration expense increased $13.7 million in 2005, primarily as a result of increased dry hole expenses partially offset by decreased spending on geological and geophysical expenses. During 2005, we spent $6.8 million less on geological and geophysical activities but incurred an additional $18.9 million in dry hole expense. In addition, we spent an additional $0.8 million on delay rentals. The increase in dry hole expense is mainly due to expenses incurred in the Gulf Coast and, to a smaller extent, in Canada and the West.

• Taxes Other Than Income increased by $13.3 million from 2004 compared to 2005, primarily due to increased production taxes as a result of increased commodity prices. Additionally, ad valorem and franchise taxes were higher compared to the prior year.

• Brokered Natural Gas Cost increased by $12.0 million from 2004 to 2005. See the preceding table labeled “Brokered Natural Gas Revenue and Cost” for further analysis.

• Direct Operations expense increased by $8.2 million. This is primarily the result of increased expenses for outside operated properties and workovers. In addition, there were increases over the prior year in maintenance charges, equipment expenses and employee related expenses.

• Depreciation, Depletion and Amortization increased by $5.1 million in 2005. This is primarily due to an increase in offshore DD&A rates associated with the commencement of offshore production in late 2004 and increased production in the East and West regions.

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• Impairment of Oil and Gas Properties decreased by $3.5 million as we incurred no impairment expense in the current year. The costs incurred in the prior year related to a field in south Louisiana. Further analysis of this impairment is discussed in Note 2 of the Notes to the Consolidated Financial Statements.

• Impairment of Unproved Properties increased $2.8 million over the prior year. This is due to increased amortization related to unproved property additions both offshore and onshore, including an increase in our Canadian additions.

• General and Administrative expense increased by $2.9 million in 2005. This increase is primarily due to increased stock compensation expense relating to performance share awards, increased professional services fees and higher employee related expenses. Partially offsetting these increases was a decrease in miscellaneous expenses, primarily due to the reversal of the reserve attributable to litigation that was settled in the 2005 period.

Interest Expense, Net

Interest expense, net increased $0.1 million. Interest expense related to borrowings under our revolving credit facility was higher in the current year due to higher average borrowings. Weighted average borrowings based on daily balances were approximately $32 million during 2005 compared to approximately $10 million during 2004. In addition, the effective interest rate on the credit facility increased to 6.9% during 2005 from 4.2% during the prior year. Partially offsetting this was an increase in interest income on our short-term investments.

Income Tax Expense

Income tax expense increased $37.6 million due to an increase in our pre-tax net income. The effective tax rates for 2005 and 2004 were 37.2% and 36.2%, respectively.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Instruments and Hedging Activity

Our hedging strategy is designed to reduce the risk of price volatility for our production in the natural gas and crude oil markets. A hedging committee that consists of members of senior management oversees our hedging activity. Our hedging arrangements apply to only a portion of our production and provide only partial price protection. These hedging arrangements limit the benefit to us of increases in prices, but offer protection in the event of price declines. Further, if our counterparties defaulted, this protection might be limited as we might not receive the benefits of the hedges. Please read the discussion below as well as Note 11 of the Notes to the Consolidated Financial Statements for a more detailed discussion of our hedging arrangements.

Periodically, we enter into derivative commodity instruments to hedge our exposure to price fluctuations on natural gas and crude oil production. Under our revolving credit agreement, the aggregate level of commodity hedging must not exceed 100% of the anticipated future equivalent production during the period covered by these cash flow hedges. At December 31, 2006, we had 20 cash flow hedges open: 19 natural gas price collar arrangements and one crude oil price collar arrangement. At December 31, 2006, an $82.0 million ($51.2 million, net of tax) unrealized gain was recorded to Accumulated Other Comprehensive Income, along with an $82.0 million short-term derivative receivable. The change in the fair value of derivatives designated as hedges that is effective is initially recorded to Accumulated Other Comprehensive Income. The ineffective portion, if any, of the change in the fair value of derivatives designated as hedges, and the change in fair value of all other derivatives, is recorded currently in earnings as a component of Natural Gas Production and Crude Oil and Condensate Revenue, as appropriate.

Assuming no change in commodity prices, after December 31, 2006 we would expect to reclassify to the Consolidated Statement of Operations, over the next 12 months, $51.2 million in after-tax income associated with commodity hedges. This reclassification represents the net short-term receivable associated with open positions currently not reflected in earnings at December 31, 2006 related to anticipated 2007 production.

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Hedges on Production - Options

From time to time, we enter into natural gas and crude oil collar agreements with counterparties to hedge price risk associated with a portion of our production. These cash flow hedges are not held for trading purposes. Under the collar arrangements, if the index price rises above the ceiling price, we pay the counterparty. If the index price falls below the floor price, the counterparty pays us. During 2006, natural gas price collars covered 27,179 Mmcf of our gas production, or 34% of our gas production with a weighted average floor of $8.25 per Mcf and a weighted average ceiling of $12.74 per Mcf. During 2006, an oil price collar covered 365 Mbbl of our crude oil production, or 26% of our crude oil production with an average floor of $50.00 per Mbbl and an average ceiling of $76.00 per Mbbl.

At December 31, 2006, we had open natural gas price collar contracts covering our 2007 production as follows:

	Natural Gas Price Collars
Contract Period	Volume in Mmcf	Weighted Average Ceiling / Floor (per Mcf)		Net Unrealized Gain (In thousands)
As of December 31, 2006
First Quarter 2007	10,487	$	12.19  /  $8.99
Second Quarter 2007	10,604		12.19  /    8.99
Third Quarter 2007	10,721		12.19  /    8.99
Fourth Quarter 2007	10,721		12.19  /    8.99
Full Year 2007	42,533	$	12.19  /  $8.99	$	81,393

At December 31, 2006, we had one open crude oil price collar contract covering our 2007 production as follows:

	Crude Oil Price Collar
Contract Period	Volume in Mbbl	Average Ceiling / Floor (per Bbl)		Net Unrealized Gain (In thousands)
As of December 31, 2006
First Quarter 2007	90	$	80.00  /  $60.00
Second Quarter 2007	91		80.00  /    60.00
Third Quarter 2007	92		80.00  /    60.00
Fourth Quarter 2007	92		80.00  /    60.00
Full Year 2007	365	$	80.00  /  $60.00	$	589

We are exposed to market risk on these open contracts, to the extent of changes in market prices of natural gas and crude oil. However, the market risk exposure on these hedged contracts is generally offset by the gain or loss recognized upon the ultimate sale of the commodity that is hedged.

The preceding paragraphs contain forward-looking information concerning future production and projected gains and losses, which may be impacted both by production and by changes in the future market prices of energy commodities. See “Forward-Looking Information” for further details.

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Fair Market Value of Financial Instruments

The estimated fair value of financial instruments is the amount at which the instrument could be exchanged currently between willing parties. The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable, and accounts payable approximate fair value. The Company uses available marketing data and valuation methodologies to estimate the fair value of debt. This disclosure is presented in accordance with SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” and does not impact our financial position, results of operations or cash flows.

Long-Term Debt

	December 31, 2006						December 31, 2005
(In thousands)	Carrying Amount			Estimated Fair Value			Carrying Amount			Estimated Fair Value
Long-Term Debt
7.19% Notes	$	60,000		$	61,749		$	80,000		$	83,295
7.26% Notes		75,000			80,335			75,000			81,713
7.36% Notes		75,000			82,025			75,000			83,990
7.46% Notes		20,000			22,547			20,000			23,083
Credit Facility		10,000			10,000			90,000			90,000
Current Maturities
7.19% Notes		(20,000	)		(20,299	)		(20,000	)		(20,357	)
Long-Term Debt, excluding Current Maturities	$	220,000		$	236,357		$	320,000		$	341,724

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	57
Consolidated Statement of Operations for the Years Ended December 31, 2006, 2005 and 2004	59
Consolidated Balance Sheet at December 31, 2006 and 2005	60
Consolidated Statement of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004	61
Consolidated Statement of Stockholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004	62
Consolidated Statement of Comprehensive Income for the Years Ended December 31, 2006, 2005 and 2004	63
Notes to the Consolidated Financial Statements	64
Supplemental Oil and Gas Information (Unaudited)	102
Quarterly Financial Information (Unaudited)	106

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Cabot Oil & Gas Corporation:

We have completed integrated audits of Cabot Oil & Gas Corporation’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Cabot Oil & Gas Corporation and its subsidiaries at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Notes 1 and 5 to the consolidated financial statements, effective December 31, 2006, the Company adopted Statement of Financial Accounting Standards No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).” As discussed in Notes 1 and 10 to the consolidated financial statements, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R), “Share Based Payment (revised 2004).”

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

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A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

February 28, 2007

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CABOT OIL & GAS CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share amounts)

	Year Ended December 31,
	2006		2005		2004
OPERATING REVENUES
Natural Gas Production	$	568,097	$	499,177	$	379,661
Brokered Natural Gas		93,651		98,605		84,416
Crude Oil and Condensate		91,380		82,348		60,022
Other		8,860		2,667		6,309
		761,988		682,797		530,408
OPERATING EXPENSES
Brokered Natural Gas Cost		83,375		87,183		75,217
Direct Operations - Field and Pipeline		74,790		61,750		53,581
Exploration		49,397		61,840		48,130
Depreciation, Depletion and Amortization		128,975		108,458		103,343
Impairment of Unproved Properties		11,117		12,966		10,145
Impairment of Oil & Gas Properties (Note 2)		3,886		—		3,458
General and Administrative		58,168		37,650		34,735
Taxes Other Than Income		55,351		54,293		41,022
		465,059		424,140		369,631
Gain / (Loss) on Sale of Assets		232,017		74		(124	)
INCOME FROM OPERATIONS		528,946		258,731		160,653
Interest Expense and Other		18,441		22,497		22,029
Income Before Income Taxes		510,505		236,234		138,624
Income Tax Expense		189,330		87,789		50,246
NET INCOME	$	321,175	$	148,445	$	88,378
Basic Earnings Per Share	$	6.64	$	3.04	$	1.81
Diluted Earnings Per Share	$	6.51	$	2.99	$	1.79
Weighted Average Common Shares Outstanding		48,402		48,856		48,733
Diluted Common Shares (Note 13)		49,300		49,725		49,339

The accompanying notes are an integral part of these consolidated financial statements.

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CABOT OIL & GAS CORPORATION

CONSOLIDATED BALANCE SHEET

(In thousands, except share amounts)

	December 31,
	2006			2005
ASSETS
Current Assets
Cash and Cash Equivalents	$	41,854		$	10,626
Accounts Receivable, Net		116,546			156,009
Income Taxes Receivable		24,512			12,239
Inventories		32,997			24,616
Deferred Income Taxes		9,386			15,674
Derivative Contracts		81,982			1,736
Other		8,405			9,412
Total Current Assets		315,682			230,312
Properties and Equipment, Net (Successful Efforts Method)		1,480,201			1,238,055
Deferred Income Taxes		30,912			19,587
Other Assets		7,696			7,416
	$	1,834,491		$	1,495,370
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable	$	147,680		$	140,006
Current Portion of Long-Term Debt		20,000			20,000
Deferred Income Taxes		31,962			941
Derivative Contracts		—			22,478
Income Taxes Payable		9,282			41
Accrued Liabilities		42,103			35,118
Total Current Liabilities		251,027			218,584
Long-Term Liability for Pension Benefits (Note 5)		7,219			5,904
Long-Term Liability for Postretirement Benefits (Note 5)		18,204			6,517
Long-Term Debt (Note 4)		220,000			320,000
Deferred Income Taxes		347,430			289,381
Other Liabilities		45,413			54,773
Commitments and Contingencies (Note 7)
Stockholders’ Equity
Common Stock:
Authorized — 120,000,000 and 80,000,000 Shares of $.10 Par Value in 2006 and 2005, respectively
Issued — 50,709,110 Shares and 50,081,983 Shares in 2006 and 2005, respectively		5,071			5,008
Additional Paid-in Capital		423,066			397,349
Retained Earnings		565,591			252,167
Accumulated Other Comprehensive Income / (Loss) (Note 14)		37,160			(15,115	)
Less Treasury Stock, at Cost:
2,602,350 and 1,513,850 Shares in 2006 and 2005, respectively		(85,690	)		(39,198	)
Total Stockholders’ Equity		945,198			600,211
	$	1,834,491		$	1,495,370

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CABOT OIL & GAS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	321,175		$	148,445		$	88,378
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization		128,975			108,458			103,343
Impairment of Unproved Properties		11,117			12,966			10,145
Impairment of Oil & Gas Properties		3,886			—			3,458
Deferred Income Tax Expense		52,011			39,628			31,769
(Gain) / Loss on Sale of Assets		(232,017	)		(74	)		124
Exploration Expense		49,397			61,840			48,130
Unrealized (Gain) / Loss on Derivatives		—			(6,626	)		2,003
Stock-Based Compensation Expense and Other		21,271			9,803			6,904
Changes in Assets and Liabilities:
Accounts Receivable		39,463			(43,938	)		(50,200	)
Income Taxes Receivable		(11,198	)		1,444			10,796
Inventories		(8,381	)		(567	)		(5,808	)
Other Current Assets		1,007			1,188			3,255
Other Assets		(733	)		(192	)		(491	)
Accounts Payable and Accrued Liabilities		(29,694	)		26,147			17,254
Income Taxes Payable		18,398			3,656			(23	)
Other Liabilities		1,912			2,382			3,985
Stock-Based Compensation Tax Benefit		(9,485	)		—			—
Net Cash Provided by Operating Activities		357,104			364,560			273,022
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures		(467,430	)		(351,306	)		(207,346	)
Proceeds from Sale of Assets		329,474			996			119
Exploration Expense		(49,397	)		(61,840	)		(48,130	)
Net Cash Used in Investing Activities		(187,353	)		(412,150	)		(255,357	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Debt		205,000			265,000			187,000
Decrease in Debt		(305,000	)		(195,000	)		(187,000	)
Sale of Common Stock Proceeds		6,235			4,586			12,474
Stock-Based Compensation Tax Benefit		9,485			—			—
Purchase of Treasury Stock		(46,492	)		(19,183	)		(15,631	)
Dividends Paid		(7,751	)		(7,213	)		(5,206	)
Net Cash (Used in) / Provided by Financing Activities		(138,523	)		48,190			(8,363	)
Net Increase in Cash and Cash Equivalents		31,228			600			9,302
Cash and Cash Equivalents, Beginning of Period		10,626			10,026			724
Cash and Cash Equivalents, End of Period	$	41,854		$	10,626		$	10,026

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CABOT OIL & GAS CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands)

	Common Shares	Stock Par		Treasury Shares	Treasury Stock			Paid-In Capital		Accumulated Other Comprehensive Income (Loss) (1)			Retained Earnings			Total
Balance at December 31, 2003	48,807	$	4,881	454	$	(4,384	)	$	360,072	$	(23,135	)	$	27,763		$	365,197
Net Income														88,378			88,378
Exercise of Stock Options	794		79						12,392								12,471
Purchase of Treasury Stock				608		(15,631	)										(15,631	)
Tax Benefit of Stock-Based Compensation									2,642								2,642
Stock Amortization and Vesting	80		8						5,019								5,027
Cash Dividends at $0.107 per Share														(5,206	)		(5,206	)
Other Comprehensive Income											2,784						2,784
Balance at December 31, 2004	49,681	$	4,968	1,062	$	(20,015	)	$	380,125	$	(20,351	)	$	110,935		$	455,662
Net Income														148,445			148,445
Exercise of Stock Options	300		30						4,555								4,585
Purchase of Treasury Stock				452		(19,183	)										(19,183	)
Tax Benefit of Stock-Based Compensation									3,662								3,662
Stock Amortization and Vesting	101		10						9,007								9,017
Cash Dividends at $0.147 per Share														(7,213	)		(7,213	)
Other Comprehensive Income											5,236						5,236
Balance at December 31, 2005	50,082	$	5,008	1,514	$	(39,198	)	$	397,349	$	(15,115	)	$	252,167		$	600,211
Net Income														321,175			321,175
Exercise of Stock Options	438		44						6,171								6,215
Purchase of Treasury Stock				1,088		(46,492	)										(46,492	)
Tax Benefit of Stock-Based Compensation									9,485								9,485
Stock Amortization and Vesting	189		19						10,061								10,080
Cash Dividends at $0.16 per Share														(7,751	)		(7,751	)
Effect of Adoption of SFAS No. 158											(14,079	)					(14,079	)
Other Comprehensive Income											66,354						66,354
Balance at December 31, 2006	50,709	$	5,071	2,602	$	(85,690	)	$	423,066	$	37,160		$	565,591		$	945,198

⁽¹⁾ For further details on the components of Accumulated Other Comprehensive Income and Loss, refer to Note 14 of the Notes to the Consolidated Financial Statements

The accompanying notes are an integral part of these consolidated financial statements.

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CABOT OIL & GAS CORPORATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(In thousands)

	Year Ended December 31,
	2006			2005			2004
Net Income	$	321,175		$	148,445		$	88,378
Other Comprehensive Income, net of taxes
Reclassification Adjustment for Settled Contracts, net of taxes of $10,686, ($38,404) and ($20,394), respectively		(17,580	)		62,249			33,122
Changes in Fair Value of Hedge Positions, net of taxes of ($49,311), $35,293 and $18,486, respectively		81,679			(57,266	)		(30,008	)
Minimum Pension Liability, net of taxes of ($1,848), $77 and $535, respectively		3,081			(128	)		(869	)
Foreign Currency Translation Adjustment, net of taxes of $507, ($427) and ($123), respectively		(826	)		381			539
Total Other Comprehensive Income		66,354			5,236			2,784
Comprehensive Income	$	387,529		$	153,681		$	91,162

The accompanying notes are an integral part of these consolidated financial statements.

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CABOT OIL & GAS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation and Nature of Operations

Cabot Oil & Gas Corporation and its subsidiaries are engaged in the development, exploitation, exploration, production and marketing of natural gas and, to a lesser extent, crude oil and natural gas liquids. The Company also transports, stores, gathers and purchases natural gas for resale. The Company operates in one segment, natural gas and oil development, exploitation and exploration, exclusively within the continental United States and Canada. The Company’s exploration activities are concentrated in areas with known hydrocarbon resources, which are conducive to multi-well, repeatable drilling programs. The Company’s program is designed to be disciplined and balanced with a focus on achieving strong financial returns.

The consolidated financial statements contain the accounts of the Company and its majority-owned subsidiaries after eliminating all significant intercompany balances and transactions. Certain prior year amounts have been reclassified to conform to the current year presentation.

On February 28, 2005, the Company announced that the Board of Directors had declared a 3-for-2 split of the Company’s common stock in the form of a stock distribution. The stock dividend was distributed on March 31, 2005 to stockholders of record on March 18, 2005. In lieu of issuing fractional shares, the Company paid cash based on the closing price of the common stock on the record date. All common stock accounts and per share data have been retroactively adjusted to give effect to the 3-for-2 split of the Company’s common stock.

Recently Issued Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 155, “Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140.” SFAS No. 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and also resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” SFAS No. 155 was issued to eliminate the exemption from applying SFAS No. 133 to interests in securitized financial assets so that similar instruments are accounted for in a similar fashion, regardless of the instrument’s form. The Company does not believe that its financial position, results of operations or cash flows will be impacted by SFAS No. 155 as it does not currently hold any hybrid financial instruments.

In July 2006, the FASB issued FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109.” FIN No. 48 provides guidance for recognizing and measuring uncertain tax positions, as defined in SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a two-step process for accounting for income tax uncertainties. First, a threshold condition of “more likely than not” should be met to determine whether any of the benefit of the uncertain tax position should be recognized in the financial statements. If the recognition threshold is met, FIN No. 48 provides additional guidance on measuring the amount of the uncertain tax position. Guidance is also provided regarding derecognition, classification, interest and penalties, interim period accounting, transition and disclosure of these uncertain tax positions. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company is completing its evaluation of the impact of the adoption of FIN No. 48 and believes that the impact will not have a material effect on its financial position, results of operations or cash flows.

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In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a formal framework for measuring fair values of assets and liabilities in financial statements that are already required by U.S. generally accepted accounting principles (GAAP) to be measured at fair value. SFAS No. 157 clarifies guidance in FASB Concepts Statement (CON) No. 7 which discusses present value techniques in measuring fair value. Additional disclosures are also required for transactions measured at fair value. No new fair value measurements are prescribed, and SFAS No. 157 is intended to codify the several definitions of fair value included in various accounting standards. However, the application of this Statement may change current practices for certain companies. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating what impact SFAS No. 157 may have on its financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158 requires recognition of the funded status of a benefit plan in the balance sheet and the recognition through other comprehensive income of gains, losses, prior service costs and credits, net of tax, arising during the period but not included as a component of periodic benefit cost. In addition, the measurement date of plan assets and obligations must be as of a company’s balance sheet date. Additional disclosures in the notes to the financial statements are required and guidance is prescribed regarding the selection of discount rates to be used in measuring the benefit obligation. For public companies, the effective date of SFAS No. 158 is as of the end of the fiscal year ending after December 15, 2006. The effective date of the new measurement date provision is for fiscal years ending after December 15, 2008; however, the Company’s measurement date is currently its balance sheet date, so no change will be required. The incremental effect of SFAS No. 158, as discussed in Note 5 of the Notes to the Consolidated Financial Statements, was an increase to total long-term liabilities of $21.7 million, an increase to current liabilities of $0.6 million, an increase to total assets of $8.2 million and a decrease to total stockholders’ equity of $14.1 million based on actuarial reports as of December 31, 2006.

In September 2006, the SEC Staff issued Staff Accounting Bulletin (SAB) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” in an effort to address diversity in the accounting practice of quantifying misstatements and the potential for improper amounts on the balance sheet. Prior to the issuance of SAB No. 108, the two methods used for quantifying the effects of financial statement errors were the “roll-over” and “iron curtain” methods. Under the “roll-over” method, the primary focus is the income statement, including the reversing effect of prior year misstatements. The criticism of this method is that misstatements can accumulate on the balance sheet. On the other hand, the “iron curtain” method focuses on the effect of correcting the ending balance sheet, with less importance on the reversing effects of prior year errors in the income statement. SAB No. 108 establishes a “dual approach” which requires the quantification of the effect of financial statement errors on each financial statement, as well as related disclosures. Public companies are required to record the cumulative effect of initially adopting the “dual approach” method in the first year ending after November 16, 2006 by recording any necessary corrections to asset and liability balances with an offsetting adjustment to the opening balance of retained earnings. The use of this cumulative effect transition method also requires detailed disclosures of the nature and amount of each error being corrected and how and when they arose. The Company has adopted the provisions of SAB No. 108 and there was no impact to its financial position, results of operations and cash flows as a result of this pronouncement.

Inventories

Inventories are comprised of natural gas and oil in storage, tubular goods and well equipment and pipeline imbalances. All inventory balances are carried at the lower of cost or market. Natural gas and oil in storage are valued at average cost. Tubular goods and well equipment are valued at historical cost.

Natural gas gathering and pipeline operations normally include imbalance arrangements with the pipeline. The volumes of natural gas due to or from the Company under imbalance arrangements are recorded at actual selling or purchase prices, as the case may be, and are adjusted monthly to reflect market changes. The net value of the natural gas imbalance is included in inventory in the consolidated balance sheet.

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Properties and Equipment

The Company uses the successful efforts method of accounting for oil and gas producing activities. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs, are expensed. Development costs, including the costs to drill and equip development wells, and successful exploratory drilling costs to locate proved reserves are capitalized.

Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. A determination of whether a well has found proved reserves is made shortly after drilling is completed. The determination is based on a process which relies on interpretations of available geologic, geophysic, and engineering data. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made. If an exploratory well requires a major capital expenditure before production can begin, the cost of drilling the exploratory well will continue to be carried as an asset pending determination of whether proved reserves have been found only as long as: i) the well has found a sufficient quantity of reserves to justify its completion as a producing well if the required capital expenditure is made and ii) drilling of the additional exploratory wells is under way or firmly planned for the near future. If drilling in the area is not under way or firmly planned, or if the well has not found a commercially producible quantity of reserves, the exploratory well is assumed to be impaired, and its costs are charged to expense.

In the absence of a determination as to whether the reserves that have been found can be classified as proved, the costs of drilling such an exploratory well is not carried as an asset for more than one year following completion of drilling. If, after that year has passed, a determination that proved reserves exist cannot be made, the well is assumed to be impaired, and its costs are charged to expense. Its costs can, however, continue to be capitalized if a sufficient quantity of reserves are discovered in the well to justify its completion as a producing well and sufficient progress is made in assessing the reserves and the well’s economic and operating feasibility.

The impairment of unamortized capital costs is measured at a lease level and is reduced to fair value if it is determined that the sum of expected future net cash flows is less than the net book value. The Company determines if an impairment has occurred through either adverse changes or as a result of the annual review of all fields. During 2006 and 2004, the Company recorded total impairments of $3.9 million and $3.5 million, respectively. During 2005, the Company did not record any impairments.

Development costs of proved oil and gas properties, including estimated dismantlement, restoration and abandonment costs and acquisition costs, are depreciated and depleted on a field basis by the units-of-production method using proved developed and proved reserves, respectively. The costs of unproved oil and gas properties are generally combined and impaired over a period that is based on the average holding period for such properties and the Company's experience of successful drilling. Properties related to gathering and pipeline systems and equipment are depreciated using the straight-line method based on estimated useful lives ranging from 10 to 25 years. Generally pipeline and transmission systems are amortized over 12 to 25 years, gathering and compression equipment is amortized over 10 years and storage equipment and facilities are amortized over 10 to 16 years. Certain other assets are depreciated on a straight-line basis over 3 to 10 years. Buildings are depreciated on a straight-line basis over 25 years.

Costs of retired, sold or abandoned properties that make up a part of an amortization base (partial field) are charged to accumulated depreciation, depletion and amortization if the units-of-production rate is not significantly affected. Accordingly, a gain or loss, if any, is recognized only when a group of proved properties (entire field) that make up the amortization base has been retired, abandoned or sold. See Note 2 of the Notes to the Consolidated Financial Statements for a discussion of the disposition of certain assets during 2006.

Revenue Recognition and Gas Imbalances

The Company applies the sales method of accounting for natural gas revenue. Under this method, revenues are recognized based on the actual volume of natural gas sold to purchasers. Natural gas production operations may include joint owners who take more or less than the production volumes entitled to them on certain properties.

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Production volume is monitored to minimize these natural gas imbalances. A natural gas imbalance liability is recorded at the actual price realized upon the gas sale in accounts payable in the consolidated balance sheet if the Company's excess takes of natural gas exceed its estimated remaining proved developed reserves for these properties. See Note 3 of the Notes to the Consolidated Financial Statements for the Company’s wellhead gas imbalances.

Brokered Natural Gas Margin

The revenues and expenses related to brokering natural gas are reported gross as part of Operating Revenues and Operating Expenses. The Company realizes brokered margin as a result of buying and selling natural gas in back-to-back transactions with separate counterparties. The Company realized $10.3 million, $11.4 million and $9.2 million of brokered natural gas margin in 2006, 2005 and 2004, respectively.

Income Taxes

The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the estimated future tax consequences attributable to the differences between the financial carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the tax rate in effect for the year in which those temporary differences are expected to turn around. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized.

Natural Gas Measurement

The Company records estimated amounts for natural gas revenues and natural gas purchase costs based on volumetric calculations under its natural gas sales and purchase contracts. Variances or imbalances resulting from such calculations are inherent in natural gas sales, production, operation, measurement, and administration. Management does not believe that differences between actual and estimated natural gas revenues or purchase costs attributable to the unresolved variances or imbalances are material.

Accounts Payable

This account may include credit balances from outstanding checks in zero balance cash accounts. These credit balances are referred to as book overdrafts, as a component of Accounts Payable on the Balance Sheet. There were no credit balances from outstanding checks in zero balance cash accounts included in accounts payable at December 31, 2006 and 2005 as sufficient cash was available for offset.

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts for receivables that the Company feels may be uncollectible based on the specific identification basis. The allowance for doubtful accounts, which is netted against the accounts receivable line on the Balance Sheet, was $4.6 million and $5.6 million at December 31, 2006 and 2005, respectively.

Risk Management Activities

From time to time, the Company enters into derivative contracts, such as natural gas and crude oil price swaps or costless price collars, as a hedging strategy to manage commodity price risk associated with its production or other contractual commitments. All hedge transactions are subject to the Company’s risk management policy which does not permit speculative trading activities. Gains or losses on these hedging activities are generally recognized over the period that its production or other underlying commitment is hedged as an offset to the specific hedged item. Cash flows related to any recognized gains or losses associated with these hedges are reported as cash flows from operations. If a hedge is terminated prior to expected maturity, gains or losses are deferred and included in income in the same period that the underlying production or other contractual commitment is delivered. Unrealized gains or losses associated with any derivative contract not considered a hedge are recognized currently in the results of operations.

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When the designated item associated with a derivative instrument matures, is sold, extinguished or terminated, derivative gains or losses are recognized as part of the gain or loss on the sale or settlement of the underlying item. For example, in the case of natural gas price hedges, the gain or loss is reflected in natural gas revenue. When a derivative instrument is associated with an anticipated transaction that is no longer expected to occur or if the hedge is no longer effective, the gain or loss on the derivative is recognized currently in the results of operations to the extent the market value changes in the derivative have not been offset by the effects of the price changes on the hedged item since the inception of the hedge. See Note 11 of the Notes to the Consolidated Financial Statements for further discussion.

Stock Based Compensation

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), “Share Based Payment (revised 2004),” which replaces the provisions of Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” and SFAS No. 123, “Accounting for Stock-Based Compensation,” (as amended). The Company elected the modified prospective transition method for adoption, and accordingly, no adjustments to prior period financial statements were made. Upon adoption, the Company recorded a cumulative effect charge totaling $0.6 million ($0.4 million, net of tax), which is included within General and Administrative Expenses in the Consolidated Statement of Operations due to its immateriality. Adoption of SFAS No. 123(R) increased income from operations and income before income taxes by approximately $1.3 million and increased net income by approximately $0.8 million for the year ended December 31, 2006. In addition, the tax benefit for stock-based compensation of $9.5 million for 2006 is now included as both a cash inflow from financing activities and a cash outflow from operating activities in the Consolidated Statement of Cash Flows.

Prior to January 1, 2006, the Company accounted for stock-based compensation in accordance with the intrinsic value based method prescribed by APB No. 25. Under the intrinsic value based method, no compensation expense was recorded for stock options granted when the exercise price for options granted was equal to or greater than the fair value of the Company’s common stock on the date of the grant. See Note 10 of the Notes to the Consolidated Financial Statements for additional disclosure.

Cash and Cash Equivalents

The Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. At December 31, 2006 and 2005, the cash and cash equivalents are primarily concentrated in two financial institutions. The Company periodically assesses the financial condition of these institutions and believes that any possible credit risk is minimal.

Environmental Matters

Environmental expenditures are expensed or capitalized, as appropriate, depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations, and that do not have future economic benefit are expensed. Liabilities related to future costs are recorded on an undiscounted basis when environmental assessments and/or remediation activities are probable and the costs can be reasonably estimated. Any insurance recoveries are recorded as assets when received.

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Use of Estimates

In preparing financial statements, the Company follows generally accepted accounting principles. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates pertain to proved natural gas, natural gas liquids and crude oil reserves and related cash flow estimates used in impairment tests of oil and gas properties, natural gas, natural gas liquids and crude oil revenues and expenses, current values of derivative instruments, as well as estimates of expenses related to legal, environmental and other contingencies, depreciation, depletion and amortization, pension and postretirement obligations and deferred income taxes. Actual results could differ from those estimates.

2. Properties and Equipment

Properties and equipment are comprised of the following:

	December 31,
(In thousands)	2006			2005
Unproved Oil and Gas Properties	$	114,108		$	107,787
Proved Oil and Gas Properties		2,109,045			1,970,407
Gathering and Pipeline Systems		205,473			178,876
Land, Building and Improvements		4,976			4,892
Other		34,067			33,077
		2,467,669			2,295,039
Accumulated Depreciation, Depletion and Amortization		(987,468	)		(1,056,984	)
	$	1,480,201		$	1,238,055

On January 1, 2005, the Company adopted FASB Staff Position (FSP) FAS 19-1, “Accounting for Suspended Well Costs.” Upon adoption of the FSP, the Company evaluated all existing capitalized exploratory well costs under the provisions of the FSP. The provisions require that, in order for costs to be capitalized, a sufficient quantity of reserves must be discovered in the well to justify its completion as a producing well and that sufficient progress has been made in assessing the well’s economic and operating feasibility. If both of these requirements are not met, the costs should be expensed. The following table reflects the net changes in capitalized exploratory well costs during 2006, 2005 and 2004.

	December 31,
(In thousands)	2006			2005			2004
Beginning balance at January 1	$	6,132		$	8,591		$	3,681
Additions to capitalized exploratory well costs pending the determination of proved reserves		8,317			6,132			8,591
Reclassifications to wells, facilities, and equipment based on the determination of proved reserves		(5,926	)		(1,069	)		(3,395	)
Capitalized exploratory well costs charged to expense		(95	)		(7,522	)		(286	)
Ending balance at December 31	$	8,428		$	6,132		$	8,591

At December 31, 2006, the Company had four projects that had exploratory well costs that were capitalized for a period greater than one year. At December 31, 2005 and 2004, the Company did not have any projects that have been capitalized for a period greater than one year.

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The following table provides an aging of capitalized exploratory well costs based on the date the drilling was completed and the number of wells for which exploratory well costs have been capitalized for a period greater than one year since the completion of drilling:

	December 31,
(In thousands)	2006		2005		2004
Capitalized exploratory well costs that have been capitalized for a period of one year or less	$	8,317	$	6,132	$	8,591
Capitalized exploratory well costs that have been capitalized for a period greater than one year		111		—		—
Balance at December 31	$	8,428	$	6,132	$	8,591
Number of projects that have exploratory well costs that have been capitalized for a period greater than one year		4		—		—

At December 31, 2006, the Company had two wells where the drilling was complete, but a determination of whether proved reserves existed could not be made. Costs associated with these wells have been capitalized for less than one year. One well, located in Canada, completed drilling in September 2006. Subsequent well completion attempts were halted until mid-November 2006, waiting for acceptable weather conditions. The well is being completed in the first quarter of 2007. The second well is in the Rocky Mountains area and reached total depth in November 2006. Completion attempts were postponed due to the Bureau of Land Management stipulation which prohibits activity until the summer of 2007.

Included in the December 31, 2006 amount of exploratory well costs that have been capitalized for a period greater than one year are $0.1 million of costs that have been capitalized since 2005. This amount relates to three projects comprised of preliminary costs incurred in the preparation of well sites where drilling has not commenced as of December 31, 2006. In addition, there is another well that completed drilling in January 2007 and is awaiting completion results before confirmation of proved reserves can be made in the first quarter of 2007.

At December 31, 2005, the Company had no wells that had completed drilling where a determination of whether proved reserves existed could not be made.

At December 31, 2004, the Company had three wells that had completed drilling where a determination of whether proved reserves existed could not be made. One well was in the Rocky Mountains area and reached total depth in November 2004. It could not be completed due to the Bureau of Land Management stipulation which prohibited activity until the summer of 2005. Two wells in Canada completed drilling in October and December 2004. These wells were awaiting completion or sidetracking which was anticipated to commence by May 2005. Additional operations were performed on each of these wells, and all were determined to be unsuccessful. In 2005, $8.0 million was charged to expense for these wells, which was made up of $3.1 million for the Rocky Mountains area well and $4.9 million for the two wells in Canada.

During 2006, the Company recorded an impairment of $3.9 million. The impairment was recorded on a marginally productive gas well in Colorado County, Texas in the Gulf Coast region. During 2005, the Company did not record any impairments. During 2004, the Company recorded an impairment of $3.5 million. The impairment was recorded on a two-well field in south Louisiana and was due to production performance issues related to water encroachment. These impairment charges were recorded due to the capitalized costs of the fields exceeding the future undiscounted cash flows. These charges were reflected in the operating results of the Company and were measured based on discounted cash flows utilizing a discount rate appropriate for risks associated with the related field.

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Disposition of Assets

On September 29, 2006, the Company substantially completed the sale of its offshore portfolio and certain south Louisiana properties to Phoenix Exploration Company LP (Phoenix) for a gross sales price of $340.0 million. The properties sold included proved reserves of approximately 98 Bcfe, as of the August 1, 2006 effective date, including 68 Bcfe of proved reserves recorded as of December 31, 2005 and had average daily production for the first nine months of 2006 of 47.4 Mmcfe.

Pursuant to the asset purchase agreement for the sale, dated August 25, 2006, the gross sales price was offset by the net cash flow from operation of the properties from August 1, 2006 through the closing date and other purchase price adjustments. The net proceeds from the sale were used to add funding to the Company’s capital program, repurchase shares of common stock, repay outstanding debt under the revolving credit facility and pay taxes related to the transaction. Also pursuant to the agreement, the Company entered into certain commodity price swaps on behalf of Phoenix. At closing on September 29, 2006, these derivative instruments were assigned to Phoenix, and the Company was released from all rights and obligations with respect thereto. There was no ultimate impact on the Company’s financial statements due to the existence of these swaps.

Through December 31, 2006, the Company had received approximately $327.5 million in net proceeds from the sale, which reflects the $340.0 million gross sales price, reduced by purchase price adjustments of $4.0 million as well as amounts attributable to consents and preferential rights expected to be settled in the first quarter of 2007 of $8.5 million. A net gain of $231.2 million ($144.5 million, net of tax) was recorded in the Consolidated Statement of Operations for the year ended December 31, 2006, calculated as follows:

(In millions)
Cash Proceeds	$	327.5
Less:
Remaining purchase price adjustments		11.1
Carrying value of properties sold		104.2
Asset retirement obligation of properties sold		(23.9	)
Deferred gain		4.4
Transaction costs		0.5
Pre-tax gain	$	231.2

The net impact of the purchase price adjustments will be reflected in cash flows from investing activities when such settlements are made. In addition, a gain of approximately $12 million is expected to be recognized in the first quarter of 2007 in connection with the closing of certain property sales to Phoenix for which third party consents (including deferred amounts) had not been obtained as of December 31, 2006 and sales to other parties that exercised their contractual preferential rights. This gain will be subject to customary purchase price adjustments.

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3. Additional Balance Sheet Information

Certain balance sheet amounts are comprised of the following:

	December 31,
(In thousands)	2006			2005
Accounts Receivable
Trade Accounts	$	102,023		$	147,016
Joint Interest Accounts		18,574			14,319
Other Accounts		501			315
		121,098			161,650
Allowance for Doubtful Accounts		(4,552	)		(5,641	)
	$	116,546		$	156,009
Inventories
Natural Gas and Oil in Storage	$	22,717		$	18,279
Tubular Goods and Well Equipment		7,680			7,161
Pipeline Imbalances		2,600			(824	)
	$	32,997		$	24,616
Other Current Assets
Drilling Advances	$	651		$	2,169
Prepaid Balances		7,416			6,939
Other Accounts		338			304
	$	8,405		$	9,412
Accounts Payable
Trade Accounts	$	28,569		$	18,227
Natural Gas Purchases		8,356			12,208
Royalty and Other Owners		37,230			49,312
Capital Costs		59,524			37,489
Taxes Other Than Income		4,805			10,329
Drilling Advances		1,506			5,760
Wellhead Gas Imbalances		2,288			2,175
Other Accounts		5,402			4,506
	$	147,680		$	140,006
Accrued Liabilities
Employee Benefits	$	13,575		$	7,316
Current Liability for Pension Benefits		67			1,204
Current Liability for Postretirement Benefits		577			500
Taxes Other Than Income		15,696			16,188
Interest Payable		5,995			6,818
Other Accounts		6,193			3,092
	$	42,103		$	35,118
Other Liabilities
Rabbi Trust Deferred Compensation Plan	$	6,077		$	4,883
Accrued Plugging and Abandonment Liability		22,655			42,991
Other Accounts		16,681			6,899
	$	45,413		$	54,773

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4. Debt and Credit Agreements

7.19% Notes

In November 1997, the Company issued an aggregate principal amount of $100 million of its 12-year 7.19% Notes (7.19% Notes) to a group of six institutional investors in a private placement offering. The 7.19% Notes require five annual $20 million principal payments starting in November 2005. The Company made the required $20 million payments in both 2006 and 2005. The Company may prepay all or any portion of the indebtedness on any date with a prepayment penalty. The 7.19% Notes contain restrictions on the merger of the Company or any subsidiary with a third party other than under certain limited conditions. There are also various other restrictive covenants customarily found in such debt instruments. These covenants include a required asset coverage ratio (present value of proved reserves to debt and other liabilities) that must be at least 1.5 to 1.0, and a minimum annual coverage ratio of operating cash flow to interest expense for the trailing four quarters of 2.8 to 1.0.

7.33% Weighted Average Fixed Rate Notes

In July 2001, the Company issued $170 million of Notes to a group of seven institutional investors in a private placement transaction. Prior to the determination of the Note’s interest rates, the Company entered into a treasury lock in order to reduce the risk of rising interest rates. Interest rates rose during the pricing period, resulting in a $0.7 million gain that is being amortized over the life of the Notes, and thereby reducing the effective interest rate by 5.5 basis points. All of the Notes have bullet maturities and were issued in three separate tranches as follows:

	Principal		Term	Maturity Date	Coupon
Tranche 1	$	75,000,000	10-year	July 2011	7.26	%
Tranche 2	$	75,000,000	12-year	July 2013	7.36	%
Tranche 3	$	20,000,000	15-year	July 2016	7.46	%

The Notes were issued under the same Note Purchase Agreement as the 7.19% Notes.

Revolving Credit Agreement

On December 10, 2004, the Company amended its Revolving Credit Agreement (credit facility) with a group of nine banks. The credit facility allows for borrowings of $250 million, of which $10 million and $90 million were outstanding at December 31, 2006 and 2005, respectively. The credit facility can be expanded up to $350 million, either with the existing banks or new banks. The credit facility is unsecured. The term of the credit facility expires in December 2009. The available credit line is subject to adjustment from time to time on the basis of the projected present value (as determined by the banks’ petroleum engineer) of estimated future net cash flows from certain proved oil and gas reserves and other assets of the Company. While the Company does not expect a reduction in the available credit line, in the event that it is adjusted below the outstanding level of borrowings, the Company has a period of six months either to reduce its outstanding debt to the adjusted credit line available with a requirement to provide additional borrowing base assets or to pay down one-sixth of the excess during each of the six months.

Interest rates under the credit facility are based on Euro-Dollars (LIBOR) or Base Rate (Prime) indications, plus a margin. These associated margins increase if the total indebtedness is 50% or greater, greater than 75% or greater than 90% of the Company's debt limit of $610 million, as shown below:

	Debt Percentage
	Lower than 50%		50% or higher but not exceeding 75%		Higher than 75% but not exceeding 90%		Higher than 90%
Euro-Dollar margin	1.000	%	1.250	%	1.500	%	1.750	%
Base Rate margin	0.000	%	0.000	%	0.250	%	0.500	%

The Company’s effective interest rates for the credit facility during the years ended December 31, 2006, 2005 and 2004 were 7.9%, 6.9% and 4.2%, respectively. As of December 31, 2006, the weighted average interest rate on the Company’s credit facility was 8.25%. The credit facility provides for a commitment fee on the unused available balance at an annual rate of one-quarter of 1%. The credit facility also contains various customary restrictions, which include the following:

(a) Maintenance of a minimum annual coverage ratio of operating cash flow to interest expense for the trailing four quarters of 2.8 to 1.0.

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(b) Prohibition on the merger or sale of all, or substantially all, of the Company's or any subsidiary's assets to a third party, except under certain limited conditions.

The Company was in compliance in all material respects with its covenants contained in its various debt agreements at December 31, 2006 and 2005 and during the years then ended.

5. Employee Benefit Plans

Pension Plan

The Company has an underfunded non-contributory, defined benefit pension plan for all full-time employees. Plan benefits are based primarily on years of service and salary level near retirement. Plan assets are mainly fixed income investments and equity securities. The Company complies with the Employee Retirement Income Security Act (ERISA) of 1974 and Internal Revenue Code limitations when funding the plan.

The Company has an unfunded non-qualified equalization plan to ensure payments to certain executive officers of amounts to which they are already entitled under the provisions of the pension plan, but which are subject to limitations imposed by federal tax laws.

Obligations and Funded Status

The funded status represents the difference between the projected benefit obligation of the Company’s qualified and non-qualified pension plans and the fair value of the qualified pension plan’s assets at December 31.

The change in the combined projected benefit obligation of the Company’s qualified and non-qualified pension plans and the change in the Company’s qualified plan assets at fair value during the last three years are as follows:

(In thousands)	2006			2005			2004
Change in Benefit Obligation
Benefit Obligation at Beginning of Year	$	41,211		$	36,066		$	33,547
Service Cost		2,720			1,803			2,014
Interest Cost		2,333			1,981			2,078
Actuarial Loss		5			1,852			1,798
Plan Amendments		(3	)		120			—
Benefits Paid		(791	)		(611	)		(3,371	)
Benefit Obligation at End of Year		45,475			41,211			36,066
Change in Plan Assets
Fair Value of Plan Assets at Beginning of Year		23,765			18,092			18,683
Actual Return on Plan Assets		3,587			1,544			957
Employer Contributions		12,008			5,000			2,000
Benefits Paid		(791	)		(611	)		(3,371	)
Expenses Paid		(380	)		(260	)		(177	)
Fair Value of Plan Assets at End of Year		38,189			23,765			18,092
Funded Status at End of Year	$	(7,286	)	$	(17,446	)	$	(17,974	)

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Amounts Recognized in the Balance Sheet

Amounts recognized in the balance sheet at December 31 consist of the following:

(In thousands)	2006			2005			2004
Long-Term Assets	$	—		$	454		$	570
Current Liabilities		(67	)		(1,204	)		(3,579	)
Long-Term Liabilities		(7,219	)		(5,904	)		(5,089	)
	$	(7,286	)	$	(6,654	)	$	(8,098	)

Amounts Recognized in Accumulated Other Comprehensive Income

Amounts recognized in accumulated other comprehensive income at December 31 consist of the following:

(In thousands)	2006		2005			2004
Prior Service Cost	$	336	$	—		$	—
Net Actuarial Loss		12,946		—			—
Minimum Pension Liability		—		(5,119	)		(4,914	)
	$	13,282	$	(5,119	)	$	(4,914	)

The estimated prior service cost and net loss for the qualified defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are approximately $0.1 million and $0.7 million, respectively.

The estimated prior service cost and net loss for the defined benefit non-qualified pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are approximately $0.1 million each.

The combined accumulated benefit obligation for both pension plans was $34.8 million, $30.9 million and $26.8 million at December 31, 2006, 2005 and 2004, respectively.

Components of Net Periodic Benefit Cost

Qualified Pension Plan

(In thousands)	2006			2005			2004
Qualified Components of Net Periodic Benefit Cost
Current Year Service Cost	$	2,518		$	2,485		$	1,619
Interest Cost		2,211			1,896			1,697
Expected Return on Plan Assets		(1,962	)		(1,507	)		(1,474	)
Amortization of Prior Service Cost		98			99			88
Amortization of Net Loss		1,125			921			383
Net Periodic Pension Cost	$	3,990		$	3,894		$	2,313

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Non-Qualified Pension Plan

(In thousands)	2006		2005			2004
Non-Qualified Components of Net Periodic Benefit Cost
Current Year Service Cost	$	203	$	(682	)	$	395
Interest Cost		122		85			381
Amortization of Prior Service Cost		77		77			77
Amortization of Net Loss / (Gain)		85		(22	)		428
Net Periodic Pension Cost / (Income)	$	487	$	(542	)	$	1,281

Assumptions

Weighted-average assumptions used to determine projected pension benefit obligations at December 31 were as follows:

	2006		2005		2004
Discount Rate	5.75	%	5.50	%	5.75	%
Rate of Compensation Increase	4.00	%	4.00	%	4.00	%

Weighted-average assumptions used to determine net periodic pension costs at December 31 are as follows:

	2006		2005		2004
Discount Rate	5.50	%	5.75	%	6.25	%
Expected Long-Term Return on Plan Assets	8.00	%	8.00	%	8.00	%
Rate of Compensation Increase	4.00	%	4.00	%	4.00	%

The long-term expected rate of return on plan assets used in 2006, as shown above, is eight percent. The Company establishes the long-term expected rate of return by developing a forward looking long-term expected rate of return assumption for each asset class, taking into account factors such as the expected real return for the specific asset class and inflation. One of the plan objectives is that performance of the equity portion of the pension plan exceed the Standard and Poors’ 500 Index by a minimum of two percent annually over the long term. The Company also seeks to achieve a minimum five percent annual real rate of return (above the rate of inflation) on the total portfolio over the long-term. In the Company’s pension calculations, the Company has used eight percent as the expected long-term return on plan assets for 2006, 2005 and 2004. In order to derive this return, a Monte Carlo simulation was run using 5,000 simulations based upon the Company’s actual asset allocation and liability duration, which has been determined to be approximately 16 years. This model uses historical data for the period of 1926-2003 for stocks, bonds and cash to determine the best estimate range of future returns. The median rate of return, or return that the Company expects to achieve over 50 percent of the time, is approximately nine percent. The Company expects to achieve a minimum 6.4% annual real rate of return on the total portfolio over the long term at least 75 percent of the time. In addition, the actual rate of return on plan assets annualized over the past ten years is approximately six percent. The Company believes that the eight percent chosen is a reasonable estimate based on its actual results.

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Plan Assets

At December 31, 2006 and 2005, the non-qualified pension plan did not have plan assets. The plan assets of the Company’s qualified pension plan at December 31, 2006 and 2005, by asset category are as follows:

	2006				2005
(In thousands)	Amount		Percent		Amount		Percent
Equity securities	$	27,124	71	%	$	19,556	82	%
Debt securities		10,605	28	%		840	4	%
Other (1)		460	1	%		3,369	14	%
Total	$	38,189	100	%	$	23,765	100	%

⁽¹⁾ Primarily consists of cash and cash equivalents.

The Company’s investment strategy for benefit plan assets is to invest in funds to maximize the return over the long-term, subject to an appropriate level of risk. Additionally, the objective is for each class of investments to outperform its representative benchmark over the long term. The Company generally targets a portfolio of assets utilizing equity securities, debt securities and cash equivalents that are within a range of approximately 50% to 80% for equity securities and approximately 20% to 40% for fixed income securities. Large capitalization equities may make up a maximum of 65% of the portfolio. Small capitalization equities and international equities may make up a maximum of 30% and 15%, respectively, of the portfolio. Fixed income bonds may make up a maximum of 40% of the portfolio. The account will typically be fully invested; however, as a temporary investment or an asset protection measure, part of the account may be invested in money market investments up to 20%. One percent of the portfolio is invested in short-term funds at the designated bank to meet the cash flow needs of the plan. No prohibited investments, including direct or indirect investments in commodities, commodity futures, derivatives, short sales, real estate investment trusts, letter stock, restricted stock or other private placements, are allowed without prior committee approval.

Cash Flows

Contributions

The funding levels of the pension plans are in compliance with standards set by applicable law or regulation. In 2006, the Company did not have any required minimum funding obligations; however, it chose to fund $12 million into the qualified plan. In 2007, the Company does not have any required minimum funding obligations for the qualified pension plan. The Company will fund less than $0.1 million, as shown below, for the non-qualified pension plan. Currently, management has not determined if any discretionary funding will be made in 2007.

Estimated Future Benefit Payments

The following estimated benefit payments under the Company’s qualified and non-qualified pension plans, which reflect expected future service, as appropriate, are expected to be paid as follows:

(In thousands)	Qualified		Non-Qualified		Total
2007	$	960	$	73	$	1,033
2008		1,030		102		1,132
2009		1,306		128		1,434
2010		1,345		237		1,582
2011		1,537		167		1,704
Years 2012 - 2016		13,451		1,991		15,442

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Postretirement Benefits Other than Pensions

In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees, including their spouses, eligible dependents and surviving spouses (retirees). These benefits are commonly called postretirement benefits. The health care plans are contributory, with participants’ contributions adjusted annually. The life insurance plans were non-contributory. As of January 1, 2006, the Company no longer provides postretirement life insurance coverage. Most employees become eligible for these benefits if they meet certain age and service requirements at retirement. The Company was providing postretirement benefits to 244 retirees and their dependants at the end of 2006 and 245 retirees and their dependants at the end of 2005.

When the Company adopted SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pension”, in 1992, it began amortizing the $16.9 million accumulated postretirement benefit, known as the transition obligation, over a period of 20 years, or $0.8 million per year which is included in the annual expense of the plan. Included in the transition obligation are the effects of plan amendments during 1996, 2000 and 2004. As a result of the adoption of SFAS No. 158, the remaining unamortized balance at December 31, 2006 of $3.2 million is now recognized in accumulated other comprehensive income. Additionally, a portion of this amount will be amortized and reclassified from the balance sheet to the income statement as expense each year.

Obligations and Funded Status

The funded status represents the difference between the projected benefit obligation of the Company’s postretirement plan and the fair value of plan assets at December 31. As the postretirement plan does not have any plan assets, the funded status is equal to the amount of the December 31 projected benefit obligation.

The change in the Company’s postretirement benefit obligation during the last three years, as well as the funded status at the end of the last three years, is as follows:

(In thousands)	2006			2005			2004
Change in Benefit Obligation
Benefit Obligation at Beginning of Year	$	11,793		$	14,101		$	6,181
Service Cost		789			675			671
Interest Cost		877			605			784
Actuarial Loss / (Gain)		6,337			(876	)		864
Plan Amendments		(153	)		(1,434	)		6,901
Benefits Paid		(862	)		(1,278	)		(1,300	)
Benefit Obligation at End of Year		18,781			11,793			14,101
Change in Plan Assets
Fair Value of Plan Assets at End of Year		N/A			N/A			N/A
Funded Status at End of Year	$	(18,781	)	$	(11,793	)	$	(14,101	)

Amounts Recognized in the Balance Sheet

Amounts recognized in the balance sheet at December 31 consist of the following:

(In thousands)	2006			2005			2004
Current Liabilities	$	(577	)	$	(500	)	$	(500	)
Long-Term Liabilities		(18,204	)		(6,514	)		(4,093	)
	$	(18,781	)	$	(7,014	)	$	(4,593	)

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Amounts Recognized in Accumulated Other Comprehensive Income

Amounts recognized in accumulated other comprehensive income at December 31 consist of the following:

(In thousands)	2006		2005	2004
Transition Obligation	$	3,159	N/A	N/A
Prior Service Cost		2,570	N/A	N/A
Net Actuarial Loss		3,705	N/A	N/A
	$	9,434	N/A	N/A

The estimated net obligation at transition, prior service cost and net loss for the defined benefit postretirement plan that will be amortized from accumulated other comprehensive income into net periodic postretirement cost over the next fiscal year are $0.6 million, $1.0 million and $0.2 million, respectively.

Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income

(In thousands)	2006			2005			2004
Components of Net Periodic Postretirement Benefit Cost
Current Year Service Cost	$	789		$	675		$	671
Interest Cost		877			605			784
Amortization of Prior Service Cost		952			910			1,211
Amortization of Net Obligation at Transition		632			648			662
Amortization of Net Loss / (Gain)		32			(79	)		(59	)
SFAS 106 Net Periodic Postretirement Cost		3,282			2,759			3,269
Recognized Curtailment Gain		(86	)		—			—
Recognized Loss Due to Special Term Benefits		—			319			—
SFAS 88 (Cost) / Income		(86	)		319			—
Total SFAS 106 and SFAS 88 Cost	$	3,196		$	3,078		$	3,269

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Assumptions

Assumptions used to determine projected postretirement benefit obligations and postretirement costs are as follows:

	2006		2005		2004
Discount Rate (1)	5.75	%	5.50	%	5.75	%
Health Care Cost Trend Rate for Medical Benefits Assumed for Next Year	8.00	%	9.00	%	10.00	%
Rate to which the cost trend rate is assumed to decline (the Ultimate Trend Rate)	5.00	%	5.00	%	5.00	%
Year that the rate reaches the Ultimate Trend Rate	2010		2010		2009

⁽¹⁾ Represents the year end rates used to determine the projected benefit obligation. To compute postretirement cost in 2006, 2005 and 2004, respectively, the beginning of year discount rates of 5.5%, 5.75% and 6.25% were used.

The health care cost trend rate used to measure the expected cost from 2000 to 2003 for medical benefits to retirees was eight percent. Provisions of the plan existing at that time would have prevented significant future increases in employer cost after 2000. During the years ended December 31, 2005 and 2004, the plan was amended in several areas effective January 1, 2006. As of January 1, 2006, coverage provided to participants age 65 and older is under a fully-insured arrangement which replaces the former self-funded plan. Benefits under this new arrangement are comparable to benefits under the self-funded plan. The Company subsidy is limited to 60% of the expected annual fully-insured premium for participants age 65 and older. For all participants under age 65, the Company subsidy for all retiree medical and prescription drug benefits, beginning January 1, 2006, was limited to an aggregate annual amount not to exceed $648,000. This limit will increase by 3.5% annually thereafter. Additionally, in February 2005, the Company prepaid the life insurance premiums for all retirees retiring before January 1, 2006, eliminating all future premiums for retiree life insurance. Effective January 1, 2006, the Company eliminated company paid retiree life insurance coverage. Changes were made to the life insurance product that is offered to employees allowing employees to continue coverage into retirement by paying the premiums directly to the life insurance provider.

Assumed health care cost trend rates may have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

(In thousands)	1-Percentage- Point Increase		1-Percentage- Point Decrease
Effect on total of service and interest cost	$	385	$	(306	)
Effect on postretirement benefit obligation		3,189		(2,582	)

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Cash Flows

Contributions

The Company expects to contribute approximately $0.6 million to the postretirement benefit plan in 2007.

Estimated Future Benefit Payments

The following estimated benefit payments under the Company’s postretirement plans, which reflect expected future service, as appropriate, are expected to be paid as follows:

(In thousands)
2007	$	594
2008		626
2009		662
2010		700
2011		753
Years 2012 - 2016		5,361

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduced a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to certain Medicare benefits. In accordance with FSP No. FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”, any measures of the accumulated plan benefit obligation or net periodic postretirement benefit cost in the financial statements or accompanying notes do not reflect the effects of the Act on the Company’s plan. As amended by the Company on January 1, 2006, the postretirement benefit plan excludes prescription drug benefits to participants age 65 and older. Due to this amendment, FSP No. 106-2 did not have an impact on operating results, financial position or cash flows of the Company.

Incremental Effect of Applying SFAS No. 158 to Pension and Postretirement Plans on Individual Line Items in the Balance Sheet

The table below illustrates the incremental effects of applying SFAS No. 158 to various individual balance sheet line items as of December 31, 2006. The column entitled “Before Application of SFAS No. 158” includes the effect of the additional minimum liability adjustment required for 2006.

(In thousands)	Before Application of SFAS No. 158			Adjustments			After Application of SFAS No. 158
Other Assets	$	7,864		$	(168	)	$	7,696
Deferred Income Tax Asset (Non-Current)		22,465			8,447			30,912
Total Assets		1,826,212			8,279			1,834,491
Accrued Liabilities		41,459			644			42,103
Total Current Liabilities		250,383			644			251,027
Long-Term Liability for Pension Benefits		(5,639	)		12,858			7,219
Long-Term Liability for Postretirement Benefits		9,348			8,856			18,204
Accumulated Other Comprehensive Income		51,239			(14,079	)		37,160
Total Stockholders’ Equity		959,277			(14,079	)		945,198
Total Liabilities and Stockholders’ Equity		1,826,212			8,279			1,834,491

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Savings Investment Plan

The Company has a Savings Investment Plan (SIP), which is a defined contribution plan. The Company matches a portion of employees’ contributions in cash. Participation in the SIP is voluntary, and all regular employees of the Company are eligible to participate. The Company charged to expense plan contributions of $1.8 million, $1.6 million and $1.4 million in 2006, 2005, and 2004, respectively. The Company matches employee contributions dollar-for-dollar on the first six percent of an employee’s pretax earnings. The Company's common stock is an investment option within the SIP.

Deferred Compensation Plan

In 1998, the Company established a Deferred Compensation Plan. This plan is available to officers of the Company and acts as a supplement to the Savings Investment Plan. If the employee’s base salary and bonus deferrals cause the employee to not receive the full six percent company match to the Savings Investment Plan, the Company will make a contribution annually into the Deferred Compensation Plan to ensure that the employee receives a full matching contribution from the Company. Unlike the SIP, the Deferred Compensation Plan does not have dollar limits on tax deferred contributions. However, the assets of this plan are held in a rabbi trust and are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company. At December 31, 2006, the balance in the Deferred Compensation Plan’s rabbi trust was $6.1 million.

The employee participants guide the diversification of trust assets. The trust assets are invested in mutual funds that cover the investment spectrum from equity to money market. These mutual funds are publicly quoted and reported at market value. No shares of the Company’s stock are held by the trust. Settlement payments are made to participants in cash, either in a lump sum or in periodic installments. The market value of the trust assets is recorded on the Company’s balance sheet as a component of Other Assets and the corresponding liability is recorded as a component of Other Liabilities.

There is no impact on earnings or earnings per share from the changes in market value of the deferred compensation plan assets for two reasons. First, the changes in market value of the trust assets are offset completely by changes in the value of the liability, which represents trust assets belonging to plan participants. Second, no shares of the Company’s stock are held in the trust.

The Company charged to expense plan contributions of less than $20,000 in each of 2006, 2005 and 2004.

6. Income Taxes

Income tax expense (benefit) is summarized as follows:

	Year Ended December 31,
(In thousands)	2006		2005		2004
Current
Federal	$	123,155	$	42,976	$	14,767
State		14,164		5,185		3,710
Total		137,319		48,161		18,477
Deferred
Federal		49,911		37,565		31,779
State		2,100		2,063		(10	)
Total		52,011		39,628		31,769
Total Income Tax Expense	$	189,330	$	87,789	$	50,246

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Total income taxes were different than the amounts computed by applying the statutory federal income tax rate as follows:

	Year Ended December 31,
(In thousands)	2006			2005			2004
Statutory Federal Income Tax Rate		35	%		35	%		35	%
Computed “Expected” Federal Income Tax	$	178,818		$	82,682		$	48,518
State Income Tax, Net of Federal Income Tax Benefit		14,494			7,030			4,353
Other, Net		(3,982	)(1)		(1,923	)(2)		(2,625	)(3)
Total Income Tax Expense	$	189,330		$	87,789		$	50,246

⁽¹⁾ Other, Net includes credit adjustments of $2.3 million related to the qualified production activities deduction, $0.6 million related to the recognition of benefit for federal statutory depletion in excess of basis, $0.8 million related to the recognition of benefit for state statutory depletion in excess of basis, $2.6 million related to the reduction of the state statutory rate, and other permanent items. Other, Net also includes debit adjustments of $1.2 million related to excess compensation, $1.0 million related to performance shares, and other permanent items.

⁽²⁾ Other, Net includes credit adjustments of $1.3 million related to the qualified production activities deduction, $0.6 million related to the recognition of benefit for federal statutory depletion in excess of basis, $1.0 million related to the recognition of benefit for state statutory depletion in excess of basis, $0.6 million related to the reduction of the state statutory rate and other permanent items. Other, Net also includes debit adjustments of $0.7 million related to excess compensation, $0.7 million related to Internal Revenue Service audit adjustments and other permanent items.

⁽³⁾ Other, Net includes credit adjustments of $1.6 million related to the recognition of benefit for federal statutory depletion in excess of basis, $0.9 million related to the recognition of benefit for state statutory depletion in excess of basis, and other permanent items.

The tax effects of temporary differences that resulted in significant portions of the deferred tax liabilities and deferred tax assets as of December 31 were as follows:

	Year Ended December 31,
(In thousands)	2006		2005
Deferred Tax Liabilities
Property, Plant and Equipment	$	346,198	$	288,602
Items Accrued for Financial Reporting Purposes		33,194		1,720
Total		379,392		290,322
Deferred Tax Assets
Net Operating Loss Carryforwards		1,281		2,591
Items Accrued for Financial Reporting Purposes		30,564		22,840
Other Comprehensive Income		8,453		9,830
Total		40,298		35,261
Net Deferred Tax Liabilities	$	339,094	$	255,061

As of December 31, 2006, the Company had a net operating loss carryforward of $25.5 million for state income tax reporting purposes, the majority of which will expire between 2020 and 2026 and none available for regular federal income tax purposes. It is expected that these deferred tax benefits will be utilized prior to their expiration.

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7. Commitments and Contingencies

Firm Gas Transportation Agreements

The Company has incurred, and will incur over the next several years, demand charges on firm gas transportation agreements. These agreements provide firm transportation capacity rights on pipeline systems in Canada, the West region and the East region. The remaining terms on these agreements range from less than one year to 21 years and require the Company to pay transportation demand charges regardless of the amount of pipeline capacity utilized by the Company.

Future obligations under firm gas transportation agreements in effect at December 31, 2006 are as follows:

(In thousands)
2007	$	9,864
2008		8,248
2009		7,108
2010		3,716
2011		3,424
Thereafter		52,758
	$	85,118

Drilling Rig Commitments

The Company has seven drilling rigs in the Gulf Coast that are under contract. Three existing drilling rigs are under contract with rig providers in the Gulf Coast. An additional four drilling rigs were built for rig providers for use by the Company, three of which were delivered in the fourth quarter of 2006. The fourth rig is expected to be delivered by April 2007. As of December 31, 2006, the Company is obligated over the next four years to pay $120.3 million as follows:

(In thousands)
2007	$	54,382
2008		41,127
2009		22,502
2010		2,250
	$	120,261

Lease Commitments

The Company leases certain transportation vehicles, warehouse facilities, office space, and machinery and equipment under cancelable and non-cancelable leases. The lease for the Company’s office in Houston runs for approximately three more years. All of these operating leases expire within the next five years, and some of these leases may be renewed. Rent expense under such arrangements totaled $10.7 million, $9.1 million and $8.7 million for the years ended December 31, 2006, 2005, and 2004, respectively.

Future minimum rental commitments under non-cancelable leases in effect at December 31, 2006 are as follows:

(In thousands)
2007	$	5,014
2008		4,785
2009		3,469
2010		710
2011		98
Thereafter		—
	$	14,076

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Guarantees

On June 28, 2006, the Company announced the commencement of an offering under its Mineral, Royalty and Overriding Royalty Interest Plan. The Company assisted certain non-executive employees in obtaining loans to purchase interests offered under the plan by providing a guarantee of repayment should the non-executive employee fail to repay the loan. The repayment term for all of these loans is five years. The outstanding loan balances are approximately $0.3 million in the aggregate, and the fair value of these guarantees are immaterial to the Company’s financial statements. All loans are collateralized by the interests transferred to the employees in the producing properties.

Contingencies

The Company is a defendant in various legal proceedings arising in the normal course of its business. All known liabilities are accrued based on management’s best estimate of the potential loss. While the outcome and impact of such legal proceedings on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings through settlement or adverse judgment will not have a material adverse effect on the Company’s consolidated financial position or cash flow. Operating results, however, could be significantly impacted in the reporting periods in which such matters are resolved.

West Virginia Royalty Litigation

In December 2001, the Company was sued by two royalty owners in West Virginia state court for an unspecified amount of damages. The plaintiffs have requested class certification and allege that the Company failed to pay royalty based upon the wholesale market value of the gas, that the Company had taken improper deductions from the royalty and that it failed to properly inform royalty owners of the deductions. The plaintiffs also claimed that they are entitled to a 1/8th royalty share of the gas sales contract settlement that the Company reached with Columbia Gas Transmission Corporation in 1995 bankruptcy proceedings.

Discovery and pleadings necessary to place the class certification issue before the state court have been ongoing. The Court entered an order on June 1, 2005 granting the motion for class certification. The parties have negotiated a modification to the order which will result in the dismissal of the claims related to the gas sales contract settlement in connection with the Columbia Gas Transmission bankruptcy proceedings and that will limit the claims to those arising on and after December 17, 1991. The Court postponed the trial date from April 17, 2006, in light of the case involving an unrelated party pending before the West Virginia Supreme Court of Appeals described below. The Company intends to challenge the class certification order by filing a Petition for Writ of Prohibition with the West Virginia Supreme Court of Appeals.

The West Virginia Supreme Court of Appeals issued a decision in 2006 in a case against another producer (the Tawney case) that raised some of the same issues as are raised in the Company’s case. This recent decision may negatively impact some of the defenses the Company has raised in its litigation with respect to the issue of deductibility of post-production expenses under certain leases, but it believes that in a significant number of leases the Company has lease language, factual distinctions and defenses that are not implicated by the ruling.

The Tawney case involves claims concerning the deductibility of post-production expenses and the failure to properly inform, issues shared with the Company’s case, but also involves additional claims not raised in its case. The most significant additional claims are related to sales under long-term, fixed-price agreements at prices considered significantly below market value, as well as claims for certain volume reductions and unmetered production. The Tawney case went to trial in January 2007, and the jury returned a verdict against the producer for $130 million in compensatory damages and $270 million in punitive damages. Judgment has not yet been entered in the Tawney case, and an appeal is expected. The Company is closely monitoring developments in the Tawney case, and it continues to investigate how this recent ruling may impact its defense of the case. The case against the Company has been re-activated to the docket and trial is set for August 13, 2007.

The Company is vigorously defending the case. A reserve has been established that management believes is adequate based on its estimate of the probable outcome of this case.

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Texas Title Litigation

On January 6, 2003, the Company was served with Plaintiffs' Second Amended Original Petition in Romeo Longoria, et al. v. Exxon Mobil Corporation, et al. in the 79th Judicial District Court of Brooks County, Texas. Plaintiffs filed their Second Supplemental Original Petition on November 12, 2004 and their Third Supplemental Original Petition on February 22, 2005 (which added Wynn-Crosby 1996, Ltd. and Dominion Oklahoma Texas Exploration & Production, Inc.). Plaintiffs filed their Third Amended Original Petition on February 21, 2006, which incorporated all prior supplemental petitions. Plaintiffs allege that they are the owners of a one-half undivided mineral interest in and to certain lands in Brooks County, Texas. Cody Energy, LLC, a subsidiary of the Company, acquired certain leases and wells in 1997 and 1998.

The plaintiffs allege that they are entitled to be declared the rightful owners of an undivided interest in minerals and all improvements on the lands on which the Company acquired these leases. The plaintiffs also assert claims for trespass to try title, action to remove a cloud on the title, failure to properly account for royalty, fraud, trespass and conversion, all for unspecified actual and exemplary damages. Plaintiffs claim that they acquired title to the property by adverse possession. Plaintiffs also assert the discovery rule and a claim of fraudulent concealment to avoid the affirmative defense of limitations. In August 2005, the case was abated until late February 2006, during which time the parties were allowed to amend pleadings or add additional parties to the litigation. Plaintiffs did not join additional parties by the abatement deadline. Defendants, including the Company, re-urged its motion to dismiss, and on April 5, 2006, the Court granted the motion, dismissing the oil company defendants, without prejudice. Because all defendants were not dismissed at that time, the order dismissing the Company was not then final. A motion to finalize the proceedings in the trial court via severance of the dismissed defendants was filed April 25, 2006, and the remaining defendants moved to join the motions that led to the dismissal of the Company. In 2006, the Court dismissed the claims. Plaintiffs have filed a Notice of Appeal. Although the record is not yet complete and, therefore, specific appellate deadlines have not been set, the Company expects that, following briefing and oral argument, the appellate court will issue its decision by the end of 2007 or early 2008.

Raymondville Area

In April 2004, the Company’s wholly owned subsidiary, Cody Energy, LLC, filed suit in state court in Willacy County, Texas against certain of its co-working interest owners in the Raymondville Area, located in Kenedy and Willacy Counties. In early 2003, Cody had proposed a new prospect under the terms of the Joint Operating Agreement. Some of the co-working interest owners elected not to participate. The initial well was successful and subsequent wells have been drilled to exploit the discovery made in the first well.

The working interest owners who elected not to participate notified Cody that they believed that they had the right to participate in wells drilled after the initial well. Cody contends that the working interest owners that elected not to participate are required to assign their interest in the prospect to those who elected to participate. The defendants filed a counter claim against Cody, and one of the defendants filed a lien against Cody’s interest in the leases in the Raymondville Area.

Cody has signed a settlement agreement with certain of the defendants representing approximately three percent of the interest in the area. Cody and the remaining defendant filed cross motions for summary judgment. In August 2005, the trial judge entered an order granting Cody’s Motion for Summary Judgment requiring the remaining defendant to assign to Cody all of its interest in the prospect and to remove the lien filed against Cody’s interest.

On July 12, 2006, Cody entered into a Purchase and Sale Agreement to acquire all of the defendant’s interest in the Raymondville Field. The agreement would make the summary judgment ruling by the trial judge a final order, dismiss, with prejudice, all pending counter claims filed by such defendant and remove the lien against Cody’s properties filed by such defendant. Cody completed the acquisition in the third quarter of 2006. The lien has been removed, the summary judgment has become a final order and all of the defendant’s claims have been dismissed.

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Commitment and Contingency Reserves

The Company has established reserves for certain legal proceedings. The establishment of a reserve involves an estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to be adequate, it is reasonably possible that the Company could incur approximately $9.1 million of additional loss with respect to those matters in which reserves have been established. Future changes in the facts and circumstances could result in the actual liability exceeding the estimated ranges of loss and amounts accrued.

While the outcome and impact on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings through settlement or adverse judgment will not have a material adverse effect on the consolidated financial position or cash flow of the Company. Operating results, however, could be significantly impacted in the reporting periods in which such matters are resolved.

8. Cash Flow Information

Cash paid for interest and income taxes is as follows:

	Year Ended December 31,
(In thousands)	2006		2005		2004
Interest	$	24,088	$	17,366	$	16,415
Income Taxes		128,752		47,142		29,861

The increase in cash paid for income taxes from 2005 to 2006 is primarily due to the December 2006 payment of approximately $102 million related to the sale of the Company’s offshore and certain south Louisiana assets.

The Company recorded benefits of $9.5 million, $3.7 million and $2.6 million for the years ended December 31, 2006, 2005 and 2004, respectively, for tax deductions taken due to employee stock option exercises and restricted stock grant vesting.

9. Capital Stock

Incentive Plans

On April 29, 2004, the 2004 Incentive Plan was approved by the shareholders. Under the Company’s 2004 Incentive Plan, incentive and non-statutory stock options, stock appreciation rights (SARs), stock awards, cash awards and performance awards may be granted to key employees, consultants and officers of the Company. Non-employee directors of the Company may be granted discretionary awards under the 2004 Incentive Plan consisting of stock options or stock awards, in addition to the automatic award of an option to purchase 15,000 shares of common stock on the date the non-employee directors first join the board of directors. A total of 2,550,000 shares of common stock may be issued under the 2004 Incentive Plan. In addition, shares remaining available for award under the 1994 Long-Term Incentive Plan and the Second Amended and Restated 1994 Non-Employee Director Stock Option Plan (herein “Prior Plans”) were subsumed into the 2004 Incentive Plan (342,597 shares post-split). Under the 2004 Incentive Plan, no more than 900,000 shares may be used for stock awards that are not subject to the achievement of performance based goals, and no more than 1,500,000 shares may be issued pursuant to incentive stock options. Awards outstanding under the Prior Plans will remain outstanding in accordance with their original terms and conditions.

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Stock Split

On February 28, 2005, the Company announced that the Board of Directors had declared a 3-for-2 split of the Company’s common stock in the form of a stock distribution. The stock dividend was distributed on March 31, 2005 to stockholders of record on March 18, 2005. In lieu of issuing fractional shares, the Company paid cash based on the closing price of the common stock on the record date. All common stock accounts and per share data have been retroactively adjusted to give effect to the 3-for-2 split of the Company’s common stock.

Increase in Authorized Shares

On May 4, 2006, the stockholders of the Company approved an increase in the authorized number of shares of common stock from 80 million to 120 million shares. The Company correspondingly increased the number of shares of Series A Junior Participating Preferred Stock reserved for issuance from 800,000 to 1,200,000. The shares of Series A Junior Participating Preferred Stock are issuable pursuant to the Preferred Stock Purchase Rights Plan described below.

Treasury Stock

In August 1998, the Company announced that its Board of Directors authorized the repurchase of two million shares of the Company’s common stock in the open market or in negotiated transactions. As a result of the 3-for-2 stock split of the Company’s common stock in March 2005, this figure was adjusted to three million shares. On October 26, 2006, the Company announced that its Board of Directors increased the number of shares of the Company’s common stock authorized for repurchase by an additional two million shares. The timing and amount of these stock purchases are determined at the discretion of management. The Company may use the repurchased shares to fund stock compensation programs presently in existence, or for other corporate purposes. All purchases executed to date have been through open market transactions. There is no expiration date associated with the authorization to repurchase securities of the Company.

During the year ended December 31, 2006, the Company repurchased 1,088,500 shares with a weighted average price per share of $42.71 for a total cost of approximately $46.5 million. All of the repurchases occurred during the second and third quarters. The repurchased shares are held as treasury stock. Since the authorization date, the Company has repurchased 2,602,350 shares, or 52% of the five million total shares authorized for repurchase at December 31, 2006, for a total cost of approximately $85.7 million. No treasury shares have been delivered or sold by the Company subsequent to the repurchase.

Dividend Restrictions

The Board of Directors of the Company determines the amount of future cash dividends, if any, to be declared and paid on the common stock depending on, among other things, the Company's financial condition, funds from operations, the level of its capital and exploration expenditures, and its future business prospects. None of the note or credit agreements in place have a restricted payment provision.

Purchase Rights

On January 21, 1991, the Board of Directors adopted the Preferred Stock Purchase Rights Plan and declared a dividend distribution of one right for each outstanding share of common stock. On December 8, 2000, the rights agreement for the plan was amended and restated to extend the term of the plan to 2010 and to make other changes. Each right becomes exercisable when any person or group has acquired or made a tender or exchange offer for beneficial ownership of 15% or more of the Company's outstanding common stock. Each right entitles the holder, other than the acquiring person or group, to purchase a fraction of a share of Series A Junior Participating Preferred Stock (Junior Preferred Stock). After a person or group acquires beneficial ownership of 15% of the common stock, each right entitles the holder to purchase common stock or other property having a market value (as defined in the plan) of twice the exercise price of the right. An exception to this triggering event applies in the case of a tender or exchange offer for all outstanding shares of common stock determined to be fair and in the best interests of the Company and its stockholders by a majority of the independent directors. Under certain circumstances, the Board of

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Directors may opt to exchange one share of common stock for each exercisable right. If there is a 15% holder and the Company is acquired in a merger or other business combination in which it is not the survivor, or 50% or more of the Company's assets or earning power are sold or transferred, each right entitles the holder to purchase common stock of the acquiring company with a market value (as defined in the plan) equal to twice the exercise price of each right. At December 31, 2006 there were no shares of Junior Preferred Stock issued or outstanding.

The rights expire on January 21, 2010, and may be redeemed by the Company at any time before a person or group acquires beneficial ownership of 15% of the common stock.

As a result of the 3-for-2 stock split, each share of common stock continues to include one right under the Company's Preferred Stock Purchase Rights Plan, and each right now provides for the purchase, upon the occurrence of the conditions set forth in the plan, of two-thirds of one one-hundredth of a share of preferred stock at a purchase price of approximately $36.67 per two-thirds of one one-hundredth of a share. The redemption price of each right is now two-thirds of a cent.

10. Stock-Based Compensation

Adoption of SFAS No. 123(R)

Prior to January 1, 2006, the Company accounted for stock-based compensation in accordance with the intrinsic value based method prescribed by APB No. 25. Under the intrinsic value based method, no compensation expense was recorded for stock options granted when the exercise price for options granted was equal to or greater than the fair value of the Company’s common stock on the date of the grant.

Beginning January 1, 2006, the Company began accounting for stock-based compensation under SFAS No. 123(R), which applies to new awards and to awards modified, repurchased or cancelled after December 31, 2005. The Company recorded compensation expense based on the fair value of awards as described below. Additionally, compensation expense for the portion of the awards for which the requisite service period was not rendered that were outstanding at December 31, 2005 was or will be recognized as the requisite service is rendered on or after January 1, 2006.

Compensation expense charged against income for stock-based awards for the years ended December 31, 2006, 2005 and 2004 was $21.2 million, $9.6 million and $6.5 million, respectively, and is included in General and Administrative Expense in the Consolidated Statement of Operations. The primary reason for this increase was due to an increase in the liability component of the performance share awards as well as expense related to performance shares granted in 2006. In 2006, compensation expense included amortization of restricted stock grants, stock options, SARs, restricted stock units and performance shares at fair value. Compensation expense in 2005 only included amortization of restricted stock grants and compensation expense related to performance shares and restricted stock units. The $0.6 million ($0.4 million, net of tax) cumulative effect charge at adoption that was recorded in the first quarter of 2006 was due primarily to the recording of the liability component of the Company’s performance share awards at fair value, rather than intrinsic value. The Company recorded tax benefits related to stock-based compensation of $9.5 million, $3.7 million and $2.6 million for the years ended December 31, 2006, 2005 and 2004, respectively, for tax deductions taken due to employee stock option exercises and restricted stock grant vesting.

Prior to the adoption of SFAS No. 123(R), the Company presented tax benefits resulting from tax deductions related to stock-based compensation as an operating cash flow. Under SFAS No. 123(R), the tax benefits resulting from tax deductions in excess of expense are reported as an operating cash outflow and a financing cash inflow. For the year ended December 31, 2006, $9.5 million was reported in these two separate line items in the Consolidated Statement of Cash Flows.

On October 26, 2005, the Compensation Committee of the Board of Directors of the Company approved the acceleration to December 15, 2005 of the vesting of 198,799 unvested stock options awarded in February 2003 under the Company’s Second Amended and Restated 1994 Long-Term Incentive Plan and 24,500 unvested stock options awarded in April 2004 under the Company’s 2004 Incentive Plan.

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The 198,799 shares awarded to employees under the 1994 plan at an exercise price of $15.32 would have vested in February 2006. The 24,500 shares awarded to non-employee directors under the 2004 plan at an exercise price of $23.32 would have vested 12,250 shares in April 2006 and April 2007, respectively. The decision to accelerate the vesting of these unvested options, which the Company believed to be in the best interest of its shareholders and employees, was made solely to reduce compensation expense and administrative burden associated with the Company’s adoption of SFAS No. 123(R). The accelerated vesting of the options did not have an impact on the Company’s results of operations or cash flows in 2005. The acceleration of vesting reduced the Company’s compensation expense related to these options by approximately $0.2 million for 2006.

During the third quarter of 2006, the Company adopted the provisions outlined under FSP FAS No. 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” which discusses accounting for taxes for stock awards using the APIC Pool concept. The Company was not required to adopt this provision until January 1, 2007, one year from the adoption of 123(R); however, it chose early adoption. The Company made a one time election as prescribed under the FSP to use the shortcut approach to derive the initial windfall tax benefit pool. The Company chose to use a one-pool approach which combines all awards granted to employees, including non-employee directors.

The following table illustrates the effect on Net Income and Earnings per Share if the Company had applied the fair value recognition provisions of SFAS No. 123(R) to stock-based employee compensation during the years ended December 31, 2005 and 2004:

	Year Ended December 31,
(In thousands, except per share amounts)	2005			2004
Net Income, as reported	$	148,445		$	88,378
Add: Employee stock-based compensation expense, net of related tax effects, included in net income, as reported		5,965			4,043
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax, previously not included in Net Income		(6,932	)		(5,614	)
Pro forma net income	$	147,478		$	86,807
Earnings per Share:
Basic - as reported	$	3.04		$	1.81
Basic - pro forma	$	3.02		$	1.78
Diluted - as reported	$	2.99		$	1.79
Diluted - pro forma	$	2.97		$	1.76
Share Count		48,856			48,733
Diluted Share Count		49,725			49,339

In September 2006, the SEC Staff issued a letter summarizing their views regarding the backdating of stock options. The letter discusses the date that is to be used as the measurement date for options in order to value the exercise price of stock options. It also discusses the documentation that should be available to support award grant dates. The Company reviewed its stock option granting practices and found no instances of backdating. Further, as required under the Company’s incentive plans, the stock option grant date is the date on which the Compensation Committee and/or Board of Directors approves the award. Company management is given no discretion to choose the grant date. The Company maintains Compensation Committee and/or Board of Directors minutes and other records to support the grant dates of its options.

Restricted Stock Awards

Restricted stock awards vest either at the end of a three year service period, or on a graded-vesting basis for awards that vest one-third at each anniversary date over a three year service period. Under the graded-vesting approach, the Company recognizes compensation cost over the three year requisite service period for each separately vesting

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tranche as though the awards are, in substance, multiple awards. For awards that vest at the end of a three year service period, expense is recognized ratably using a straight-line expensing approach over three years. For all restricted stock awards, vesting is dependant upon the employees’ continued service with the Company, with the exception of employment terminations due to death, disability or retirement.

The fair value of restricted stock grants is based on the average of the high and low stock price on the grant date. The maximum contractual term is three years. In accordance with SFAS No. 123(R), the Company accelerated the vesting period for retirement-eligible employees for purposes of recognizing compensation expense in accordance with the vesting provisions of the Company’s stock-based compensation programs for awards issued after the adoption of SFAS No. 123(R). The Company used an annual forfeiture rate ranging from 0% to 3.3% based on the Company’s ten year history for this type of award to various employee groups.

The following table is a summary of restricted stock award activity for the year ended December 31, 2006:

Restricted Stock Awards	Shares		Weighted- Average Grant Date Fair Value per share		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) (1)
Non-vested shares outstanding at December 31, 2005	588,465		$	26.68
Granted	46,850			47.60
Vested	(231,493	)		21.76
Forfeited	(5,000	)		31.26
Non-vested shares outstanding at December 31, 2006	398,822		$	31.93	1.4	$	24,189

⁽¹⁾ The aggregate intrinsic value of restricted stock awards is calculated by multiplying the closing market price of the Company’s stock on December 31, 2006 by the number of non-vested restricted stock awards outstanding.

As shown in the table above, there were 46,850 restricted stock awards granted to employees during 2006. All of these awards were granted in the first quarter of 2006. These awards granted in 2006 vest over a three year service period on a graded-vesting schedule. During the year ended December 31, 2005, 327,623 restricted stock awards were granted with a weighted-average grant date fair value per share of $31.88. During the year ended December 31, 2004, 215,250 restricted stock awards were granted with a weighted-average grant date fair value per share of $23.75. The total fair value of shares vested during 2006, 2005 and 2004 was $5.0 million, $2.2 million and $2.0 million, respectively.

Compensation expense recorded for restricted stock awards for the years ended December 31, 2006, 2005 and 2004 was $6.1 million, $5.6 million and $3.1 million, respectively. Included in the 2006 expense was $0.6 million related to the expensing of the entire value of shares granted to retirement-eligible employees. Unamortized expense as of December 31, 2006 for all outstanding restricted stock awards was $4.3 million.

Restricted Stock Units

Restricted stock units are granted from time to time to non-employee directors of the Company. The fair value of these units is measured at the average of the high and low stock price on grant date and compensation expense is recorded immediately. These units immediately vest and are paid out when the director ceases to be a director of the Company. Due to the immediate vesting of the units and the unknown term of each director, the weighted-average remaining contractual term in years has been omitted from the table below.

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The following table is a summary of restricted stock unit activity for the year ended December 31, 2006:

Restricted Stock Units	Shares		Weighted- Average Grant Date Fair Value per share		Aggregate Intrinsic Value (in thousands) (1)
Outstanding at December 31, 2005	30,100		$	31.30
Granted and fully vested	17,220			50.82
Issued	(8,600	)		31.30
Forfeited	—			—
Outstanding at December 31, 2006	38,720		$	39.98	$	2,348

⁽¹⁾ The intrinsic value of restricted stock units is calculated by multiplying the closing market price of the Company’s stock on December 31, 2006 by the number of outstanding restricted stock units as of December 31, 2006.

As shown in the table above, 17,220 restricted stock units were granted during 2006. During 2005, 19,600 restricted stock units were granted with a weighted-average grant date fair value per share of $35.58. During 2004, 10,500 restricted stock units were granted with a weighted-average grant date fair value per share of $23.32.

The compensation cost, which reflects the total fair value of these units, recorded entirely in the second quarter of 2006 was $0.9 million. Compensation expense recorded during the years ended December 31, 2005 and 2004 for restricted stock units was $0.7 million and $0.2 million, respectively.

Stock Options

Option awards are granted with an exercise price equal to the fair market price (defined as the average of the high and low trading prices of the Company’s stock on the date of grant) of the Company’s stock at the date of grant.

During the year ended December 31, 2006, 30,000 stock options, with an exercise price of $47.60 per share, were granted to two incoming non-employee directors of the Company. All of these stock options were granted in the first quarter of 2006. No stock options were granted in the year ended December 31, 2005. During 2004, 36,750 stock options were granted with an exercise price of $23.32 per share.

Compensation cost is recorded based on a graded-vesting schedule as the options vest over a service period of three years, with one-third of the award becoming exercisable each year on the anniversary date of the grant. Stock options have a maximum contractual term of five years. No forfeiture rate is assumed for stock options granted to directors due to the forfeiture rate history for these types of awards for this group of individuals. Compensation expense recorded during 2006 for these stock options was $0.3 million. Since the Company had not yet adopted SFAS No. 123(R) as of December 31, 2005, stock options were not expensed through the Consolidated Statement of Operations during 2005 and 2004 and no compensation expense was recorded. Unamortized expense as of December 31, 2006 for all outstanding stock options was $0.2 million. The weighted average period over which this compensation will be recognized is approximately 2.2 years.

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The grant date fair value of a stock option is calculated by using a Black-Scholes model. The assumptions used in the Black-Scholes fair value calculation for stock options are as follows:

	Year Ended December 31,
	2006			2005		2004
Weighted-Average Value per Option Granted
During the Period (1)	$	14.65		$	—	$	7.54
Assumptions
Stock Price Volatility		31.5	%		—		38.4	%
Risk Free Rate of Return		4.6	%		—		3.3	%
Expected Dividend		0.3	%		—		0.8	%
Expected Term (in years)		4.0			—		4.0

⁽¹⁾ Calculated using the Black-Scholes fair value based method.

The expected term was derived by reviewing minimum and maximum expected term outputs from the Black-Scholes model based on award type and employee type. This term represents the period of time that awards granted are expected to be outstanding. The stock price volatility was calculated using historical closing stock price data for the Company for the period associated with the expected term thorough the grant date of each award. The risk free rate of return percentages are based on the continuously compounded equivalent of the US Treasury (Nominal 10) within the expected term as measured on the grant date. The expected dividend percentage assumes that the Company will continue to pay a $0.04 per share dividend each quarter.

The following table is a summary of stock option activity for the years ended December 31, 2006, 2005 and 2004:

Stock Options	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding at Beginning of Year	913,348		$	15.32	1,217,534		$	15.22	2,024,252		$	15.26
Granted	30,000			47.60	—			—	36,750			23.32
Exercised	(438,473	)		14.39	(300,493	)		14.92	(793,775	)		15.69
Forfeited or Expired	(900	)		18.20	(3,693	)		14.85	(49,693	)		14.25
Outstanding at December 31(1)	503,975		$	18.05	913,348		$	15.32	1,217,534		$	15.22
Options Exercisable at December 31(2)	473,975		$	16.18	895,848		$	15.30	565,994		$	15.18

⁽¹⁾ The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option. The aggregate intrinsic value of options outstanding at December 31, 2006 was $21.5 million. The weighted-average remaining contractual term is 1.3 years.

⁽²⁾ The aggregate intrinsic value of options exercisable at December 31, 2006 was $21.1 million. The weighted-average remaining contractual term is 1.1 years.

The total intrinsic value of options exercised during the years ended December 31, 2006, 2005 and 2004 was $17.7 million, $6.9 million and $5.8 million, respectively.

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At December 31, 2006, the exercise price range for outstanding options was $12.84 to $47.60 per share. The following tables provide more information about the options by exercise price.

Options with exercise prices between $12.84 and $15.00 per share:

Options Outstanding
Number of Options		7,350
Weighted Average Exercise Price	$	12.84
Weighted Average Contractual Term (in years)		0.1
Options Exercisable
Number of Options		7,350
Weighted Average Exercise Price	$	12.84
Weighted Average Contractual Term (in years)		0.1

Options with exercise prices between $15.01 and $30.00 per share:

Options Outstanding
Number of Options		466,625
Weighted Average Exercise Price	$	16.23
Weighted Average Contractual Term (in years)		1.1
Options Exercisable
Number of Options		466,625
Weighted Average Exercise Price	$	16.23
Weighted Average Contractual Term (in years)		1.1

Options with exercise prices between $30.01 and $47.60 per share:

Options Outstanding
Number of Options		30,000
Weighted Average Exercise Price	$	47.60
Weighted Average Contractual Term (in years)		4.2

None of the options with exercise prices between $30.01 and $47.60 were exercisable as of December 31, 2006.

Stock Appreciation Rights

On February 23, 2006, the Compensation Committee granted 132,800 SARs to employees. These awards allow the employee to receive any intrinsic value over the $47.60 grant date fair market value that may result from the price appreciation on a set number of common shares during the contractual term of seven years. All of these awards have graded-vesting features and vest over a service period of three years, with one-third of the award becoming exercisable each year on the anniversary date of the grant. As of December 31, 2006, there were 132,800 SARs outstanding and none were exercisable. The aggregate intrinsic value of these awards was $1.7 million at December 31, 2006. As these SARs are paid out in stock, rather than in cash, the Company calculates the fair value in the same manner as stock options, by using a Black-Scholes model.

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The assumptions used in the Black-Scholes fair value calculation for SARs are as follows:

	Year Ended December 31, 2006
Weighted-Average Value per Stock Appreciation Right
Granted During the Period (1)	$	14.19
Assumptions
Stock Price Volatility		31.6	%
Risk Free Rate of Return		4.6	%
Expected Dividend		0.3	%
Expected Term (in years)		3.75

⁽¹⁾ Calculated using the Black-Scholes fair value based method.

Compensation expense recorded during the year ended December 31, 2006 for these SARs was $1.0 million. As no SARs were outstanding during 2005 and 2004, no compensation expense was recorded for this type of award. In addition, all SARs were unvested at December 31, 2006. Unamortized expense as of December 31, 2006 for all outstanding SARs was $0.9 million which will be recognized over the next 2.2 years.

Performance Share Awards

During 2006, the Compensation Committee granted two types of performance share awards to employees for a total of 142,750 performance shares. The performance period for both of these awards commenced January 1, 2006 and ends December 31, 2008. Certain of these awards, totaling 52,900 performance shares, are earned, or not earned, based on the comparative performance of the Company’s common stock measured against sixteen other companies in the Company’s peer group over a three year vesting performance period. Depending on the Company’s performance, employees may earn up to 100% of the award in common stock, and an additional 100% of the award in cash. A new type of award was granted to non-executive employees in 2006, for a total of 89,850 shares, which measures the Company’s performance based on internal metrics rather than a peer group. These awards represent the right to receive up to 100% of the award in shares of common stock. The actual number of shares issued at the end of the performance period will be determined based on three performance criteria set by the Company’s Compensation Committee. An employee will earn one-third of the award granted for each internal metric performance criteria that the Company meets at the end of the performance period. These performance criteria measure the Company’s average production, average finding costs and average reserve replacement over three years. Based on the Company’s probability assessment at December 31, 2006, it is currently considered probable that these three criteria will be met.

Both of these types of awards vest at the end of a designated three year performance period. For all awards granted to employees before and after January 1, 2006, an annual forfeiture rate ranging from 0% to 5.0% was assumed based on the Company’s history for this type of award to various employee groups.

On December 31, 2006, the performance period ended for the performance shares awarded in 2004, which were based on total shareholder return. Due to the ranking of the Company compared to its peers in its predetermined peer group, 100% of the award, valued at $4.8 million based on the average of the high and low stock price on the grant date, is payable in 225,000 shares of common stock. An additional 33 percent, equal to one-third of the total value of the award, calculated by using the high and low stock price on December 29, 2006 multiplied by the number of performance shares earned, or $4.6 million, is payable in cash. These amounts were paid in January 2007. The calculation of the award payout was approved by the Compensation Committee on January 4, 2007, and the vesting of these shares will be reported in the first quarter of 2007.

For awards that are based on the internal metrics (performance condition) of the Company and for awards that were granted prior to the adoption of SFAS No. 123(R) on January 1, 2006, fair value was measured based on the average of the high and low stock price of the Company on grant date and expense is amortized over the three year vesting period. To determine the fair value for awards that were granted after January 1, 2006 that are based on the Company’s comparative performance against a peer group (market condition), the equity and liability components

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were bifurcated. On the grant date, the equity component was valued using a Monte Carlo binomial model and is being amortized on a straight-line basis over the vesting period of three years. The liability component was valued at each reporting period by using a Monte Carlo binomial model.

The three primary inputs for the Monte Carlo model are the risk-free rate, volatility of returns and correlation in stock price movement. The risk-free rate was generated from the Federal Reserve website for constant maturity treasuries for six-month and one, two and three year bonds and is set equal to the yield, for the period over the remaining duration of the performance period, on treasury securities as of the reporting date. Volatility was set equal to the annualized daily volatility measured over a historic four year period ending on the reporting date. A sample of correlation statistics were reviewed between the Company and its peers and the average ranged between 87% and 93%.

The following assumptions were used as of December 31, 2006 for the Monte Carlo model to value the liability components of the peer group measured performance share awards. The equity portion of the award granted in 2006 was valued on the date of grant using the Monte Carlo model and this portion was not marked to market.

	As of December 31, 2006
Risk Free Rate of Return	4.8% - 4.9	%
Stock Price Volatility	32.6	%
Correlation in stock price movement	90	%
Expected Dividend	0.3	%

The Monte Carlo value per share for the liability for performance share awards at December 31, 2006 ranged from $20.26 to $52.36. The long-term liability, included in Other Liabilities in the Consolidated Balance Sheet, and short-term liability, included in Accrued Liabilities in the Consolidated Balance Sheet, for performance share awards at December 31, 2006 was $3.9 million and $4.6 million, respectively.

The following table is a summary of performance share award activity for the year ended December 31, 2006:

Performance Share Awards	Shares		Weighted- Average Grant Date Fair Value per share (1)		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) (2)
Non-vested shares outstanding at December 31, 2005	346,150		$	24.34
Granted	142,750			42.13
Vested	(15,300	)		25.17
Forfeited (3)	(3,550	)		33.26
Non-vested shares outstanding at December 31, 2006	470,050		$	29.65	1.7	$	28,509

⁽¹⁾ The fair value figures in this table represent the fair value of the equity component of the performance share awards.

⁽²⁾ The aggregate intrinsic value of performance share awards is calculated by multiplying the closing market price of the Company’s stock on December 31, 2006 by the number of non-vested performance share awards outstanding.

⁽³⁾ These shares vested as a result of the death of one of the Company’s officers.

During the year ended December 31, 2005, 110,200 performance share awards were granted with a grant date fair value per share of $30.43. During the year ended December 31, 2004, 252,750 performance share awards were granted with a grant date fair value per share of $21.49. No performance shares vested in 2005 or 2004. During 2005 and 2004, 8,700 and 8,100 performance shares, respectively, were forfeited.

Total unamortized compensation cost related to the equity component of performance shares at December 31, 2006 was $5.1 million and will be recognized over the next 1.7 years, computed by using the weighted average of the time

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in years remaining to recognize unamortized expense. Total compensation cost recognized for both the equity (including the cumulative effect) and liability components of performance share awards during the years ended December 31, 2006, 2005 and 2004 was $12.9 million, $3.3 million and $3.2 million, respectively.

11. Financial Instruments

The estimated fair value of financial instruments is the amount at which the instrument could be exchanged currently between willing parties. The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable, and accounts payable approximate fair value. The Company uses available marketing data and valuation methodologies to estimate the fair value of debt. This disclosure is presented in accordance with SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” and does not impact the Company’s financial position, results of operations or cash flows.

Long-Term Debt

	December 31, 2006						December 31, 2005
(In thousands)	Carrying Amount			Estimated Fair Value			Carrying Amount			Estimated Fair Value
Long-Term Debt
7.19% Notes	$	60,000		$	61,749		$	80,000		$	83,295
7.26% Notes		75,000			80,335			75,000			81,713
7.36% Notes		75,000			82,025			75,000			83,990
7.46% Notes		20,000			22,547			20,000			23,083
Credit Facility		10,000			10,000			90,000			90,000
Current Maturities
7.19% Notes		(20,000	)		(20,299	)		(20,000	)		(20,357	)
Long-Term Debt, excluding Current Maturities	$	220,000		$	236,357		$	320,000		$	341,724

The fair value of long-term debt is the estimated cost to acquire the debt, including a premium or discount for the difference between the issue rate and the year end market rate. The fair value of the 7.19% Notes, the 7.26% Notes, the 7.36% Notes and the 7.46% Notes is based on interest rates currently available to the Company. The credit facility approximates fair value because this instrument bears interest at rates based on current market rates.

Derivative Instruments and Hedging Activity

The Company periodically enters into derivative commodity instruments to hedge its exposure to price fluctuations on natural gas and crude oil production. Under the Company’s revolving credit agreement, the aggregate level of commodity hedging must not exceed 100% of the anticipated future equivalent production during the period covered by these cash flow hedges. At December 31, 2006, the Company had 20 cash flow hedges open: 19 natural gas price collar arrangements and one crude oil collar arrangement. At December 31, 2006, an $82.0 million ($51.2 million, net of tax) unrealized gain was recorded in Accumulated Other Comprehensive Income, along with an $82.0 million short-term derivative receivable. The change in the fair value of derivatives designated as hedges that is effective is initially recorded to Accumulated Other Comprehensive Income. The ineffective portion, if any, of the change in the fair value of derivatives designated as hedges, and the change in fair value of all other derivatives is recorded currently in earnings as a component of Natural Gas Production and Crude Oil and Condensate Revenue, as appropriate. During 2006, there was no ineffectiveness recorded in the Consolidated Statement of Operations. For the years ended December 31, 2005 and 2004, a $6.6 million gain and a $2.0 million loss were recorded as components of revenue, which reflected the ineffective portion of the change in fair value of derivatives designated as hedges and the change in the fair value of all other derivatives.

Assuming no change in commodity prices, after December 31, 2006 the Company would expect to reclassify to the Consolidated Statement of Operations, over the next 12 months, $51.2 million in after-tax income associated with commodity hedges. This reclassification represents the net short-term receivable associated with open positions currently not reflected in earnings at December 31, 2006 related to anticipated 2007 production.

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Hedges on Production - Options

From time to time, the Company enters into natural gas and crude oil collar agreements with counterparties to hedge price risk associated with a portion of its production. These cash flow hedges are not held for trading purposes. Under the collar arrangements, if the index price rises above the ceiling price, the Company pays the counterparty. If the index price falls below the floor price, the counterparty pays the Company. During 2006, natural gas price collars covered 27,179 Mmcf of the Company’s gas production, or 34% of gas production with a weighted average floor of $8.25 per Mcf and a weighted average ceiling of $12.74 per Mcf. During 2006, an oil price collar covered 365 Mbbl of the Company’s crude oil production, or 26% of crude oil production with an average floor of $50.00 per Mbbl and an average ceiling of $76.00 per Mbbl.

At December 31, 2006, the Company had open natural gas price collar contracts covering its 2007 production as follows:

	Natural Gas Price Collars
Contract Period	Volume in Mmcf	Weighted Average Ceiling / Floor (per Mcf)		Net Unrealized Gain (In thousands)
As of December 31, 2006
First Quarter 2007	10,487		$12.19 / $8.99
Second Quarter 2007	10,604		12.19 / 8.99
Third Quarter 2007	10,721		12.19 / 8.99
Fourth Quarter 2007	10,721		12.19 / 8.99
Full Year 2007	42,533	$	12.19 / $8.99	$	81,393

At December 31, 2006, the Company had one open crude oil price collar contract covering its 2007 production as follows:

	Crude Oil Price Collar
Contract Period	Volume in Mbbl	Average Ceiling / Floor (per Bbl)		Net Unrealized Gain (In thousands)
As of December 31, 2006
First Quarter 2007	90		$80.00 / $60.00
Second Quarter 2007	91		80.00 / 60.00
Third Quarter 2007	92		80.00 / 60.00
Fourth Quarter 2007	92		80.00 / 60.00
Full Year 2007	365	$	80.00 / $60.00	$	589

The Company is exposed to market risk on these open contracts, to the extent of changes in market prices of natural gas and crude oil. However, the market risk exposure on these hedged contracts is generally offset by the gain or loss recognized upon the ultimate sale of the commodity that is hedged.

Credit Risk

Although notional contract amounts are used to express the volume of natural gas price agreements, the amounts that can be subject to credit risk in the event of non-performance by third parties are substantially smaller. The Company does not anticipate any material impact on its financial results due to non-performance by the third parties.

In 2006, no customer accounted for more than 10% of the Company’s total sales. In each of 2005 and 2004 approximately 11% of the Company’s total sales were made to one customer.

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12. Asset Retirement Obligations

The Company records the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement cost is capitalized as part of the carrying amount of the long-lived asset. Subsequently, the asset retirement cost is allocated to expense using a systematic and rational method over the assets useful life. The majority of the asset retirement obligations recorded by the Company relate to the plugging and abandonment of oil and gas wells. However, liabilities are also recorded for meter stations, pipelines, processing plants and compressors. At December 31, 2006, there were no assets legally restricted for purposes of settling asset retirement obligations.

Additional retirement obligations increase the liability associated with new oil and gas wells and other facilities as these obligations are incurred. Accretion expense for the years ended December 31, 2006 and 2005 was $1.4 million in each year and $1.7 million for the year ended December 31, 2004, and was included within Depreciation, Depletion and Amortization expense on the Company’s Consolidated Statement of Operations.

The following table reflects the changes of the asset retirement obligations during the current period.

(In thousands)
Carrying amount of asset retirement obligations at December 31, 2005	$	42,991
Liabilities added during the current period		2,089
Liabilities settled and divested during the current period		(23,775	)
Current period accretion expense		1,350
Carrying amount of asset retirement obligations at December 31, 2006	$	22,655

13. Earnings per Common Share

Basic earnings per common share (EPS) is computed by dividing net income (the numerator) by the weighted average number of common shares outstanding for the period (the denominator). Diluted EPS is similarly calculated using the treasury stock method except that the denominator is increased to reflect the potential dilution that could occur if stock options and stock awards outstanding at the end of the applicable period were exercised.

The following is a calculation of basic and diluted weighted average shares outstanding for the years ended December 31, 2006, 2005 and 2004:

	December 31,
	2006	2005	2004
Shares - basic	48,401,642	48,856,491	48,732,504
Dilution effect of stock options and awards at end of period	898,850	868,904	606,297
Shares - diluted	49,300,492	49,725,395	49,338,801
Stock awards and shares excluded from diluted earnings per share due to the anti-dilutive effect	—	—	—

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14. Accumulated Other Comprehensive Income

Changes in the components of accumulated other comprehensive income, net of taxes, for the years ended December 31, 2006, 2005 and 2004 were as follows:

Accumulated Other Comprehensive Income (in thousands)	Net Gains / (Losses) on Cash Flow Hedges			Defined Benefit Pension and Postretirement Plans			Foreign Currency Translation Adjustment			Total
Balance at December 31, 2003	$	(20,957	)	$	(2,173	)	$	(5	)	$	(23,135	)
Net change in unrealized gains on cash flow hedges, net of taxes of ($1,908)		3,114			—			—			3,114
Net change in minimum pension liability, net of taxes of $535		—			(869	)		—			(869	)
Change in foreign currency translation adjustment, net of taxes of ($123)		—			—			539			539
Balance at December 31, 2004	$	(17,843	)	$	(3,042	)	$	534		$	(20,351	)
Net change in unrealized gains on cash flow hedges, net of taxes of ($3,111)		4,983			—			—			4,983
Net change in minimum pension liability, net of taxes of $77		—			(128	)		—			(128	)
Change in foreign currency translation adjustment, net of taxes of ($427)		—			—			381			381
Balance at December 31, 2005	$	(12,860	)	$	(3,170	)	$	915		$	(15,115	)
Net change in unrealized gains on cash flow hedges, net of taxes of ($38,625)		64,099			—			—			64,099
Net change in minimum pension liability, net of taxes of ($1,848)		—			3,081			—			3,081
Effect of adoption of SFAS No. 158, net of taxes of $8,447		—			(14,079	)		—			(14,079	)
Change in foreign currency translation adjustment, net of taxes of $507		—			—			(826	)		(826	)
Balance at December 31, 2006	$	51,239		$	(14,168	)	$	89		$	37,160

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15. Subsequent Event-Stock Split

On February 23, 2007 the Board of Directors declared a 2-for-1 split of the Company’s Common Stock in the form of a stock distribution. The stock dividend will be distributed on March 30, 2007 to shareholders of record on March 16, 2007. The pro forma effect on the December 31, 2006 balance sheet is to reduce Additional Paid-in-Capital by $5.1 million and increase Common Stock by $5.1 million. Common shares outstanding, giving retroactive effect to the stock split at December 31, 2006 and 2005, would have been 96.2 million and 97.1 million, respectively. Weighted-average common shares outstanding, giving retroactive effect to the stock split at December 31, 2006, 2005 and 2004, would have been 96.8 million, 97.7 million and 97.5 million, respectively. Pro forma earnings per share, giving retroactive effect to the stock split are as follows:

	December 31,
	2006		2005		2004
Basic Earnings per Share – as reported (pre-stock split)	$	6.64	$	3.04	$	1.81
Basic Earnings per Share – pro forma (post-stock split)		3.32		1.52		0.91
Diluted Earnings per Share – as reported (pre-stock split)		6.51		2.99		1.79
Diluted Earnings per Share – pro forma (post-stock split)		3.26		1.49		0.90

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CABOT OIL & GAS CORPORATION

SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)

Oil and Gas Reserves

Users of this information should be aware that the process of estimating quantities of “proved” and “proved developed” natural gas and crude oil reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various reservoirs make these estimates generally less precise than other estimates included in the financial statement disclosures.

Proved reserves represent estimated quantities of natural gas, crude oil and condensate that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions in effect when the estimates were made.

Proved developed reserves are proved reserves expected to be recovered through wells and equipment in place and under operating methods used when the estimates were made.

Estimates of proved and proved developed reserves at December 31, 2006, 2005, and 2004 were based on studies performed by the Company's petroleum engineering staff. The estimates were computed based on year end prices for oil, natural gas, and natural gas liquids. The estimates were reviewed by Miller and Lents, Ltd., who indicated in their letter dated February 6, 2007, that based on their investigation and subject to the limitations described in their letter, they believe the results of those estimates and projections were reasonable in the aggregate.

No major discovery or other favorable or unfavorable event after December 31, 2006, is believed to have caused a material change in the estimates of proved or proved developed reserves as of that date.

The following table illustrates the Company’s net proved reserves, including changes, and proved developed reserves for the periods indicated, as estimated by the Company’s engineering staff.

	Natural Gas
	December 31,
(Millions of cubic feet)	2006		2005		2004
Proved Reserves
Beginning of Year	1,262,096		1,134,081		1,069,484
Revisions of Prior Estimates	(17,675	)	(1,543	)	(7,850	)
Extensions, Discoveries and Other Additions	246,197		185,884		140,986
Production	(79,722	)	(73,879	)	(72,833	)
Purchases of Reserves in Place	1,946		17,567		5,384
Sales of Reserves in Place	(44,549	)	(14	)	(1,090	)
End of Year	1,368,293		1,262,096		1,134,081
Proved Developed Reserves	996,850		944,897		857,834
Percentage of Reserves Developed	72.9	%	74.9	%	75.6	%

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	Liquids
	December 31,
(Thousands of barrels)	2006		2005		2004
Proved Reserves
Beginning of Year	11,463		11,384		12,103
Revisions of Prior Estimates	673		1,073		185
Extensions, Discoveries and Other Additions	1,066		334		1,074
Production	(1,415	)	(1,747	)	(2,002	)
Purchases of Reserves in Place	38		419		24
Sales of Reserves in Place	(3,852	)	—		—
End of Year	7,973		11,463		11,384
Proved Developed Reserves	5,895		9,127		8,652
Percentage of Reserves Developed	73.9	%	79.6	%	76.0	%

Capitalized Costs Relating to Oil and Gas Producing Activities

The following table illustrates the total amount of capitalized costs relating to natural gas and crude oil producing activities and the total amount of related accumulated depreciation, depletion and amortization.

	December 31,
(In thousands)	2006		2005		2004
Aggregate Capitalized Costs Relating to Oil and Gas Producing Activities	$	2,462,693	$	2,290,147	$	1,933,848
Aggregate Accumulated Depreciation, Depletion and Amortization		983,079		1,052,654		940,447

Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities

Costs incurred in property acquisition, exploration and development activities were as follows:

	Year Ended December 31,
(In thousands)	2006		2005		2004
Property Acquisition Costs, Proved	$	6,688	$	73,127	$	3,953
Property Acquisition Costs, Unproved		42,551		22,126		18,250
Exploration and Extension Well Costs (1)		109,525		102,957		85,415
Development Costs		346,787		208,124		136,311
Total Costs	$	505,551	$	406,334	$	243,929

⁽¹⁾ Includes administrative exploration costs of $13,486, $12,423 and $11,354 for the years ended December 31, 2006, 2005, and 2004, respectively.

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Historical Results of Operations from Oil and Gas Producing Activities

The results of operations for the Company’s oil and gas producing activities were as follows:

	Year Ended December 31,
(In thousands)	2006		2005		2004
Operating Revenues	$	659,884	$	581,849	$	439,988
Costs and Expenses
Production		115,786		103,477		84,015
Other Operating		46,212		30,120		27,787
Exploration (1)		49,397		61,840		48,130
Depreciation, Depletion and Amortization		139,207		119,122		114,906
Total Costs and Expenses		350,602		314,559		274,838
Income Before Income Taxes		309,282		267,290		165,150
Provision for Income Taxes		113,355		100,353		60,361
Results of Operations	$	195,927	$	166,937	$	104,789

⁽¹⁾ Includes administrative exploration costs of $13,486, $12,423 and $11,354 for the years ended December 31, 2006, 2005, and 2004, respectively.

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves

The following information has been developed utilizing SFAS No. 69, “Disclosures about Oil and Gas Producing Activities”, procedures and based on natural gas and crude oil reserve and production volumes estimated by the Company’s engineering staff. It can be used for some comparisons, but should not be the only method used to evaluate the Company or its performance. Further, the information in the following table may not represent realistic assessments of future cash flows, nor should the Standardized Measure of Discounted Future Net Cash Flows be viewed as representative of the current value of the Company.

The Company believes that the following factors should be taken into account when reviewing the following information:

• Future costs and selling prices will probably differ from those required to be used in these calculations.

• Due to future market conditions and governmental regulations, actual rates of production in future years may vary significantly from the rate of production assumed in the calculations.

• Selection of a 10% discount rate is arbitrary and may not be a reasonable measure of the relative risk that is part of realizing future net oil and gas revenues.

• Future net revenues may be subject to different rates of income taxation.

Under the Standardized Measure, future cash inflows were estimated by applying year end oil and gas prices to the estimated future production of year end proved reserves.

The average prices related to proved reserves at December 31, 2006, 2005, and 2004 for natural gas ($ per Mcf) were $5.54, $9.53 and $6.26, respectively, and for oil ($ per Bbl) were $59.50, $58.48 and $41.24, respectively. Future cash inflows were reduced by estimated future development and production costs based on year end costs to arrive at net cash flow before tax. Future income tax expense was computed by applying year end statutory tax rates to future pretax net cash flows, less the tax basis of the properties involved. SFAS No. 69 requires the use of a 10% discount rate.

Management does not use only the following information when making investment and operating decisions. These decisions are based on a number of factors, including estimates of proved reserves, and varying price and cost assumptions considered more representative of a range of anticipated economic conditions.

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Standardized Measure is as follows:

	Year Ended December 31,
(In thousands)	2006			2005			2004
Future Cash Inflows	$	8,054,737		$	12,700,390		$	7,561,728
Future Production Costs		(2,000,993	)		(2,271,917	)		(1,577,787	)
Future Development Costs		(688,955	)		(536,333	)		(396,431	)
Future Income Tax Expenses		(1,763,458	)		(3,588,877	)		(2,009,644	)
Future Net Cash Flows		3,601,331			6,303,263			3,577,866
10% Annual Discount for Estimated Timing of Cash Flows		(2,125,081	)		(3,652,030	)		(1,997,509	)
Standardized Measure of Discounted Future Net Cash Flows (1)	$	1,476,250		$	2,651,233		$	1,580,357

⁽¹⁾ The standardized measures of discounted future net cash flows before taxes were $2,010,228, $4,001,769 and $2,358,430 for the years ended December 31, 2006, 2005 and 2004, respectively.

Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves

The following is an analysis of the changes in the Standardized Measure:

	Year Ended December 31,
(In thousands)	2006			2005			2004
Beginning of Year	$	2,651,233		$	1,580,357		$	1,479,408
Discoveries and Extensions, Net of Related Future Costs		278,258			494,773			321,026
Net Changes in Prices and Production Costs		(1,843,272	)		1,278,303			(17,976	)
Accretion of Discount		400,177			235,843			219,604
Revisions of Previous Quantity Estimates, Timing and Other		(106,253	)		(49,550	)		(46,115	)
Development Costs Incurred		85,993			61,802			32,940
Sales and Transfers, Net of Production Costs		(544,650	)		(471,638	)		(357,939	)
Net Purchases (Sales) of Reserves in Place		(261,795	)		91,180			10,853
Net Change in Income Taxes		816,559			(569,837	)		(61,444	)
End of Year	$	1,476,250		$	2,651,233		$	1,580,357

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CABOT OIL & GAS CORPORATION

SELECTED DATA (UNAUDITED)

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

(In thousands, except per share amounts)	First		Second		Third		Fourth		Total
2006
Operating Revenues	$	214,768	$	190,794	$	184,744	$	171,682	$	761,988
Impairment of Oil and Gas Properties (1)		—		—		—		3,886		3,886
Operating Income (2) (3)		91,224		77,881		304,746		55,095		528,946
Net Income (2)		53,165		46,864		189,020		32,126		321,175
Basic Earnings per Share		1.09		0.96		3.92		0.67		6.64
Diluted Earnings per Share		1.08		0.94		3.84		0.66		6.51
2005
Operating Revenues	$	144,074	$	151,884	$	161,757	$	225,082	$	682,797
Impairment of Oil and Gas Properties (1)		—		—		—		—		—
Operating Income		38,044		61,722		59,023		99,942		258,731
Net Income		20,762		35,422		33,756		58,505		148,445
Basic Earnings per Share		0.43		0.72		0.69		1.20		3.04
Diluted Earnings per Share		0.42		0.71		0.68		1.18		2.99

⁽¹⁾ For discussion of impairment of oil and gas properties, refer to Note 2 of the Notes to the Consolidated Financial Statements.

⁽²⁾ Operating Income and Net Income in the third and fourth quarters of 2006 contain the gain on the disposition of offshore and certain south Louisiana properties of $229.7 million and $1.5 million, respectively.

⁽³⁾ Included in Operating Income in the first quarter is the cumulative effect loss of $0.4 million, previously reported in a separate line item below Operating Income. Due to immateriality for year end reporting purposes, this amount was reclassified to the General and Administrative Expense component of Operating Income in the Consolidated Statement of Operations.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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ITEM 9A. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures and Changes in Internal Control over Financial Reporting

As of the end of December 31, 2006, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective, in all material respects, with respect to the recording, processing, summarizing and reporting, within the time periods specified in the Commission’s rules and forms, of information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act.

There were no significant changes in the Company’s internal control over financial reporting that occurred during the fourth quarter that has materially affected, or is reasonably likely to materially effect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

The management of Cabot Oil & Gas Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Cabot Oil & Gas Corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Cabot Oil & Gas Corporation’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment we have concluded that, as of December 31, 2006, the Company’s internal control over financial reporting is effective based on those criteria.

Cabot Oil & Gas Corporation’s independent registered public accounting firm has audited management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006 as stated in their report entitled “Report of Independent Registered Public Accounting Firm” which appears herein.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item is incorporated by reference to the Company’s definitive Proxy Statement in connection with the 2007 annual stockholders’ meeting. In addition, the information set forth under the caption “Business-Other Business Matters-Corporate Governance Matters” in Item 1 regarding our Code of Business Conduct is incorporated by reference in response to this Item.

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ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the Company’s definitive Proxy Statement in connection with the 2007 annual stockholders’ meeting.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated by reference to the Company’s definitive Proxy Statement in connection with the 2007 annual stockholders’ meeting.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated by reference to the Company’s definitive Proxy Statement in connection with the 2007 annual stockholders’ meeting.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated by reference to the Company’s definitive Proxy Statement in connection with the 2007 annual stockholders’ meeting.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

A. INDEX

1. Consolidated Financial Statements

See Index on page 56.

2. Financial Statement Schedules

None.

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3. Exhibits

The following instruments are included as exhibits to this report. Those exhibits below incorporated by reference herein are indicated as such by the information supplied in the parenthetical thereafter. If no parenthetical appears after an exhibit, copies of the instrument have been included herewith.

Exhibit Number	Description
3.1	Certificate of Incorporation of the Company (Registration Statement No. 33-32553).
3.2	Amended and Restated Bylaws of the Company amended September 6, 2001 (Form 10-K for 2001).
3.3	Certificate of Amendment of Certificate of Incorporation (Form 8-K for July 1, 2002).
3.4	Certificate of Increase of Shares Designated Series A Junior Participating Preferred Stock (Form 8-K for July 1, 2002).
3.5	Certificate of Amendment of Certificate of Incorporation (Form 8-K for June 1, 2006).
3.6	Certificate of Increase of Shares Designated Series A Junior Participating Preferred Stock (Form 8-K for June 1, 2006).
4.1	Form of Certificate of Common Stock of the Company (Registration Statement No. 33-32553).
4.2	Certificate of Designation for Series A Junior Participating Preferred Stock (Form 10-K for 1994).
4.3	Rights Agreement dated as of March 28, 1991, between the Company and The First National Bank of Boston, as Rights Agent, which includes as Exhibit A the form of Certificate of Designation of Series A Junior Participating Preferred Stock (Form 8-A, File No. 1-10477).
	(a) Amendment No. 1 to the Rights Agreement dated February 24, 1994 (Form 10-K for 1994).
	(b) Amendment No. 2 to the Rights Agreement dated December 8, 2000 (Form 8-K for December 21, 2000).
4.4	Certificate of Designation for 6% Convertible Redeemable Preferred Stock (Form 10-K for 1994).
4.5	Amended and Restated Credit Agreement dated as of May 30, 1995, among the Company, Morgan Guaranty Trust Company, as agent and the banks named therein (Form 10-K for 1995).
	(a) Amendment No. 1 to Credit Agreement dated September 15, 1995 (Form 10-K for 1995).
	(b) Amendment No. 2 to Credit Agreement dated December 24, 1996 (Form 10-K for 1996).
4.6	Note Purchase Agreement dated November 14, 1997, among the Company and the purchasers named therein (Form 10-K for 1997).
4.7	Note Purchase Agreement dated as of July 26, 2001 among Cabot Oil & Gas Corporation and the Purchasers listed therein (Form 8-K for August 30, 2001).
4.8	Credit Agreement dated as of October 28, 2002 among the Company, the Banks Parties Hereto and Fleet National Bank, as administrative agent (Form 10-Q for the quarter ended September 30, 2002).
	(a) Amendment No. 1 to Credit Agreement dated December 10, 2004 (Form 10-K for 2004).
*10.1	Form of Change in Control Agreement between the Company and Certain Officers (Form 10-K for 2001).
*10.2	Supplemental Executive Retirement Agreements of the Company (Form 10-K for 1991).
*10.3	1990 Non-employee Director Stock Option Plan of the Company (Form S-8 dated June 23, 1990).
	(a) First Amendment to 1990 Non-employee Director Stock Option Plan (Post-Effective Amendment No. 2 to Form S-8 dated March 7, 1994).
	(b) Second Amendment to 1990 Non-employee Director Stock Option Plan (Form 10-K for 1995).
*10.4	Second Amended and Restated 1994 Long-Term Incentive Plan of the Company (Form 10-K for 2001)
*10.5	Second Amended and Restated 1994 Non-Employee Director Stock Option Plan (Form 10-K for 2001).
*10.6	Form of Indemnity Agreement between the Company and Certain Officers (Form 10-K for 1997).
*10.7	Deferred Compensation Plan of the Company as Amended September 1, 2001 (Form 10-K for 2001).
10.8	Trust Agreement dated September 2000 between Harris Trust and Savings Bank and the Company (Form 10-K for 2001).
10.9	Lease Agreement between the Company and DNA COG, Ltd. dated April 24, 1998 (Form 10-K for 1998).
10.10	Credit Agreement dated as of December 17, 1998, between the Company and the banks named therein (Form 10-K for 1998).
*10.11	Employment Agreement between the Company and Dan O. Dinges dated August 29, 2001 (Form 10-K for 2001).
*10.12	2004 Incentive Plan (Form 10-Q for the quarter ended June 30, 2004).
	(a) First Amendment to the 2004 Incentive Plan effective February 23, 2007.

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Exhibit Number	Description
*10.13	2004 Performance Award Agreement (Form 10-Q for the quarter ended June 30, 2004).
*10.14	2004 Annual Target Cash Incentive Plan Measurement Criteria for Cabot Oil & Gas Corporation (Form
	8-K for February 10, 2005).
*10.15	Form of Restricted Stock Awards Terms and Conditions for Cabot Oil & Gas Corporation (Form 8-K for February 10, 2005).
*10.16	2005 Form of Non-Employee Director Restricted Stock Unit Award Agreement (Form 8-K for May 24, 2005).
*10.17	Savings Investment Plan of the Company, as amended and restated effective January 1, 2001 (Form 10-K for 2005).
	(a) First Amendment to the Savings Investment Plan effective January 1, 2002 (Form 10-K for 2005).
	(b) Second Amendment to the Savings Investment Plan effective January 1, 2003 (Form 10-K for 2005).
	(c) Third Amendment to the Savings Investment Plan effective January 1, 2005 (Form 10-K for 2005).
*10.18	Forms of Award Agreements for Executive Officers under 2004 Incentive Plan.
	(a) Form of Restricted Stock Award Agreement.
	(b) Form of Stock Appreciation Rights Award Agreement.
	(c) Form of Performance Share Award Agreement.
10.19	Cabot Oil & Gas Corporation Mineral, Royalty and Overriding Royalty Interest Plan (Registration Statement No. 333-135365).
	(a) Form of Conveyance of Mineral and/or Royalty Interest (Registration Statement No. 333-135365).
	(b) Form of Conveyance of Overriding Royalty Interest (Registration Statement No. 333-135365).
10.20	Purchase and Sale Agreement dated August 25, 2006 between Cabot Oil & Gas Corporation, a Delaware corporation, Cody Energy LLC, a Colorado limited liability company, and Phoenix Exploration Company LP, a Delaware limited partnership (Form 8-K for September 29, 2006).
*10.21	Form of Amendment of Employee Award Agreements (Form 8-K for December 19, 2006).
*10.22	Savings Investment Plan of the Company, as amended and restated effective January 1, 2006.
*10.23	Pension Plan of the Company, as amended and restated effective January 1, 2006.
14.1	Amendment of Code of Business Conduct (as amended on July 28, 2005 to revise Section III. F. relating to
	Transactions in Securities and Article V. relating to Safety, Health and the Environment) (Form 10-Q for the quarter ended June 30, 2005).
21.1	Subsidiaries of Cabot Oil & Gas Corporation.
23.1	Consent of PricewaterhouseCoopers LLP.
23.2	Consent of Miller and Lents, Ltd.
31.1	302 Certification – Chairman, President and Chief Executive Officer.
31.2	302 Certification – Vice President and Chief Financial Officer.
32.1	906 Certification.
99.1	Miller and Lents, Ltd. Review Letter.

* Compensatory plan, contract or arrangement.

- 110 -

SIGNATURES

Pursuant to the requirements of Section 13 and 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 28th of February 2007.

CABOT OIL & GAS CORPORATION
By:	/s/ Dan O. Dinges
	Dan O. Dinges
	Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Dan O. Dinges Dan O. Dinges	Chairman, President and Chief Executive Officer (Principal Executive Officer)	February 28, 2007
/s/ Scott C. Schroeder Scott C. Schroeder	Vice President and Chief Financial Officer (Principal Financial Officer)	February 28, 2007
/s/ Henry C. Smyth Henry C. Smyth	Vice President, Controller and Treasurer (Principal Accounting Officer)	February 28, 2007
/s/ John G. L. Cabot John G. L. Cabot	Director	February 28, 2007
/s/ David M. Carmichael David M. Carmichael	Director	February 28, 2007
/s/ James G. Floyd James G. Floyd	Director	February 28, 2007
/s/ Robert L. Keiser Robert L. Keiser	Director	February 28, 2007
/s/ Robert Kelley Robert Kelley	Director	February 28, 2007
/s/ P. Dexter Peacock P. Dexter Peacock	Director	February 28, 2007
/s/ William P. Vititoe William P. Vititoe	Director	February 28, 2007

- 111 -

EX-10.12(A)

Exhibit 10.12 (a)

CABOT OIL & GAS CORPORATION

2004 INCENTIVE PLAN

First Amendment

Cabot Oil & Gas Corporation, a Delaware corporation (the “Company”), having established the Cabot Oil & Gas Corporation 2004 Incentive Plan (the “Plan”) and having reserved the right under Section 12 thereof to amend the Plan for any purpose permitted by law, does hereby amend the Plan, effective as of February 23, 2007, as follows:

1. Section 8(a)(iii) of the Plan is hereby deleted in its entirety.

2. To reflect the change in paragraph 1 above, Section 8(b) of the Plan is hereby amended and restated in its entirety to read as follows:

“No Participant may be granted, during any calendar year, Director Awards consisting of Stock Awards or Stock Options covering or relating to more than 7,000 shares of Common Stock.”

IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officer this 23rd day of February, 2007.

CABOT OIL & GAS CORPORATION
By:	/s/ Dan O. Dinges
Name:	Dan O. Dinges
Title:	President and Chief Executive Officer

EX-10.18(A)

Exhibit 10.18 (a)

RESTRICTED STOCK AWARD AGREEMENT

RESTRICTED STOCK AWARD MADE

[                                         ]

THIS AGREEMENT, effective as of [                        ], between Cabot Oil & Gas Corporation, a Delaware corporation (the “Company”) and [                        ] (the “Participant”), is made pursuant to the provisions of the Company’s 2004 Incentive Plan (the “Plan”). The capitalized terms appearing in this Agreement shall have the definitions ascribed to them in the Plan. In the event there is any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall supersede and replace the terms of this Agreement. The parties agree as follows:

1. Terms of Grant. Participant is hereby awarded the right to receive [            ] shares of Cabot Oil & Gas Corporation Common Stock, par value $.10 per share, subject such restrictions thereon as described below (the “Restricted Stock”). The date of such grant is [                        ] (“Date of Grant”). Subject to the terms and provisions of this Agreement, such restrictions shall lapse (i) with respect to 33 1/3% of the total number of shares of Restricted Stock, as of the first anniversary of the Date of Grant; and (ii) with respect to an additional 33 1/3% of the total number of shares of Restricted Stock, as of the second anniversary of the Date of Grant; and (iii) with respect to the remaining 33 1/3% of the total number of shares of Restricted Stock, as of the third anniversary of the Date of Grant (each such date, a “Date of Lapse of Restrictions”), provided that with respect to each 33 1/3% portion, such restrictions shall lapse only if the Company shall have positive operating income for the fiscal year immediately preceding such vesting date. If the Company does not have positive operating income for the fiscal year immediately preceding a vesting date, the 33 1/3% of the Restricted Stock that would have vested on such date will be forfeited. The period from the Date of Grant and until a Date of Lapse of Restrictions shall be referred to herein as the “Period of Restriction”.

2. Employment by the Company. The Restricted Stock is awarded on the condition that the Participant remain in the employ of the Company from the Date of Grant through and including the Date of Lapse of Restrictions.

However, neither such condition nor the award of this Restricted Stock shall impose upon the Company any obligation to retain the Participant in its employ for any given period or upon any specific terms of employment.

3. Stock Certificate. On each Date of Lapse of Restrictions, a certificate representing the shares of Common Stock granted pursuant to the Plan and that have become vested on such date shall be issued. Once the restrictions have lapsed in accordance with the terms of this Agreement, the Corporate Secretary shall deliver to the Participant a certificate for shares of Common Stock less the number of shares sufficient to satisfy the Participant’s Federal, State and Local tax obligations (including FICA) required by law to be withheld. Alternatively, such shares may be deposited into a brokerage account set up in the Participant’s name as may be designated by the corporate Secretary from time to time.

Exhibit 10.18 (a)

4. Removal of Restrictions. Except as otherwise provided in the Plan, shares of Restricted Stock granted under this Agreement that vest on a Date of Lapse of Restrictions shall become freely transferable by the Participant after such Date of Lapse of Restrictions.

5. Voting Rights and Dividends. During the Period of Restrictions, the Participant may not exercise voting rights and is not entitled to receive any dividends and other distributions paid with respect to his or her Restricted Stock.

6. Termination of Employment. Except as otherwise provided in this Section 6, in the event the Participant’s employment is terminated prior to a Date of Lapse of Restrictions, all then-unvested shares of Restricted Stock shall immediately be forfeited by the Participant. In the case of the termination of employment by reason of death, disability, or retirement, all shares of Restricted Stock shall, to the extent not previously vested, become fully vested. In the case of the termination of employment for any other reason, the Compensation Committee may, in its sole discretion, accelerate the vesting of some or all unvested shares of Restricted Stock, upon such terms as the Compensation Committee deems advisable.

7. Change in Control. In the event of a Change in Control (as herein defined), any restriction periods and restrictions imposed on the shares of Restricted Stock subject to this Agreement shall lapse, and within ten (10) business days after the occurrence of a Change in Control (as herein defined), the stock certificates representing the shares of Restricted Stock not previously delivered, without any restrictions or legend thereon, shall be delivered to the Participant.

“Change in Control” shall mean:

(I) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of either (1) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (I), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company or (iv) any acquisition by any entity pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (III) of this definition; or

(II) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

Exhibit 10.18 (a)

(III) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common equity of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination and (3) at least a majority of the members of the board of directors of the corporation, or the similar managing body of a non-corporate entity, resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(IV) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company, other than a liquidation or dissolution in connection with a transaction to which subsection (III) applies.

8. Transferability. This Restricted Stock is not transferable by the Participant, whether voluntarily, involuntarily or by operation of law or otherwise during the Period of Restriction, except as provided in the Plan. If any assignment, pledge, transfer, or other disposition, voluntary or involuntary, of this Restricted Stock shall be made, or if any attachment, execution, garnishment, or lien shall be issued against or placed upon the Restricted Stock, then the Participant’s right to the Restricted Stock shall immediately cease and terminate.

9. Recapitalization. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, share combination, or other change in the corporate structure of the Company affecting the shares of Restricted Stock, the number of shares of Restricted Stock subject to this Agreement shall be equitably adjusted by the Compensation Committee to prevent dilution or enlargement of rights.

10. Administration. This Agreement and the rights of the Participant hereunder are subject to all of the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Compensation Committee may adopt for

3

Exhibit 10.18 (a)

administration of the Plan. It is expressly understood that the Compensation Committee is authorized to administer, construe and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Participant.

11. Miscellaneous.

(a) This Agreement shall not confer upon the Participant any right to continuation of employment by the Company; nor shall this Agreement interfere in any way with the Company’s right to terminate his or her employment at any time.

(b) With the approval of the Board of Directors, the Compensation Committee may terminate, amend or modify the Plan; provided, however, that no such termination, amendment or modification of the Plan may in any material way adversely affect the Participant’s rights under this Agreement.

(c) This Agreement shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

(d) To the extent not preempted by federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.

IN WITNESS WHEREOF, this Restricted Stock Award Agreement has been executed as of the date first written above.

Company:
Cabot Oil & Gas Corporation
By:	/s/ Abraham Garza
	Abraham Garza Vice President, Human Resources
Participant:
By:

4

EX-10.18(B)

Exhibit 10.18 (b)

Stock Appreciation Rights Agreement

Stock Appreciation Right Awarded

[                                         ]

The Company, desiring to afford you, [                        ], an opportunity to acquire shares of Cabot Oil & Gas Corporation Common Stock, par value $.10 per share (“Common Stock”), and to provide you with an added incentive as an employee or consultant of the Company or of one or more of its Subsidiaries, has established the following terms and conditions under which it has granted to you stock appreciation rights (“SARs”) under the Cabot Oil & Gas Corporation 2004 Incentive Plan (the “Plan”). Each SAR will allow you to receive a number of shares of Common Stock during a specified term, subject to and upon the terms and conditions set forth herein.

1. Specification of Date, Number of SARs, Grant Date Price, and Term.

(a) The grant date of the SARs is [                            ].

(b) The number of SARs granted to you hereby is [                            ], subject to adjustments under Section 15 of the Plan.

(c) Subject to adjustments under Sections 6 and 7, the SARs first become exercisable (i) with respect to 33 1/3% of the total number of SARs, as of the first anniversary of the date of grant of the SARs; and (ii) with respect to an additional 33 1/3% of the total number of SARs, as of the second anniversary of the date of grant of the SARs; and (iii) with respect to the remaining 33 1/3% of the total number of SARs, as of the third anniversary of the date of grant of the SARs.

(d) The grant date price per share applicable to the SARs (the “Grant Date Price”) is[$                    ], subject to adjustments under Section 15 of the Plan.

(e) The term of the SARs expires on [                            ]. Upon the expiration of such term, the SARs shall expire and terminate and may not be exercised.

2. Agreement. By accepting the SARs and the benefits thereof, you represent and agree that you will abide by the terms of the Plan and such other terms and conditions as may be imposed by the committee appointed by the board of directors to administer the Plan (the “Committee”).

3. Installment Provisions and Acceleration. The SARs are not exercisable in any part until the earliest of the dates specified in this Section and in Sections 6 and 7 below.

The installments set forth in Section 1(c) are cumulative, so that each matured installment or any portion thereof may be exercised at any time until the expiration or prior termination of the SARs.

1

Exhibit 10.18 (b)

Nothing contained in this section shall be interpreted in a way that permits you to exercise a number of SARs in excess of the number of SARs granted hereby and referred to in Section 1(b).

4. Method of Exercise. The SARs may be exercised from time to time, in accordance with their terms, by written notice thereof signed and delivered by you or another person entitled to exercise the SARs to the Corporate Secretary of the Company at its principal executive office in Houston, Texas, or as it may hereafter be located, or to such brokerage firm, third-party agent or other person as may be designated by the Corporate Secretary from time to time. Such notice shall state the number of SARs being exercised and the grant date of the SARs being exercised.

Promptly after receipt of such notice, the Company shall issue and deliver to you whole shares of Common Stock equal in number to the product of A multiplied by B and then divided by C, where A is the number of vested SARs exercised, B is the result of subtracting the Grant Date Price from the per-share Fair Market Value of the Common Stock prevailing at the time of exercise as defined by the Plan, and C is the per-share Fair Market Value of the Common Stock prevailing at the time of exercise as defined by the Plan. Any fractional shares resulting from this calculation shall be valued at the per-share Fair Market Value of the Common Stock prevailing at the time of exercise as defined by the Plan and paid to you in cash if there is no withholding requirement as a result of the exercise; if there is a withholding requirement, said cash amount will be applied toward satisfying the withholding requirement.

Upon exercise of any of the SARs and at your election, the Company will withhold from the shares of Common Stock to be delivered shares with a Fair Market Value (as prescribed by the Plan) sufficient to satisfy all or a portion of any federal, state and local tax withholding requirements, or the person exercising the SARs may deliver to the Company cash sufficient to satisfy all or a portion of such tax withholding requirements.

5. Transferability. The SARs are not transferable by you, whether voluntarily, involuntarily or by operation of law or otherwise, except as provided in the Plan. If any assignment, pledge, transfer, or other disposition, voluntary or involuntary, of the SARs shall be made, or if any attachment, execution, garnishment, or lien shall be issued against or placed upon the SARs, then your right to the SARs shall immediately cease and terminate.

6. Termination of Employment or Service.

(a) If your employment is terminated by reason of retirement under an approved retirement program (“Retirement”) or Disability (as hereinafter defined), the SARs granted hereby, to the extent not previously exercised, shall become fully vested and exercisable on the date of such termination, irrespective of the limitations described in Paragraph 1(c), and you shall have the right to exercise the SARs at any time on or prior to the earlier of (i) the end of the 36 month period commencing on the day next following such termination and (ii) the expiration of the term of the SARs as set forth in Paragraph 1(e). “Disability” as used herein shall mean sickness or injury that causes an individual to be unable to perform the duties of his regular job

2

Exhibit 10.18 (b)

or termination or placement by the Company of the individual on medical leave of absence pursuant to a disability plan or program sponsored or maintained by the Company.

(b) If your employment is terminated for reasons other than as stated in 6(a) above, the SARs shall be exercisable by you only within 90 days after such termination, and only to the extent they were exercisable immediately prior to the date of termination; provided, however, that notwithstanding the foregoing, to the extent your termination of employment is involuntary and to the extent the SARs was exercisable immediately prior to such involuntary termination of employment, the Committee may, in its discretion, extend such 90 day period up to but not to exceed in the aggregate 36 months.

(c) In the event of your death, the SARs granted hereby, to the extent not previously exercised, shall become fully vested and exercisable on the date of your death, irrespective of the limitations described in Paragraph 1(c), and your personal representatives, heirs, legatees or distributees shall have the right to exercise the SARs at any time on or prior to the earlier of (i) the end of the 36 month period commencing on the day next following the date of death and (ii) the expiration of the term of the SARs as set forth in Paragraph 1(e).

(d) Anything contained in this Agreement to the contrary notwithstanding, (i) the SARs shall not be exercisable after the expiration date specified in Paragraph 1(e), hereof; and (ii) if you have the right to exercise the SARs but are not able to do so because of legal incapacity, then the exercise of such SARs may be accomplished through your duly authorized representative.

7. Change in Control. In the event of a Change in Control (as herein defined), the SARs granted hereby, to the extent not previously exercised, shall become fully vested and exercisable on the date of such Change in Control, irrespective of the limitations described in Paragraph 1(c), and shall remain exercisable throughout the term of the SARs.

For purposes of this Notice, “Change in Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of either (1) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company or (iv) any acquisition by any entity pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (c) of this definition; or

3

Exhibit 10.18 (b)

(b) Individuals who, as of the date hereof, constitute the board of directors (“Board”) of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common equity of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination and (3) at least a majority of the members of the board of directors of the corporation, or the similar managing body of a non-corporate entity, resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(d) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company, other than a liquidation or dissolution in connection with a transaction to which subsection (c) applies.

8. Limitation. You or any other person entitled to exercise the SARs shall be entitled to the privileges of stock ownership in respect of shares subject to the SARs only when such shares have been issued and delivered as fully paid shares upon exercise of the SARs in accordance with their terms.

4

Exhibit 10.18 (b)

9. Requirements of Law and of Stock Exchanges. The issuance of shares upon the exercise of the SARs shall be subject to compliance with all of the applicable requirements of law with respect to the issuance and sale of such shares. In addition, neither the Company nor any Subsidiary shall be required to issue or deliver any certificate or certificates upon exercise of the SARs prior to the admission of such shares to listing on any stock exchange on which shares of the same class are then listed.

By accepting the SARs, you represent and agree for yourself and your transferees by will or by the laws of descent and distribution or otherwise that unless a registration statement under the U.S. Securities Act of 1933 is in effect as to shares issued upon any exercise of the SARs, any and all shares so issued shall be acquired for investment and not for sale or distribution, and each notice of the exercise of any portion of the SARs shall be accompanied by a representation and warranty in writing, signed by the person entitled to exercise the same, that the shares are being so acquired in good faith for investment and not for sale or distribution. In the event the Company’s legal counsel shall, at the Company’s request, advise it that registration under the U.S. Securities Act of 1933 of the shares as to which the SARs are at the time being exercised is required prior to issuance thereof, neither the Company nor any Subsidiary shall be required to issue or deliver such shares unless and until such legal counsel shall advise that such registration has been completed or is not required.

10. Definition of Certain Terms. The term “you,” and related terms such as “your” used in this Notice refer to the individual whose name appears in the first paragraph of this Agreement.

11. Continued Employment and Future Grants. Neither the grant of the SARs nor the other arrangements outlined herein give you the right to remain in the employ of or to continue to provide services to the Company or any Subsidiary or to be selected to receive similar or identical grants in the future.

12. Notices. Notice or other communication to the Company with respect to this Notice must be made in writing and delivered to: Corporate Secretary, Cabot Oil & Gas Corporation, at its principal business office.

13. Governing Law. The SARs and this Notice shall be governed by, and construed in accordance with, the laws of the state of Delaware.

14. Section 409A of the Code. If any provision of this Notice would result in the imposition of an excise tax under Section 409A of the Code and related regulations and Treasury pronouncements (“Section 409A”), that provision will be reformed to avoid imposition of the excise tax, and no action taken to comply with Section 409A shall be deemed to impair a benefit under this Notice.

15. Cabot Oil & Gas Corporation 2004 Incentive Plan. The SARs are subject to, and the Company and you are bound by, all of the terms and conditions of the Plan as the same

5

Exhibit 10.18 (b)

shall have been amended from time to time in accordance with the terms thereof. Pursuant to such Plan, the Committee is authorized to adopt rules and regulations not inconsistent with the Plan and to take such action in the administration of the Plan as it shall deem proper. A copy of the Plan in its present form is available for inspection at the Company’s principal office during business hours by you or any other persons entitled to exercise the SARs.

In Witness Whereof, this Stock Appreciation Rights Agreement has been executed as of the date first above written.

Company:
Cabot Oil & Gas Corporation
By:	/s/ Abraham Garza
	Abraham Garza
	Vice President, Human Resources
Employee:

6

EX-10.18(C)

Exhibit 10.18 (c)

CABOT OIL & GAS CORPORATION

PERFORMANCE SHARE AWARD AGREEMENT

This Performance Award Agreement (the “Agreement”), made and entered into by and between Cabot Oil & Gas Corporation (the “Company”) with its principal office at 1200 Enclave Parkway, Houston, Texas 77077 and [                                ], (the “Employee”), is dated as of [                                ].

As an additional incentive and inducement to the Employee to remain in the employment of the Company, and to devote his or her best efforts to the business and affairs of the Company, the Company hereby awards to the Employee a Performance Award of [                    ] performance shares (the “Performance Shares”) upon the terms and conditions hereinafter set forth.

This Agreement is expressly subject to the terms and provisions of the Company’s 2004 Incentive Plan (the “Plan”). In the event there is a conflict between the terms of the Plan and this Agreement, the terms of the Plan shall control. All undefined capitalized terms used herein that are not otherwise defined shall have the meanings assigned to them in the Plan.

1. The performance period for the Performance Shares subject to this Agreement shall be the period beginning January 1, [            ] and ending December 31, [            ] (the “Performance Period”).

2. Each Performance Share represents the right to receive, after the end of the Performance Period and based on the Company’s performance, the aggregate of from 0 to 100% of the Fair Market Value of a share of Common Stock payable in Common Stock plus from 0 to 100% of the Fair Market Value of a share of Common Stock in cash. The number of shares of Common Stock and cash to be issued or paid shall be determined based on the relevant criteria and Common Stock Fair Market Value as of the end of the Performance Period. Each Performance Share shall be payable first in Common Stock of the Company and to the extent that the percentage of a Performance Share earned at the end of the Performance Period exceeds 100%, such Performance Share percentage shall be paid in cash. Cash will also be paid in lieu of the issuance of fractional shares of Common Stock. The determination of the amount to be distributed with respect to a Performance Share at the end of the Performance Period shall be based upon the Company’s achievement of performance criteria established by the Committee for the Performance Period as set forth below (the “Performance Criteria”).

The Performance Criteria that determines the number of shares of Common Stock (and cash) of the Company issued per Performance Share is the relative Total Shareholder Return (as defined below) on the Company’s Common Stock as compared to the Total Shareholder Return on the common equity of each company in the Comparator Group (as defined below). “Total Shareholder Return” shall be expressed as a percentage equal to common stock price appreciation as averaged from the first and last month of the Performance Period plus dividends (on a cumulative reinvested basis). The “Comparator Group” is the group of companies set forth on Exhibit A hereto and which will be used for comparison purposes in determining if the Performance Criteria have been met. If any member of the Comparator Group ceases to have publicly traded common stock, the Committee shall select a replacement company which shall be included in the Comparator Group as of January 1, [            ] instead of the replaced member.

1

After the end of the Performance Period, the shares of Common Stock and cash earned with respect to each Performance Share for such period shall be determined based on the relative ranking of the Company versus the Comparator Group for Total Shareholder Return during the Performance Period using the following scale:

Company Relative Placement	Performance Share Percentage	Value Consideration
1-2 (highest)	200%	100% Stock / 100% Cash
3-4	167%	100% Stock / 67% Cash
5-6	133%	100% Stock / 33% Cash
7-8	100%	Stock
9-10	75%	Stock
11-12	50%	Stock
13-14	25%	Stock
15-17 (lowest)	0

3. As soon as practicable following the completion of the Performance Period, the Committee shall determine, in writing, the extent to which the Performance Criteria have been met and the amount to be distributed with respect to a Performance Share as provided in Section 2 hereof and the Company shall issue or pay to the Employee the appropriate number of shares of Common Stock and cash. The Committee has sole and absolute authority and discretion to determine the amount to be distributed with respect to Performance Shares. The determination of the Committee shall be binding and conclusive on the Employee. Notwithstanding anything in this Agreement to the contrary, the Employee shall not be entitled to any Common Stock or cash with respect to the Performance Shares unless and until the Committee determines and certifies the extent to which the Performance Criteria have been met.

4. Except as otherwise provided in this Section 4 or Section 5, in the event the Employee’s employment is terminated for any reason prior to the completion of the Performance Period, the Performance Shares shall be immediately forfeited unless otherwise determined by the Committee. In the case of the termination of employment by reason of death, disability, or retirement, the Performance Shares shall not be so forfeited and shall otherwise be payable as set forth herein as if such employment continued through the end of the Performance Period.

5. Upon either of a Change in Control (as defined below) or the Company’s ceasing to have publicly traded Common Stock as a result of a business combination or other extraordinary transaction, in each case prior to the completion of the Performance Period, the Performance Period shall be deemed complete and the Employee shall have earned the Performance Shares as calculated in Paragraph 2 above based on Company Relative Placement as of the last day of the month prior to the month in which the applicable of the Change in Control or the Company’s ceasing to have publicly traded common stock occurred, without any proration by reason of the shortened performance period. Total Shareholder Return at termination of the Performance Period shall be the greater of (i) the result determined under Section 2 above or (ii) the result determined under Section 2 above substituting for the Company average stock price for the last month of the Performance Period the value of consideration per share of such Common Stock received by a shareholder of the Company in connection with the

2

Change in Control or business combination or other extraordinary transaction. The shares of Common Stock and cash earned (if any) shall be issued to the Employee as provided in Section 3 as soon as practicable, except that if the Company ceases to have publicly traded Common Stock, then instead of any share of Common Stock that would otherwise be issued there shall instead be paid an amount of cash equal to the value of the consideration received by the shareholder of the Company in respect of a share of Common Stock in connection with the Change in Control or business combination or other extraordinary transaction.

“Change in Control” shall mean:

(I) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of either (1) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (I), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company or (iv) any acquisition by any entity pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (III) of this definition; or

(II) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(III) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners,

3

respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common equity of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination and (3) at least a majority of the members of the board of directors of the corporation, or the similar managing body of a non-corporate entity, resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(IV) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company, other than a liquidation or dissolution in connection with a transaction to which subsection (III) applies.

6. This Agreement is not an employment agreement. Nothing contained herein shall be construed as creating any employment relationship other than one at will.

7. This Agreement shall inure to the benefit of and be binding upon the heirs, legatees, distributees, executors and administrators of the Employee and the successors and assigns of the Company and is governed by the laws of the State of Delaware. In no event shall Performance Shares granted hereunder be voluntarily or involuntarily sold, pledged, assigned or transferred by the Employee other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order.

8. Employee agrees that as a condition to the award of the Performance Shares hereby, that Employee shall pay to the Company at the time or times requested by the Company, an amount of cash or shares of Common Stock equal to the amount the Company is required by any governmental authority to withhold for tax purposes with respect to any payment of earned Performance Shares, unless the Employee makes other prior arrangements for such withholding as may be approved by the Company.

4

9. The Employee shall have no rights of a shareholder with respect to the shares of Common Stock potentially deliverable pursuant to this Agreement unless and until such time as the ownership of such shares of Common Stock has been transferred to the Employee.

10. This Agreement shall supersede and control over any other agreement between the Company and the Employee, whether entered previously or entered subsequent to the date hereof, related to Performance Shares awarded hereunder.

IN WITNESS WHEREOF, the parties hereto cause this Agreement to be executed as of the date hereof.

Company:
CABOT OIL & GAS CORPORATION
/s/ Abraham Garza
By:	Abraham Garza
Title:	Vice President, Human Resources
Employee:

5

EXHIBIT A

COMPARATOR GROUP

BERRY PETROLEUM COMPANY

CIMAREX ENERGY COMPANY

COMSTOCK RESOURCES INC.

DENBURY RESOURCES

ENCORE ACQUISITION COMPANY

HOUSTON EXPLORATION

PLAINS EXPLORATION & PRODUCTION COMPANY

POGO PRODUCING COMPANY

QUICKSILVER RESOURCES

RANGE RESOURCES CORPORATION

SOUTHWESTERN ENERGY COMPANY

STONE ENERGY CORPORATION

ST. MARY LAND AND EXPLORATION COMPANY

SWIFT ENERGY COMPANY

UNIT CORPORATION

WHITING PETROLEUM

6

EX-10.22

Exhibit 10.22

CABOT OIL & GAS CORPORATION

SAVINGS INVESTMENT PLAN

(As Amended and Restated Effective January 1, 2006)

Exhibit 10.22

CABOT OIL & GAS CORPORATION

SAVINGS INVESTMENT PLAN

(As Amended and Restated Effective January 1, 2006)

I N D E X

		Page
ARTICLE I DEFINITIONS		2
1.1	Account	2
1.2	Affiliate	2
1.3	After-Tax Contribution Account	2
1.4	After-Tax Contributions	2
1.5	Authorized Leave of Absence	2
1.6	Beneficiary	2
1.7	Board of Directors	2
1.8	Code	2
1.9	Committee	2
1.10	Company	2
1.11	Compensation	2
1.12	Contribution	3
1.13	ERISA	3
1.14	Effective Date	3
1.15	Employee	3
1.16	Employer	3
1.17	Employer Contribution Account	4
1.18	Employment Year	4
1.19	Entry Date	4
1.20	ESOP	4
1.21	ESOP Account	4
1.22	Forfeiture	4
1.23	Hour(s) of Service	4
1.24	Income of the Trust Fund	5
1.25	Investment Fund(s)	5
1.26	Leased Employee	5
1.27	Member	5
1.28	Plan	5
1.29	Plan Quarter	5
1.30	Plan Year	5
1.31	Pre-Tax Contribution Account	5
1.32	Prior Plan	6
1.33	Profit Sharing Plan	6
1.34	Profit Sharing Plan Account	6
1.35	Retirement Date	6

(i)

1.36	Rollover Account	6
1.37	Rollover Amount	6
1.38	Service	7
1.39	Total and Permanent Disability	7
1.40	Trust	7
1.41	Trust Agreement	7
1.42	Trust Fund	7
1.43	Trustee	7
1.44	Valuation Date	7
1.45	Vesting Service	7
1.46	Year of Service	7
ARTICLE II ADMINISTRATION OF THE PLAN		8
2.1	Allocation of Responsibility Among Fiduciaries for Plan and Trust Administration	8
2.2	Appointment of Committee	8
2.3	Records and Reports	8
2.4	Other Committee Powers and Duties	9
2.5	Rules and Decisions	9
2.6	Committee Procedure	10
2.7	Authorization of Benefit Payments	10
2.8	Payment of Expenses	10
2.9	Application and Forms for Benefits	10
2.10	Committee Liability	10
2.11	Statements	11
2.12	Annual Audit	11
2.13	Funding Policy	11
2.14	Allocation and Delegation of Committee Responsibilities	11
2.15	Presenting Claims for Benefits	12
2.16	Claims Review Procedure	13
ARTICLE III PARTICIPATION AND SERVICE		18
3.1	Eligibility for Participation	18
3.2	Notification of Eligible Employees	18
3.3	Applications by Employees	18
3.4	Authorized Absences	18
3.5	Break In Service	19
3.6	Participation and Vesting Service Upon Re-employment Before a Break In Service	19
3.7	Participation and Vesting Service Upon Re-employment After a Break In Service	19
3.8	Vesting Service	20
3.9	Transferred Members	20
3.10	Special Eligibility and Vesting for Certain Employees	21
3.11	Automatic Vesting Service	21
3.12	Qualified Military Service	22

(ii)

ARTICLE IV CONTRIBUTIONS AND FORFEITURES		23
4.1	Savings Contributions	23
4.2	Employer Contributions	24
4.3	Employer Contributions and Pre-Tax Contributions to be Tax Deductible	25
4.4	Suspension of Contributions	25
4.5	Delivery to Trustee	25
4.6	Application of Funds	25
4.7	Rollover Amounts	25
4.8	Disposition of Forfeitures	26
4.9	Contributions Generally Irrevocable	26
ARTICLE V MEMBER ACCOUNTS		27
5.1	Individual Accounts	27
5.2	Account Adjustments	27
5.3	Recognition of Different Investment Funds	28
5.4	Valuation of Trust Fund	28
ARTICLE VI WITHDRAWALS AND LOANS		29
6.1	Withdrawals from Profit Sharing Plan Account	29
6.2	Withdrawals of Amounts From After-Tax Contribution Account	31
6.3	Withdrawals of Amounts From Pre-Tax Account	31
6.4	Withdrawals from Employer Contribution, ESOP and Rollover Accounts	31
6.5	Loans to Members	31
ARTICLE VII MEMBERS’ BENEFITS		34
7.1	Retirement of Members on or after Retirement Date	34
7.2	Disability of Members	34
7.3	Death of Members	34
7.4	Other Termination of Service	34
7.5	Valuation Dates Determinative of Member’s Rights	35
7.6	Vesting for Certain Employees	35
ARTICLE VIII PAYMENT OF BENEFITS		36
8.1	Payment of Benefits	36
8.2	Distribution Upon Death	37
8.3	Required Minimum Distributions	38
8.4	Disputed Benefits	40
8.5	Member’s Right to Transfer Eligible Rollover Distribution	40
ARTICLE IX TRUST AGREEMENT; INVESTMENT FUNDS; INVESTMENT DIRECTIONS		42
9.1	Trust Agreement	42
9.2	Investment Funds	42
9.3	Investment Directions of Members	42
9.4	Change of Investment Directions	42
9.5	Benefits Paid Solely from Trust Fund	43

(iii)

9.6	Committee Directions to Trustee	43
9.7	Authority to Designate Investment Manager	43
9.8	Liquidation of Cabot MicroElectronics Stock	43
ARTICLE X ADOPTION OF PLAN BY OTHER ORGANIZATIONS; SEPARATION OF THE TRUST FUND; AMENDMENT AND TERMINATION OF THE PLAN; DISCONTINUANCE OF CONTRIBUTIONS TO THE TRUST FUND		44
10.1	Adoptive Instrument	44
10.2	Separation of the Trust Fund	44
10.3	Voluntary Separation	44
10.4	Amendment of the Plan	45
10.5	Acceptance or Rejection of Amendment by Employers	45
10.6	Termination of the Plan	45
10.7	Liquidation and Distribution of Trust Fund Upon Termination	46
10.8	Effect of Termination or Discontinuance of Contributions	46
10.9	Merger of Plan with Another Plan	46
10.10	Consolidation or Merger with Another Employer	47
ARTICLE XI MISCELLANEOUS PROVISIONS		48
11.1	Terms of Employment	48
11.2	Controlling Law	48
11.3	Invalidity of Particular Provisions	48
11.4	Non-Alienation of Benefits	48
11.5	Payments in Satisfaction of Claims of Members	48
11.6	Payments Due Minors and Incompetents	49
11.7	Impossibility of Diversion of Trust Fund	49
11.8	Evidence Furnished Conclusive	49
11.9	Copy Available to Members	49
11.10	Unclaimed Benefits	49
11.11	Headings for Convenience Only	50
11.12	Successors and Assigns	50
ARTICLE XII LIMITATION ON BENEFITS		51
I.	Single Defined Contribution Plan	51
II.	Two or More Defined Contribution Plans	52
ARTICLE XIII TOP-HEAVY PLAN REQUIREMENTS		56
13.1	General Rule	56
13.2	Vesting Provisions	56
13.3	Minimum Contribution Percentage	56
13.4	Limitation on Compensation	57
13.5	Coordination With Other Plans	57
13.6	Distributions to Certain Key Employees	58
13.7	Determination of Top Heavy Status	58

(iv)

ARTICLE XIV TESTING OF CONTRIBUTIONS		63
14.1	Definitions	63
14.2	Actual Deferral Percentage Test	65
14.3	Excess Contributions	66
14.4	Actual Contribution Percentage Test	67
14.5	Excess Aggregate Contributions	68
14.6	Effective Date	69

(v)

CABOT OIL & GAS CORPORATION SAVINGS INVESTMENT PLAN

(As Amended and Restated Effective January 1, 2006)

Recitals

Cabot Oil & Gas Corporation, a Delaware corporation (the “Company”), adopted the Cabot Corporation Profit Sharing and Savings Plan and its related trust for the benefit of its eligible employees and the eligible employees of certain of its subsidiaries who might adopt said Plan, effective October 1, 1976 (the “1976 Plan”).

Effective January 1, 1991, the Board of Directors of the Company authorized the establishment of the Cabot Oil & Gas Corporation Savings Investment Plan (the “Prior Plan”) to replace the 1976 Plan, and each Company employee’s accounts in the 1976 Plan and the Cabot Corporation Employee Stock Ownership Plan were transferred to the Prior Plan at such time. The Prior Plan was subsequently amended by the First through Eleventh Amendments thereto.

Effective January 1, 2001, the Board of Directors of the Company authorized the amendment and restatement of the Prior Plan in the form of the Cabot Oil & Gas Corporation Savings Investment Plan (the “Plan”) to incorporate the prior amendments, to incorporate changes required by certain legislative acts, and to make certain other changes.

Effective January 1, 2006, the Board of Directors of the Company authorized the amendment and restatement of the Plan in order to incorporate (i) all prior amendments thereto, including previously adopted good faith compliance amendments to reflect applicable law changes under the Economic Growth and Tax Relief Reconciliation Act of 2001 and (ii) the final Treasury Regulations under Code Sections 401(k) and 401(m). There shall be no termination and no gap or lapse in time or effect between the Plan as in effect on December 31, 2005, and this Plan.

The Plan and the related Trust, which is intended to form a part of the Plan, are intended to meet the requirements of Sections 401(a), 401(k) and 501(a) of the Internal Revenue Code of 1986, and the Employee Retirement Income Security Act of 1974, as either may be amended from time to time.

The provisions of this Plan shall apply to a Member who terminates Service on or after January 1, 2006. The rights and benefits, if any, of a former employee shall be determined in accordance with the provisions of the Plan in effect on the date his employment terminated.

NOW, THEREFORE, Cabot Oil & Gas Corporation hereby amends, restates in its entirety, and continues the Cabot Oil & Gas Corporation Savings Investment Plan, effective January 1, 2006, a profit-sharing plan within the meaning of Code Section 401(a)(27), as follows:

1

ARTICLE I

DEFINITIONS

As used in this Plan, the following words and phrases shall have the following meanings unless the context clearly requires a different meaning:

1.1 Account: Collectively, the accounts maintained for each Member pursuant to Section 5.1, and shall include accounts provided for in the Profit Sharing Plan.

1.2 Affiliate: A corporation or other trade or business that is not an Employer under this Plan but which together with the Company is “under common control” within the meaning of Section 414(b) or (c), as modified by Section 415(h) of the Code; any organization (whether or not incorporated) which, together with the Company, is a member of an “affiliated service group” within the meaning of Section 414(m) of the Code; and any other entity required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code.

1.3 After-Tax Contribution Account: The separate account maintained for a Member to record his After-Tax Contributions to the Plan and adjustments relating thereto.

1.4 After-Tax Contributions: The amount contributed by a Member pursuant to Section 4.1B.

1.5 Authorized Leave of Absence: Any absence authorized by the Employer or Affiliate under the Employer’s or Affiliate’s standard personnel practices provided that all persons under similar circumstances must be treated alike in the granting of such Authorized Leaves of Absence and provided further that the Member returns within the period of authorized absence.

1.6 Beneficiary: A Member’s spouse, or such other natural person or persons, or the trustee of an inter vivos trust for the benefit of natural persons, entitled to benefits hereunder following a Member’s death.

1.7 Board of Directors: The Board of Directors of the Company.

1.8 Code: The Internal Revenue Code of 1986, as now in effect or hereafter amended.

1.9 Committee: The Administrative Committee appointed by the Company to act as administrator of the Plan and to perform the duties described in Article II.

1.10 Company: Cabot Oil & Gas Corporation, a Delaware corporation, its predecessors and successors.

1.11 Compensation: The total non-deferred remuneration actually paid to a Member by the Employer for personal services rendered as an Employee, as reported on the Member’s Federal Income Tax Withholding Statement (Form W-2 or its subsequent equivalent) during the applicable Plan Year and any amounts by which a Member’s normal remuneration is reduced

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pursuant to a voluntary salary reduction plan qualified under Section 125 of the Code, a qualified transportation fringe under Section 132(f) of the Code or a cash-or-deferred plan qualified under Section 401(k) of the Code, including salary, wages, overtime payments, and annual, discretionary and sign-on bonuses, but excluding any amounts contributed by or on behalf of an Employer to this Plan or any other employee benefit plan sponsored by the Company, non-deductible moving expenses, disability pay (both short-term and long-term), any income arising from the exercise of a stock option or from the receipt of a restricted stock award, reimbursements, expense allowances, severance pay (whether periodic or in a lump sum), taxable fringe benefits, waiver benefits, deductible payments under Section 105(h) of the Code, taxable group-term life insurance benefits, and retention and relocation bonuses. The Compensation of a Member as reflected on the books and records of the Employer shall be conclusive.

Notwithstanding anything herein to the contrary, in no event shall the Compensation taken into account under the Plan for any Employee exceed $220,000 or such other amount provided under Section 401(a)(17) of the Code, as adjusted for cost-of-living increases in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the Compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. If Compensation for any prior determination period is taken into account in determining an Employee’s benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the Compensation limit in effect for that prior determination period.

1.12 Contribution: Any amount contributed to the Trust Fund pursuant to the provisions of this Plan, by an Employer or by a Member out of his Compensation. Contributions by the Employer shall sometimes be referred to as “Employer Contributions” and “Pre-Tax Contributions,” as specified under Sections 4.1 and 4.2 hereof.

1.13 ERISA: Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as amended from time to time.

1.14 Effective Date: January 1, 2006, the effective date of the Plan as amended and restated herein, unless otherwise specified herein.

1.15 Employee: Any person who, on or after the Effective Date, is receiving remuneration for personal services (or would be receiving such remuneration except for an authorized leave of absence) as an employee of an Employer or who is a Leased Employee.

1.16 Employer: The Company, its successors, and any eligible organization which shall adopt this Plan pursuant to the provisions of Article X, and the successors, if any, to such organization.

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1.17 Employer Contribution Account: The account maintained for a Member to record his share of the Contributions of his Employer and adjustments relating thereto.

1.18 Employment Year: The twelve consecutive month period determined from the Employee’s first performance of an Hour of Service and subsequent twelve-month periods beginning on the first anniversary of such Employee’s performance of such Hour of Service; provided, however, that in the case of any Employee who incurs a Break In Service, upon such Employee’s re-employment his Employment Year shall be deemed to commence on the date he first performs an Hour of Service after such Break In Service.

1.19 Entry Date: The first day of each calendar month and any such other date as determined by the Committee, communicated to the Employees and applied in a uniform and non-discriminatory manner thereafter.

1.20 ESOP: The Cabot Corporation Employee Stock Ownership Plan, as effective December 31, 1990.

1.21 ESOP Account: The account maintained for a Member who participated in the ESOP to record his contributions transferred from the ESOP to this Plan and adjustments relating thereto. Effective October 16, 2000, a Member shall be eligible to transfer the assets held in the Member’s ESOP Account to other Investment Funds provided under the Plan or to borrow assets from such account as provided under Section 6.5 of the Plan.

1.22 Forfeiture: The portion of a Member’s Employer Contribution Account which is forfeited because of termination of Service before full vesting pursuant to Section 7.4 and which occurs on the earlier of (a) the distribution of the entire vested portion of the Member’s Account or (b) the last day of the Plan Year in which the Member incurs five (5) consecutive one-year Breaks In Service.

1.23 Hour(s) of Service: An Hour of Service is each hour during an applicable computation period for which an Employee is directly or indirectly paid, or entitled to payment, by an Employer or an Affiliate for the performance of duties or for any period of Authorized Leave of Absence. Moreover, an Hour of Service is each hour, not in excess of forty hours per week, during any period of unpaid Authorized Leave of Absence with an Employer or an Affiliate. Such Hours of Service shall be credited to the Employee for the computation period in which such duties were performed or in which such Authorized Leave of Absence occurred. An Hour of Service also includes each hour, not credited above, for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by an Employer or an Affiliate. These Hours of Service shall be credited to the Employee for the computation period to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. In determining an Employee’s total Hours of Service during a computation period, a fraction of an hour shall be deemed a full Hour of Service.

Instead of counting and crediting actual hours worked, for purposes of determining the number of Hours of Service to be credited to an Employee, an Employee may be credited with 190 Hours of Service for each calendar month during which he has earned one

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Hour of Service. For purposes of determining the number of Hours of Service to be credited for reasons other than the performance of duties and for purposes of determining to which computation period Hours of Service earned under any provision of this Plan are to be credited, the provisions of Department of Labor Regulation Section 2520.200(b)-2(b) and (c) are hereby incorporated by reference as if fully set forth herein.

Hours of Service will be credited for employment with other members of an affiliated service group (under Code Section 414(m)), a controlled group of corporations (under Code Section 414(b)), or a group of trades or businesses under common control (under Code Section 414(c)), of which the Company is a member. However, Hours of Service shall not be credited for employment with such an affiliated service group, a controlled group, or a group of trades or businesses prior to its becoming a member of or after its cessation of membership in the Company’s affiliated service group, controlled group, or group of trades or businesses. Hours of Service will be credited for any individual considered an employee under Code Section 414(n).

1.24 Income of the Trust Fund: The net gain or loss of the Trust Fund from investments, as reflected by interest payments, dividends, realized and unrealized gains and losses on securities and other investment transactions and expenses paid from the Trust Fund.

1.25 Investment Fund(s): Any of the investment funds comprising the Trust Fund, as described in Section 9.2.

1.26 Leased Employee: Each person who is not an employee of an Employer but who performs services for an Employer pursuant to a leasing agreement (oral or written) between an Employer and any leasing organization, provided that such person has performed such services for an Employer or for related persons (within the meaning of Code Section 144(a)(3)) on a substantially full-time basis for a period of at least one year and such services are performed under primary direction or control by an Employer. Notwithstanding the preceding sentence, the term “Leased Employee” shall not include any individual who is deemed to be an employee of an Employer under Code Section 414(n)(5).

1.27 Member: An Employee who, pursuant to the provisions of Article III, has met the eligibility requirements for participation in this Plan and is participating in the Plan.

1.28 Plan: The Cabot Oil & Gas Corporation Savings Investment Plan, as amended and restated effective January 1, 2006, set forth herein, and as hereafter amended from time to time.

1.29 Plan Quarter: Each calendar quarter of the Plan Year.

1.30 Plan Year: The fiscal year of the Plan beginning on January 1 of each calendar year and ending on December 31.

1.31 Pre-Tax Contribution Account: The account maintained for a Member to record his Pre-Tax Contributions and adjustments relating thereto.

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1.32 Prior Plan: The Cabot Oil & Gas Corporation Savings Investment Plan, as amended and restated effective January 1, 2001, as thereafter amended and in effect on December 31, 2005.

1.33 Profit Sharing Plan: The Cabot Corporation Profit Sharing and Savings Plan as in effect on December 31, 1990.

1.34 Profit Sharing Plan Account: The account maintained for a Member who participated in the Profit Sharing Plan prior to January 1, 1991 to record his contributions from the Prior Plan and adjustments relating thereto.

1.35 Retirement Date: The sixty-fifth (65th) birthday of a Member or, if earlier, the date on which a Member who is a participant in the Cabot Oil & Gas Pension Plan satisfies the age and service requirements for Early Retirement under said pension plan.

1.36 Rollover Account: The account maintained for a Member to record his Rollover Amount and adjustments relating thereto.

1.37 Rollover Amount: For purposes of the Plan, one or more distributions (i) within one (1) taxable year of the employee on account of a termination of the plan of which the trust is a part, or in the case of a profit-sharing or stock bonus plan, a complete discontinuance of contributions under such plan or (ii) which constitute a lump-sum distribution within the meaning of subsection 402(e)(4)(A) of the Code (determined without reference to subparagraphs (B) and (H) of subsection 402(e)(4)). “Rollover Amount” may also include a transfer of assets from another qualified plan described in Code Section 401(a) which are attributable to the Member’s interests in such other plan if (i) such other plan does not permit distributions to be made in the form of life annuities, (ii) such other plan is a defined contribution plan which is not subject to the minimum funding standards of Code Section 412 and which satisfies all the conditions for exclusion from the requirements of Code Section 401(a)(11) set forth in Treasury Regulations Section 1.401(a)-20, Q&A 3(a), or (iii) such other plan provides for distributions in the form of life annuities but the transfer meets all the requirements of Treasury Regulations Section 1.411(d)-4, Q&A 3(b), as conclusively determined by the Committee, in order that this Plan, upon acceptance of such transfer, shall not thereafter be required to provide for distributions in the form of life annuities.

Effective January 1, 2002, “Rollover Amount” may also include a transfer of assets made on or after January 1, 2002, from the following types of plans: (i) a qualified plan described in 403(a) of the Code, including employee after-tax contributions; (ii) a qualified plan described in Section 403(b) of the Code, including employee after-tax contributions; and (iii) an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state. The Plan will also accept a transfer of assets made on or after January 1, 2002, from the portion of a distribution from an individual retirement account or annuity described in Section 408(a) or 408(b) of the Code that is eligible to be rolled over and would otherwise be includible in gross income. Notwithstanding the forgoing, no transfer of assets will be accepted if, upon acceptance of such transfer, the Plan would thereafter be required to provide for distributions in the form of life annuities.

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1.38 Service: A Member’s period of employment or deemed employment with Employers or Affiliates determined in accordance with Section 1.21 and Article III.

1.39 Total and Permanent Disability: A Member shall be considered totally and permanently disabled if (a) (i) for a Member who is also a participant in the Cabot Oil & Gas Long Term Disability Plan (“Cabot LTD Plan”) at time of his/her claim of Disability, he/she is so determined by the Cabot LTD Plan, or (ii) for a Member who is not a participant in the Cabot LTD Plan, he/she is determined by the Committee, upon the advice of competent physicians of the Committee’s selection, on the basis of evidence satisfactory to the Committee, that such Member is permanently incapable of performing a meaningful job for physical or mental reasons and such disability has lasted for at least six (6) months and (b) such Member is eligible for and receiving disability benefits under the Federal Social Security Act with respect to such condition. Upon the determination of a Member’s Total and Permanent Disability, the Committee shall notify such Member within sixty (60) days thereafter.

1.40 Trust: The Trust created by and under the Trust Agreement.

1.41 Trust Agreement: The Trust Agreement provided for in Article IX, as amended from time to time.

1.42 Trust Fund: The Investment Funds held by the Trustee under the Trust Agreement, together with all income, profits or increments thereon.

1.43 Trustee: The trustee under the Trust Agreement.

1.44 Valuation Date: Any date on which the New York Stock Exchange is open for trading and any other date on which the value of the assets of the Trust Fund is determined by the Trustee pursuant to Section 5.4. The last business day of December of each Plan Year shall be the “Annual Valuation Date.”

1.45 Vesting Service: The period of a Member’s employment considered in the determination of his eligibility for benefits under the Plan. A year of Vesting Service shall be granted for each Plan Year during which an Employee completes at least 1,000 Hours of Service.

1.46 Year of Service: An Employment Year during which the Employee performs at least 1,000 Hours of Service.

Words used in this Plan and in the Trust Agreement in the singular shall include the plural and in the plural the singular, and the gender of words used shall be construed to include whichever may be appropriate under any particular circumstances.

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ARTICLE II

ADMINISTRATION OF THE PLAN

2.1 Allocation of Responsibility Among Fiduciaries for Plan and Trust Administration: The Employers, the Board of Directors of the Company, the Committee, as designated pursuant to the terms of the Plan, the Trustee and any other person designated a Fiduciary with respect to the Plan or the Trust Agreement (hereinafter collectively the “Fiduciaries”) shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under this Plan and/or the Trust Agreement. In general, the Employers shall have the sole responsibility for making the contributions provided for under Sections 4.1A and 4.2. The Company shall have the sole authority to appoint and remove the Trustee and the members of the Committee, respectively, and to amend or terminate, in whole or in part, this Plan. The Committee shall have the sole responsibility for the administration of this Plan and the sole authority to appoint and remove any Investment Manager which may be provided for under the Trust Agreement. The Trustee shall have the sole responsibility for the administration of the Trust Fund and shall have exclusive authority and discretion to manage and control the Trust Fund, except to the extent that the authority to manage, acquire and dispose of the assets of the Trust Fund is delegated to an Investment Manager, all as specifically provided in the Trust Agreement. Each Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan or the Trust Agreement, as the case may be, authorizing or providing for such direction, information or action. Furthermore, each Fiduciary may rely upon any such direction, information or action of another Fiduciary as being proper under this Plan or the Trust Agreement, and is not required under this Plan or the Trust Agreement to inquire into the propriety of any such direction, information or action. It is intended under this Plan and the Trust Agreement that each Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under this Plan and the Trust Agreement and shall not be responsible for any act or failure to act of another Fiduciary. No Fiduciary guarantees the Trust Fund in any manner against investment loss or depreciation in asset value.

2.2 Appointment of Committee: The Plan shall be administered by an Administrative Committee consisting of at least three (3) persons who shall be appointed by and serve at the pleasure of the Board of Directors of the Company. All usual and reasonable expenses of the Committee may be paid in whole or in part by the Company, and any expenses not paid by the Company shall be paid by the Trustee out of the Trust Fund. The members of the Committee shall not receive compensation with respect to their services for the Committee. The Company shall pay the premiums on any bond secured for the performance of the duties of the Committee members described hereunder and shall be entitled to reimbursement by other Employers for their proportionate shares thereof.

2.3 Records and Reports: The Committee shall exercise such authority and responsibility as it deems appropriate in order to comply with ERISA and any governmental regulations issued thereunder relating to records of Members’ Service, Account balances and the percentage of such Account balances which are non-forfeitable under the Plan, and notifications to Members. The Committee shall file or cause to be filed with the appropriate offices of the Internal Revenue Service and the Department of Labor all reports, returns, notices and other

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information required of plan administrators under ERISA, including, but not limited to, the summary plan description, annual reports and amendments thereto. The Committee shall make available to Members and their Beneficiaries for examination, during business hours, such records of the Plan as pertain to the examining person and such documents relating to the Plan as are required by ERISA.

2.4 Other Committee Powers and Duties: The Committee shall have such powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following powers and duties:

(a) To construe and interpret the Plan, reconcile any inconsistency or supply any omitted detail consistent with the general terms of the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder;

(b) To prescribe procedures to be followed by Members or Beneficiaries filing applications for benefits;

(c) To receive from the Employers and from Employees such information as shall be necessary for the proper administration of the Plan;

(d) To prepare and distribute, in such manner as the Committee determines to be appropriate, information explaining the Plan;

(e) To furnish the Employers, upon request, such annual reports with respect to the administration of the Plan as are reasonable and appropriate;

(f) To give written directions to the Trustee, on behalf of Members, as to the investment and reinvestment of the Trust Fund;

(g) To receive and review reports of the financial condition, and of the receipts and disbursements, of the Trust Fund from the Trustee and any Investment Manager, and to transmit such reports, along with its findings and recommendations surrounding the investment performance of the Trust Fund, to the Board of Directors; and

(h) To appoint or employ individuals to assist in the administration of the Plan and any other agents it deems advisable, including legal and actuarial counsel.

2.5 Rules and Decisions: The Committee may adopt such rules for the administration of the Plan as it deems necessary, desirable or appropriate. All rules and decisions of the Committee shall be uniformly and consistently applied to all Employees in similar circumstances. The judgment of the Committee and each member thereof on any question arising hereunder shall be binding, final and conclusive on all parties concerned. When making a determination or calculation, the Committee shall be entitled to rely upon information furnished by a Member or Beneficiary, an Employer, the legal counsel of an Employer or the Trustee.

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2.6 Committee Procedure: The Committee may act at a meeting or in writing without a meeting. The Committee shall elect one (1) of its members as chairman, appoint a secretary, who may or may not be a member of the Committee, and shall advise the Trustee of such actions in writing. The secretary of the Committee shall keep a record of all meetings and forward all necessary communications to the Employers or the Trustee. The Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs. All decisions of the Committee shall be made by the vote of the majority including actions in writing taken without a meeting. A dissenting Committee member who, within a reasonable time after he has knowledge of any action or failure to act by the majority, registers his dissent in writing delivered to the other Committee members, the Employer and the Trustee shall not be responsible for any such action or failure to act. The Committee shall designate one of its members as agent of the Plan and of the Committee for service of legal process at the principal office of the Committee at 1200 Enclave Parkway, Houston, Texas 77077.

2.7 Authorization of Benefit Payments: The Committee shall issue directions to the Trustee concerning all benefits which are to be paid from the Trust Fund pursuant to the provisions of the Plan, and warrants that all such directions are in accordance with this Plan. The Committee shall keep on file, in such manner as it may deem convenient or proper, all reports from the Trustee.

2.8 Payment of Expenses: All reasonable and necessary expenses incident to the administration, termination or protection of the Plan and Trust, including, but not limited to, legal, accounting, Investment Manager and Trustee fees, shall be paid from the Trust Fund to the extent permitted by ERISA.

2.9 Application and Forms for Benefits: The Committee may require an Employee or Member to complete and file with the Committee an application for a benefit and all other forms approved by the Committee, and to furnish all pertinent information requested by the Committee. The Committee may rely on such information so furnished it, including the Employee’s or Member’s current mailing address.

2.10 Committee Liability: Except to the extent that such liability is created by ERISA, no member of the Committee shall be liable for any act or omission of any other member of the Committee, nor for any act or omission on his own part except for his own gross negligence or willful misconduct, nor for the exercise of any power or discretion in the performance of any duty assumed by him hereunder. The Company shall indemnify and hold harmless each member of the Committee from any and all claims, losses, damages, expenses (including counsel fees approved by the Committee), and liabilities (including any amounts paid in settlement with the Committee’s approval but excluding any excise tax assessed against any member or members of the Committee pursuant to the provisions of Section 4975 of the Code) arising from any act or omission of such member in connection with duties and responsibilities under the Plan, except when the same is judicially determined to be due to the gross negligence or willful misconduct of such member.

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2.11 Statements: No less frequently than annually, the Committee (or its delegate) shall prepare and deliver to each Member a statement reflecting as of the Valuation Date provided in such statement:

(a) Such information applicable to contributions by and for each such Member and the increase or decrease thereof as a consequence of valuation adjustments as may be pertinent in the premises; and

(b) The balance in his Account as of that Valuation Date.

2.12 Annual Audit: If required by ERISA, the Committee shall engage, on behalf of all Members, an independent Certified Public Accountant who shall conduct an annual examination of any financial statements of this Plan and Trust and of other books and records of this Plan and Trust as the Certified Public Accountant may deem necessary to enable him to form and provide a written opinion as to whether the financial statements and related schedules required to be filed with the Department of Labor or furnished to each Member are presented fairly and in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding Plan Year. If, however, the statements required to be submitted as part of the reports to the Department of Labor are prepared by a bank or similar institution or insurance carrier regulated and supervised and subject to periodic examination by a state or federal agency and if such statements are certified by the preparer as accurate and if such statements are, in fact, made a part of the annual report to the Department of Labor and no such audit is required by ERISA, then the audit required by the foregoing provisions of this Section shall be optional with the Committee.

2.13 Funding Policy: The Committee shall, at a meeting duly called for such purpose, establish a funding policy and method consistent with the objectives of the Plan and the requirements of Title I of ERISA. The Committee shall meet at least annually to review such funding policy and method. In establishing and reviewing such funding policy and method, the Committee shall endeavor to determine the Plan’s short-term and long-term objectives and financial needs, taking into account the need for liquidity to pay benefits and the need for investment growth. All actions of the Committee taken pursuant to this Section and the reasons therefor shall be recorded in the minutes of meetings of the Committee and shall be communicated to the Trustee, any Investment Manager who may be managing a portion or all of the Trust Fund in accordance with the provisions of the Trust Agreement, and to the Board of Directors.

2.14 Allocation and Delegation of Committee Responsibilities: Upon the approval of a majority of the members of the Committee, the Committee may (i) allocate among any of the members of the Committee any of the responsibilities of the Committee under the Plan and Trust Agreement and/or (ii) designate any person, firm or corporation that is not a member of the Committee to carry out any of the responsibilities of the Committee under the Plan and/or Trust Agreement. Any such allocation or designation shall be made pursuant to a written instrument executed by a majority of the members of the Committee.

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2.15 Presenting Claims for Benefits: A “Claims Administrator” shall be appointed by the Committee or, absent such appointment, shall be the Company’s director of benefits, with such Claims Administrator authorized by the Committee to conduct the initial review and render a decision as provided in this Section for all claims for benefits under the Plan. The Committee shall establish administrative processes and safeguards to ensure that benefit determinations made pursuant to this Section 2.15 are made in accordance with the Plan and have been made and applied consistently to similarly situated claimants. Any Member, Beneficiary of any deceased Member, or the authorized representative of such claimant (collectively, the “Applicant”) may submit written application to the Claims Administrator for the payment of any benefit asserted to be due him under the Plan. Such application shall set forth the nature of the claim and such other information as the Claims Administrator may reasonably request. Promptly upon the receipt of any application required by this Section, the Claims Administrator shall determine whether or not the Member or Beneficiary involved is entitled to a benefit hereunder and, if so, the amount thereof and shall notify the Applicant of its findings.

(a) Non-Disability Claims. Except as provided in Section 2.15(b) below, if a claim is wholly or partially denied, the Claims Administrator shall so notify the Applicant within ninety (90) days after receipt of the application by the Claims Administrator, unless special circumstances require an extension of time for processing the application. If such an extension of time for processing is required, written notice of the extension shall be furnished to the Applicant prior to the end of the initial ninety (90) day period. In no event shall such extension exceed a period of ninety (90) days from the end of such initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Claims Administrator expects to render its final decision. Notice of the Claims Administrator’s decision to deny a claim in whole or in part shall be set forth in a manner calculated to be understood by the Applicant and shall contain the following:

(i) the specific reason or reasons for the denial,

(ii) specific reference to the pertinent Plan provisions on which the denial is based,

(iii) a description of any additional material or information necessary for the Applicant to perfect the claim and an explanation of why such material or information is necessary,

(iv) an explanation of the claims review procedure, including applicable time limits, as set forth in Section 2.16 hereof, and

(v) a statement of the claimant’s right to bring a civil suit under Section 502(a) of ERISA following a denial on subsequent review.

(b) Disability Claims. If a claim for benefits based upon a Member’s disability is wholly or partially denied, the Claims Administrator shall so notify

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the Applicant within forty-five (45) days after receipt of the application by the Claims Administrator, unless special circumstances require an extension of time for processing the application. If such an extension of time for processing is required, the time for processing may be extended for up to 30 days, if the Claims Administrator determines that the extension is necessary due to matters beyond the control of the Claims Administrator or the Plan and notifies the Applicant, before the expiration of the initial 45-day period, of the circumstances requiring the extension of time and the date by which the claim decision is expected to be made. If, before the end of this 30-day extension period, the Claims Administrator determines that, due to matters beyond the control of the Claims Administrator or the Plan, a decision cannot be rendered within that initial 30-day extension period, an additional 30-day extension may apply if the Applicant is given a notice satisfying the requirements set forth above for the first 30-day extension. Any notice of extension must specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues. The Applicant will be given at least 45 days in which to provide the specified information. In the event that the extension is a result of an Applicant’s failure to submit information necessary to decide a claim, the period in which the determination must be made will be tolled from the date on which the notification of the extension is sent to the Applicant until the date the Applicant responds to the request for additional information.

Notice of the Claims Administrator’s decision to deny a claim in whole or in part shall be set forth in a manner calculated to be understood by the Applicant and must contain the information described in clauses (i) through (v) of Section 2.15(a). Additionally, the notice of denial must include:

(i) If any internal rule or guideline was relied on in denying the claim, either the specific rule or guideline, or a statement that such a rule or guideline was relied on in denying the claim and that a copy of that rule or guideline will be provided to the Applicant free of charge on request; and

(ii) If the claim denial is based on an exclusion or limit related to medical necessity or experimental treatment, either an explanation of the scientific or clinical judgment for the determination as applied to the involved claimant’s circumstances, or a statement that such an explanation will be provided to the Applicant free of charge upon request.

2.16 Claims Review Procedure: Upon the Claims Administrator’s denial, in whole or in part of a benefit applied for under Section 2.15, an Applicant shall have the right by written to appeal such denial as set forth in this Section 2.16. Benefits under the Plan will only be paid if the Committee decides in its discretion that the claimant involved is entitled to them. The Committee shall establish administrative processes and safeguards to ensure that benefit determinations made pursuant to this Section 2.16 are made in accordance with the Plan and

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have been made and applied consistently to similarly situated claimants. Except as may be otherwise required by law, the decision of the Committee on review of the claim denial shall be binding on all parties when the Applicant has exhausted the claims procedure under this Section 2.16.

(a) Non-Disability Claims – General Rules. If an application filed by the Applicant under Section 2.15(a) above shall result in a denial by the Claims Administrator of the benefit applied for, either in whole or in part, such Applicant shall have the right, to be exercised by written request filed with the Committee within sixty (60) days after receipt of notice of the denial of the application for a review of the application and of the entitlement to the benefit for which the Applicant applied. Such request for review may contain such additional information and comments as the Applicant may wish to present.

The Committee shall reconsider the application in light of such additional information and comments as the Applicant may have presented, and if the Applicant shall have so requested, shall afford the Applicant or his designated representative a hearing before the Committee. Upon request, the Committee shall provide, free of charge, the Applicant or his designated representative with copies of all “relevant documents” (within the meaning of Department of Labor regulation Section 2560.503-1(m)(8)) (“Relevant Documents”) in its possession, including copies of the Plan document and information provided by the Company relating to the Applicant’s entitlement to such benefit.

The Committee shall render a decision and notify the Applicant of the Committee’s determination on review no later than 60 days after receipt of the Applicant’s request for review, unless the Committee determines that special circumstances (such as the need to hold a hearing) require an extension of time for processing the claim. If the Committee determines an extension of time for processing is required, written notice of the extension shall be furnished to the Applicant prior to the termination of the initial 60 day period. In no event, shall such extension exceed a period of 60 days from the end of the initial period. The extension notice shall indicate the special circumstance requiring an extension of time and the date by which the Committee expects to render the determination on review. In the event that the extension is a result of an Applicant’s failure to submit information necessary to decide a claim, the period in which the determination must be made will be tolled from the date on which the notification of the extension is sent to the Applicant until the date the Applicant responds to the request for additional information.

Notice of the Committee’s final decision shall be furnished to the Applicant in writing, in a manner calculated to be understood by him, and if the Applicant’s claim on review is denied in whole or in part, the notice shall set forth:

(i) the specific reason or reasons for the denial; and

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(ii) specific reference(s) to the pertinent plan provision(s) on which the denial is based; and

(iii) the Applicant’s right to receive upon request, free of charge, reasonable access to, and copies of, all Relevant Documents, records and other information to his claim; and

(iv) the claimant’s right to bring a civil action under Section 502(a) of ERISA.

(b) Non-Disability Claims – Special Rules. Notwithstanding any other provision of Section 2.16(a), in the event that the Committee holds regularly scheduled meetings at least quarterly, the provisions of this Section 2.16(b) will apply and control, to the extent that this Section 2.16(b) is inconsistent with the provisions of Section 2.16(a). Specifically, in the event that the Committee holds regularly scheduled meetings at least quarterly, the Committee shall render a determination on review of a non-disability claim no later than the date of the Committee meeting next following receipt of the request for review, except that (i) a decision may be rendered no later than the second following Committee meeting if the request is received within 30 days of the first meeting and (ii) under special circumstances which require an extension of time for rendering a decision (including but not limited to the need to hold a hearing), the decision may be rendered not later than the date of the third Committee meeting following the receipt of the request for review. If such an extension of time for review is required because of special circumstances, written notice of the extension shall be furnished to the Applicant prior to the commencement of the extension. In the event that the extension is a result of an Applicant’s failure to submit information necessary to decide a claim, the period in which the determination must be made will be tolled from the date on which the notification of the extension is sent to the Applicant until the date the Applicant responds to the request for additional information.

Additionally, no later than five (5) days after the Committee has reached a final determination on review under this Section 2.16(b), notice of the Committee’s final decision shall be furnished to the Applicant in writing, in the manner descried in Section 2.16(a).

(c) Disability Claims. If an application filed by an Applicant under Section 2.15(b) above shall result in a denial by the Claims Administrator of the disability based benefit applied for, either in whole or in part, such Applicant shall have the right, to be exercised by written request filed with the Committee within one-hundred and eighty (180) days after receipt of notice of the denial of the application, for a review of the application and of the entitlement to the benefit for which the Applicant applied. Such request for review may contain such additional information and comments as the Applicant may wish to present.

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The Committee shall reconsider the application in light of such additional information and comments as the Applicant may have presented, and if the Applicant shall have so requested, shall afford the Applicant or his designated representative a hearing before the Committee. Upon request, the Committee shall provide, free of charge, the Applicant or his designated representative with copies of all Relevant Documents in its possession, including copies of the Plan document and information provided by the Company relating to the involved claimant’s entitlement to such benefit. Additionally, the following requirements shall be imposed upon the Committee in reconsidering an Applicant’s request:

(i) The Committee’s review will not give deference to the original claim denial, and the review will not be made by the person who made the original claim denial, or a subordinate of that person;

(ii) In deciding an appeal of any claim denial that is based in any way on a medical judgment, the Committee will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment;

(iii) The health care professional consulted by the Committee will not be an individual who was consulted in connection with the original claim denial or a subordinate of any such individual; and

(iv) The Applicant will be provided the identification of medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the claim denial, even if the advice was not relied upon in making the claim denial.

The Committee shall render a decision and notify the Applicant of the Committee’s determination on review within a reasonable period of time, but not later than 45 days after receipt of the Applicant’s request for review, unless the Committee determines that special circumstances (such as the need to hold a hearing) require an extension of time for processing the claim. If the Committee determines an extension of time for processing is required, written notice of the extension shall be furnished to the Applicant prior to the termination of the initial 45 day period. In no event, shall such extension exceed a period of 45 days from the end of the initial period. The extension notice shall indicate the special circumstance requiring an extension of time and the date by which the Committee expects to render the determination on review. In the event that the extension is a result of an Applicant’s failure to submit information necessary to decide a claim, the period in which the determination must be made will be tolled from the date on which the notification of the extension is sent to the Applicant until the date the Applicant responds to the request for additional information.

Notice of the Committee’s final decision shall be furnished to the Applicant in writing, in a manner calculated to be understood by him, and if the

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Applicant’s claim on review is denied in whole or in part, the notice shall contain the information described in clauses (i) through (iv) of Section 2.16(a). Additionally, the notice of denial shall include:

(i) If any internal rule or guideline was relied on in denying the claim on appeal, either the specific rule or guideline, or a statement that such a rule or guideline was relied on in denying the claim and that a copy of that rule or guideline will be provided to the Applicant free of charge on request; and

(ii) If the claim denial on appeal is based on an exclusion or limit like medical necessity or experimental treatment, either an explanation of the scientific or clinical judgment for the determination as applied to the involved claimant’s circumstances, or a statement that such an explanation will be provided to the Applicant free of charge upon request.

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ARTICLE III

PARTICIPATION AND SERVICE

3.1 Eligibility for Participation: An Employee participating under the Prior Plan immediately preceding January 1, 2006 shall continue to participate in accordance with the provisions of this Plan. Each other Employee shall be eligible to commence participation in this Plan on the Entry Date coincident with or next following his commencement of Service, provided he is otherwise eligible hereunder. An Employee who does not participate in the Plan when he first becomes eligible may commence participation on any Entry Date thereafter, provided he is otherwise eligible hereunder.

Notwithstanding anything to the contrary in this Plan, the following Employees shall not be eligible to participate in the Plan: (i) Leased Employees, (ii) employees covered by a collective bargaining agreement between employee representatives and the Employer, if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and the Employer and such collective bargaining agreement does not expressly provide for coverage of such employees hereunder, (iii) persons who are non-resident aliens and who receive no earned income (within the meaning of Code Section 911) from the Employer which constitutes income from sources within the United States (within the meaning of Code Section 861), and (iv) persons who are utility employees (as herein defined). For purposes of this Plan, a utility employee is an employee who is hired in a utility position. A utility position is (i) a position which is expected by the respective Employer or Affiliate to be of limited duration or (ii) for a particular project upon the conclusion of which the employee is expected by the respective Employer or Affiliate to be terminated.

3.2 Notification of Eligible Employees: The Committee, which shall be the sole judge of the eligibility of an Employee to participate under the Plan, shall notify each Employee of his initial eligibility to participate in the Plan.

3.3 Applications by Employees: Each Employee who shall become eligible to become a Member under the Plan, and who shall desire to become a Member, shall execute and file with the Committee an application to become a Member in such form and manner as may be prescribed by the Committee. In each such application, the applicant shall (i) designate the amount of his Contributions to the Plan, (ii) agree to be bound by the terms and conditions of the Plan, (iii) designate a Beneficiary in accordance with Section 8.2, (iv) authorize payroll deductions for his Contributions, and (v) direct the investment of his Contributions among the Investment Funds in accordance with Sections 9.3 and 9.4.

3.4 Authorized Absences: An Employee’s or Member’s period of Service shall include the following Authorized Leaves of Absence:

(a) Absence due to accident or sickness so long as the person is continued on the employment rolls of the Employer or Affiliate and remains eligible to return to work upon his recovery;

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(b) Absence due to membership in the service of the Armed Forces of the United States (but if such absence is not pursuant to orders issued by the Armed Forces of the United States, only if with the consent of the Employer or Affiliate) but only if, and then only to the extent that, applicable federal law requires such military service to be counted as Service hereunder and only if the person has complied with all prerequisites of such federal law; and

(c) Absence due to an authorized leave of absence granted by the Employer or Affiliate for any other purpose approved by the Board of Directors in accordance with established practices of the Employer or Affiliate, consistently applied in a non-discriminatory manner in order that all employees under similar circumstances shall be treated alike, provided that each such person shall, immediately upon the expiration of such leave, apply for reinstatement in the employment of the Employer or Affiliate.

3.5 Break In Service: For purposes of the Plan, a “Break In Service” shall mean a Plan Year within which a Member completes less than 501 Hours of Service. Solely for purposes of determining whether a Member has a Break In Service for eligibility or vesting purposes an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would have otherwise been credited to such an individual but for such absence, or in any case in which such hours cannot be determined, eight hours of service per day of such absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (a) by reason of the pregnancy of the individual, (b) by reason of the birth of a child of the individual, (c) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this paragraph shall be credited (i) in the computation period in which the absence begins if the crediting is necessary to prevent a Break In Service in that period or (ii) in all other cases, in the following computation period. No more than 501 Hours of Service shall be credited for any single such absence.

3.6 Participation and Vesting Service Upon Re-employment Before a Break In Service: Upon the re-employment before a Break In Service of any person who had previously been employed by an Employer or Affiliate on or after the Effective Date, the following rules shall apply. If the re-employed person was not a Member during his prior period of Service, he shall be eligible to commence participation in the Plan on the first Entry Date after his re-employment upon meeting the requirements of Section 3.1. If the re-employed person was a Member in the Plan during his prior period of Service, he shall be entitled to recommence participation as of the date of his re-employment if eligible under Section 3.1. All years of Vesting Service attributable to a re-employed person’s prior period of Service shall be reinstated as of the date of his re-employment for purposes of Section 7.4.

3.7 Participation and Vesting Service Upon Re-employment After a Break In Service: Upon the re-employment after a Break In Service of any person who had previously been employed by an Employer or Affiliate on or after the Effective Date, the following rules shall apply in determining his eligibility for participation and his Vesting Service:

(a) Participation: If an Employee (whether or not previously a Member) is rehired after cancellation of pre-break Service as determined in accordance with subparagraph (b) below, he must meet the requirements of Section 3.1 for participation in the Plan as if he were a new Employee. If an Employee is rehired prior to cancellation of his pre-break Service as determined in accordance with subparagraph (b) below, he shall be eligible to commence or recommence participation as of the date of his re-employment, if he previously was a Member and he meets the requirements under Section 3.1, or on the first Entry Date after his re-employment as of which he has completed the requirements of Section 3.1.

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(b) Vesting Service: If the re-employed person was a Member whose prior Service terminated without entitlement to a distribution from his Employer Contribution Account under Article VII, any Vesting Service attributable to his prior period of employment shall be reinstated as of the date of his recommencement of participation only if the number of consecutive one-year Breaks In Service is less than the greater of five (5) or the aggregate number of his years of pre-break Vesting Service. If the re-employed person was a Member whose prior Service terminated with entitlement to a distribution from his Employer Contribution Account under Article VII, all years of Vesting Service attributable to his prior period of employment shall be reinstated upon his recommencing participation in the Plan.

3.8 Vesting Service: An Employee shall be credited with one and only one year of Vesting Service for each Plan Year in which such Employee completes at least 1,000 Hours of Service for an Employer or Affiliate. An Employee will not be credited with a year of Vesting Service with respect to a Plan Year if the Employee completes less than 1,000 Hours of Service for the Employer or an Affiliate during such Plan Year. An Employee’s service with Cabot Corporation prior to the Effective Date shall count as Vesting Service under this Plan to the extent and in the same manner as computed under the Profit Sharing Plan.

3.9 Transferred Members: If a Member is transferred to an Affiliate, or to an employment classification with an Employer which is not covered by this Plan, his participation shall be suspended until he is subsequently re-employed by an Employer in an employment classification covered by the Plan; provided, however, that during such suspension period (i) such Member shall be credited with Service in accordance with Section 3.4, (ii) he shall not be entitled or required to make Savings Contributions under Section 4.1, (iii) his Employer Contribution Account shall receive no Employer Contribution except to the extent provided in Section 4.2, and (iv) his Account shall continue to share proportionately in Income of the Trust Fund as provided in Section 5.2. If an individual is transferred from an employment classification with an Employer that is not covered by the Plan to an employment classification that is so covered, or from an Affiliate to an employment classification with an Employer that is so covered, his period of Service prior to the date of transfer shall be considered for purposes of determining his eligibility to become a Member under Section 3.1 and for purposes of vesting under Section 7.4.

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3.10 Special Eligibility and Vesting for Certain Employees:

(a) Doran Employees. Effective March 1, 1989, all Employees who became Employees of an Employer as a result of the acquisition of certain assets of Doran & Associates, Inc. (“Doran”) shall become Members of the Plan subject to the eligibility requirements under Section 3.1. Any period of employment with Doran or an affiliate of Doran shall be considered for purposes of determining such Employees’ Service under the Plan to the extent such employment otherwise qualified under the relevant provisions of the Plan.

(b) Emax Employees. Effective October 1, 1993, all Employees who became Employees of an Employer as a result of the acquisition of certain assets of Emax Oil Company (“Emax”), shall become Members of the Plan subject to the eligibility requirements under Section 3.1. Any period of employment with Emax or an affiliate of Emax shall be considered for purposes of determining such Employees’ Service under the Plan to the extent such employment otherwise qualifies under the relevant provisions of the Plan.

(c) WERCO Employees. Effective May 3, 1994, all Employees who became Employees of an Employer as a result of the merger with Washington Energy Resources Company (“WERCO”), shall become Active Members of the Plan subject to the eligibility requirements under Section 3.1. Any period of employment with WERCO or an affiliate of WERCO shall be considered for purposes of determining such Employees’ Service under the Plan to the extent such employment otherwise qualifies under the relevant provisions of the Plan.

(d) Oryx Employees. Effective December 30, 1998, all Employees who became Employees of an Employer as a result of the acquisition of certain properties of Oryx Energy Company (“Oryx”), shall become Active Members of the Plan subject to the eligibility requirements under Section 3.1. Any period of employment with Oryx or an affiliate of Oryx shall be considered for purposes of determining such Employees’ Service under the Plan to the extent such employment otherwise qualifies under the relevant provisions of the Plan.

(e) Cody Employees. Effective August 17, 2001, all Employees who became Employees of an Employer as a result of the acquisition of certain properties of Cody Energy LLC (“Cody”), shall become Active Members of the Plan subject to the eligibility requirements under Section 3.1. Any period of employment with Cody or an affiliate of Cody shall be considered for purposes of determining such Employees’ Service under the Plan to the extent such employment otherwise qualifies under the relevant provisions of the Plan.

3.11 Automatic Vesting Service: All Employees who become employed by the Company as a result of an acquisition of or merger with an employer not affiliated with the Company (“Acquired Company”) shall be credited with service with the Acquired Company immediately prior to the acquisition for purposes of eligibility and vesting hereunder.

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3.12 Qualified Military Service: Notwithstanding any provisions of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

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ARTICLE IV

CONTRIBUTIONS AND FORFEITURES

4.1 Savings Contributions: Each Member may designate up to fifty percent (50%) of his Compensation as Pre-Tax and/or After-Tax Contributions as described herein.

A. Pre-Tax Contributions: Each Member who elects to make Pre-Tax Contributions for a Plan Year shall initially elect to defer a portion of his Compensation in whole percentages of not less than one percent (1%) and not more than fifty percent (50%) (to the nearest whole dollar) of his Compensation; provided, however, that Pre-Tax Contributions and After-Tax Contributions under this Section 4.1 shall not total, in the aggregate, more than fifty percent (50%) (to the nearest whole dollar) of the Member’s Compensation. Such deferred percentage shall be applied against a Member’s Compensation as such Compensation becomes payable. Each such election shall continue in effect during subsequent Plan Years unless the Member notifies the Committee, in writing and in such form and manner prescribed by the Committee, of his election to change or discontinue his Pre-Tax Contribution. A Member may change the percentage of his Compensation designated by him as his Pre-Tax Contribution, but not retroactively and not more frequently than four (4) times each Plan Year. A Member’s Pre-Tax Contributions shall not exceed a maximum of $15,000 as adjusted by the Secretary of the Treasury to account for cost-of-living increases. In the event a Member’s Pre-Tax Contributions exceed the applicable $15,000 limit, or in the event the Member submits a written claim to the Committee, at the time and in the manner prescribed by the Committee, specifying an amount of Pre-Tax Contributions that will exceed the applicable limit of Section 402(g) of the Code when added to amounts deferred by the Member in other plans or arrangements, such excess (the “Excess Deferrals”), plus any income and minus any loss attributable thereto, shall be returned to the Member by April 15 of the following year. Such income shall include the allocable gain or loss for (i) the Plan Year in which the Excess Deferral occurred and (ii) the period from the end of that Plan Year to the date of distribution. The amount of any Excess Deferrals to be distributed to a Member for a taxable year shall be reduced by excess Pre-Tax Contributions previously distributed pursuant to Article XIV for the Plan Year beginning in such taxable year. The income or loss attributable to the Member’s Excess Deferral for the Plan Year shall be determined by multiplying the income or loss attributable to the Member’s Pre-Tax Contribution Account balance for the Plan Year (or relevant portion thereof) by a fraction, the numerator of which is the Excess Deferral and the denominator of which is the Member’s total Pre-Tax Contribution Account balance as of the Valuation Date next preceding the date of return of the Excess Deferral. Unless the Committee elects otherwise, the income or loss attributable to the Member’s Excess Deferral for the period between the end of the Plan Year and the date of distribution shall be determined using the safe-harbor method set forth in Treasury Regulations to Section 402(g) of the Code, and shall be equal to ten percent (10%) of the allocable income or loss for the Plan Year, calculated as set forth immediately above, multiplied by the number of calendar months that have elapsed since the end of the Plan Year. For these purposes, distribution of an Excess Deferral on or before the fifteenth (15th) day of a calendar month shall be treated as having been made on the last day of the preceding month, and a distribution made thereafter shall be treated as having been made on the first day of the next month. Any Excess Deferrals which have not been returned to the Member by April 15 of the following year shall be

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treated as Annual Additions under Article XII of the Plan. Each Member’s Pre-Tax Contribution shall be contributed to the Trust Fund by the Employer. A Member shall always be fully vested in and have a non-forfeitable right to his Pre-Tax Contributions. A Member’s Pre Tax Contributions per Plan Year under this Plan and all other plans, contracts or arrangements of the Employer shall not exceed a maximum dollar limitation provided under Section 402(g) of the Code, as adjusted by the Secretary of the Treasury or his delegate for cost-of-living increases pursuant to Section 402(g) of the Code, except to the extent permitted under Section 4.1(C) of the Plan with respect to Catch-Up Contributions, as defined therein.

B. After-Tax Contributions: Any Member regardless of whether he has elected to defer any whole percentage of his Compensation in the form of a Pre-Tax Contribution to the Plan may elect to make an After-Tax Contribution of up to fifteen percent (15%) (to the nearest whole dollar) of his Compensation; provided, however, that Pre-Tax Contributions and After-Tax Contributions under this Section 4.1 shall not total, in the aggregate, more than fifty percent (50%) (to the nearest whole dollar) of the Member’s Compensation. Such a deferred percentage shall be applied against a Member’s Compensation as such Compensation becomes payable. Any After-Tax Contribution election shall be made pursuant to the provisions of Section 3.3, and shall continue in effect during subsequent Plan Years unless the Member notifies the Committee, in writing and in such form and manner prescribed by the Committee, of his election to change or discontinue his After-Tax Contribution. A Member may change the percentage of his Compensation designated by him as his After-Tax Contribution; provided, however, that he may not change his Pre-Tax and After-Tax Contribution elections in the aggregate more than four (4) times each Plan Year and that such changes shall not be retroactive. A Member shall always be fully vested in and have a non-forfeitable right to his After-Tax Contributions.

C. Catch-Up Contributions: Each Member who elects to make Pre-Tax Contributions under Section 4.1(A) of this Plan and who has attained or will attain age 50 before the close of the Plan Year may elect to make “catch-up contributions” in accordance with, and subject to the limitations of, of Section 414(v) of the Code (“Catch-Up Contributions”), in the form and manner prescribed by the Committee. Such Catch-Up Contributions shall not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Sections 402(g) and 415 of the Code. Additionally, such Catch-Up Contributions shall not participate in, or be considered in determining, the amount of Employer Contributions under Section 4.2 of the Plan. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Sections 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416 of the Code, as applicable, by reason of the making of such Catch-Up Contributions.

4.2 Employer Contributions: Each Employer shall make an Employer Contribution to the Trust Fund for a Plan Year on behalf of its Members in an amount equal to one hundred percent (100%) of such Member’s Basic Savings Contributions for the Plan Year. “Basic Savings Contributions” means each Member’s first six percent (6%) of Pre-Tax Contributions. An Employer Contribution shall be deemed to be made on account of a Plan Year if (i) the Employer claims such amount as a deduction on its federal income tax return for such Plan Year or (ii) the Employer designates such amount in writing to the Trustee as payment on account of such Plan Year. All Employer Contributions shall be paid to the Trustee, and payment shall be made not

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later than the time prescribed by law for filing the federal income tax return of the Employer, including any extension which has been granted for the filing of such tax return. The Trustee shall hold all such Employer Contributions subject to the provisions of this Plan and Trust, and no part of such Contributions shall be used for, or diverted to, any other purpose. The foregoing not withstanding, with respect to a Member who defers his Compensation at a rate of 6% or more and who, prior to the end of the Plan Year, ceases his contributions because of the limits imposed by Code Section 402(g), Employer Contributions to his Employer Contribution Account shall be made each pay period for such Plan Year in such an amount that the aggregate of such contributions for such Plan Year is equal to the amount provided by the Employer pursuant to this Section.

In the case of the reinstatement of any amounts forfeited pursuant to the unclaimed benefit provisions of Section 11.10, the Employer shall also contribute, within a reasonable time after a claim is filed under Section 11.10, an amount sufficient to reinstate such amount. All such “Employer Minimum Contributions” shall be transmitted to the Trustee as soon as practicable after such contributions are made.

4.3 Employer Contributions and Pre-Tax Contributions to be Tax Deductible: Employer Contributions and Pre-Tax Contributions shall not be made in excess of the amount deductible under applicable federal law now or hereafter in effect limiting the allowable deduction for contributions to profit-sharing plans. The Employer Contributions and Pre-Tax Contributions to this Plan, when taken together with all other contributions made by the Employer to other qualified retirement plans, shall not exceed the maximum amount deductible under Section 404 of the Code.

4.4 Suspension of Contributions: Any Member may, by written direction to his Employer, suspend his Pre-Tax Contributions and/or After-Tax Contributions at any time by giving notice in the form and manner prescribed by the Committee. In the case of any suspension of Pre-Tax Contributions and/or After-Tax Contributions, the Employer Contributions will automatically cease. Pre-Tax Contributions and/or After-Tax Contributions which are not made during a period of suspension shall not be made up retroactively.

4.5 Delivery to Trustee: Each Employer shall, not less frequently than monthly, pay the Contributions to the Trustee.

4.6 Application of Funds: The Trustee shall hold or apply the Contributions so received by it subject to the provisions of the Plan; and no part thereof (except as otherwise provided in the Trust Agreement) shall be used for any purpose other than the exclusive use of the Members or their Beneficiaries.

4.7 Rollover Amounts: Any Member may file with the Committee a written request that the Trustee accept a Rollover Amount from such Member. The Committee, in its sole and absolute discretion, shall determine whether such Member shall be permitted to contribute a Rollover Amount to the Trust Fund. The Committee shall develop such procedures and may require such information from the Employee or Member desiring to make such a transfer as it deems necessary or desirable to determine that the proposed transfer will meet the requirements

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of this Section. Upon approval by the Committee, the amount transferred shall be deposited in the Trust Fund and shall be credited to a separate Rollover Account. Such account shall at all times be one hundred percent (100%) vested in the Employee or Member and shall share in the Income of the Trust Fund in accordance with Section 5.2. Upon termination of employment, the total amount of the Rollover Account shall be distributed in accordance with Article VIII.

Upon such a transfer by an Employee who is otherwise eligible to participate in the Plan but who has not yet completed the participation requirements of Section 3.1, his Rollover Account shall represent his sole interest in the Plan until he becomes a Member. In all respects, the Rollover Account shall be treated as a regular account under this Plan and shall be subject to the investment directions of the Member and the change thereof as otherwise permitted herein.

4.8 Disposition of Forfeitures: If a Member terminates Service without being entitled to receive a distribution from his Employer Contribution Account, he shall be deemed to have received a distribution from that Account as of the date of his termination of Service. Upon termination of Service, a Member’s Forfeiture (as defined in Section 1.21), if any, shall first be credited to the Employer Contribution Account of a re-employed Member for whom a reinstatement of prior Forfeitures is required pursuant to Section 7.4 hereof, and second shall be applied toward the Account of a former Member pursuant to the unclaimed benefit provisions of Section 11.10 hereof. To the extent that Forfeitures for any Plan Year exceed the amounts required to reinstate the Accounts noted above, they will be applied against the next succeeding Employer Contribution.

4.9 Contributions Generally Irrevocable: All Employer contributions to the Trust Fund shall be irrevocable and shall be used to pay benefits or to pay expenses of the Plan and Trust Fund; provided, however, that upon the Employer’s request, a contribution which was made by a mistake of fact or conditioned upon initial qualification of the Plan and Trust Fund under Sections 401(a) and 501(a) of the Code, or upon the deductibility of the contribution under Section 404 of the Code, shall be returned to the Employer within one (1) year after the payment of the contribution, the denial of initial qualification or the disallowance of the deduction (to the extent disallowed), whichever is applicable.

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ARTICLE V

MEMBER ACCOUNTS

5.1 Individual Accounts: The Committee shall create and maintain adequate records to disclose the interest in the Trust Fund and in its component Investment Funds of each Member, former Member and Beneficiary. Such records shall be in the form of individual accounts and credits and charges shall be made to such accounts in the manner herein described. A Member may have separate accounts, which include but are not limited to, an Employer Contribution Account, a Pre-Tax Contribution Account, an After-Tax Contribution Account, a Profit Sharing Plan Account, an ESOP Account and a Rollover Account. Any Member who transfers from one Employer to another Employer, or who is simultaneously employed by two or more Employers, may have individual accounts with each such Employer. The maintenance of individual Accounts is only for accounting purposes, and a segregation of the assets of the Trust Fund to each Account shall not be required. Distribution and withdrawals made from an Account shall be charged to the Account as of the date paid.

5.2 Account Adjustments: The Accounts of Members, former Members and Beneficiaries shall be adjusted each Plan Year in accordance with the following:

(a) Income of the Trust Fund: Each Valuation Date, the Trustee shall value the Trust Fund at its then market value to determine the amount of Income of the Trust Fund. The Income of the Trust Fund since the preceding Valuation Date (including the appreciation or depreciation in value of the assets of the Investment Fund) shall be allocated to the Accounts of Members in proportion to the balances in such Accounts on the preceding Valuation Date, but after first reducing each such Account balance by any distribution from such Account since the preceding Valuation Date and increasing such Account balance by any Contributions and loan payments since the preceding Valuation Date.

(b) Savings Contributions: Pre-Tax Contributions and After-Tax Contributions received in the Trust Fund, pursuant to Section 4.1, shall be allocated and credited as soon as practicable after the close of each applicable payroll period to the respective Pre-Tax Contribution Accounts and After-Tax Contribution Accounts of the Members, with such Contributions invested in accordance with the Members’ instructions pursuant to Section 9.3 in the Investment Funds as elected for his Pre-Tax and After-Tax Contributions.

(c) Employer Contributions: No less frequently than the Annual Valuation Date and more frequently as may be specified by the Committee, the Employer Contribution for such Plan Year shall be allocated among its Members during such Plan Year or partial Plan Year in the ratio that each Member’s unwithdrawn Basic Savings Contributions for the Plan Year or partial Plan Year bears to the total unwithdrawn Basic Savings Contributions of all such Members for the Plan Year or partial Plan Year.

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(d) Forfeitures: Forfeitures which have become available for reallocation during such Plan Year shall be applied pursuant to Section 4.8.

(e) Employer Minimum Contributions: Employer Minimum Contributions shall be used solely to reinstate Accounts in accordance with Section 7.4 and to restore Accounts pursuant to Section 11.10 whenever the Forfeitures available for such reinstatement or restoration are insufficient.

5.3 Recognition of Different Investment Funds: As provided in Article IX, Investment Funds shall be established and each Member shall direct, within the limitations set forth in Sections 9.3 and 9.4, what portion of the balance in his Accounts on a pro rata basis, if any, shall be deposited in each Investment Fund. Consequently, when appropriate, a Member shall have an Employer Contribution Account, Pre-Tax Contribution Account, After-Tax Contribution Account, Profit Sharing Plan Account and Rollover Account in each such Investment Fund and the allocations described in Section 5.2 shall be adjusted in such manner as is appropriate to recognize the existence of the Investment Funds. Because Members have a choice of Investment Funds, any reference in this Plan to an Employer Contribution Account, Pre-Tax Contribution Account, After-Tax Contribution Account, Profit Sharing Plan Account or Rollover Account shall be deemed to mean and include all accounts of a like nature which are maintained for the Member under each Investment Fund.

5.4 Valuation of Trust Fund: A valuation of the Trust Fund shall be made as of each Valuation Date. For the purposes of each valuation, the assets of each Investment Fund shall be valued at the respective current market values, and the amount of any obligations for which the Investment Fund may be liable, as shown on the books of the Trustee, shall be deducted from the total value of the assets. For the purposes of maintenance of books of account in respect of properties comprising the Trust Fund, and of making any such valuation, the Trustee shall account for the transactions of the Trust Fund on a modified cash basis. The current market value shall, for the purposes hereof, be determined as follows:

(a) Where the properties are securities which are listed on a securities exchange, or which are actively traded over the counter, the value shall be the last recorded bid and asked prices, whichever shall be the later. In the event transactions regarding such property are recorded over more than one such exchange, the Trustee may select the exchange to be used for purposes hereof. Recorded information regarding any such securities published in The Wall Street Journal or any other publication deemed appropriate may be relied upon by the Trustee. If no transactions involving any such securities have been recorded within ten (10) days prior to the particular Valuation Date, such securities shall be valued as provided in paragraph (b) below.

(b) Where paragraph (a) hereof shall be inapplicable in the valuation of any properties, the Trustee shall obtain from at least two (2) qualified persons an opinion as to the value of such properties as of the close of business on the particular Valuation Date. The average of such estimates shall be used.

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ARTICLE VI

WITHDRAWALS AND LOANS

6.1 Withdrawals from Profit Sharing Plan Account: Each Member with a Profit Sharing Plan Account shall be entitled to withdraw such amounts that were transferred to this Plan. The following withdrawals are permitted only from a Member’s Profit Sharing Plan Account:

A. Voluntary Withdrawals: Each Member of the Plan, upon giving written notice to the Committee (in such form and in such manner as prescribed by the Committee) shall be entitled to withdraw from his Profit Sharing Plan Account (valued as of the Valuation Date preceding the actual date of the withdrawal) any amount, not to exceed the balance of such Account, as of such date. Voluntary withdrawals shall be limited to two such withdrawals per year and further limited to only one such withdrawal in any given three-month period. Voluntary withdrawals shall be deducted from a Member’s Profit Sharing Plan Account in the following order:

1. Profit Sharing Plan after-tax contributions made before January 1, 1987.

2. Profit Sharing Plan after-tax contributions including investment earnings made after December 31, 1986.

3. Profit Sharing Plan investment earnings on after-tax contributions made before January 1, 1987.

4. Profit Sharing Plan vested employer contributions including investment earnings.

Notwithstanding any of the foregoing, the vested portion of employer contributions may only be withdrawn from the Profit Sharing Plan Account 24 months after such amounts were contributed to the Profit Sharing Plan.

B. Hardship Withdrawals: The following hardship withdrawals shall be allowed:

1. A Member may make a hardship withdrawal from his Profit Sharing Plan Account if the Member has already made two voluntary withdrawals or if three (3) months have not elapsed since the previous voluntary withdrawal.

2. A Member may at any time file with the Committee an appropriate written request for a hardship withdrawal of an amount from the pre-tax contribution account in his Profit Sharing Plan Account. Notwithstanding the foregoing, a Member may not withdraw any Income of the Trust Fund allocated to his pre-tax contribution account in his Profit Sharing Plan Account on or after January 1, 1989. The approval or disapproval of such request shall be made within the sole discretion of the Committee except that the Committee shall not

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approve any such request for a withdrawal unless it has been presented a certification by the Member that he is facing a hardship creating an immediate and substantial financial need and that the resources necessary to satisfy that financial need are not reasonably available from other sources of the Member. A Member must first withdraw any available amount credited to the after-tax account and the vested portion of his employer contribution account in his Profit Sharing Plan Account in order to be permitted to make a hardship withdrawal from the pre-tax contribution account in his Profit Sharing Plan Account, and must also have taken all distributions and loans otherwise available under this Plan and all employee plans maintained by the Member’s Employer. The amount of the hardship withdrawal shall be limited to that amount which the Committee determines to be required to meet the immediate financial need created by the hardship. The hardship withdrawal shall be made in cash as soon as practicable after the Member submits the hardship request and the dollar amount withdrawn shall be determined by reference to the value of the pre-tax contribution account in his Profit Sharing Plan Account as of the Valuation Date immediately preceding the date of withdrawal. A Member who receives such a hardship withdrawal shall be prohibited from making Pre-Tax Contributions under the Plan or pre-tax contributions under any other cash or deferred arrangement for the six (6) consecutive months following the date of distribution and in addition, the dollar limitation on the Pre-Tax Contributions described in Section 4.1 shall be reduced in the year following the hardship withdrawal by the amount of Pre-Tax Contributions made by the Member in the Plan Year during which the withdrawal was made. The following standards (or such other standards as may be acceptable under Treasury Regulations issued pursuant to Section 401(k) of the Code) shall be applied on a uniform and non-discriminatory basis in determining the existence of such a hardship:

(a) A financial need shall be considered immediate if it must be satisfied in substantial part within a period of twelve (12) months from the date on which the Member certifies his eligibility for a hardship withdrawal. A financial need shall be considered substantial if it exceeds ten percent (10%) of the Member’s annual Compensation.

(b) Subject to the provisions of Section 6.1(a) above, a distribution will be deemed by the Committee to be on account of an immediate and substantial financial need if it results from:

(i) medical expenses incurred by the Member, or the Member’s spouse or dependents (as defined in Section 152 of the Code),

(ii) purchase (excluding mortgage payments) of a principal residence for the Member,

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(iii) payment for tuition for the next semester or quarter of post-secondary education for the Member or the Member’s spouse, children or dependents, or

(iv) the need to prevent the eviction of the Member from his principal residence or foreclosure on the mortgage of the Member’s principal residence.

6.2 Withdrawals of Amounts From After-Tax Contribution Account: Each Member of the Plan, upon giving written notice to the Committee (in such form and in such manner as prescribed by the Committee), may elect to withdraw from his After-Tax Contribution Account those contributions which are made on or after January 1, 1991. The minimum amount of such withdrawal shall be $500. If a withdrawal is made to a Member before he attains age 59  ¹/2, the Member shall be advised by the Committee that in addition to taxes payable on investment earnings, an income tax may be imposed equal to ten percent (10%) of the amount so received which is included in his gross income for such taxable year.

6.3 Withdrawals of Amounts From Pre-Tax Account: A Member may not withdraw any amount from his Pre-Tax Account, except a Member who has attained age 59  ¹/2 may elect, by giving sixty (60) days’ written notice to the Committee (or within any other period of time as prescribed by the Committee) and by following such other rules and procedures as may be prescribed from time to time by the Committee on a uniform and non-discriminatory basis, to withdraw the entire amount or any portion of his Pre-Tax Contribution Account.

6.4 Withdrawals from Employer Contribution, ESOP and Rollover Accounts: A Member may not withdraw any amount from his Employer Contribution, ESOP or Rollover Accounts.

6.5 Loans to Members: Except as provided below, the availability of loans are limited to Members who are Employees (hereinafter “Borrowers”), who may make application to the Committee to borrow from the Accounts maintained by or for the Borrower in the Trust Fund. Additionally, in order for the exemption set forth in 29 C.F.R. 2550.408b-1 to apply to the Plan, a Borrower may also include, but only to the extent not resulting in discrimination prohibited by Section 401(a)(4) of the Code, any other Member or Beneficiary who is a “party in interest” with respect to the Plan within the meaning of ERISA Section 3(14). It is within the sole discretion of the Committee whether or not to permit such a loan. Loans shall be granted in a uniform and non-discriminatory manner on terms and conditions determined by the Committee which shall not result in more favorable treatment of highly compensated employees and shall be set forth in written procedures promulgated by the Committee in accordance with applicable governmental regulations. All such loans shall also be subject to the following terms and conditions:

(a) The amount of the loan, when added to the amount of any outstanding loan or loans to the Borrower from any other plan of the Employer or an Affiliate which is qualified under Section 401(a) of the Code, shall not exceed the lesser of (i) $50,000, reduced by the excess, if any, of the highest outstanding balance of loans from all such plans during the one-year period ending on the day before the date on which such loan was made over the outstanding balance of

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loans from the Plan on the date on which such loan was made or (ii) fifty percent (50%) of the present value of the Borrower’s vested Account balance under the Plan. In no event shall a loan of less than $1,000 be made to a Borrower. A Borrower may not have more than one (1) loan outstanding at a time under this Plan, and a Borrower will be limited to a maximum of one (1) loan per year from this Plan.

(b) The loan shall be for a term not to exceed five (5) years, and shall be evidenced by a note signed by the Borrower. The loan shall be payable in periodic installments and shall bear interest at a reasonable rate which shall be determined by the Committee on a uniform and consistent basis and set forth in the procedures in accordance with applicable governmental regulations. Payments by a Borrower who is an Employee will be made by means of payroll deduction from the Borrower’s compensation. If a Borrower is not receiving compensation from the Employer, the loan repayment shall be made in accordance with the terms and procedures established by the Committee. A Borrower may repay an outstanding loan in full at any time.

(c) In the event an installment payment is not paid within seven (7) days following the monthly due date, the Committee shall give written notice to the Borrower sent to his last known address. If such installment payment is not made within thirty (30) days thereafter, the Committee shall proceed with foreclosure in order to collect the full remaining loan balance or shall make such other arrangements with the Borrower as the Committee deems appropriate. Foreclosure need not be effected until occurrence of a distributable event under the terms of the Plan and no rights against the Borrower or the security shall be deemed waived by the Plan as a result of such delay.

(d) The unpaid balance of the loan, together with interest thereon, shall become due and payable upon the date of distribution of the Account and the Trustee shall first satisfy the indebtedness from the amount payable to the Borrower or to the Borrower’s Beneficiary before making any payments to the Borrower or to the Borrower’s Beneficiary.

(e) Any loan to a Borrower under the Plan shall be adequately secured. Such security may include a pledge of a portion of the Borrower’s right, title and interest in the Trust Fund which shall not exceed fifty percent (50%) of the present value of the Borrower’s vested Account balance under the Plan as determined immediately after the loan is extended. Such pledge shall be evidenced by the execution of a promissory note by the Borrower which shall grant the security interest and provide that, in the event of any default by the Borrower on a loan repayment, the Committee shall be authorized to take any and all appropriate lawful actions necessary to enforce collection of the unpaid loan.

(f) A request by a Borrower for a loan shall be made in writing to the Committee and shall specify the amount of the loan. If a Borrower’s request for a

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loan is approved by the Committee, the Committee shall furnish the Trustee with written instructions directing the Trustee to make the loan in a lump-sum payment of cash to the Borrower. The cash for such payment shall be obtained by redeeming proportionately as of the date of payment the Investment Fund or Investment Funds, or portions thereof, that are credited to the particular Account of such Borrower.

(g) A loan to a Borrower shall be considered an investment of the separate Account(s) of the Borrower from which the loan is made. All loan repayments shall be credited pro rata to such separate Account(s) and reinvested exclusively in shares of one or more of the Investment Funds in accordance with the Borrower’s most recent investment direction made in accordance with Section 9.3.

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ARTICLE VII

MEMBERS’ BENEFITS

7.1 Retirement of Members on or after Retirement Date: Any Member who terminates his Service on or after his Retirement Date shall have a fully vested and non-forfeitable right to receive the entire amount of his Account. The “entire amount” in such Member’s Account shall include any Savings Contributions, Rollover Amounts, amounts in the Profit Sharing Plan Account, ESOP Account and Employer Contributions to be made as of the Valuation Date preceding or coincident with his termination of Service. Payment of benefits due under this Section shall be made in accordance with Section 8.1. Notwithstanding any provision of this Plan to the contrary, a Member’s right to the amounts credited to his Accounts hereunder shall become fully vested and non-forfeitable in the event of his attainment of age sixty-five (65) prior to termination of Service.

7.2 Disability of Members: If the Committee shall find and advise the Trustee that Service of a Member has been terminated because of Total and Permanent Disability, which in the judgment of the Committee, based upon advice of competent physicians of their selection, will prevent such Member from resuming his Service with an Employer, such Member shall become entitled to receive the entire amount of his Account. The “entire amount” in such Member’s Account shall include any Savings Contributions, Rollover Amounts, amounts in the Profit Sharing Plan Account, ESOP Account and Employer Contributions to be made as of the Valuation Date preceding or coincident with his termination of Service. Payment of benefits due under this Section shall be made in accordance with Section 8.1.

7.3 Death of Members: In the event of the termination of Service of any Member by death, and after receipt by the Committee of acceptable proof of death, his Beneficiary shall be entitled to receive the entire amount in the deceased Member’s Account. The “entire amount” in such Member’s Account shall include any Savings Contributions, Rollover Amounts, amounts in the Profit Sharing Plan Account, ESOP Account and Employer Contributions to be made as of the Valuation Date preceding or coincident with his termination of Service. Payment of benefits due under this Section shall be made in accordance with Section 8.2.

7.4 Other Termination of Service: In the event of termination of Service of any Member for any reason other than retirement on or after his Retirement Date, disability or death, a Member shall, subject to the further provisions of this Plan, be entitled to receive the entire amount credited to his Pre-Tax Contribution Account, After-Tax Contribution Account, amounts in the Profit Sharing Plan Account, ESOP Account, Rollover Account, plus any of his Savings Contributions made as of the Valuation Date preceding or coincident with his termination of Service, plus an amount equal to the vested percentage of his Employer Contribution Account, determined in accordance with the following schedule:

Years of Vesting Service	Vested Percentage
Less than 1 year	0%
1 year but less than 2	20%
2 years but less than 3	40%
3 years but less than 4	60%
4 years but less than 5	80%
5 or more years	100%

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Any portion of the Employer Contribution Account of a terminated Member in excess of the vested percentage specified above shall be a Forfeiture, which shall be disposed of as provided in Section 4.8. Payment of benefits due under this Section shall be made in accordance with Section 8.1.

In addition, any amounts forfeited from the prior Employer Contribution Account of such Member upon his earlier termination of Service shall be reinstated to his new Employer Contribution Account. Upon the re-employment of any individual who had previously been a Member and who has incurred five consecutive Breaks In Service, such re-employed individual shall not be entitled to a reinstatement of any Forfeiture incurred by reason of his prior termination of employment.

If a distribution is made at a time when a Member is not fully vested in his Employer Contribution Account balance, and if the Member is re-employed prior to a Forfeiture of the balance of his Employer Contribution Account, the Member’s non-forfeitable portion of the balance of the undistributed Employer Contribution Account shall be reinstated to his new Employer Account (as provided in Section 4.8) within a reasonable time after repayment by the Member of the amount of his previous distribution, if any.

Notwithstanding anything herein to the contrary, if a Member (i) terminates Service prior to having completed five years of Vesting Service; (ii) meets the eligibility requirements for a severance plan approved by the Chief Executive Officer of the Company and the Committee and listed on Appendix A attached hereto; and (iii) if required by the applicable severance plan, signs a waiver and release, such Member shall be entitled to receive the entire amount credited to such Member’s Employer Contribution Account. Effective January 1, 2002, subject to the other provisions of this Section 7.4 and this Plan, a termination of Service for purposes of this Section 7.4 shall include a Member’s “severance from employment” under Section 401(k)(2)(B)(i)(I) of the Code, occurring on or after January 1, 2002.

7.5 Valuation Dates Determinative of Member’s Rights: The amount to which a Member is entitled upon his retirement, disability, death or other termination of Service shall be the value of his Account as of the Valuation Date upon which his distribution is based.

7.6 Vesting for Certain Employees: Each Member who is eligible to participate in the 1992 Cabot Oil & Gas Corporation Severance Benefit Plan No. 506 and whose Service was terminated involuntarily between January 9, 1992 and January 21, 1992 shall be fully vested in and have a non-forfeitable right to his entire Account balance in the Plan as of the date of the termination of his Service with the Company.

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ARTICLE VIII

PAYMENT OF BENEFITS

8.1 Payment of Benefits: Upon a Member’s entitlement to payment of benefits under Section 7.1, 7.2 or 7.4, he shall file with the Committee his written election on such forms or forms, and subject to such conditions, as the Committee shall provide. Such benefit shall consist of the entire amount in such Member’s Account as of the date of his termination of Service, plus any Employer Contribution allocated to such Member’s Account after the Member’s termination of Service. The Committee shall direct the Trustee to distribute the Member’s benefits according to the Member’s election.

The day following the date of the Member’s termination of Service is the earliest date that payment of his benefits may commence and is herein referred to as such Member’s “Distribution Date.” Payment of a Member’s benefits shall be made or commence as soon as practicable after his Distribution Date, subject to the Member’s election to defer receipt thereof, but in any event must be made or commence prior to the expiration of 60 days after the end of the Plan Year within which such Member’s Retirement Date occurs or the date of his death, if earlier. A Member who withholds consent to an immediate distribution may at any time, subsequently elect, in the form and manner prescribed by the Committee, to receive payment of benefits. If a benefit distribution under the Plan is made to a Member before he attains age 59  ¹/2, the Member shall be advised by the Committee that an additional income tax may be imposed equal to ten percent (10%) of the portion of the amount so received which is included in his gross income for such taxable year and which is attributable to benefits accrued while he was a Member. Members who terminate Service after attainment of age fifty-five (55) shall be notified of their exemption from said additional tax.

The amount which a Member, former Member or Beneficiary is entitled to receive at any time and from time to time shall be paid in cash as a lump sum, except amounts payable to or on behalf of Members who have shares of Cabot Corporation stock or shares of Cabot Oil & Gas Corporation stock in their Profit Sharing Plan Account or their ESOP Account may have their stock balance paid in cash or as stock certificates adjusted to reflect commission fees. The Profit Sharing Plan Account and the ESOP Account shall retain the payment options provided under the Profit Sharing Plan and the ESOP. As of April 1, 2003 or, if later, the ninety-first day following delivery of notice to Members describing the elimination from this Plan of payment options as provided under the Profit Sharing Plan and the ESOP, such payment options shall be eliminated under this Plan for distributions to any Member whose Distribution Date is on or after said date.

If the amount to which a terminated Member is entitled is not more than $5,000, including the balance of such Member’s Rollover Account, such amount shall be paid to the Member as soon as practicable after his Distribution Date; if such amount is in excess of $5,000, the distribution shall be made only if the Member so consents. If such consent is withheld, distribution of the amount to which the terminated Member is entitled shall be made to such Member within 60 days after the end of the Plan Year in which occurs the earlier of the Member’s death or his Retirement Date. Notwithstanding any other provision of this Section or

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the Plan to the contrary, if the total amount due from the Member’s Accounts does not exceed $1,000, payment of such amounts shall automatically be made in a lump-sum payment as soon as administratively practicable following termination of Service for any reason, unless the Member elects to have such amount paid directly to an eligible retirement plan in the form of a direct rollover. Notwithstanding the above, in the event of a distribution referenced above which is greater than $1,000 but less than $5,000, if the Member does not elect to have such distribution paid directly to an eligible retirement plan specified by the Member in a direct rollover, or to receive the distribution directly in accordance with the provisions stated elsewhere herein, then the Committee will pay the distribution in a direct rollover to an individual retirement plan or account designated by the Committee in its sole discretion. If a Member’s termination of Service occurs after his Retirement Date, distribution shall be made within 60 days after the end of the Plan Year in which termination occurs. If a Member dies before distribution of his interest commences, the Member’s entire interest will be distributed no later than five years after the Member’s death. If distribution has commenced before the Member’s death, any remaining amount in the Member’s Account shall be distributed at least as rapidly as under the method of distribution being used as of the date of the Member’s death.

Notwithstanding anything herein to the contrary, if a distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that (a) the Committee clearly informs the Member that the Member has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (b) the Member, after receiving the notice, affirmatively elects a distribution. If a distribution is one to which Sections 401(a)(11) and 417 of the Code does apply, the Member may elect, with the consent of the Member’s spouse to waive any requirement that the written explanation required under Code Section 417 be provided at least 30 days before the annuity starting date (or to waive the 30-day requirement with respect to an explanation provided after the annuity starting date) if the distribution commences more than 7 days after such explanation is provided.

8.2 Distribution Upon Death: In the event of the death of any Member, the amount in his Account shall be distributable as follows:

(a) A Member shall file with the Committee a written designation, in the form prescribed by the Committee, of the Beneficiary or Beneficiaries to receive the amount in his Account upon his death, and the Member may at any time change or cancel any such designation by filing a written request in the form prescribed by the Committee. No such designation of Beneficiary shall be effective if the Member has a spouse, unless the spouse is designated as the Beneficiary or unless the spouse consents to the designation of another person as Beneficiary or the absence of the spouse’s consent is permitted herein. The Member’s spouse may waive the right to be the Member’s sole Beneficiary and consent to the Beneficiary designation made by the Member. The waiver must (i) be in writing; (ii) designate a specific alternate Beneficiary and a form of benefit which may not be changed without spousal consent (or must expressly permit designation by the Member without further consent of the spouse);

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(iii) acknowledge the effect of the waiver; and (iv) be witnessed by a Plan representative or a notary public. The spouse’s consent to a Beneficiary designation shall not be required if it is established to the satisfaction of the Committee that such written consent may not be obtained because there is no spouse or the spouse cannot be located. Any consent under this Section 8.2(a) will be valid only with respect to the spouse who signs the consent. Additionally, a revocation of a prior spousal consent may be made by a Member without the consent of the spouse at any time before the distribution of the benefit under the Plan. The number of revocations shall not be limited.

(b) In the event of the death of any Member, the entire amount in the Account of such Member shall be distributed to the Member’s spouse, or if there is no spouse, or the spouse has consented pursuant to Section 8.2(a), then to the Beneficiary designated by him as provided in the preceding paragraph (a); or, in the absence of an effective designation or if no designated Beneficiary survives the Member, then to the duly appointed and qualified executor or administrator of the Member’s estate; or, if no administration of the estate of such decedent is necessary, then to the Beneficiary entitled thereto under the last will and testament of such deceased Member; or, if such decedent left no will, to the legal heirs of such decedent determined in accordance with the laws of intestate succession of the state of the decedent’s domicile.

(c) If the Committee shall be in doubt as to the right of any Beneficiary designated by a deceased Member to take the interest of such decedent, the Committee may direct the Trustee to distribute the amount in the Account in question to the estate of such Member, in which event the Trustee, the Employer, the Committee, and any other person in any manner connected with the Plan, shall have no further liability in respect of the assets.

(d) The entire amount in the Account of such Member shall be distributed no later than one year after the Member’s date of death or, if later, one year after receipt by the Committee of acceptable proof of death.

8.3 Required Minimum Distributions:

(a) General. Notwithstanding any provisions of this Plan to the contrary, for a Member attaining age 70 ¹/2, any benefits to which a Member is entitled shall commence not later than the April 1 following the later of (i) the calendar year in which the Member attains age 70 ¹/2 or (ii) the calendar year in which the Member’s employment terminates (provided, however, that clause (ii) of this sentence shall not apply in the case of a Member who is a 5% owner (as defined in Section 416(i) of the Code) with respect to the Plan Year ending in the calendar year in which such Member attains age 70 ¹/2 (such date the ‘Required Beginning Date’). All distributions required under this Section 8.3 will be made in accordance with the Treasury Regulations under Code Section 401(a)(9) and shall apply for purposes of determining required minimum distributions for

38

calendar years beginning with the 2003 calendar year. The requirements under Code Section 401(a)(9) will take precedence over any inconsistent provisions of the Plans.

(b) Timing and Manner of Distributions. The Member’s entire interest will be distributed, or begin to be distributed, to the Member no later than the Member’s Required Beginning Date. Upon the death of the Member distributions will be made to the Beneficiary in accordance with Section 8.2 of the Plan.

(c) Calculation of Required Minimum Distribution. During the Member’s lifetime, the minimum amount that will be distributed for each Distribution Calendar Year is the quotient obtained by dividing the Member’s Account Balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Member’s age as of the Member’s birthday in the Distribution Calendar Year. Required minimum distributions will be determined beginning with the first Distribution Calendar Year and up to and including the Distribution Calendar Year that includes the Member’s date of death.

(d) Required Minimum Distributions After Member’s Death. If the Member dies after his Required Beginning Date his remaining Account balance will be distributed to his Beneficiary in a lump sum payment no later than the December 31 of the year following the year of the Member’s death. If the Member dies before his Required Beginning Date, then payments to the Beneficiary will be made as provided under Section 8.2 of the Plan.

(e) Definitions.

(i) Designated Beneficiary. The individual who is designated as the Beneficiary under Section 8.2 of the Plan and is the Designated Beneficiary under Section 401(a)(9) of the Code and Section 1.401(a)(9)-1, Q&A-4, of the Treasury Regulations.

(ii) Distribution Calendar Year. A calendar year for which a minimum distribution is required. For distributions beginning before the Member’s death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Member’s Required Beginning Date. For distributions beginning after the Member’s death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin under Section 8.3(d). The required minimum distribution for the Member’s first Distribution Calendar Year will be made on or before the Member’s Required Beginning Date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the Distribution Calendar Year in which the Member’s Required Beginning Date occurs, will be made on or before December 31 of that Distribution Calendar Year.

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(iii) Member’s Account Balance. The Account balance as of the last valuation date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The Account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.

8.4 Disputed Benefits: If any dispute still exists between a Member or a Beneficiary and the Committee after a review of the claim or in the event any uncertainty shall develop as to the person to whom payment of any benefit hereunder shall be made, the Trustee may withhold the payment of all or any part of the benefits payable hereunder to the Member or Beneficiary until such dispute has been resolved by a court of competent jurisdiction or settled by the parties involved.

8.5 Member’s Right to Transfer Eligible Rollover Distribution:

A. Rule: Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election under this Section, a distributee may elect, at the time and in the manner prescribed by the plan administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover.

B. Definitions:

(a) Eligible Rollover Distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee’s designated beneficiary, or for a specified period of ten (10) years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; any hardship withdrawal described in Section 401(k)(2)(B)(i)(IV) of the Code; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities).

Any amount that is distributed on account of hardship shall not be an eligible rollover distribution and the distributee may not elect to have any portion of such a distribution paid directly to an eligible retirement plan. A portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in

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gross income. However, such portion may be transferred only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in Section 401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

(b) Eligible Retirement Plan: An eligible retirement plan is (i) an individual retirement account described in Section 408(a) of the Code, (ii) an individual retirement annuity described in Section 408(b) of the Code, (iii) an annuity plan described in Section 403(a) of the Code, (iv) an annuity contract described in Section 403(b) of the Code, (v) an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan, or (vi) a qualified trust described in Section 401(a) of the Code, that accepts the distributee’s eligible rollover distribution. However, prior to January 1, 2002, in the case of an eligible rollover distribution to a surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity.

(c) Distributee: A distributee includes an Employee or former Employee. In addition, the Employee’s or former Employee’s surviving spouse and the Employee’s or former Employee’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse.

(d) Direct Rollover: A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.

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ARTICLE IX

TRUST AGREEMENT; INVESTMENT

FUNDS; INVESTMENT DIRECTIONS

9.1 Trust Agreement: The Company has adopted a Trust Agreement governing the administration of the Trust, established effective as of January 1, 1991 (the provisions of which are herein incorporated by reference to the extent not inconsistent herewith). Subject to the provisions of Section 9.2, and, not by way of limitation, the provisions of the Trust Agreement, the Trustee may invest a portion of the Trust Fund in common stock of the Company, or in any other “qualifying employer security” within the meaning of Section 407(d)(5) of ERISA.

9.2 Investment Funds: The Trustee shall divide the Trust Fund into the Cabot Corporation Common Stock Fund; the Cabot Oil & Gas Corporation Stock Fund and such additional Investment Funds which shall be selected and reviewed from time to time by the Committee.

Contributions shall be paid into the Investment Funds pursuant to the directions of the Members given in accordance with the provisions of Sections 9.3 and 9.4 as certified to the Trustee by the Committee. Except as otherwise provided herein, interest, dividends and other income and all profits and gains produced by each such Investment Fund shall be paid into such Investment Fund, and such interest, dividends and other income or profits and gains, without distinction between principal and income, may be invested and reinvested but only in the property hereinabove specified for the particular Investment Fund. Notwithstanding any provision in this Section to the contrary, the Committee may direct the Trustee (i) to invest Savings or Employer Contributions in short-term fixed income investments which are acceptable to the Trustee or in the suspense account to be maintained in each Investment Fund during the period from the date of any such Contribution until the next Valuation Date or (ii) to invest all or any portion of the Trust Fund attributable to any terminated or retired Member or attributable to any Member who is expected to retire or to terminate his Service within one (1) year, in one or more fixed income investments which are acceptable to the Trustee. The fixed income investments authorized by this Section shall include, but not be limited to, certificates of deposit, savings accounts, or U.S. Treasury bills or notes.

9.3 Investment Directions of Members: Each Member may, in a form and manner prescribed by the Committee, direct that the total of the Contributions allocable to his Pre-Tax and After-Tax Contribution Accounts, Employer Contribution Account, Profit Sharing Plan Account and Rollover Account, if any, and the earnings and accretions thereon, be invested in such percentages (in increments of ten percent (10%) of the total of all Accounts) as he may designate among the Investment Funds. In the event a Member fails to direct the manner of investing his Accounts as provided herein, his Accounts shall be invested only in the Money Market Fund.

9.4 Change of Investment Directions: Each Member may, in the manner prescribed by the Committee and subject to any restrictions or conditions which may be established by the Committee, authorize the transfer of existing account balances twelve (12) times each Plan Year

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among the available Investment Funds (in ten percent (10%) increments). Notwithstanding the foregoing, a Member may authorize the transfer of his existing account balances to the Money Market Fund at any time, in a manner prescribed by the Committee and subject to the Committee’s consent and any other restrictions or conditions which may be established by the Committee.

Each Member may, in a form and manner prescribed by the Committee and subject to any restrictions or conditions which may be established by the Committee, direct that the investment of his future Pre-Tax Contributions, After-Tax Contributions and Employer Contributions be changed from one Investment Fund to another.

9.5 Benefits Paid Solely from Trust Fund: All of the benefits provided to be paid under Article VIII shall be paid by the Trustee out of the Trust Fund to be administered under such Trust Agreement. No Fiduciary shall be responsible or liable in any manner for payment of any such benefits, and all Members hereunder shall look solely to such Trust Fund and to the adequacy thereof for the payment of any such benefits of any nature or kind which may at any time be payable hereunder.

9.6 Committee Directions to Trustee: The Trustee shall make only such distributions and payments out of the Trust Fund as may be directed by the Committee. The Trustee shall not be required to determine or make any investigation to determine the identity or mailing address of any person entitled to any distributions and payments out of the Trust Fund and shall have discharged its obligation in that respect when it shall have sent certificates and checks or other papers by ordinary mail to such persons and addresses as may be certified to it by the Committee.

9.7 Authority to Designate Investment Manager: The Committee may appoint an investment manager or managers to manage (including the power to acquire and dispose of) any assets of the Trust Fund in accordance with the terms of the Trust Agreement and ERISA.

9.8 Liquidation of Cabot MicroElectronics Stock: Any Cabot MicroElectronics Stock received by the Plan on behalf of a Member shall be liquidated as soon as practicable as directed by the Committee, and such proceeds shall be invested proportionately according to the existing investment elections of the Members at the time of the liquidation.

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ARTICLE X

ADOPTION OF PLAN BY OTHER ORGANIZATIONS;

SEPARATION OF THE TRUST FUND; AMENDMENT AND TERMINATION OF THE PLAN;

DISCONTINUANCE OF CONTRIBUTIONS TO THE TRUST FUND

10.1 Adoptive Instrument: Any corporation or other organization with employees, now in existence or hereafter formed or acquired which is not already an Employer under this Plan and which is otherwise legally eligible, may, with the approval of the Company by action of the Board of Directors, adopt and become an Employer under this Plan by executing and delivering to the Company and the Trustee an adoptive instrument specifying the classification of its Employees who are to be eligible to participate in the Plan and by agreeing to be bound as an Employer by all the terms of the Plan with respect to its eligible Employees. The adoptive instrument may contain such changes and variations in the terms of the Plan as may be acceptable to the Company. Any such approved organizations which shall adopt this Plan shall designate the Company as its agent to act for it in all transactions affecting the administration of the Plan and shall designate the Committee to act for such Employer and its Members in the same manner in which the Committee may act for the Company and its Members hereunder. The adoptive instrument shall specify the effective date of such adoption of the Plan and shall become, as to such adopting Employer and its Employees, a part of this Plan. Such Employer shall also forthwith obtain a favorable determination letter from the appropriate District Director of the Internal Revenue with respect to its participation in the Plan. The Company may, in its absolute discretion, terminate an adopting Employer’s participation at any time when in its judgment such adopting Employer fails or refuses to discharge its obligations under the Plan. Unless otherwise specifically provided, in the event a corporation or organization that has adopted the Plan ceases to be an Affiliate of the Company its participation in the Plan shall terminate.

10.2 Separation of the Trust Fund: A separation of the Trust Fund as to the interest therein of the Members of any particular Employer may be made by an Employer at any time. In such event, the Trustee shall set apart that portion of the Trust Fund which shall be allocated to such Members pursuant to a valuation and allocation of the Trust Fund made in accordance with the procedures set forth in Sections 5.2 and 5.4, but as of the date when such separation of the Trust Fund shall be effective. Such portion may in the Trustee’s discretion be set apart in cash or in kind out of the properties of the Trust Fund. That portion of the Trust Fund so set apart shall continue to be held by the Trustee as though such Employer had entered into the Trust Agreement as a separate trust agreement with the Trustee. Such Employer may in such event designate a new trustee of its selection to act as trustee under such separate trust agreement. Such Employer shall thereupon be deemed to have adopted the Plan as its own separate plan, and shall subsequently have all such powers of amendment or modification of such plan as are reserved herein to the Company.

10.3 Voluntary Separation: If any Employer shall desire to separate its interest in the Trust Fund, it may request such a separation in a notice in writing to the Company and the Trustee. Such separation shall then be made as of any specified date after service of such notice, and such separation shall be accomplished in the manner set forth in Section 10.2.

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10.4 Amendment of the Plan: The Company shall have the right to amend or modify this Plan and (with the consent of the Trustee) the Trust Agreement at any time and from time to time to any extent that it may deem advisable. Any such amendment or modification shall be set out in an instrument in writing duly authorized by the Board of Directors and executed by the Company. No such amendment or modification shall, however, increase the duties or responsibilities of the Trustee without its consent thereto in writing, or have the effect of transferring to or vesting in any Employer any interest or ownership in any properties of the Trust Fund, or of permitting the same to be used for or diverted to purposes other than for the exclusive benefit of the Members and their Beneficiaries. No such amendment shall decrease the Account of any Member or shall decrease any Member’s vested interest in his Account. Notwithstanding anything herein to the contrary, the Plan or the Trust Agreement may be amended in such manner as may be required at any time to make it conform to the requirements of the Internal Revenue Code or of any United States statutes with respect to employees’ trusts, or of any amendment thereto, or of any regulations or rulings issued pursuant thereto, and no such amendment shall be considered prejudicial to any then existing rights of any Member or his Beneficiary under the Plan.

10.5 Acceptance or Rejection of Amendment by Employers: The Company shall promptly deliver to each other Employer any amendment to this Plan or the Trust Agreement. Each such Employer will be deemed to have consented to such amendment unless it notifies the Company and the Trustee in writing within thirty (30) days after receipt of the amendment that it does not consent thereto, and requests a separation of its interest in the Trust Fund in accordance with the provisions of Section 10.2, as of the first day of the month following such written notification to the Company and the Trustee.

10.6 Termination of the Plan: In accordance with the procedures set forth in this Section 10.6, the Company or any other Employer may effect a termination of the Plan as to such particular Employer under the following circumstances:

(a) The Plan may be terminated by the delivery to the Trustee of an instrument in writing approved and authorized by the board of directors of such Employer. In such event, termination of the Plan shall be effective as of any subsequent date specified in such instrument.

(b) Except as otherwise provided in Section 10.10, the Plan shall terminate effective at the expiration of sixty (60) days following the merger into another corporation or dissolution of any Employer, or following any final legal adjudication of any Employer as a bankrupt or an insolvent, unless within such time a successor organization approved by the Company shall deliver to the Trustee a written instrument certifying that such organization (i) has become the Employer of more than fifty percent (50%) of those Employees of such Employer who are then Members under this Plan and (ii) has adopted the Plan as to its Employees. In any such event the interest in the Plan of any Member whose

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employment may not be continued by the successor shall be fully vested as of the date of termination of his Service, and shall be payable in cash or in kind within six (6) months from the date of termination of his Service.

10.7 Liquidation and Distribution of Trust Fund Upon Termination: In the event a complete termination of the Plan in respect of any Employer shall occur, a separation of the Trust Fund in respect of the affected Members of such Employer shall be made as of the effective date of such termination of the Plan in accordance with the procedure set forth in Section 10.2. Following separation of the Trust Fund in respect of the Members of any Employer as to whom the Plan has been terminated, the assets and properties of the Trust Fund, so set apart, shall be reduced to cash as soon as may be expeditious under the circumstances. Any administrative costs or expenses incurred incident to the final liquidation of such separate trust funds shall be paid by the Employer, except that in the case of bankruptcy or insolvency of such Employer any such costs shall be charged against the Trust Fund. Following such partial reduction of such Trust Fund to cash, the Accounts of the Members shall then be valued as provided in Sections 5.2 and 5.4 and shall be fully vested, whereupon each such Member shall become entitled to receive the entire amount in his Account in cash as directed by the Committee. The terminating Employer shall promptly advise the appropriate District Director of Internal Revenue of such complete or partial termination and shall direct the Trustee to delay the final distribution to its affected Members until the District Director shall advise in writing that such termination does not adversely affect the previously qualified status of the Plan or the exemption from tax of the Trust under Section 401(a) or 501(a) of the Code.

10.8 Effect of Termination or Discontinuance of Contributions: If any Employer shall terminate the Plan as to its Employees, then all amounts credited to the Accounts of the Members of such Employer with respect to whom the Plan has terminated shall become fully vested and non-forfeitable. If any Employer shall completely discontinue its Contributions to the Trust Fund or suspend its Contributions to the Trust Fund under such circumstances as to constitute a complete discontinuance of Contributions within the meaning of Section 1.401-6(c) of the regulations under the Code, then all amounts credited to the Accounts of the Members of such Employer shall become fully vested and non-forfeitable, and throughout any such period of discontinuance of Contributions by an Employer all other provisions of the Plan shall continue in full force and effect with respect to such Employer other than the provisions for Contributions by such Employer.

10.9 Merger of Plan with Another Plan: In the event of any merger or consolidation of the Plan with, or transfer in whole or in part of the assets and liabilities of the Trust Fund to another trust fund held under, any other plan of deferred compensation maintained or to be established for the benefit of all or some of the Members of this Plan, the assets of the Trust Fund applicable to such Members shall be transferred to the other trust fund only if:

(a) Each Member would (if either this Plan or the other plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (if this Plan had then terminated);

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(b) Resolutions of the board of directors of the Employer under this Plan, or of any new or successor employer of the affected Members, shall authorize such transfer of assets, and, in the case of the new or successor employer of the affected Members, its resolutions shall include an assumption of liabilities with respect to such Members’ inclusion in the new employer’s plan; and

(c) Such other plan and trust are qualified under Sections 401(a) and 501(a) of the Code.

10.10 Consolidation or Merger with Another Employer: Notwithstanding any provision of this Article X to the contrary, upon the consolidation or merger of two or more Employers under this Plan with each other, the surviving Employer or organization shall automatically succeed to all the rights and duties under the Plan and Trust of the Employers involved, and their shares of the Trust Fund shall, subject to the provisions of Section 10.9, be merged and thereafter be allocable to the surviving Employer or organization for its Employees and their Beneficiaries.

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ARTICLE XI

MISCELLANEOUS PROVISIONS

11.1 Terms of Employment: The adoption and maintenance of the provisions of this Plan shall not be deemed to constitute a contract between any Employer and Employee, or to be a consideration for, or an inducement or condition of, the employment of any person. Nothing herein contained shall be deemed to give to any Employee the right to be retained in the employ of an Employer or to interfere with the right of an Employer to discharge an Employee at any time, nor shall it be deemed to give to an Employer the right to require any Employee to remain in its employ, nor shall it interfere with any Employee’s right to terminate his employment at any time.

11.2 Controlling Law: Subject to the provisions of ERISA, this Plan shall be construed, regulated and administered under the laws of the State of Texas.

11.3 Invalidity of Particular Provisions: In the event any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of this Plan but shall be fully severable, and this Plan shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein.

11.4 Non-Alienation of Benefits: Except as otherwise provided below and with respect to certain judgments and settlements pursuant to Section 401(a)(13) of the Code, no benefit which shall be payable out of the Trust Fund to any person (including a Member or Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the death, contracts, liabilities, engagements or torts of any person, and the same shall not be recognized by the Trustee, except to the extent as may be required by law.

This provision shall not apply to a “qualified domestic relations order” defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Committee under the provisions of the Retirement Equity Act of 1984. To the extent provided under a “qualified domestic relations order,” a former spouse of a Member shall be treated as the spouse or surviving spouse for all purposes of the Plan. If the Committee receives a qualified domestic relations order with respect to a Member, the Committee may authorize the immediate distribution of the amount assigned to the Member’s former spouse, to the extent permitted by law, from the Member’s Accounts.

11.5 Payments in Satisfaction of Claims of Members: Any payment or distribution to any Member or his legal representative or any Beneficiary in accordance with the provisions of this Plan shall be in full satisfaction of all claims under the Plan against the Trust Fund, the Trustee and the Employer. The Trustee may require that any distributee execute and deliver to the Trustee a receipt and a full and complete release as a condition precedent to any payment or distribution under the Plan.

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11.6 Payments Due Minors and Incompetents: If the Committee determines that any person to whom a payment is due hereunder is a minor or is incompetent by reason of physical or mental disability, the Committee shall have the power to cause the payments becoming due such person to be made to another for the benefit of such minor or incompetent, without the Committee or the Trustee being responsible to see to the application of such payment. To the extent permitted by ERISA, payments made pursuant to such power shall operate as a complete discharge of the Committee, the Trustee and the Employer.

11.7 Impossibility of Diversion of Trust Fund: Notwithstanding any provision herein to the contrary, no part of the corpus or the income of the Trust Fund shall ever be used for or diverted to purposes other than for the exclusive benefit of the Member or their Beneficiaries or for the payment of expenses of the Plan. No part of the Trust Fund shall ever directly or indirectly revert to any Employer.

11.8 Evidence Furnished Conclusive: The Employer, the Committee and any person involved in the administration of the Plan or management of the Trust Fund shall be entitled to rely upon any certification, statement, or representation made or evidence furnished by a Member or Beneficiary with respect to facts required to be determined under any of the provisions of the Plan, and shall not be liable on account of the payment of any monies or the doing of any act or failure to act in reliance thereon. Any such certification, statement, representation, or evidence, upon being duly made or furnished, shall be conclusively binding upon such Member or Beneficiary but not upon the Employer, the Member or any other person involved in the administration of the Plan or management of the Trust Fund. Nothing herein contained shall be construed to prevent any of such parties from contesting any such certification, statement, representation, or evidence or to relieve the Member or Beneficiary from the duty of submitting satisfactory proof of such fact.

11.9 Copy Available to Members: A copy of the Plan, and of any and all future amendments thereto, shall be provided to the Committee and shall be available to Members and, in the event of the death of a Member, to his Beneficiary, for inspection at the offices of his Employer during the regular office hours of the Employer.

11.10 Unclaimed Benefits: If at, after or during the time when a benefit hereunder is payable to any Member, Beneficiary or other distributee, the Committee, upon request of the Trustee, or at its own instance, shall mail by registered or certified mail to such Member, Beneficiary or other distributee at his last known address a written demand for his then address or for satisfactory evidence of his continued life, or both, and if such Member, Beneficiary or distributee shall fail to furnish the same to the Committee within two (2) years from the mailing of such demand, then the Committee may, in its sole discretion, determine that such Member, Beneficiary or other distributee has forfeited his right to such benefit and may declare such benefit, or any unpaid portion thereof, terminated as if the death of the distributee (with no surviving Beneficiary) had occurred on the date of the last payment made thereon, or on the date such Member, Beneficiary or distributee first became entitled to receive benefit payments, whichever is later; provided, however, that such forfeited benefit shall be reinstated if a claim for the same is made by the Member, Beneficiary or other distributee at any time thereafter. Such reinstatement shall be made out of the funds otherwise available for allocation as Forfeitures for

49

the Plan Year during which such claim was filed with the Committee (as provided in Section 4.8); and, if Forfeitures for the Plan Year are insufficient to reinstate such amounts, the Employer shall make the Employer Minimum Contribution required under Section 4.2 hereof.

11.11 Headings for Convenience Only: The headings and subheadings herein are inserted for convenience of reference only and are not to be used in construing this instrument or any provision thereof.

11.12 Successors and Assigns: This agreement shall bind and inure to the benefit of the successors and assigns of the Employers.

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ARTICLE XII

LIMITATION ON BENEFITS

Notwithstanding any provision of this Plan to the contrary, the total Annual Additions made to the Account of a Member for any Plan Year shall be subject to the following limitations:

I. Single Defined Contribution Plan

1. If an Employer does not maintain any other qualified plan, the amount of Annual Additions which may be allocated under this Plan on a Member’s behalf for a Limitation Year shall not exceed the lesser of the Maximum Permissible Amount or any other limitation contained in this Plan.

2. Prior to the determination of the Member’s actual Compensation for a Limitation Year, the Maximum Permissible Amount may be determined on the basis of the Member’s estimated annual Compensation for such Limitation Year. Such estimated annual Compensation shall be determined on a reasonable basis and shall be uniformly determined for all Members similarly situated. Any Employer contributions (including allocation of forfeitures) based on estimated annual Compensation shall be reduced by any Excess Amounts carried over from prior years.

3. As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for such Limitation Year shall be determined on the basis of the Member’s actual Compensation for such Limitation Year.

4. If there is an Excess Amount with respect to a Member for the Limitation Year, any non-deductible voluntary employee contributions, to the extent they would reduce the Excess Amount, will be returned to the Member. Then, Excess Amounts will be treated as a Forfeiture and shall be applied as a credit to subsequent Employer Contributions or reallocated to other Members to the extent such allocations do not exceed the Maximum Permissible Amount all as provided in Section 12(III)(4). Any Excess Amounts that cannot be allocated will be held in a suspense account. All amounts in the suspense account must be allocated and reallocated to the Member’s accounts (subject to the limitations of Section 415) in succeeding Limitation Years before any Employer contribution and non-deductible Employee contribution which would constitute Annual Additions may be made to the Plan.

If a suspense account is in existence at any time during the Limitation Year pursuant to this Section, it will not participate in the allocation of the Trust’s investment gains and losses.

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II. Two or More Defined Contribution Plans

1. If, in addition to this Plan, the Employer maintains any other qualified defined contribution plan, the amount of Annual Additions which may be allocated under this Plan on a Member’s behalf for a Limitation Year, shall not exceed the lesser of:

A. the Maximum Permissible Amount, reduced by the sum of any Annual Additions allocated to the Member’s accounts for the same Limitation Year under such other defined contribution plan or plans; or

B. any other limitation contained in this Plan.

2. Prior to the determination of the Member’s actual Compensation for the Limitation Year, the amount referred to in Section 1(A) above, may be determined on the basis of the Member’s estimated annual Compensation for such Limitation Year. Such estimated annual Compensation shall be determined on a reasonable basis and shall be uniformly determined for all Members similarly situated. Any Employer contribution (including allocation of forfeitures) based on estimated annual Compensation shall be reduced by any Excess Amounts carried over from prior years.

3. As soon as is administratively feasible after the end of the Limitation Year, the amounts referred to in Section 1(A) above shall be determined on the basis of the Member’s actual Compensation for such Limitation Year.

4. If a Member’s Annual Additions under this Plan and all such other defined contribution plans result in an Excess Amount, such Excess Amount shall be deemed to consist of the amounts last allocated.

5. If an Excess Amount was allocated to a Member on an allocation date of this Plan which coincides with an allocation date of another plan, the Excess Amount attributed to this Plan will be the product of:

A. the total Excess Amount allocated as of such date (including any amount which would have been allocated but for the limitations of Section 415 of the Code); times

B. the ratio of (1) the amount allocated to the Member as of such date under this Plan, divided by (2) the total amount allocated as of such date under all qualified defined contribution plans (determined without regard to the limitations of Section 415 of the Code).

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6. Any Excess Amounts attributed to this Plan shall be disposed of as provided in Section 12(I)(4).

III. Definitions

1. Employer: The Company and any other Employer that adopts this Plan. In the case of a group of employers which constitutes a controlled group of corporations (as defined in Code Section 414(b) as modified by Section 415(h)) or which constitutes trades and businesses (whether or not incorporated) which are under common control (as defined in Code Section 414(c) as modified by Section 415(h)) or an affiliated service group (as defined in Code Section 414(m)), all such employers shall be considered a single Employer for purposes of applying the limitations of these sections.

2. Excess Amount: The excess of the Member’s Annual Additions for the Limitation Year over the Maximum Permissible Amount.

3. Limitation Year: The Plan Year.

4. Maximum Permissible Amount: Except to the extent permitted under Section 4.1(C) of the Plan with respect to Catch-Up Contributions and Section 414(v) of the Code, if applicable, for a Limitation Year, the Maximum Permissible Amount with respect to any Member shall be the lesser of:

A. $40,000, as adjusted by the Secretary of the Treasury or his delegate pursuant to Code Section 415(d); or

B. 100% of the Member’s compensation for the Limitation Year.

The foregoing notwithstanding, the Maximum Permissible Amount shall not include contributions related to qualified military service under Section 3.12 of the Plan.

5. Compensation: For purposes of determining compliance with the limitations of Code Section 415, Compensation shall mean a Member’s earned income, wages, salaries, fees for professional services and other amounts received for personal services actually rendered in the course of employment with an Employer maintaining the Plan, including, but not limited to, commissions paid salesmen, compensation for services based on a percentage of profits, commissions on insurance premiums, tips and bonuses and excluding the following:

(a) Employer contributions to a plan of a deferred compensation to the extent contributions are not included in gross income of the Employee for the taxable year in which contributed, or on behalf of an employee to a simplified employee pension plan

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to the extent such contributions are deductible under Code Section 219(b)(2), and any distributions from a plan of deferred compensation whether or not includable in the gross income of the Employee when distributed (however, any amounts received by an Employee pursuant to an unfunded non-qualified plan may be considered as compensation in the year such amounts are included in the gross income of the Employee);

(b) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an employee becomes freely transferable or is no longer subject to a substantial risk of forfeiture;

(c) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and

(d) other amounts which receive special tax benefits, or contributions made by an Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in Code Section 403(b) (whether or not the contributions are excludable from the gross income of the Employee).

For the purposes of this Article, Compensation shall include any and all items which may be included in compensation under Code Section 415(c)(3), including any elective deferral (as defined in Code Section 402(g)(3)) and any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includable in the gross income of the Employee by reason of Code Section 125, 132(f)(4) or 457, but excluding amounts that would otherwise be excluded from an Employee’s gross income by reason of the application of Code Section 402(h)(1)(B) and, in the case of Employer contributions made pursuant to a salary reduction agreement, Code Section 403(b). The foregoing notwithstanding, for purposes of this Section, Compensation shall be limited to $220,000 or such other amount provided under Code Section 401(a)(17), as adjusted for cost-of-living increases in accordance with Code Section 401(a)(17)(B).

6. Average Compensation: The average Compensation during a Member’s high three (3) years of service, which period is the three (3) consecutive calendar years (or, the actual number of consecutive years of employment for those employees who are employed for less than three (3) consecutive years with the Employer) during which the Employee had the greatest aggregate Compensation from the Employer.

7. Annual Benefit: A benefit payable annually in the form of a straight life annuity (with no ancillary benefits) under a plan to which Employees do not contribute and under which no rollover contributions are made.

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8. Annual Additions: With respect to each Limitation Year, the total of the Employer Contributions, Pre-Tax Contributions, After-Tax Contributions. Forfeitures, and amounts described in Code Sections 415(l) and 419A(d)(2) which are allocated to a Member’s Account; excluding, however, any Catch-Up Contributions permitted under Section 4.1(C) of the Plan.

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ARTICLE XIII

TOP-HEAVY PLAN REQUIREMENTS

13.1 General Rule: For any Plan Year for which the Plan is a Top Heavy Plan, as defined in Section 13.7, despite any other provisions of the Plan to the contrary, the Plan shall be subject to the provisions of this Article XIII.

13.2 Vesting Provisions: Each Member who has completed an Hour of Service after the Plan becomes top heavy and while the Plan is top heavy and who has completed the vesting service specified in the following table shall be vested in his Account under the Plan at least as rapidly as is provided in the following schedule; except that the vesting provision set forth in Section 7.4 shall be used at any time in which it provides for more rapid vesting:

Years of Vesting Service	Vested Percent
Less than 2 years	0%
2	20%
3	40%
4	60%
5	80%
6 or more	100%

If an Account becomes vested by reason of the application of the preceding schedule, it may not thereafter be forfeited by reason of reemployment after retirement pursuant to a suspension of benefits provision, by reason of withdrawal of any mandatory employee contributions to which Employer Contributions were keyed or for any other reason. If the Plan subsequently ceases to be top heavy, the preceding schedule shall continue to apply with respect to any Member who had at least three years of service (as defined in Treasury Regulation Section 1.411(a) 8T(b)(3)) as of the close of the last year that the Plan was top heavy, except that each Member whose vested percentage in his Account is determined under such amended schedule and who has completed at least three years of service with the Employer, may elect, during the election period, to have the vested percentage in his Account determined without regard to such amendment if his vested percentage under the Plan as amended is, at any time, less than such percentage determined without regard to such amendment. For all other Members, the vested percentage of their Accounts prior to the date the Plan ceases to be top heavy shall not be reduced, but future increases in the vested percentage shall be made only in accordance with the vesting provision set forth in Section 7.4.

13.3 Minimum Contribution Percentage: Each Member who is (i) a Non Key Employee, as defined in Section 13.7, and (ii) employed on the last day of the Plan Year shall be entitled to have contributions and forfeitures (if applicable) allocated to his Account of not less than 3% (the “Minimum Contribution Percentage”) of the Member’s Compensation. This minimum allocation percentage shall be provided without taking a Non Key Employee’s Pre-Tax Contributions into account. Even a Non Key Employee who has completed less than 1,000 Hours of Service shall receive a Minimum Contribution Percentage, provided that such Non Key

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Employee has not terminated Service by the last day of the Plan Year. A Non Key Employee may not fail to receive a Minimum Contribution Percentage because of a failure to receive a specified minimum amount of compensation or a failure to make mandatory employee or elective contributions. This Minimum Contribution Percentage will be reduced for any Plan Year to the percentage at which contributions (including pre tax contributions and forfeitures, if applicable) are made or are required to be made under the Plan for the Plan Year for the Key Employee for whom such percentage is the highest for such Plan Year. For this purpose, the percentage with respect to a Key Employee will be determined by dividing the Contributions (including Pre-Tax Contributions and forfeitures if applicable) made for such Key Employee by his total compensation (as defined in Section 415(c)(3) of the Code) not in excess of $220,000 for the Plan Year, with such amount automatically adjusted in the same manner as the amount set forth in Section 13.4 below.

Contributions considered under the first paragraph of this Section 13.3 shall include Employer Contributions under the Plan and under all other defined contribution plans required to be included in an Aggregation Group (as defined in Section 13.7), but will not include Employer Contributions under any plan required to be included in such aggregation group if the plan enables a defined benefit plan required to be included in such group to meet the requirements of the Code prohibiting discrimination as to contributions in favor of employees who are officers, shareholders, or the highly compensated or prescribing the minimum participation standards. If the highest rate allocated to a Key Employee for a year in which the Plan is top heavy is less than 3%, amounts contributed as a result of a salary reduction agreement must be included in determining Contributions made on behalf of Key Employees.

Employer Matching Contributions shall be taken into account for purposes of satisfying the Minimum Contribution Percentage of this Section. The preceding sentence shall apply with respect to matching contributions under the Plan or, if the Plan provides that the Minimum Contribution Percentage shall be met in another plan, such other plan. Employer Matching Contributions that are used to satisfy the Minimum Contribution Percentage shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Section 401(m) of the Code.

Contributions considered under this Section shall not include any contributions under the Social Security Act or any other federal or state law.

13.4 Limitation on Compensation: The annual compensation of a Member taken into account under this Article XIII for purposes of computing benefits under the Plan shall not exceed $220,000, with such amount adjusted automatically for each Plan Year to the amount prescribed by the Secretary of the Treasury or his delegate pursuant to Section 401(a)(17)(B) of the Code and regulations for the calendar year in which such Plan Year commences.

13.5 Coordination With Other Plans: In the event that another defined contribution or defined benefit plan maintained by a Considered Company provides contributions or benefits on behalf of Members in the Plan, such other plan shall be treated as a part of the Plan pursuant to principles prescribed by applicable Treasury Regulations or Internal Revenue Service rulings to determine whether the Plan satisfies the requirements of Sections 13.2, 13.3 and 13.4, and to

57

avoid inappropriate omissions or inappropriate duplication. If a Member is covered both by a top heavy defined benefit plan and a top heavy defined contribution plan, a comparability analysis (as prescribed by Revenue Ruling 81-202 or any successor ruling) shall be performed in order to establish that the plans are providing benefits at least equal to the defined benefit minimum. Such determination shall be made upon the advice of counsel by the Committee, which shall, if necessary, cause benefits or contributions to be made sufficient.

13.6 Distributions to Certain Key Employees: Notwithstanding any other provision of the Plan to the contrary, the entire interest in the Plan of each Member who is a Key Employee and a “5% Owner” (as defined in Section 13.7(4)) in the calendar year in which such individual attains age 70 ¹/2 shall be distributed to such Member not later than April 1 following the calendar year in which such individual attains age 70 ¹/2.

13.7 Determination of Top Heavy Status: The Plan shall be a Top Heavy Plan for any Plan Year if, as of the Determination Date, the aggregate of the Accounts under the Plan (determined as of the Valuation Date) for Members (including former Members) who are Key Employees exceeds 60% of the aggregate of the Accounts of all Members, excluding former Key Employees, or if the Plan is required to be in an Aggregation Group, any such Plan Year in which such group is a Top Heavy Group. In determining Top Heavy status, if an individual has not performed one Hour of Service for any Considered Company at any time during the 1 year period ending on the Determination Date, any accrued benefit for such individual and the aggregate accounts of such individual shall not be taken into account.

For purposes of this Section, the capitalized words have the following meanings:

(1) “Aggregation Group” means the group of plans, if any, that includes both the group of plans required to be aggregated and the group of plans permitted to be aggregated. The group of plans required to be aggregated (the “required aggregation group”) includes:

(a) Each plan of a Considered Company in which a Key Employee is a participant in the Plan Year containing the Determination Date; and

(b) Each other plan, including collectively bargained plans, of a Considered Company which, during this period, enables a plan in which a Key Employee is a participant to meet the requirements of Section 401(a)(4) or 410 of the Code.

The group of plans that are permitted to be aggregated (the “permissive aggregation group”) includes the required aggregation group plus one or more plans of a Considered Company that is not part of the required aggregation group and that the Considered Company certifies as a plan within the permissive aggregation group. Such plan or plans may be added to the permissive aggregation group only if, after the addition, the aggregation group as a whole continues to satisfy the requirements of Sections 401(a)(4) and 410 of the Code.

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(2) “Considered Company” means the Employer or an Affiliate.

(3) “Determination Date” means the last day of the immediately preceding Plan Year.

(4) “Key Employee” means any Employee or former Employee (including any deceased Employee) under the Plan who, at any time during the Plan Year that includes the Determination Date, is or was one of the following:

(a) An officer of a Considered Company having an annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code);

(b) A person who owns (or is considered as owning, within the meaning of the constructive ownership rules of Section 416(i)(1)(B)(iii) of the Code) more than 5% of the outstanding stock of a Considered Company or stock possessing more than 5% of the combined voting power of all stock of the Considered Company (a “5% Owner”); or

(c) A person who has an annual compensation from the Considered Company of more than $150,000 and who owns (or is considered as owning within the meaning of the constructive ownership rules of Section 416(i)(1)(B) of the Code) more than 1% of the outstanding stock of the Considered Company or stock possessing more than 1% of the total combined voting power of all stock of the Considered Company (a “1% Owner”).

For purposes of this subsection (4), (i) whether an individual is an officer shall be determined by the Considered Company on the basis of all the facts and circumstances, such as an individual’s authority, duties, and term of office, not on the mere fact that the individual has the title of an officer, (ii) for any Plan Year, no more than 50 Employees (or if less, the greater of 3 or 10% of the Employees) shall be treated as officers, (iii) a Beneficiary of a Key Employee shall be treated as a Key Employee; (iv) in the case of a 5% or 1% Owner determination, each Considered Company is treated separately in determining ownership percentages, but all such Considered Companies shall be considered a single employer in determining the amount of compensation, and (v) compensation means all items includable as compensation for purpose of applying the limitations on annual additions to a Member’s account in a defined contribution plan and the maximum benefit payable under a defined benefit plan under Section 415(c)(3) of the Code. The determination of who is a Key Employee shall be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

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(5) “Non Key Employee” means any Employee (and any Beneficiary of an Employee) who is not a Key Employee. In any case where an individual is a Non Key Employee with respect to an applicable plan but was a Key Employee with respect to such plan for any prior Plan Year, any accrued benefit and any account of such Employee shall be altogether disregarded.

(6) “Top Heavy Group” means the Aggregation Group if, as of the applicable Determination Date, the sum of the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans included in the Aggregation Group plus the aggregate of the accounts of Key Employees under all defined contribution plans included in the Aggregation Group exceeds 60% of the sum of the present value of the cumulative accrued benefits for all employees (excluding former Key Employees), as provided in paragraph (a) below, under all such defined benefit plans plus the aggregate accounts for all employees (excluding former Key Employees), as provided in paragraph (a) below, under all such defined contribution plans. In determining Top Heavy status, if an individual has not performed one Hour of Service for any Considered Company at any time during the 1 year period ending on the Determination Date, any accrued benefit for such individual and the aggregate accounts of such individual shall not be taken into account. If the Aggregation Group that is a Top Heavy Group is a required aggregation group, each plan in the group will be a Top Heavy Plan. If the Aggregation Group that is a Top Heavy Group is a permissive aggregation group, only those plans that are part of the required aggregation group will be treated as Top Heavy Plans. If the Aggregation Group is not a Top Heavy Group, no plan within such group will be a Top Heavy Plan.

In determining whether the Plan constitutes a Top Heavy Plan, the Committee (or its agent) will make the following adjustments:

(a) When more than one plan is aggregated, the Committee shall determine separately for each plan as of each plan’s Determination Date the present value of the accrued benefits (for this purpose using the actuarial assumptions set forth in the applicable plan or account balance) or account balance, including distributions to Key Employees and all employees. The results shall then be aggregated by adding the results of each plan as of the Determination Dates for such plans that fall within the same calendar year. The combined results shall indicate whether or not the plans so aggregated are Top Heavy Plans.

(b) In determining the present value of the cumulative accrued benefit (for this purpose using the actuarial assumptions set forth in the applicable pension plan) or the amount of the account of any employee, such present value or account balance shall be increased by the amount in dollar value of the aggregate distributions made with respect to the employee under the Plan and

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any plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting “5-year period” for “1-year period.” The amounts will include distributions to employees representing the entire amount credited to their accounts under the applicable plan. The accrued benefits and accounts of any individual who has not performed services for a Considered Company during the 1-year period ending on the Determination Date shall not be taken into account.

(c) Further, in making such determination, such present value or such account balance shall include any rollover contribution (or similar transfer), as follows:

(i) If the Rollover Contribution (or similar transfer) is “unrelated” (both initiated by the employee and made to or from a plan maintained by another employer who is not a Considered Company), the plan providing the distribution shall include such distribution in the present value of such account; the plan accepting the distribution shall not include such distribution in the present value of such account unless the plan accepted it before December 31, 1983; and

(ii) If the Rollover Contribution (or similar transfer) is “related” (either not initiated by the employee or made from a plan maintained by another Considered Company), the plan making the distribution shall not include the distribution in the present value of such account; and the plan accepting the distribution shall include such distribution in the present value of such account.

(7) “Valuation Date” means, for purposes for determining the present value of an accrued benefit as of the Determination Date, the date determined as of the most recent valuation date which is within a 12 month period ending on the Determination Date. For the first plan year of a plan, the accrued benefit for a current employee shall be determined either (i) as if the individual terminated service as of the Determination Date or (ii) as if the individual terminated service as of the Valuation Date, but taking into account the estimated accrued benefit as of the Determination Date. The Valuation Date shall be determined in accordance with the principles set forth in Q&A T 25 of Treasury Regulation Section 1.416-1.

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Except as otherwise provided in this Section, for purposes of this Article, “Compensation” shall have the meaning given to it in Section 12(III)(5) of the Plan.

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ARTICLE XIV

TESTING OF CONTRIBUTIONS

14.1 Definitions: For purposes of this Article XIV, the following terms, when capitalized, shall be defined as:

(1) “Actual Contribution Percentage” or “ACP” shall mean, with respect to a Plan Year, for a specified group of Employees (either Highly Compensated Employees or non-Highly Compensated Employees) the average of the ratios, calculated separately for each Employee, of:

(a) The sum of the Aggregate Contributions paid under the Plan on behalf of each Employee for a Plan Year that are made on account of the Employee’s Contributions for the Plan Year, which are allocated to the Employee’s Account during such Plan year, and are paid to the Trust no later than the end of the next following Plan Year; over

(b) The Employee’s Compensation for such Plan Year.

An Employee’s Actual Contribution Percentage shall be determined after determining his Excess Deferrals and Excess Contributions, if any. The Actual Contribution Percentage of an eligible Employee who does not have any Aggregate Contributions for a Plan Year is zero. The individual ratios and Actual Contribution Percentages shall be calculated to the nearest 1/100 of 1% of an Employee’s Compensation.

(2) “Actual Deferral Percentage” or “ADP” shall mean, with respect to a Plan Year, for a specified group of Employees (either Highly Compensated Employees or non-Highly Compensated Employees) the average of the ratios, calculated separately for each Employee, of:

(a) The amount of Employer Contributions actually paid to the Plan on behalf of each such Employee for a Plan Year that relate to Compensation that either would have been received by the Employee in such Plan Year (but for the deferral election) or are attributable to services performed by the Employee in the Plan Year and would have been received by the Employee within 2 ¹/2 months after the close of the Plan Year (but for the deferral election) and which are allocated to the Employee’s Account and are paid to the Trust no later than the end of the next following Plan Year; over

(b) The Employee’s Compensation for such Plan Year.

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The Actual Deferral Percentage of an eligible Employee who does not have any Employer Contributions for a Plan Year is zero. The individual ratios and Actual Deferral Percentages shall be calculated to the nearest 1/100 of 1% of an Employee’s Compensation.

(3) “Aggregate Contributions” shall mean, as applicable, any of the following: (i) After-Tax Contributions; (ii) Employer Matching Contributions; (iii) QNECs that have not been included in the ADP test; and (iv) Pre-Tax Contributions that are not needed to satisfy the ADP test for the current Plan Year, provided such test is satisfied before and after such Pre-Tax Contributions have been included in the ACP test for the current Plan Year. Aggregate Contributions shall not include (a) Employer Matching Contributions that are forfeited either to correct Excess Aggregate Contributions or because the contributions to which they relate are Excess Deferrals, Excess Contributions or Excess Aggregate Contributions, or (b) Employer Matching Contributions made pursuant to Code Section 414(u) by reason of a Member’s qualified military service.

(4) “Compensation” shall mean the Employee’s total Compensation for services rendered to an Employer during the Plan Year and, unless the Committee elects otherwise, the Employee’s Pre-Tax Contributions for the Plan Year and any amounts not currently included in the Employee’s gross income by reason of the application of Section 125 or 132(f)(4) of the Code.

(5) “Employee” shall mean each Employee eligible to participate in the Plan in accordance with Section 3.1 of the Plan, including each eligible Employee who does not elect to make Pre-Tax Contributions and/or After-Tax Contributions and who is an “eligible employee,” as defined in Treasury Regulation Section 1.401(k)6.

(6) “Employer Contributions” shall mean, as applicable, any of the following: (i) Pre-Tax Contributions, including any Excess Deferrals made by Highly Compensated Employees, but excluding Catch-Up Contributions and any Pre-Tax Contributions made pursuant to Code Section 414(u) by reason of a Member’s qualified military service, and (ii) QNECs that have not been used to satisfy the ACP test for the current Plan Year.

(7) “Employer Matching Contributions” shall mean the amounts contributed to the Trust Fund by the Employer pursuant to Section 4.2.

(8) “Excess Aggregate Contributions” shall mean, with respect to any Plan Year, the excess of:

(a) The sum of the Aggregate Contributions actually taken into account in computing the ACP of Highly Compensated Employees for such Plan Year; minus

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(b) The maximum amount of Aggregate Contributions permitted by the ACP test for the Plan Year (determined by hypothetically reducing contributions made on behalf of Highly Compensated Employees in order of their ACP beginning with the highest of such percentages).

(9) “Excess Contributions” shall mean, with respect to any Plan Year, the excess of:

(a) The sum of the Employer Contributions actually taken into account in computing the ADP of Highly Compensated Employees for such Plan Year; minus

(b) The maximum amount of such Employer Contributions permitted by the ADP test for the Plan Year (determined by hypothetically reducing contributions made on behalf of Highly Compensated Employees in order of their ADP, beginning with the highest of such percentages).

(10) “Excess Deferrals” shall have the meaning provided in Section 4.1 of the Plan.

(11) “Highly Compensated Employee” shall mean any Employee and any employee of an Affiliate who is a highly compensated employee under Section 414(q) of the Code, including any Employee and any employee of an Affiliate who was a “5% owner” (as defined in Code Section 416(i)) during the current Plan Year or prior Plan Year or who received Compensation during the prior Plan Year in excess of $100,000, or such other amount as determined by the Secretary of the Treasury or his delegate, excluding Employees described in Code Section 414(q)(8). In determining an Employee’s status as a Highly Compensated Employee within the meaning of Section 414(q), the entities set forth in Treasury Regulation Section 1.414(q) 1T Q&A 6(a)(1) through (4) must be taken into account as a single employer. A former Employee shall be treated as a Highly Compensated Employee if (i) such former Employee was a Highly Compensated Employee when he separated from Service or (ii) such former Employee was a Highly Compensated Employee in Service at any time after attaining age 55.

(12) “QNECs” shall mean qualified non-elective contributions, as defined in Treasury Regulation Sections 1.401(k) and 1.401(m), that may be made for a Plan Year in any amount necessary to satisfy or help to satisfy the Actual Deferral Percentage limit in Section 14.2 of the Plan or the Contribution Percentage limit in Section 14.4 of the Plan.

14.2 Actual Deferral Percentage Test: The ADP for the eligible Highly Compensated Employees for the Plan Year shall not exceed the greater of (1) or (2), as follows:

1. The ADP for the eligible non-Highly Compensated Employees times 1.25; or

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2. The lesser of (i) the ADP for the eligible non-Highly Compensated Employees times 2.0 or (ii) the ADP for the eligible non-Highly Compensated Employees plus two percentage (2%) points.

The Plan applies the Actual Deferral Percentage test using the “current year testing method” described in Treasury Regulation Section 1.401(k)-2 for Highly Compensated Employees and non-Highly Compensated Employees. The ADP for any Highly Compensated Employee who is eligible to have Pre-Tax Contributions allocated to his account under two or more plans described in Section 401(k) of the Code that are maintained by an Employer or an Affiliate in addition to this Plan shall be determined as if the total of all such contributions were made under a single plan. If a Highly Compensated Employee participates in two or more plans that have different plan years, all Pre-Tax Contributions made during the Plan Year under all such arrangements shall be aggregated. In the event this Plan satisfies the requirements of Code Section 401(k), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such sections of the Code only if aggregated with this Plan, then this Section shall be applied by determining the ADP of Employees as if all such plans were a single plan. Plans may be aggregated in order to satisfy Code Section 401(k) only if they have the same plan year and use the same ADP testing method.

The Employer, in its sole discretion, may elect to make QNECs for any Plan Year in any amount it determines is necessary to satisfy or contribute to satisfying the Actual Deferral Percentage test set forth in this Section 14.2 or the Actual Contribution Percentage test set forth in Section 14.4 of the Plan. QNECs may be used in lieu of, or in conjunction with, the distributions described in Section 14.3 or the forfeitures described in Section 14.5 of the Plan. QNECs shall be allocated in a manner determined by the Employer, in accordance with Treasury Regulation Section 1.401(a)(4)-2, among the Pre-Tax Contribution Accounts (as defined in Section 1.31) of non-Highly Compensated Employees who were eligible to make Pre-Tax Contributions during the Plan Year for which the QNECs are made at any time during the Plan Year or no later than 12 months after the end of the Plan Year. QNECs shall be considered Pre-Tax Contributions and shall be subject to the same limitations as to withdrawal and distribution as Pre-Tax Contributions. QNECs shall be nonforfeitable and 100% vested at all times. Any portion of the QNECs taken into account for purposes of the Actual Contribution Percentage test in Section 14.4, may not be taken into account for purposes of the Actual Deferral Percentage test in this Section 14.2. QNECs must satisfy the non-disproportionate contributions requirements of Treasury Regulation Sections 1.401(k)2(a)(6)(iv) and 1.401(m)2(a)(6)(4).

14.3 Excess Contributions: If neither of the tests described in (1) or (2) of Section 14.2 are satisfied, and the Employer decides not to make QNECs as a corrective measure, then Excess Contributions, plus any income and minus any loss attributable thereto, of certain Highly Compensated Employees will be distributed and shall be considered taxable income to such Highly Compensated Employees. Excess Contributions are allocated to the Highly Compensated Employees with the largest amount of Pre-Tax Contributions taken into account in calculating the ADP test for the year in which the excess arose, beginning with the Highly Compensated

66

Employee with the largest amount of such Pre-Tax Contributions and continuing in descending order until all of the Excess Contributions have been allocated. To the extent a Highly Compensated Employee has not reached his Catch-Up Contribution limit under the Plan, Excess Contributions shall be allocated to such Highly Compensated Employee as Catch Up Contributions (not to exceed the Catch-Up Contribution limit) and such contributions will not be treated as Excess Contributions.

The amount of Excess Contributions allocated to each Highly Compensated Employee, plus any income and minus any losses calculated up to the date of the distribution, and minus the amount of any Excess Deferrals previously distributed, will be distributed to the affected Highly Compensated Employees as soon as administratively feasible but in no event later than 12 months following the end of such Plan Year during which the Excess Contributions were made.

The income or loss attributable to a Highly Compensated Employee’s Excess Contributions for the Plan Year shall be determined as the sum of (1) and (2), where (1) is the income or loss attributable to the Highly Compensated Employee’s Pre-Tax Contribution Account for the Plan Year multiplied by a fraction, the numerator of which is the Excess Contributions and the denominator of which is the amount of the Highly Compensated Employee’s Pre-Tax Contribution Account balance as of the beginning of the Plan Year plus the Employee’s Pre-Tax Contributions to the Account during the Plan Year; and (2) (using the safe harbor method) is 10% of the amount determined under (1) multiplied by the number of calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if distribution occurs after the 15th of such month.

If distributions are made under this Section 14.3, the Actual Deferral Percentage is treated as meeting the nondiscrimination test of Section 401(k)(3) of the Code, regardless of whether the Actual Deferral Percentage, if recalculated after such distributions, would satisfy Section 401(k)(3) of the Code. The above procedures are used for purposes of distributing Excess Contributions under Section 401(k)(8)(A)(i) of the Code. Excess Contributions shall be treated as Annual Additions under Section 12(III)(8) of the Plan.

14.4 Actual Contribution Percentage Test: The Contribution Percentage for the eligible Employees for any Plan Year who are Highly Compensated Employees shall not exceed the greater of (1) or (2), as follows:

1. The ACP for the eligible non-Highly Compensated Employees times 1.25; or

2. The lesser of (i) the ACP for the eligible non-Highly Compensated Employees times 2.0 or (ii) the ACP for non-Highly Compensated Employees plus two percentage (2%) points.

The Plan applies the Actual Contribution Percentage test using the “current year testing method” described in Treasury Regulation Section 1.401(m)-2 for Highly Compensated Employees and non-Highly Compensated Employees. In computing the Actual Contribution

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Percentage, the Employer may elect to take into account Pre-Tax Contributions and QNECs made under this Plan or any other plan of the Employer to the extent that (i) Pre-Tax Contributions and/or QNECs used for purposes of calculating the ADP test are not used for purposes of calculating the ACP test, and (ii) Pre-Tax Contributions, including those treated as Aggregate Contributions for purposes of calculating the Actual Contribution Percentage, satisfy the requirements of Code Section 401(k)(3). The ACP for any Highly Compensated Employee who is eligible to have Aggregate Contributions allocated to his account under two or more plans described in Section 401(a) or 401(k) of the Code that are maintained by an Employer or an Affiliate in addition to this Plan shall be determined as if the total of all such contributions were made under a single plan. If a Highly Compensated Employee participates in two or more such plans or arrangements that have different plan years, all Aggregate Contributions made during the Plan Year under all such plans and arrangements shall be aggregated.

For purposes of determining whether the ACP limits of this Section 14.4 are satisfied, all Aggregate Contributions that are made under two or more plans that are aggregated for purposes of Code Section 401(a)(4) or 410(b) are to be treated as made under a single plan, and if two or more plans are permissively aggregated for purposes of Code Section 401(m), the aggregated plans must also satisfy Code Sections 401(a)(4) and 410(b) as though they were a single plan. Plans may be aggregated in order to satisfy Code Section 401(m) only if they have the same Plan Year and use the same ACP testing method.

14.5 Excess Aggregate Contributions: If neither of the tests described in (1) or (2) of Section 14.4 are satisfied, and the Employer decides not to make QNECs as a corrective measure, Excess Aggregate Contributions, plus any income and minus any loss attributable thereto, shall be forfeited no later than 12 months after the close of a Plan Year to Members to whose accounts such Excess Aggregate Contributions were allocated. Excess Aggregate Contributions are allocated to the Highly Compensated Employees with the largest Aggregate Contributions taken into account in calculating the ACP test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest amount of such Aggregate Contributions and continuing in descending order until all the Excess Aggregate Contributions have been allocated. Excess Aggregate Contributions shall be treated as Annual Additions under the Plan.

The income or loss attributable to the Highly Compensated Employee’s Excess Aggregate Contributions for the Plan Year shall be determined as the sum of (1) and (2), where (1) is the income or loss attributable to the Highly Compensated Employee’s Employer Contribution Account (as defined in Section 1.17) and After-Tax Contribution Account for the Plan Year multiplied by a fraction, the numerator of which is the Excess Aggregate Contribution, and the denominator of which is the amount of the Highly Compensated Employee’s Employer Contribution Account and After-Tax Contribution Account without regard to any income or loss occurring during such Plan Year; and (2) (using the safe harbor method) is 10% of the amount determined under (1) multiplied by the number of whole calendar months between the end of the Plan Year and the date of forfeiture, counting the month of forfeiture if forfeiture occurs after the 15th of such month.

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Any forfeiture of Excess Aggregate Contributions shall be applied to reduce Employer Matching Contributions for the Plan Year in which the excess arose. Should the amount of forfeited Excess Aggregate Contributions exceed the amount of Employer Matching Contributions needed for the Plan Year, such forfeitures shall be allocated, after all other forfeitures under the Plan, to the Employer Contribution Accounts of each non-Highly Compensated Employee who made Pre-Tax Contributions to the Plan, in the ratio that each such Employee’s Pre-Tax Contributions for the Plan Year bears to the total Pre-Tax Contributions of all such Employees for such Plan Year.

If forfeitures are made under this Section 14.5, the Actual Contribution Percentage test is treated as meeting the nondiscrimination test of Section 401(m)(2) of the Code, regardless of whether the Actual Contribution Percentage, if recalculated after such forfeitures, would satisfy Section 401(m)(2) of the Code. Excess Aggregate Contributions shall be treated as Annual Additions under Section 12(III)(8) of the Plan.

14.6 Effective Date: The provisions of this Article XIV are intended to comply with applicable provisions of the final Code Section 401(k) and 401(m) regulations, issued December 29, 2004, and are effective for Plan Years beginning on or after January 1, 2006.

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IN WITNESS WHEREOF, the Company has executed these presents as evidenced by the signatures affixed hereto of its officers hereunto duly authorized, and by its corporate seal being affixed hereto, in a number of copies, all of which shall constitute but one and the same instrument which may be sufficiently evidenced by any such executed copy hereof, this          day of                     , 2006, but effective as of January 1, 2006.

CABOT OIL & GAS CORPORATION

By

ATTEST:

Secretary

[SEAL]

THE STATE OF TEXAS	§
	§
COUNTY OF HARRIS	§

BEFORE ME, the undersigned authority, on this day personally appeared                                 ,                                  of CABOT OIL & GAS CORPORATION, known to me to be the person and officer whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same as the act of the said CABOT OIL & GAS CORPORATION, a corporation, and that he was duly authorized to perform the same and that he executed the same as the act and deed of said corporation for the purposes and consideration therein expressed and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this the          day of                     , 2006.

Notary Public, State of Texas

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APPENDIX A

Vesting of Certain Employees Upon Termination of Employment

The following Employees who, upon termination of employment with the Company, (i) are eligible to receive benefits under the following severance plans and (ii) if required by the applicable severance plan, sign a valid waiver and release shall be fully vested in their benefits under the Plan.

1. Severance Plans 507 through 574

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EX-10.23

Exhibit 10.23

CABOT OIL & GAS CORPORATION PENSION PLAN

(As Amended and Restated Effective January 1, 2006)

Exhibit 10.23

CABOT OIL & GAS CORPORATION PENSION PLAN

(As Amended and Restated Effective January 1, 2006)

INDEX

		Page
ARTICLE I DEFINITIONS		2
1.1	Actuarial Equivalent:	2
1.2	Actuary:	3
1.3	Affiliate:	3
1.4	Annuity Starting Date:	3
1.5	Anniversary Date:	3
1.6	Authorized Absence:	3
1.7	Average Monthly Compensation:	3
1.8	Board of Directors:	3
1.9	Code:	3
1.10	Committee:	3
1.11	Company:	3
1.12	Compensation:	3
1.13	Disability:	4
1.14	Effective Date	4
1.15	Employee	4
1.16	Employer	4
1.17	ERISA	4
1.18	Final Average Monthly Compensation	5
1.19	Grandfathered Employee	5
1.20	Hour(s) of Service	5
1.21	Joint Pensioner	5
1.22	Late Retirement Date	6
1.23	Leased Employee	6
1.24	Nongrandfathered Employee	6
1.25	Normal Retirement Date	6
1.26	Participant	6
1.27	Pension	6
1.28	Plan	6
1.29	Plan Year	6
1.30	Prior Plan	6
1.31	Prior Plan Participant	6
1.32	Retirement	6
1.33	Service	7
1.34	Spouse	7
1.35	Transferred Participant	7
1.36	Trustee	7
1.37	Trust Agreement	7
1.38	Trust Fund	7

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ARTICLE II SERVICE, BREAK IN SERVICE AND SOCIAL SECURITY		8
2.1	Service:	8
2.2	Authorized Absences	9
2.3	Break in Service	10
2.4	Participation and Service upon Reemployment Before a Break in Service	10
2.5	Participation and Service upon Reemployment After a Break in Service	10
2.6	Transfer of Employment	11
2.7	Special Eligibility and Vesting for Certain Employees	12
2.8	Automatic Grant of Service	12
2.9	Qualified Military Service	13
ARTICLE III PARTICIPATION IN THE PLAN		14
3.1	Employees Eligible to Participate	14
3.2	Employees Absent on Date of Eligibility	14
ARTICLE IV RETIREMENT ELIGIBILITY		15
4.1	Normal Retirement	15
4.2	Late Retirement	15
4.3	Early Retirement	15
4.4	Disability Retirement	15
4.5	Deferred Vested Retirement	16
4.6	Partial Vesting	16
4.7	Special Benefit Eligibility for Certain Employees	16
ARTICLE V AMOUNT, DURATION, COMMENCEMENT DATE, FREQUENCY AND LIMITATIONS OF RETIREMENT BENEFITS		17
5.1	Normal Retirement Pension	17
5.2	Late Retirement Pension	19
5.3	Early Retirement Pension	19
5.4	Disability Retirement Pension	19
5.5	Deferred Vested Retirement Pension	20
5.6	Automatic Option and Optional Pensions	20
5.7	Duration of Pensions	33
5.8	Payment of Small Benefits	33
5.9	Waiver of Waiting Period	33
5.10	Benefits after Re-employment	33
5.11	Minimum Date for Commencement of Benefits	34
5.12	Direct Rollovers	35
ARTICLE VI DEATH BENEFIT		37
6.1	Death While in Service but Prior to Commencement of Pension	37
6.2	Death After Retirement but Prior to Commencement of Pension	37
6.3	Death After Deferred Vested Retirement but Prior to Commencement of Pension	37
6.4	Definition of Spouse	37
6.5	Death Benefits Payable Under the Cabot Corporation Cash Balance Plan and Retirement Income Plan	38
6.6	Alternate Form of Pension Payment for Spouse	38

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ARTICLE VII CLAIM PROCEDURES		39
7.1	Presenting Claims for Benefits	39
7.2	Claims Review Procedure	41
7.3	Disputed Benefits	44
ARTICLE VIII PLAN ADMINISTRATION		45
8.1	Allocation of Responsibility Among Fiduciaries for Plan and Trust Administration	45
8.2	Appointment of Committee	45
8.3	Records and Reports	45
8.4	Other Committee Powers and Duties	46
8.5	Rules and Decisions	47
8.6	Committee Procedures	47
8.7	Authorization of Benefit Payments	47
8.8	Payment of Expenses	47
8.9	Application and Forms for Pension	47
8.10	Indemnification of Committee	47
8.11	Annual Audit	48
8.12	Funding Policy	48
8.13	Allocation and Delegation of Committee Responsibilities	48
ARTICLE IX CONTRIBUTIONS TO THE PLAN		49
9.1	Participant Contributions	49
9.2	Employer Contributions	49
9.3	Discontinuance or Suspension of Contributions	49
9.4	Forfeitures Credited Against Employer’s Contributions	50
ARTICLE X AMENDMENT OF THE PLAN		51
10.1	Right to Amend Reserved	51
10.2	Limitations on Right to Amend	51
10.3	Form of Amendment	52
10.4	Merger of Plan with Another Pension Plan	52
ARTICLE XI THE TRUSTEE AND THE TRUST FUND		53
11.1	Trustee	53
11.2	Trust Agreement	53
11.3	Benefits Paid Solely from Trust Fund	53
11.4	Trust Fund Applicable Only to Payment of Benefits	53
11.5	Accounting by Trustee	53
11.6	Authorization to Protect Trustee	53
11.7	Exemption from Bond	54
ARTICLE XII TERMINATION OF THE PLAN		55
12.1	Right to Terminate Reserved	55
12.2	Continuance with Successor Employer	55
12.3	Liquidation of Trust Fund	55
12.4	Distribution of Trust Fund	57
12.5	Residual Amounts	58
12.6	Limitations Imposed by Treasury Regulations upon Early Termination of Plan	58

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ARTICLE XIII ADOPTION OF PLAN BY OTHER ORGANIZATIONS		60
13.1	Procedure for Adoption	60
13.2	Effect of Adoption	60
13.3	The transfer of a Participant from one Employer to another or to an Affiliate shall not be deemed a termination of Service.	60
13.4	Separation of the Trust Fund	61
13.5	Voluntary Separation	61
13.6	Approval of Amendment	61
ARTICLE XIV MISCELLANEOUS		62
14.1	Interest on Deferred Payments	62
14.2	Plan Not an Employment Contract	62
14.3	Controlling Law	62
14.4	Invalidity of Particular Provisions	62
14.5	Non-Alienability of Rights of Participants	62
14.6	Copy Available to Participants	63
14.7	Evidence Furnished Conclusive	63
14.8	Unclaimed Benefits	63
14.9	Name and Address Changes	63
14.10	Facility of Payment	63
14.11	Payments in Satisfaction of Claims of Participants	64
14.12	Headings for Convenience Only	64
ARTICLE XV LIMITATION ON BENEFITS		65
I.	Single Defined Benefit Plan	65
II.	Two or More Defined Benefit Plans	67
III.	Definitions	67
ARTICLE XVI TOP-HEAVY PLAN REQUIREMENTS		69
16.1	General Rule	69
16.2	Vesting Provisions	69
16.3	Minimum Benefit Provisions	69
16.4	Limitation on Compensation	70
16.5	Coordination With Other Plans	70
16.6	Distributions to Certain Key Employees	70
16.7	Determination of Top-Heavy Status	70

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CABOT OIL & GAS CORPORATION PENSION PLAN

(As Amended and Restated Effective January 1, 2006)

Effective as of January 1, 1991, Cabot Oil & Gas Corporation, a Delaware corporation (the “Company”), established the Cabot Oil & Gas Corporation Pension Plan (the “Prior Plan”) for the benefit of its eligible employees and the eligible employees of its affiliates that adopted the Plan. The Prior Plan was subsequently amended by the First through Fifth Amendments thereto.

In connection with the establishment of the Prior Plan, the Company established the Cabot Oil & Gas Corporation Pension Plan Trust by agreement between the Company and NCNB Texas National Bank, a national banking association (the “Trust”). NCNB Texas National Bank was thereafter replaced by Bankers’ Trust and then Harris Trust and Savings Bank, respectively, as party to the Trust. Effective as of February 1, 2005, the Trust was amended and restated with Fidelity Management Trust Company as trustee thereunder. The Trust is intended to constitute a part of the Prior Plan and to continue in effect to form a part of this Plan.

Effective January 1, 2001, the Board of Directors of the Company authorized the amendment and restatement of the Prior Plan to incorporate the prior amendments, to incorporate changes required by certain legislative acts, and to make certain other changes.

Effective as of January 1, 2006, the Board of Directors of the Company authorized the amendment and restatement of the Prior Plan in order to incorporate all prior amendments thereto, including previously adopted good faith compliance amendments to reflect applicable law changes under the Economic Growth and Tax Relief Reconciliation Act of 2001 (the “Plan”) and to incorporate the applicable changes as required on the 2005 Cumulative List provided in Notice 2005-101.

There shall be no termination and no gap or lapse in time or effect between the Prior Plan as in effect on December 31, 2005, and this Plan, and the existence of a qualified pension plan shall be uninterrupted.

The Plan and Trust are intended to meet the requirements of Sections 401(a) and 501(a) of the Internal Revenue Code of 1986 and of the Employee Retirement Income Security Act of 1974, as either may be amended from time to time.

NOW, THEREFORE, the Company hereby amends, restates in its entirety and continues the Cabot Oil & Gas Corporation Pension Plan, effective January 1, 2006, as follows:

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ARTICLE I

DEFINITIONS

As used in this Plan the terms defined in this Article I shall have the meanings set forth herein, unless their context clearly indicates to the contrary:

1.1 Actuarial Equivalent: With respect to any benefit hereunder, a payment or payments equal in value at date of determination to such benefit when determined actuarially on the basis of an eight percent (8%) interest assumption compounded annually and the Unisex Pension 1984 Mortality Table. For purposes of calculating lump sums under Section 5.8, the Applicable Interest Rate and Applicable Mortality Table shall be utilized.

(a) Applicable Interest Rate: The annual rate of interest on 30-year Treasury securities for the month of November that immediately precedes the first day of the calendar year during which the Annuity Starting Date occurs.

(b) Applicable Mortality Table: The table prescribed by the Secretary of Treasury pursuant to Section 417(e)(3) of the Code.

Notwithstanding any other provision of this Plan to the contrary, effective for annuity starting dates on or after January 1, 2003, the Applicable Mortality Table is the table prescribed in Revenue Ruling 2001-62.

The foregoing notwithstanding, effective as of October 1, 2004, Actuarially Equivalent for benefit payments, except where specifically noted in regard to the benefits payable to Participants who are listed in Exhibit I due to participation under the Cabot Corporation Cash Balance Plan and only for those benefits, will be determined for the value of benefit payments using (i) the 8% interest rate and Unisex Pension 1984 Mortality Table for non-lump sum benefits or (ii) the Applicable Interest Rate and Applicable Mortality Table as defined in (a) and (b) below, whichever produces the greater benefit.

For the benefits payable to Participants listed in Exhibit I and only for those benefits, Actuarially Equivalent will be determined for the value of benefit payments using (i) the calculation provided in Section 5.6(b)(2) herein or (ii) the Applicable Interest Rate and Applicable Mortality Table as defined in (a) and (b) below, whichever produces the greater benefit.

(a) Applicable Interest Rate: For a Plan Year, the “applicable interest rate” as defined by Section 417(e)(3) of the Code for the month of November that immediately precedes the first day of the calendar year during which the Annuity Starting Date occurs.

(b) Applicable Mortality Table: The table prescribed by the Secretary of Treasury pursuant to Section 417(e)(3) of the Code.

1.2 Actuary: The independent actuary or firm of actuaries approved by the Joint Board for the Enrollment of Actuaries to perform actuarial services required under ERISA or regulations thereunder which has been appointed by the Company to make the actuarial computations required under the Plan.

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1.3 Affiliate: A corporation or other trade or business which is not an Employer under this Plan but which, together with the Company, is “under common control” within the meaning of Code Section 414(b) or (c), as modified by Code Section 415(h); any organization (whether or not incorporated) which, together with the Company, is a member of an “affiliated service group” within the meaning of Code Section 414(m); and any other entity required to be aggregated with the Company pursuant to regulations under Code Section 414(o).

1.4 Annuity Starting Date: The applicable of the Participant’s Early Retirement Date, Normal Retirement Date or the first day of the month next following his actual termination of Service, if later, or in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the Participant to such benefit.

1.5 Anniversary Date: October 1 of each year.

1.6 Authorized Absence: Any absence authorized by the Employer or an Affiliate under the Employer’s or Affiliate’s standard personnel practices, provided that all persons under similar circumstances are treated alike in the granting of such Authorized Leaves of Absence and provided further that the Participant returns within the period of authorized absence.

1.7 Average Monthly Compensation: The result obtained by dividing the total Compensation paid to an Employee during a considered period by the number of months, including fractional months, for which such Compensation was received. The considered period shall be the five (5) consecutive completed years of Service within the Employee’s last ten (10) consecutive completed years of Service which yield the highest average; provided, however, that if an Employee has fewer than five (5) consecutive completed years of Service for which Compensation was received, his considered period shall be all his years, including fractional years, for which Compensation was received. Any period of Service for which an Employee is not compensated shall be excluded from the above computation.

1.8 Board of Directors: The Board of Directors of Cabot Oil & Gas Corporation.

1.9 Code: The Internal Revenue Code of 1986, as amended.

1.10 Committee: The Administrative Committee appointed under and acting in accordance with the terms of the Plan.

1.11 Company: Cabot Oil & Gas Corporation, a Delaware corporation, and its successor or successors.

1.12 Compensation: The total nondeferred remuneration paid to an Employee by an Employer and, prior to January 1, 1991, by Cabot Corporation, for personal services which are rendered during the period considered as Service, as reported on the Participant’s Federal Income Tax Withholding Statement (Form W-2 or its subsequent equivalent) including salary, wages, overtime payments, annual, discretionary and sign-on bonuses, and any amounts by which an Employee’s normal remuneration is reduced pursuant to a voluntary salary reduction plan under

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Section 125 or 401(k) of the Code, but excluding any amounts contributed by or on behalf of an Employer to this Plan or any other employee benefit plan sponsored by the Employer, nondeductible moving expenses, disability pay (both short-term and long-term), severance pay (whether periodic or in a lump sum), any income arising from the exercise of a stock option or from the receipt of a restricted stock award, waiver benefits, taxable group term life insurance benefits, reimbursements, expense allowances, taxable fringe benefit payments, retention and relocation bonuses, and deductible payments under Code Section 105(h). The Compensation of an Employee as reflected on the books and records of the Employer shall be conclusive.

Notwithstanding any other provision of the Plan to the contrary, the Compensation of each Employee taken into account under the Plan shall not exceed $220,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Internal Revenue Code; provided, however, that an Employee’s Compensation for determination periods before January 1, 2006 shall not exceed the applicable dollar limit previously in effect under the Plan in such prior determination periods. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the Compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. If Compensation for any prior determination period is taken into account in determining an Employee’s benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the Compensation limit in effect for that prior determination period.

1.13 Disability: A physical or mental disability which prevents a Participant from engaging in any substantial gainful activity and which can be expected to result in death or to be of long continued and indefinite duration. The determination of whether a Participant has a Disability shall be determined according to the following: (i) for Participants who are also participants in the Cabot Oil & Gas Long Term Disability Plan (“Cabot LTD Plan”) at time of their claim of Disability, by the Cabot LTD Plan; or (ii) for Participants who do not participate in the Cabot LTD Plan at the time of their claim of Disability, by the Committee, upon the advice of competent physicians of the Committee’s selection.

1.14 Effective Date: January 1, 2006.

1.15 Employee: Any person employed by an Employer.

1.16 Employer: The Company, and any other entity that shall adopt this Plan pursuant to the provisions of Article XIV hereof, and the successors, if any, to such entity.

1.17 ERISA: Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as amended from time to time.

1.18 Final Average Monthly Compensation: A Participant’s Average Monthly Compensation as determined immediately prior to his final termination of employment with all Employers or Affiliates.

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1.19 Grandfathered Employee: An Employee who was a member of the Cabot Corporation Retirement Income Plan as of September 30, 1988 and had (a) 10 (ten) or more years of Vesting Service or (b) 5 (five) or more years of Vesting Service and his age plus years of Vesting Service equaled 50 (fifty) or more.

1.20 Hour(s) of Service: For purposes of determining eligibility and vesting, an Hour of Service is each hour during an applicable computation period for which an Employee is directly or indirectly paid, or entitled to payment, by an Employer or an Affiliate for the performance of duties or for any period of Authorized Leave of Absence. Moreover, an Hour of Service is each hour, not in excess of forty (40) hours per week, during any period of unpaid Authorized Leave of Absence with an Employer or an Affiliate. Such Hours of Service shall be credited to the Employee for the computation period in which such duties were performed or in which such Authorized Leave of Absence occurred. An Hour of Service also includes each hour, not credited above, for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by an Employer or an Affiliate. These Hours of Service shall be credited to the Employee for the computation period to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. In determining an Employee’s total Hours of Service during a computation period, a fraction of an hour shall be deemed a full Hour of Service.

Instead of counting and crediting actual hours worked, for purposes of determining the number of Hours of Service to be credited to an Employee, an Employee may be credited with 190 Hours of Service for each calendar month during which he has earned one Hour of Service. For purposes of determining the number of Hours of Service to be credited for reasons other than the performance of duties and for purposes of determining to which computation period Hours of Service earned under any provision of this Plan are to be credited, the provisions of Department of Labor Regulation Section 2520.200(b)-2(b) and (c) are hereby incorporated by reference as if fully set forth herein.

Hours of Service will be credited for employment with other members of an affiliated service group (under Code Section 414(m)), a controlled group of corporations (under Code Section 414(b)), or a group of trades or businesses under common control (under Code Section 414(c)), of which the Company is a member. Hours of Service will also be credited for any individual considered an employee under Code Section 414(n). However, unless otherwise specifically provided, Hours of Service shall not be credited for employment with such an affiliated service group, a controlled group, or a group of trades or businesses prior to its becoming or after its ceasing to be a member of the Company’s affiliated service group, controlled group, or group of trades or businesses.

1.21 Joint Pensioner: The individual designated by a Participant who has elected an optional pension to receive Pension payments payable following the Participant’s death after Retirement, as provided in paragraph B of Section 5.6.

1.22 Late Retirement Date: The first day of the month coincident with or next following the Participant’s Retirement after his Normal Retirement Date.

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1.23 Leased Employee: Each person who is not an employee of the Employer or an Affiliate but who performs services for the Employer or an Affiliate pursuant to a leasing agreement (oral or written) between the Employer or an Affiliate and any leasing organization, provided that such person has performed such services for the Employer or an Affiliate or for related persons (within the meaning of Section 144(a)(3) of the Code) on a substantially full-time basis for a period of at least one year and such services are performed under primary direction or control by the Employer or an Affiliate. Notwithstanding the preceding sentence, the term “Leased Employee” shall not include any individual who is deemed to be an employee of the Employer or an Affiliate under Section 414(n)(5) of the Code.

1.24 Nongrandfathered Employee: Any Employee who is not a Grandfathered Employee.

1.25 Normal Retirement Date: The later of (i) the first day of the month coincident with or next following the Participant’s attainment of age sixty-five (65) and (ii) the completion of five (5) years of Service. Notwithstanding anything herein to the contrary, a Participant’s right to his accrued Normal Retirement Pension shall become fully vested and nonforfeitable upon his being in Service on or after the later to occur of his attainment of age 65 or the fifth anniversary of his becoming a Participant in the Plan.

1.26 Participant: Any Employee who has become and continues to be a participant in the Plan in accordance with its provisions. The term “Participant” shall also include Transferred Participants unless otherwise specifically excluded.

1.27 Pension: A series of monthly payments which are payable to a person entitled to receive benefits under the Plan.

1.28 Plan: The Cabot Oil & Gas Corporation Pension Plan, as amended and restated effective January 1, 2006, and as the same may be amended.

1.29 Plan Year: The fiscal year of the Plan beginning October 1 of each calendar year and ending September 30 of the following calendar year.

1.30 Prior Plan: The Cabot Oil & Gas Corporation Pension Plan as in effect on December 31, 2005.

1.31 Prior Plan Participant: Any person who is an Employee on January 1, 2006, and was, on December 31, 2005, included in and covered by the Prior Plan, or who is, on January 1, 2006 receiving or entitled to receive benefits under the Prior Plan.

1.32 Retirement: The termination of Service of a Participant after he has fulfilled all requirements for an immediate Pension hereunder. Retirement shall be considered as commencing on the day immediately following a Participant’s last day of Service.

1.33 Service: A Participant’s period of employment or deemed employment determined in accordance with Article II.

1.34 Spouse: The person to whom a Participant is legally married.

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1.35 Transferred Participant: An Employee shall be deemed a Transferred Participant during any period in which he is or was employed by an Affiliate or by an Employer in an employment classification not covered by this Plan.

1.36 Trustee: The Trustee at any time acting under the Trust Agreement.

1.37 Trust Agreement: The Trust Agreement provided for in Section 11.2 hereof, and as the same may be amended.

1.38 Trust Fund: The assets held by the Trustee under the Trust Agreement for the benefit of the Participants of the Prior Plan and this Plan, together with all income, profits and increments thereon.

Words used in this Plan and in the Trust Agreement in the singular shall include the plural and in the plural the singular, and the gender of words used shall be construed to include whichever gender may be appropriate under any particular circumstances.

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ARTICLE II

SERVICE, BREAK IN SERVICE AND SOCIAL SECURITY

2.1 Service:

(a) Eligibility and Vesting: For purposes of determining Eligibility Service and Vesting Service, an Employee shall accrue a year of Service for each Plan Year in which he has 1,000 or more Hours of Service subject to the Break in Service provisions of Sections 2.3, 2.4 and 2.5. Solely for eligibility purposes, an Employee’s initial year of Eligibility Service shall be the twelve (12) consecutive months beginning with his employment commencement date (or his reemployment commencement date if he is reemployed after a one-year Break in Service). If such Employee fails to complete 1,000 or more Hours of Service during such twelve (12) consecutive months, subsequent years of Eligibility Service shall be Plan Years beginning with the Plan Year which includes the anniversary of the Employee’s employment commencement date. Solely for vesting purposes, an Employee shall accrue a year of Vesting Service for each twelve (12) consecutive months beginning with the employment commencement date (or his reemployment commencement date if he is reemployed after a one-year Break in Service) during which the Employee completes at least 1,000 Hours of Service. An Employee’s or Participant’s Service shall commence (or recommence) on the date such Employee or Participant first performs an Hour of Service.

Solely for purposes of determining whether a Break in Service has occurred for purposes of determining Eligibility Service and Vesting, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence or, in any case in which such hours cannot be determined, eight (8) Hours of Service per day of such absence except that the total number of hours treated as Hours of Service shall not exceed 501 hours. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (a) by reason of the pregnancy of the individual, (b) by reason of a birth of a child of the individual, (c) by reason of the placement of a child with the individual in connection with the adoption of the child by such individual or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this paragraph shall be credited (a) in the computation period in which the absence begins if the crediting is necessary to prevent a Break in Service in that period or (b) in all other cases, in the following computation period.

(b) Benefit Service: For purposes of determining Benefit Service, an Employee shall be credited with Service for all years, months and days of active employment as an Employee or a Participant, plus periods included under Sections 2.2, 2.3, 2.4 or 2.5. Benefit Service shall also include a Participant’s years of Service with Cabot Corporation prior to January 1, 1991. If the

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Participant completes less than a full year of Service during the Plan Year, he will be given credit for one-twelfth ( ¹/12) of a year of Benefit Service for each month completed during the Plan Year.

An Employee’s or Participant’s Service shall commence (or recommence) on the date such Employee or Participant first performs an Hour of Service. A period of Service of an Employee or Participant shall terminate upon the first to occur of (i) his retirement or death, (ii) his quitting or discharge other than during or upon expiration of an Authorized Absence, (iii) his quitting or discharge during such an Authorized Absence, (iv) his deemed date of termination of employment pursuant to his failure to return to active employment upon the expiration of an Authorized Absence or (v) one (1) year from the date the Employee is absent from active employment for any reason other than Retirement, quit, discharge, Authorized Absence or death. For purposes of clause (iv) immediately above, a Participant’s deemed date of termination of employment shall be the earlier of (a) the expiration date of such Authorized Absence and (b) one (1) year from the date such Authorized Absence commenced. In the event a Participant’s employment is terminated because of Disability, such Participant’s Service shall continue for the entire period from the date of such Disability to the earlier of (i) the Participant’s date of recovery or death or (ii) the Participant’s Normal Retirement Date. Unless a period of Service can be disregarded under the Break in Service provisions of Sections 2.3, 2.4 or 2.5 hereof, all periods of Service shall be aggregated so that a one-year period of Service shall be completed as of the date an Employee or Participant completes three hundred sixty-five (365) days of Service.

Solely for purposes of determining whether a Break in Service, as defined in Section 2.3, for purposes of determining Benefit Service has occurred, the Service of an individual who is absent from Service beyond the first anniversary of the first date of absence for maternity or paternity reasons shall not terminate until the expiration of two (2) years after the first date such absence commenced. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (a) by reason of the pregnancy of the individual, (b) by reason of the birth of a child of the individual, (c) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement.

2.2 Authorized Absences: Service shall include and shall not be interrupted by Authorized Absences. The Employee or Participant shall be credited with Service during a period of Authorized Absence, as described below. Authorized Absences shall include the following periods of absence:

(a) Absence due to accident or sickness so long as the Employee or Participant is continued on the employment rolls of the Employer or Affiliate and remains eligible to return to work upon his recovery;

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(b) Absence due to membership in the Armed Forces of the United States (but if such absence is not pursuant to orders issued by the Armed Forces of the United States, only if with the consent of the Employer) but only if, and then only to the extent that, applicable federal law requires such military service to be counted as Service hereunder and only if the Employee or Participant has complied with all prerequisites of such federal law; and

(c) Absence due to an authorized leave of absence granted by an Employer or Affiliate pursuant to established practices applied in a consistent and non-discriminatory manner, in order that all employees under similar circumstances are treated alike, provided that each such Employee or Participant shall, prior to the expiration of such leave, apply for reinstatement in the employment of the Employer or Affiliate.

2.3 Break in Service: An Employee shall incur a one-year Break in Service in any Plan Year during which he does not complete more than 500 Hours of Service. In the event an Employee or Participant recommences Service with an Employer or an Affiliate prior to incurring a Break in Service, the period of his interim absence shall constitute Service for purposes of the Plan.

2.4 Participation and Service upon Reemployment Before a Break in Service: Upon the reemployment before a Break in Service of any person who had previously been employed by an Employer or Affiliate, the following rules shall apply. If the reemployed person was not a Participant during his prior period of Service, he must meet the requirements of Section 3.1 for participation in the Plan as if he were a new Employee; provided, however, for the purpose of determining whether an Employee meets the requirements of Section 3.1, Hours of Service during his prior period of employment and the period of his interim absence shall be recognized. If the reemployed person was a Participant in the Plan during his prior period of Service, he shall be entitled to recommence participation as of the date of his reemployment, all years of Vesting Service and Benefit Service attributable to his prior period of Service shall be reinstated as of the date of his reemployment and the period of his interim absence shall constitute Vesting Service but not Benefit Service.

2.5 Participation and Service upon Reemployment After a Break in Service: Upon the reemployment after a Break in Service of any person who had previously been employed by an Employer or Affiliate, the following rules shall apply in determining his eligibility for participation and his Service:

(a) Eligibility Service: If an Employee was not a Participant during his pre-break Service, he must meet the requirements of Section 3.1 for participation in the Plan as if he were a new Employee and Hours of Service during his prior period of employment shall be considered in determining whether he meets these requirements. If the reemployed person was a Participant during his prior period of employment, he shall be entitled to recommence participation as of the date of his reemployment, provided he completes one year of Service after the date of his reemployment.

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(b) Vesting and Benefit Service: If the reemployed person was not a Participant during his prior period of employment or was a Participant whose prior Service terminated without entitlement to a Pension, any Vesting Service and Benefit Service attributable to his prior period of employment shall be reinstated as of the date of his recommencement of participation only if the number of consecutive one-year Breaks in Service is less than the greater of five (5) or the aggregate number of his years of pre-break Service. If the re-employed person was a Participant whose pre-break Service terminated with entitlement to a Pension, all years of Vesting Service and Benefit Service attributable to his prior period of employment shall be reinstated upon his recommencing participation in the Plan.

2.6 Transfer of Employment: In the event that a Participant is transferred from an employment classification with an Employer that is covered by this Plan to (i) an employment classification with the same Employer or with another Employer that is not covered by this Plan or (ii) employment with an Affiliate, such Participant shall retain all the benefits accrued to him under this Plan prior to the date of transfer and shall retain such benefits until his subsequent retirement or other termination of employment with an Employer or any Affiliate. Such Participant shall also continue to accrue Vesting Service for all periods of employment with an Employer not covered by this Plan or with an Affiliate.

In the event that an individual is transferred from (i) an employment classification with an Employer that is not covered by this Plan to an employment classification with the same Employer or another Employer that is covered by this Plan or (ii) employment with an Affiliate to an employment classification with an Employer that is covered by this Plan, such individual shall retain his credited service and all benefits accrued to him under the retirement plan, if any, covering his employment prior to that date of the transfer; provided, however, that for purposes of this Plan such employment prior to the date of transfer shall not constitute Benefit Service (except as provided in Section 2.1(b) hereof) and shall be considered only for purposes of determining his eligibility to participate in, and his vested interest under, this Plan. After the date of such transfer such individual shall accrue the benefits specified under this Plan provided he is otherwise eligible therefor.

It is intended by this Section 2.6 to credit an individual or Participant with Service for eligibility purposes, if applicable, and with Vesting Service for vesting purposes during all periods of employment while in a Transferred Participant status and all such Service and such Vesting Service shall be determined as though such employment while in a Transferred Participant status were employment by an Employer covered by this Plan.

All benefits accrued under this Plan and under any other retirement plan covering Employees of an Employer or of an Affiliate that are payable to a Participant shall be paid from the funding medium of the plan under which the Participant was last an active member if permitted under such plan; provided, however, that the funding medium for such plan shall be reimbursed by the funding medium of the other plan or plans for such benefits paid which were not accrued under the plan making the payments. Such amounts to be reimbursed shall be agreed upon by the plan administrator for each such plan, and each such plan administrator shall authorize the appropriate trustee to pay or receive the agreed upon amount.

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Notwithstanding any other provision in this Plan to the contrary, there shall be no duplication of Pensions payable under this Plan and pensions or other retirement benefits payable under any other defined benefit pension plan of an Employer or Affiliate, and any pension or retirement benefit payable to any Participant under any other defined benefit pension plan of an Employer or Affiliate based on a period of Service for which Benefit Service is given under this Plan shall be deducted from the total Pension otherwise payable to such Participant under this Plan. A transfer of employment of a Participant (excluding a Transferred Participant) from one Employer to another Employer in an employment classification covered by this Plan shall not affect a Participant’s Eligibility Service, Vesting Service or Benefit Service. Unless specifically provided in this Plan to the contrary, Service shall not be credited for employment with an affiliated service group, controlled group or group of trades or businesses prior to its becoming or after its ceasing to be a member of the Company’s affiliated service group, controlled group or group of trades or businesses or for any period during which the Employer or Affiliate does not maintain this Plan.

2.7 Special Eligibility and Vesting for Certain Employees: Effective on the dates provided below, the employees acquired as a result of the acquisition of certain assets of or merger with the following companies (the “Acquired Companies”) shall automatically become Participants of this Plan subject to the eligibility requirements under Article III. Any period of employment immediately prior to the effective date of the acquisition with an Acquired Company or an affiliate of an Acquired Company shall be considered for purposes of determining a Participant’s Eligibility Service and Vesting Service under this Plan to the extent such employment otherwise qualifies under the relevant provisions of the Plan, but in no event shall any such period of employment constitute Benefit Service under this Plan:

Acquired Company	Effective Date
Doran & Associates, Inc.	March 1, 1989
Emax Oil Company	October 1, 1993
Washington Energy Resources Company	May 3, 1994
Oryx Energy Company	December 30, 1998
Cody Energy LLC	August 17, 2001

2.8 Automatic Grant of Service: All employees who become employed by the Company as a result of an acquisition of or merger with an employer not affiliated with the Company (“Acquired Company”) shall be credited with service with the Acquired Company immediately prior to the acquisition for purposes of eligibility and vesting hereunder.

2.9 Qualified Military Service: Notwithstanding any provisions of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

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ARTICLE III

PARTICIPATION IN THE PLAN

3.1 Employees Eligible to Participate: Each Prior Plan Participant shall become a Participant in the Plan as of the Effective Date. Each other Employee shall participate in the Plan commencing on the first day of the month coincident with or next following his completion of one year of Eligibility Service.

Notwithstanding anything to the contrary in this Plan, the following Employees shall not be eligible to participate in the Plan: (i) Leased Employees, (ii) employees covered by a collective bargaining agreement between employee representatives and the Employer, if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and the Employer and such collective bargaining agreement does not expressly provide for coverage of such employees hereunder, (iii) persons who are non-resident aliens and who receive no earned income (within the meaning of Code Section 911) from the Employer which constitutes income from sources within the United States (within the meaning of Code Section 861), and (iv) persons who are utility employees (as herein defined). For purposes of this Plan, a utility employee is an employee who is hired in a utility position. A utility position is (i) a position which is expected by the respective Employer or Affiliate to be of limited duration or (ii) for a particular project upon the conclusion of which the employee is expected by the respective Employer or Affiliate to be terminated.

3.2 Employees Absent on Date of Eligibility: Any Employee who is on an Authorized Absence on his eligibility date shall automatically become a Participant as of such eligibility date.

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ARTICLE IV

RETIREMENT ELIGIBILITY

4.1 Normal Retirement: A Participant who retires on his Normal Retirement Date shall be entitled to receive the Normal Retirement Pension provided for in Section 5.1 commencing on his Annuity Starting Date.

4.2 Late Retirement: A Participant who remains in the active Service of the Employer beyond his Normal Retirement Date and who retires on his Late Retirement Date shall be entitled to receive the Late Retirement Pension provided for in Section 5.2 commencing on his Annuity Starting Date.

4.3 Early Retirement: A Participant’s Early Retirement Date is the first day of the month following his termination of Service after the Participant has completed at least ten (10) years of Vesting Service and has attained age fifty-five (55) but not age sixty-five (65). A Participant who retires on an Early Retirement Date shall be entitled to receive the Early Retirement Pension provided for in Section 5.3 commencing on his Annuity Starting Date.

4.4 Disability Retirement: A Participant who shall terminate his Service because of Disability after completion of five (5) years of Vesting Service but prior to his Normal Retirement Date, and who shall be eligible for and receive disability benefits under the Federal Social Security Act (after the waiting period required in such Act) continuously until he attains age sixty-five (65), shall be entitled to receive the Disability Retirement Pension provided for in Section 5.4; provided, however, that any Employee who is entitled to an Early Retirement Pension and who has elected to receive payment of such Early Retirement Pension prior to his Normal Retirement Date under Section 5.3 hereof shall not be eligible for a Disability Retirement Pension.

The Disability of any Participant shall be determined by the Committee in accordance with uniform principles consistently applied upon the basis of such medical or other evidence as the Committee deems necessary or desirable. Disability shall be considered to have ended if, prior to his Normal Retirement Date, the Participant (i) engages in any substantial gainful employment, except for such employment as is found by the Committee to be for the primary purpose of rehabilitation or not incompatible with a finding of total and permanent disability, (ii) has sufficiently recovered, based on a medical examination by a physician of the Committee’s selection, to be able to engage in regular full-time employment with any employer, or (iii) refuses to undergo any medical examination requested by the Committee, provided that a medical examination shall not be required more frequently than twice in any calendar year.

If the Disability of a Participant is considered to have ended as described above prior to his attaining age sixty-five (65) and he is not reemployed by the Employer, his Accrued Pension (as defined in Section 5.1) payable at age sixty-five (65) will be recalculated to reflect Service only to the date of recovery.

If the Disability of a Participant is considered to have ended as described above prior to his attaining age sixty-five (65) and he is reemployed by the Employer, he will immediately become a Participant and will be granted Benefit Service for the period of Disability.

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4.5 Deferred Vested Retirement: A Participant who has completed five (5) years of Vesting Service, whose Service is terminated for any reason other than Disability, Normal, Late or Early Retirement, or death, shall be entitled to receive a Deferred Vested Retirement Pension as provided for in Section 5.5.

Each Participant whose Service is terminated other than by Disability, Normal, Late or Early Retirement or death prior to the time he has met the requirements for a Deferred Vested Retirement Pension set forth above in this Section 4.5 shall not be entitled to any benefit under this Plan whatsoever. A Participant who terminates Service without entitlement to a benefit shall be deemed to have received the full amount of his benefit pursuant to Section 1.411(a)-7(d) of the Treasury regulations.

If a terminated Participant is subsequently reemployed by the Employer, any Accrued Pension amounts received as of and during his termination shall become a permanent reduction to any Accrued Pension payable under the Plan upon any subsequent termination, Retirement, Disability or death.

4.6 Partial Vesting: Any Employee or Participant who, as of December 31, 1990, was partially vested under the Cabot Corporation Cash Balance Plan will be vested in his benefits under this Plan to the same extent he would have been vested under the Cabot Corporation Cash Balance Plan, except that any Employee or Participant who completes a total of five (5) years of Vesting Service shall be one hundred percent (100%) vested in his benefits under this Plan.

4.7 Special Benefit Eligibility for Certain Employees: Certain Employees of the Company who attain age 52 on or before March 31, 1995 and who, on or before October 1, 1994, had two or more years of Vesting Service, as determined under Section 2.1 of the Plan, will be eligible to participate in the Cabot Oil & Gas Corporation “3 + 3” Program (the “Program”). An eligible Employee who (i) receives a letter on or before February 28, 1995 informing the Employee of his eligibility for the Program, (ii) who makes an election to participate in the Program within 30 days after receiving such letter and (iii) who does not revoke the election during such 30 day period will terminate Service effective April 1, 1995 unless requested by the Company to continue employment for an additional period of time. Upon finalizing such irrevocable election, each Program participant shall be entitled, as of March 31, 1995, to have three years added to his age for purposes of determining the amount of any applicable reduction for commencement of payments and eligibility for early retirement, three additional years credited to his Benefit Service and Vesting Service as of such date and, solely for purposes of calculating the participant’s Normal Retirement Pension under Section 5.1 of this Plan, the Program participant’s Compensation as of December 31, 1994 applied as the Program participant’s Compensation for such additional years of Service.

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ARTICLE V

AMOUNT, DURATION, COMMENCEMENT DATE,

FREQUENCY AND LIMITATIONS OF RETIREMENT BENEFITS

5.1 Normal Retirement Pension: A Participant who terminates his Service on or after the Effective Date and after qualifying for a Normal Retirement Pension under Section 4.1 shall be entitled to receive from the Trust Fund a Normal Retirement Pension for his lifetime, which shall be in an amount equal to the applicable of the following:

(a) Each Participant who is a Nongrandfathered Employee shall receive a monthly amount equal to the sum of the following:

(1) 1.1% of the Participant’s Final Average Monthly Compensation multiplied by the number of full and fractional years of Benefit Service earned; plus

(2) 0.4% of the Participant’s Final Average Monthly Compensation in excess of  ¹/12 of the Participant’s Social Security Covered Compensation (as hereinafter defined) multiplied by the number of full and fractional years of Benefit Service earned (up to 35 years); minus

(3) The monthly benefit payable at age 65 under the Cabot Corporation Cash Balance Plan as determined in Section 5.6(b)(2)(ii), and the accrued benefit earned under the Cabot Corporation Retirement Income Plan as of September 30, 1988 as guaranteed by the Prudential Insurance Company (as detailed in Exhibit II, a copy of which is attached hereto and is hereby incorporated into this Plan).

(b) Each Participant who is a Grandfathered Employee shall receive a monthly amount equal to the sum of the following:

(1) 1.28% of Final Average Monthly Compensation multiplied by the full and fractional number of years of Benefit Service, plus

(2) 0.4% of Final Average Monthly Compensation in excess of  ¹/12 of the Participant’s Social Security Covered Compensation (as hereinafter defined) multiplied by the number of full and fractional years of Benefit Service earned (up to 35 years), minus

(3) The monthly benefit payable at age 65 under the Cabot Corporation Cash Balance Plan as determined in Section 5.6(b)(2)(ii), and the accrued benefit earned under the Cabot Corporation Retirement Income Plan as of September 30, 1988 as guaranteed by the Prudential Insurance Company (as detailed in Exhibit II).

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A Participant’s “Social Security Covered Compensation” for a calendar year is the average (without indexing) of the taxable wage bases in effect for each calendar year during the 35-year period ending with the last day of the calendar year in which the Participant attains (or will attain) his Social Security Retirement Age, as defined in Code Section 415(b)(8). In determining a Participant’s Social Security Covered Compensation for a calendar year, the taxable wage base for the current calendar year and any subsequent calendar year shall be assumed to be the same taxable wage base as in effect as of the beginning of the calendar year for which the determination is being made. A Participant’s Social Security Covered Compensation for a calendar year after the 35-year period described in this Section 5.1 is the Participant’s Social Security Covered Compensation for the calendar year during which the Participant attained his Social Security Retirement Age. A Participant’s Social Security Covered Compensation for a calendar year before the 35-year period described in this Section 5.1 is the taxable wage base in effect as of the beginning of the calendar year. A Participant’s Social Security Covered Compensation shall be automatically adjusted for each calendar year.

Unless otherwise provided under the Plan, each Section 401(a)(17) Employee’s accrued benefit under this Plan will be the greater of the accrued benefit determined for the employee under (a) or (b) below:

(a) the Employee’s accrued benefit determined with respect to the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the Employee’s total years of Service taken into account under the Plan for the purposes of benefit accruals; or

(b) the sum of:

(i) the Employee’s accrued benefit as of the last day of the last Plan Year beginning before January 1, 1994 frozen in accordance with Section 1.401(a)(4)-13 of the regulations; and

(ii) the Employee’s accrued benefit determined under the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the Employee’s years of Service credited to the employee for Plan Years beginning on or after January 1, 1994 for purposes of benefit accruals.

A Section 401(a)(17) Employee means an employee whose current accrued benefit as of a date on or after the first day of the first Plan Year beginning on or after January 1, 1994 is based on Compensation for a year beginning prior to the first day of the first Plan Year beginning on or after January 1, 1994 that exceeded $150,000.

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Unless the Participant elects otherwise in writing, the distribution of his Pension shall begin no later than the 60th day after the latest of the close of the Plan Year in which (i) the Participant attains age 65, (ii) occurs the 10th anniversary of the Plan Year in which the Participant commences participation in the Plan, or (iii) the Participant terminates Service.

5.2 Late Retirement Pension: A Participant who meets the requirements for a Late Retirement Pension and retires on a Late Retirement Date shall receive for his lifetime a monthly amount commencing on his Annuity Starting Date equal to his accrued Normal Retirement Pension at his Late Retirement Date. Notwithstanding any other provisions of this Plan to the contrary, if a Participant attains age 70 ¹/2 prior to his Late Retirement Date, his Late Retirement Pension shall commence no later than April 1 of the calendar year following the calendar year during which such Participant attains age 70 ¹/2, whether or not such Participant has retired or otherwise terminated Service.

5.3 Early Retirement Pension: Any Participant who retires after satisfying the requirements for Early Retirement set forth in Section 4.3 shall be entitled to receive an Early Retirement Pension commencing at his Normal Retirement Date in a monthly amount equal to his accrued Normal Retirement Pension at his Early Retirement Date. The amount of his accrued Normal Retirement Pension shall be equal to the product of (a) the Normal Retirement Pension he would have received at Normal Retirement Age (determined pursuant to Section 5.1(a)(1) and (a)(2) or Section 5.1(b)(1) and (b)(2), whichever is applicable) using his Final Monthly Average Compensation and Covered Compensation as of his Early Retirement Date and the Benefit Service projected to his Normal Retirement Date, multiplied by (b) a fraction the numerator of which is his Benefit Service as of his Early Retirement Date and the denominator of which is his projected Benefit Service at his Normal Retirement Date. Such amount shall then be reduced by the offsets described in Section 5.1(a)(3) or 5.1(b)(3), whichever is applicable. If the Participant entitled to an Early Retirement Pension requests, such Participant shall receive a Pension, commencing on the first day of any month following his Retirement on or after his Early Retirement Date and preceding his Normal Retirement Date, in a monthly amount computed under the above provisions of this Section 5.3 but reduced by one-quarter of one percent (0.25%) per month for each month by which the starting date of such Pension precedes the Participant’s attainment of age sixty-two (62). The Early Retirement Pension is payable monthly for the Participant’s life, except as may be provided in Section 5.6.

5.4 Disability Retirement Pension: Any Participant who retires because of Disability and who satisfies the requirements for Disability Retirement set forth in Section 4.4 shall be entitled to receive a Disability Retirement Pension, in lieu of any other Pension payable under this Article V, commencing at his Normal Retirement Date, in an amount equal to the benefit the Participant would have earned had he remained in Service calculated with Benefit Service projected to his Normal Retirement Date but based on the Participant’s Compensation in effect on the date of Disability. If a Participant subsequently satisfies the requirements of Section 4.3 based on Service accrued during the period of his Disability, he may request early commencement of his Disability Retirement Pension as provided in Section 5.3. Such Disability Retirement Pension shall be payable monthly for the Participant’s life, except as may be provided in Section 5.6.

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5.5 Deferred Vested Retirement Pension: Any Participant who terminates Service after meeting the requirements for Deferred Vested Retirement set forth in Section 4.5 shall be entitled to receive a Deferred Vested Retirement Pension commencing on his Normal Retirement Date and payable monthly for the Participant’s life, except as may be provided in Section 5.6.

Such Deferred Vested Retirement Pension shall commence on the Participant’s Normal Retirement Date unless such Participant duly elects to receive a reduced Deferred Vested Retirement Pension commencing on the first day of any month following the month in which he attains age 55. Such Deferred Vested Retirement Pension will be determined in the same manner as under Section 5.3 based on such Participant’s date of termination, except the benefit will be reduced by one-half of one percent (0.50%) per month for each month by which such commencement date precedes age 65. If the single sum present value of the Participant’s Deferred Vested Retirement Pension determined as of the Participant’s date of termination is not more than $1,000, the Committee shall pay such single sum present value to the Participant in a lump sum in lieu of any other benefit payable hereunder, unless the Participant elects to have such amount paid directly to an eligible retirement plan in the form of a direct rollover.

Effective October 1, 2004, any Participant who is eligible to receive a Deferred Vested Retirement Pension which has a single sum present value that does not exceed $50,000 as of October 1, 2004, shall be permitted to elect to receive his Deferred Vested Retirement Pension in the form of an immediate lump sum distribution in complete satisfaction of the Plan’s obligations under Article V of the Plan. Such election must occur within 60 days of receipt by the Participant of the applicable election notice.

5.6 Automatic Option and Optional Pensions:

(a) Automatic Option: A Participant who (i) retires on a Normal, Early or Late Retirement Date or who terminates Service after meeting the requirements for a Deferred Vested Pension or who terminates Service because of Disability and (ii) is legally married as of his Annuity Starting Date, shall receive, in lieu of the Pension to which he is otherwise entitled, the Automatic Option which is the Actuarial Equivalent of his Pension otherwise payable, unless he shall have theretofore elected in writing, with the written consent of his Spouse, if any, not to receive such Automatic Option after having received a written explanation of the terms and conditions of the Automatic Option and the effect of an election not to receive such Automatic Option but to instead receive his Pension as otherwise payable hereunder. As used in this paragraph (a), “Automatic Option” means for a Participant who is married on his Annuity Starting Date an annuity for the life of a Participant and a 50% survivor annuity for the life of his Spouse which, together, equal the Actuarial Equivalent of the Participant’s Normal Retirement Pension, Early Retirement Pension, Late Retirement Pension, Disability Retirement Pension or Deferred Vested Retirement Pension, whichever is applicable. If a Participant does not have a Spouse on his Annuity Starting Date, he shall receive the normal form of Pension computed and payable as provided under this Article V unless he has duly elected an optional Pension, as provided in paragraph (b) below. For the purposes of this Section 5.6, the identity of a Participant’s Spouse shall be determined on the Participant’s Annuity Starting Date.

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The Participant may request information regarding the Automatic Option within nine (9) months prior to the date when he would first become eligible to commence receiving a Pension hereunder. A written reply will be made within thirty (30) days of his request. During an election period beginning ninety (90) days prior to the commencement of benefits and ending on the date on which the benefits commence, the Participant may elect in writing to the Committee not to receive payment of his vested Pension in the Automatic Option, in which case the normal form of payment described in this Article V shall be applicable unless an optional form becomes operative under paragraph (b) below. During the election period the Participant may revoke and choose elections in writing to the Committee. A married Participant who elects not to receive the Automatic Option must obtain the consent of his Spouse for an optional pension other than as described in Section 5.6(b)(ii), which shall not be effective unless: (a) the Participant’s Spouse consents in writing to the election; (b) the election designates a specific alternate beneficiary (including any class of beneficiaries or any contingent beneficiaries) which may not be changed without any further spousal consent, except as hereinafter provided; (c) the Spouse’s consent acknowledges the effect of the election; and (d) the Spouse’s consent is witnessed by a Plan representative or notary public. If it is established to the satisfaction of a Plan representative that such written consent may not be obtained because there is no Spouse or the Spouse cannot be located, a waiver will be deemed a qualified election. Any consent by a Spouse under this Section (or establishment that the consent of the Spouse cannot be obtained) shall be effective only with respect to such Spouse. A consent that permits designations by the Participant without any requirement of further consent by the Spouse must acknowledge that the Spouse has the right to limit consent to a specific beneficiary, and a specific form of benefit where applicable, and that the Spouse voluntarily elects to relinquish either or both of such rights. A revocation of a prior waiver may be made by a Participant without the consent of the Spouse at any time prior to the commencement of benefits. The number of revocations shall not be limited. For purposes of this Section, the Spouse or surviving Spouse of the Participant shall be deemed the recipient under the Automatic Option, provided that a former Spouse will be treated as the Spouse or surviving Spouse to the extent provided under a qualified domestic relations order as described in Section 414(p) of the Code.

(b) Optional Pension:

(1) Optional Pensions Under this Plan: Any Participant who is entitled to receive a Pension under this Article V may elect, in lieu of his normal form of Pension or the Automatic Option, any one of the following optional forms of Pension (the value of the expected aggregate payments under any of which shall be the Actuarial Equivalent of his normal form of Pension):

(i) Life and Period Certain. A pension payable for the Participant’s life and, if one hundred twenty (120) or sixty (60) (as designated by the Participant) monthly installments have not been paid prior to the Participant’s death, payment of such pension will be continued in the same amount to the beneficiary or beneficiaries designated by the Participant for the balance of the period selected by the Participant.

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(ii) Joint and Survivor. A joint and survivor Pension for the Participant and his Spouse under which the member shall receive a Pension payable for his life, and payments in the amount equal to 75% or 100% (as elected by the Participant) of such Pension shall after the Participant’s death, be continued to his surviving Spouse during such surviving Spouse’s lifetime.

(iii) Lump Sum Option. On or after October 1, 2004, any Participant who becomes entitled to receive a Pension under this Article V which has a single sum present value that does not exceed $50,000 as of the date Participant terminates Service may, within 60 days after such termination, elect to receive an immediate lump sum distribution in complete satisfaction of the Plan’s obligations under Article V of the Plan.

(2) Optional Pensions Under the Cabot Corporation Cash Balance Plan: In addition, a Participant who has a benefit as detailed in Exhibit I, a copy of which is attached hereto and is hereby incorporated into this Plan, due to participation under the Cabot Corporation Cash Balance Plan may elect to have such benefit paid in a lump sum payment or in any optional form of payment described below; provided, however, that if the Participant has a Spouse on his Annuity Starting Date the Actuarial Equivalent of such benefit shall be paid in the form of a joint and 50% survivor annuity unless he elects to receive the benefit in a lump sum or an optional form described below in accordance with the election provisions in Section 5.6(a). A Participant who has an additional benefit as detailed in Exhibit IV, a copy of which is attached hereto and is hereby incorporated into this Plan, due to the grandfather provisions under the Cabot Corporation Cash Balance Plan shall have such additional amount added to the benefit as detailed in Exhibit I in a manner as described below.

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(i) Lump Sum Option: The lump sum payment is determined as the sum of (a) and (b), subject to a minimum of (c) below:

(a) The product of the accrued benefit detailed in Exhibit I and the applicable annuity value based on the Participant’s age as of his benefit commencement date, the Applicable Interest Rate, and the Applicable Mortality Table.

(b) The product of the additional benefit detailed in Exhibit IV, reduced by one quarter of one percent (0.25%) per month for each month by which the Participant’s age as of his benefit commencement date precedes the Participant’s attainment of age sixty-two (62) and the annuity value based on the Participant’s age as of his benefit commencement date. For purposes of this subsection (b), the annuity value shall be determined using the Applicable Interest Rate and the Applicable Mortality Table.

(c) The sum of the December 31, 1990 Cash Balance Plan Balance detailed in Exhibit I and the December 31, 1990 Grandfather Balance detailed in Exhibit IV, increased with interest at 5% per annum from December 31, 1990 to the date of benefit commencement.

(ii) Single Life Annuity Option: A benefit which is a level monthly annuity for the lifetime of the Participant (with no survivor benefits) equal to the sum of (a) and (b), subject to (c) below:

(a) the Actuarial Equivalent of the accrued benefit detailed in Exhibit I. For purposes of this subsection (a), the Actuarial

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Equivalent shall be determined using the Applicable Interest Rate and the Applicable Mortality Table.

(b) the additional benefit detailed in Exhibit IV, reduced by one quarter of one percent (0.25%) per month for each month by which the Participant’s age as of his benefit commencement date precedes the Participant’s attainment of age sixty-two (62).

(c) In the event that the minimum lump sum provisions of subparagraph (i)(c) of this Section apply, the level monthly annuity amount shall be equal to the result of the minimum lump sum value determined in subparagraph (i)(c) of this Section divided by the applicable annuity value based on the Participant’s age as of his benefit commencement date, the Applicable Interest Rate, and the Applicable Mortality Table.

The “applicable interest rate” is the interest rate which would be used as of the first day of the calendar year containing the distribution by the Pension Benefit Guaranty Corporation for determining the present value of a lump sum distribution on Plan termination.

(iii) Single Life Increasing Annuity Option: an increasing monthly annuity for the lifetime of the Participant equal to the lump sum amount, determined as in (i) above divided by the factor from the table of factors (Table A, a copy of which is attached hereto and is hereby incorporated into this Plan) that corresponds to the Participant’s attained age as of the first of the month coinciding with or immediately following the determination date.

Increases in the monthly annuity amount shall be effective each January 1 occurring after the determination date and shall be equal to:

(a) For the first such January 1,  ¹/12th of the percentage change in the Consumer Price Index for the Urban Wage Earners - All City Average for the 12-month period ending with September 30 of the calendar year preceding the calendar year containing such determination date, multiplied by the number of monthly payments made in the calendar year of the determination date.

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(b) For each succeeding January 1, the percentage change in the Consumer Price Index for Urban Wage Earners - All City Average for the 12-month period ending with September 30 of the preceding calendar year.

(iv) Joint and Survivor Annuity Option: A reduced monthly benefit that is a joint and 50 percent, or joint and 75 percent, or joint and 100 percent (as determined by the Participant) survivor level annuity that is the Actuarial Equivalent of the Participant’s single life annuity amount. Such joint and survivor level annuity is a level monthly annuity under which (i) the Participant will receive a monthly annuity for life and (ii) following the Participant’s death, and Participant’s Beneficiary (if surviving the Participant) will receive a monthly annuity for life with the monthly annuity payment equal to either 50 percent, 75 percent, or 100 percent of the monthly annuity which would have been payable to the Participant had he lived. If the Participant’s Beneficiary dies after the Participant has commenced receiving benefits (but before the Participant’s death), the Participant shall continue to receive the amount payable to such Participant under the joint and survivor level annuity form for the remainder of the Participant’s lifetime, with the last payment to be made for the month in which his death occurs. Thereafter no further benefits shall be payable under the Plan in respect of the Participant.

For purposes of this paragraph, the Actuarial Equivalent benefit shall be determined by multiplying the single life annuity amount determined in (ii) above, by the following factor, depending upon which percentage is selected to be continued to the beneficiary:

Percentage Selected	Factor
50 percent	0.88
75 percent	0.83
100 percent	0.79

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If the Beneficiary is other than the Participant’s Spouse and if, as of the Participant’s Benefit Commencement Date, the Beneficiary’s age on his or her last birthday is more than five years less than the Participant’s age on his or her last birthday, the amounts of the monthly annuity payable to the Participant and Beneficiary shall be computed based on the above factors and then reduced by 1 percent of the percentage selected for each year by which difference in ages exceeds five years. The individual who is the Participant’s Spouse on the date the Participant has commenced receiving benefits shall be treated as his spouse for purposes of this option so long as such Spouse shall live, whether or not the Spouse is subsequently divorced from the Participant or the marriage otherwise terminated thereafter, except as a qualified domestic relations order described in Section 414(p) of the Code shall otherwise provide.

(v) Fifteen Years Certain and Continuous Option: A reduced benefit which is a level monthly annuity for the life of the Participant and, in the event of his death before 180 monthly payments have been made to him (if the person designated in his option election form as his Beneficiary for purposes of this option is then living), with the remainder of said 180 monthly payments paid to his Beneficiary. In the event the Participant’s Beneficiary dies before a total of 180 payments have been made, any payments remaining shall be paid in a lump sum to a succeeding beneficiary, if living, or if also deceased, to the estate of the last of the retiree and beneficiaries to die. Such benefit shall be equal to the single life annuity amount, determined in (ii) above, multiplied by 0.83.

(vi) Single Life/Cash Refund Annuity Option: A benefit which is a reduced and level monthly annuity for the lifetime of the Participant, with the guarantee that an amount will be payable to the Participant’s Beneficiary in the form of a lump sum payment if the total of all payments made to the Participant by the time of his death does not equal or exceed the lump sum value as determined

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under (i) above. The monthly benefit under this option shall be the Participant’s single life annuity amount determined in (ii) above, multiplied by 0.90.

(vii) Joint and 50 Percent Survivor Increasing Annuity Option: An increasing monthly annuity under which (a) the Participant will receive a reduced monthly annuity which will increase as for the Single Life Increasing Annuity in (iii) above and (b) following the Participant’s death the Participant’s Spouse (if surviving the Participant) will receive a monthly annuity for life equal to 50% of the monthly annuity which would have been payable to the Participant had he lived.

The reduced monthly annuity payable to the Participant under this option shall be equal to the amount determined under (iii) above multiplied by a factor based on the Participant’s age as of his or her nearest birthday as of his Benefit Commencement Date as follows:

Participant’s Age as of Benefit Commencement Date	Factor
Younger than 45	0.96
Between 45 and 55	0.92
55 and older	0.88

(3) Optional Pensions Under the Cabot Corporation Retirement Income Plan: In addition, a Participant who has a monthly annuity guaranteed by the Prudential Insurance Company (as detailed in Exhibit II) due to participation under the Cabot Corporation Retirement Income Plan may elect to have such monthly annuity paid in any optional form of payment described below.

(i) Single Life Annuity Option: A benefit which is a level monthly annuity for the lifetime of the Participant (with no survivor benefits). For a Participant who retires after meeting the requirements for Early Retirement set forth in Section 4.3, the monthly benefit amount shall be equal to the Participant’s accrued benefit detailed in Exhibit II, reduced by one quarter of one percent (0.25%) per month for each month by which the Participant’s age as of his benefit commencement date precedes the Participant’s attainment of age sixty-two (62).

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For a Participant who terminates Service prior to meeting the requirements for Early Retirement set forth in Section 4.3, the monthly benefit amount shall be equal to the Participant’s accrued benefit detailed in Exhibit II, reduced by one-half of one percent (0.50%) per month for each month by which the Participant’s age as of his benefit commencement date precedes the Participant’s attainment of age sixty-five (65).

(ii) Joint and Survivor Annuity Option - A reduced monthly benefit that is a joint and 50%, or joint and 75%, or joint and 100% (as determined by the Participant) survivor level annuity that is the Actuarial Equivalent of the Participant’s accrued benefit detailed in Exhibit II. Such joint and survivor level annuity is a level monthly annuity under which (i) the Participant will receive a monthly annuity for life and (ii) following the Participant’s death the Participant’s Beneficiary (if surviving the Participant) will receive a monthly for life with the monthly annuity payment equal to either 50%, 75% or 100% of the monthly annuity which would have been payable to the Participant had he lived. If the Participant’s Beneficiary dies after the Participant has commenced receiving benefit (but before the Participant), the Participant shall continue to receive the amount payable to such Participant under the joint and survivor level annuity form for the remainder of the Participant’s lifetime, with the last payment to be made for the month in which his death occurs. Thereafter no further benefits shall be payable under the Plan in respect of the Participant. The individual who is the Participant’s Spouse on the date the Participant has commenced receiving benefits shall be treated as his spouse for purposes of this option so long as such Spouse shall live, whether or not the Spouse is subsequently divorced from the Participant or the marriage otherwise terminated thereafter, except as a qualified domestic relations order described in Section 414(p) of the Code shall otherwise provide.

For purposes of this paragraph, the Actuarial Equivalent benefit shall be determined by multiplying the single life annuity amount, determined under (i) above, by the following factor,

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depending upon which percentage is selected to be continued to the Beneficiary, and whether the Beneficiary is the Participant’s Spouse:

Percentage Selected	Factor Beneficiary is Participant’s Spouse	Beneficiary is other than Participant’s Spouse
50%	1.00	0.88
75%	0.94	0.83
100%	0.89	0.79

(iii) Fifteen Years Certain and Continuous Option: A reduced benefit which is a level monthly annuity for the life of the Participant, and, in the event of his death before 180 monthly payments have been made to him (if the person designated in his option election form as his Beneficiary for purposes of this option is then living) the remainder of said 180 monthly payments paid to his Beneficiary. In the event the Participant’s Beneficiary dies before a total of 180 payments have been made, any payments remaining shall be paid in a lump sum to a succeeding Beneficiary, if living, or if also deceased, to the estate of the last Beneficiary to die. Such benefit shall be equal to the single life annuity amount determined in (i) above, multiplied by 0.98.

(iv) Lump Sum Option: A Participant who is entitled to cash settlement credits as detailed in Exhibit III, a copy of which is attached hereto and is hereby incorporated into this Plan, may elect to have such amount paid as a lump sum, provided that the lump sum value of his benefit as detailed in Exhibit II shall be reduced by the amount of such cash settlement credits.”

(4) Election of Optional Pension: The election of an optional pension shall be governed by the following provisions:

(i) Election of Option: Application for an optional form of Pension must be made on the prescribed form on or before his termination of Service.

(ii) Cancellation or Change of Option: By making application to the Committee on the

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prescribed form, a Participant who has not terminated Service may cancel or change his election of an optional form of Pension at any time before commencement of benefits. An option may not be cancelled or changed after payments commence thereunder.

(iii) Beneficiary Designation: Each Participant who has elected the life and period certain optional form shall have the right at any time to designate and to rescind or change any designation of a primary and contingent beneficiary or beneficiaries to receive the remaining installments of pension payments in the event of his death prior to the expiration of the 60- or 120-month period (as applicable). Any such designation, change or rescission of designation, shall be made in writing by filling out and furnishing to the Committee the appropriate form prescribed by the Committee. The contingent beneficiary or beneficiaries shall be entitled to receive any unpaid death benefit only if no primary beneficiary is alive or legally entitled to receive such benefit on the date of payment of the benefit or any installment thereof. The estate, assignee or appointee of either a primary or contingent beneficiary shall have no interest in or right to receive any death benefit payment not actually made before such beneficiary’s death. The last such designation received by the Committee shall be controlling over any testamentary or other disposition; provided, however, that no designation, rescission or change under this Plan shall be effective unless received by the Committee prior to the Participant’s death, and in no event shall it be effective as of a date prior to such receipt. If there is no designated beneficiary alive at the time of any payment of a death benefit, then the Actuarial Equivalent of the death benefit, or balance thereof, shall be paid to the estate of the deceased Participant. An Employer shall not be named as a beneficiary. If the Committee shall be in doubt as to the right of any beneficiary designated by a deceased Participant to receive any unpaid death benefit, the Committee may direct the Trustee to pay the amount in question to the estate of such Participant, in which event the Trustee, the

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Employer, the Committee and any other person in any manner connected with the Plan shall have no further liability with respect to the amount so paid.

(iv) Special Limitation: Notwithstanding any provisions of this Section 5.6(b)(3) to the contrary, the amount to be distributed each year to a Participant under an optional form of benefit described in this Section must be at least an amount equal to the quotient obtained by dividing the Participant’s entire interest by the life expectancy of the Participant or joint and last survivor expectancy of the Participant and designated beneficiary. Life expectancy and joint and life survivor expectancy shall be computed by the use of the return multiples contained in Treasury Regulation § 1.72-9. For purposes of this computation, a Participant’s life expectancy may be recalculated no more frequently than annually, however, the life expectancy of a non-Spouse beneficiary may not be recalculated. If the Participant’s Spouse is not the designated beneficiary, the method of distribution selected must assure that greater than fifty percent (50%) of the present value of the amount available for distribution is paid within the life expectancy of the Participant.

(v) Proof of Age: Proof of age and such other information as may be required in determining the amount of an optional form of Pension must be furnished to the Committee upon its request.

(vi) An election of the Automatic Option or one of the respective optional forms of benefit described in Paragraph (1), above, shall require the Participant to select from among the following optional forms of benefit with respect to the benefits detailed under Exhibits I and II due to participation under the Cabot Corporation Cash Balance Plan and the Cabot Corporation Retirement Income Plan, respectively:

COGC Plan Form	Cash Balance Form	Retirement Income Plan Form
(1) Life Annuity	(1)Life Annuity, Increasing Single Life Annuity, Single Life/Cash Refund Annuity or Lump Sum	(1)Life Annuity
(2)50% Joint and Survivor Annuity	(2)Joint and 50% Survivor Increasing Annuity, 50% Joint and Survivor Annuity, or Lump Sum	(2) 50% Joint and Survivor Annuity
(3) 75% or 100% Joint and Survivor Annuity	(3) Corresponding Percentage Joint and Survivor Annuity, or Lump Sum	(3)Corresponding Percentage Joint and Survivor Annuity
(4) Life and Period Certain Annuity	(4) 15-Year Certain and Continuous Annuity, or Lump Sum	(4)15-Year Certain Annuity
(5) Lump Sum, if eligible

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An election of one form of payment in a particular plan form listed above shall not restrict a Participant’s election of a different form of payment for another plan form, if the Participant is so eligible to elect.

All optional forms of benefits which are “Section 411(d)(6) protected benefits,” as described in Treasury Regulation § 1.411(d)-4, shall continue to be optional forms of benefits for Participants to whom the optional forms apply notwithstanding any subsequent amendment of the Plan purporting to revise or delete such optional form of benefit and notwithstanding any contrary provision of paragraph (b) of this Section 5.6.

(c) At any time the Committee may cause the Plan to purchase and distribute to a Participant a commercial annuity that will thereafter provide the Participant’s Pension otherwise payable from the Plan.

5.7 Duration of Pensions: Except for the Spouse’s Pension set forth in Section 6.1 and except as may be provided under the Automatic Option or under the optional forms of Pension both as described in Section 5.6, all Pensions payable under Article V shall be paid monthly commencing on the applicable of (i) the Participant’s Normal Retirement Date, (ii) the commencement date of his Early, Deferred Vested or Disability Retirement benefits or (iii) his Late Retirement Date, and shall be payable for the life of the retired Participant. The Automatic Option shall be paid monthly and shall be payable for the joint lives of the Participant and his Spouse. The Spouse’s Pension shall be paid monthly and shall be payable for the life of the Spouse. Any other optional Pension shall continue for the period specified under the option elected.

5.8 Payment of Small Benefits: The payment of a benefit under the Plan whose present value does not exceed $1,000 shall be made in a lump-sum cash payment, unless the Participant elects to have such amount paid directly to an eligible retirement plan in the form of a direct rollover. The amount thereof shall be the Actuarial Equivalent of the Accrued Pension

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otherwise payable. No distribution shall be made under this Section 5.8 without the Participant’s (and the Participant’s Spouse, if any) consent if the value thereof is greater than $5,000. No distribution may be made after the Annuity Starting Date unless the Participant and the Participant’s Spouse (or, where the Participant has died, the surviving Spouse) consent in writing to such distribution. Notwithstanding the above, in the event of a distribution referenced above which is greater than $1,000 but less than $5,000, if the Participant does not elect to have such distribution paid directly to an eligible retirement plan specified by the Participant in a direct rollover, or to receive the distribution directly in a lump-sum cash payment in accordance with the provisions stated elsewhere herein, then the Committee will pay the distribution in a direct rollover to an individual retirement plan or account designated by the Committee in its sole discretion.

5.9 Waiver of Waiting Period: Notwithstanding anything in the foregoing to the contrary, if a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that (a) the Committee clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (b) the Participant, after receiving the notice, affirmatively elects a distribution. If a distribution is one to which Sections 401(a)(11) and 417 of the Code does apply, the Participant may elect (with any applicable spousal consent) to waive any requirement that the written explanation required under Code Section 417 be provided at least 30 days before the annuity starting date (or to waive the 30-day requirement with respect to an explanation provided after the annuity starting date) if the distribution commences more than 7 days after such explanation is provided.

5.10 Benefits after Re-employment: If a Participant terminates his Service on or after the Effective Date and is subsequently re-employed by an Employer or an Affiliate, his Benefit payments, if any, shall immediately cease, and upon his subsequent termination of Service he shall receive a Benefit determined under Section 5.1, 5.2, 5.3, 5.4 or 5.5, but reduced by the Actuarial Equivalent of the Benefit payments, if any, which he received prior to his re-employment.

5.11 Minimum Date for Commencement of Benefits: Except as provided below, if a Participant is employed by the Company on the April 1 following the calendar year in which the Participant attains age 70 ¹/2, such Participant may choose to commence distribution of the Participant’s benefit either on the April 1 of the calendar year following the calendar year in which (i) the Participant attains age 70 ¹/2 or (ii) the Participant retires from the Company. Notwithstanding any provision of the Plan to the contrary, any benefits to which a Participant who is a 5% owner of the Company is entitled shall commence not later than April 1 of the calendar year following the calendar year in which the Participant attains age 70 ¹/2, whether or not the Participant’s employment has terminated in such year. If a Participant commences distribution of his benefit later than the April 1 following the end of the calendar year such Participant attains age 70 ¹/2, then such Participant’s benefit shall be actuarially increased to take into account the period after age 70 ¹/2 in which he is not receiving benefits, in accordance with Code Section 401(a)(9)(C)(iii) and applicable Internal Revenue Service guidance addressing the same. Such actuarial increase is generally the same as, and not in addition to, the actuarial

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increase required for same period under Code Section 411 to reflect the delay in payments after Normal Retirement Age; provided, however, that the actuarial increase shall be provided during such period even if the Participant is otherwise subject to a suspension of his benefit under Section 5.10.

5.12 Required Minimum Distributions:

(a) General Provisions: All distributions shall be determined and made in accordance with Section 401(a)(9) of the Code and the Treasury regulations promulgated thereunder.

(b) Lost Participants: A Participant who is a Lost Participant (as defined below) shall receive his pension determined as of his Required Beginning Date (as defined below) and commencing on a date after his Required Beginning Date (the “Distribution Date”), in accordance with, and subject to, the requirements of this Section 5.12(B). This Section 5.12(B) shall not be available or applicable for a Participant who is not a Lost Participant.

The Administrator shall furnish a written explanation of the terms and conditions of the automatic form and the effect of refusing it to a Lost Participant no less than 30 days and no more than 90 days prior to the Distribution Date of his pension. The Lost Participant may request additional information regarding the automatic form within 60 days of the furnishing of such explanation to him. A written reply will be made within 30 days of his request. During such election period, the Lost Participant may, with the written consent of his Lost Spouse (as defined below) in accordance with Section 5.6 herein, elect in writing to the Administrator not to receive the automatic form, in which case the Lost Participant may elect payment in one of the optional forms permitted hereunder. Throughout the election period, the Lost Participant may file written revocations or written elections with the Administrator as provided in Section 5.6. The foregoing notwithstanding, the Lost Participant may elect (with written consent of his Lost Spouse) to waive the requirement that the written explanation of the automatic form described herein be provided at least 30 days prior to his Distribution Date, provided that the distribution commences more than 7 days after such explanation is provided to the Lost Participant.

If the Administrator does not receive the Lost Participant’s completed election form by the 60th day after the written explanation of the automatic form was provided, then such Lost Participant’s pension shall be paid in the automatic form as soon as administratively practicable.

Benefits will commence as of his Distribution Date actuarially adjusted to reflect commencement at his Required Beginning Date rather than his Normal Retirement Date or Postponed Retirement Date, as applicable, and notwithstanding any other provision of the Plan to the contrary, the Plan will pay to him an amount equal to missed payments from the Required Beginning Date to the Distribution Date, with interest being paid to the Lost Participant on such amount based on the applicable interest rate for purposes of calculating lump sums outlined elsewhere herein.

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For purposes of this Section 5.12(B):

“Lost Participant” means a Participant (i) who does not commence his pension prior to his Required Beginning Date, (ii) whose location is unknown to the Administrator as of his Required Beginning Date, and (iii) who, subsequent to his Required Beginning Date, is either located by the Administrator or notifies the Plan of his location and/or requests information concerning the commencement of his pension.

“Required Beginning Date” means for a Participant who is not a “5% owner” (as defined in Code Section 416), the April 1 following the later of (i) the calendar year in which the Participant attains age 70 ¹/2 or (ii) the calendar year in which the Participant’s Active Service terminates. For a Participant who is a 5% owner, “Required Beginning Date” means the April 1 following the calendar year in which the Participant attains age 70 ¹/2.

“Lost Spouse” means the Lost Participant’s Spouse as of the Required Beginning Date. For purposes of this definition, the Lost Spouse or surviving Lost Spouse of the Participant shall be deemed the recipient under the Qualified Joint and Survivor Annuity, provided that a former Spouse will be treated as the Lost Spouse or surviving Lost Spouse to the extent provided under a qualified domestic relations order as described in Section 414(p) of the Code.

5.13 Direct Rollovers: Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee’s election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an “Eligible Rollover Distribution” paid directly to an “Eligible Retirement Plan” specified by the Distributee in a Direct Rollover. For the purposes of this Section the following definitions shall apply:

(i) “Eligible Rollover Distribution” shall mean any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated beneficiary, or for a specific period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities).

(ii) “Eligible Retirement Plan” shall mean (i) an individual retirement account described in Section 408(a) of the Code, (ii) an individual retirement annuity described in Section 408(b) of the Code, (iii) an annuity plan described in

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section 403(a) of the Code, (iv) an annuity contract described in Section 403(b) of the Code, (v) an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan, or (vi) a qualified trust described in Section 401(a) of the Code, that accepts the Distributee’s eligible Rollover Distribution. However, prior to January 1, 2002, in the case of an Eligible Rollover Distribution to a surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity.

(iii) “Distributee” shall mean a Participant or former Participant of the Plan. In addition, the Participant’s or former Participant’s surviving spouse and the Participant’s or former Participant’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse.

(iv) “Direct Rollover” shall mean a payment by the Plan to the Eligible Retirement Plan specified by the Distributee.

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ARTICLE VI

DEATH BENEFIT

6.1 Death While in Service but Prior to Commencement of Pension: In the event of the death of a Participant who is survived by a Spouse and who dies (1) while in the active employment of an Employer or Affiliate or (2) while on an Authorized Absence pursuant to Section 2.2(a) or 2.2(c) and after completion of the Vesting Service requirements for a Deferred Vested Retirement Pension on the date of his death, such Spouse shall be entitled to receive a Spouse’s Pension commencing as of the first day of the calendar month next following the Participant’s date of death or the date he would have attained age fifty-five (55), whichever is later, and payable through the first day of the month during which the Spouse’s death occurs. The monthly amount of the Spouse’s Pension provided in this Section shall be an amount equal to the Pension payments which would have been made to the Spouse under the Automatic Option provided for in Section 5.6(a) if the Participant had elected such Automatic Option commencing on the date of his Retirement immediately prior to his Retirement and if his Retirement had occurred on the day before the date of his death.

6.2 Death After Retirement but Prior to Commencement of Pension: In the event of the death of a Participant after Normal, Early or Late Retirement (but not after Deferred Vested Retirement) but prior to the commencement of his Pension, the normal form, Automatic Option or other Optional Pension, whichever is applicable, shall take effect as though the Participant had commenced to receive his Pension on the day of his death. In the event of the death of a Participant after Disability Retirement but prior to the commencement of his Pension, the deceased Participant’s Spouse, if any, shall be entitled to receive the benefit such Spouse would have received under the Automatic Option had such Participant commenced to receive such benefit on the date of his death computed on the basis of his Benefit Service and Vesting Service accrued as of the date of his death.

6.3 Death After Deferred Vested Retirement but Prior to Commencement of Pension: In the event of the death of a Participant after he terminates employment with entitlement to a Deferred Vested Pension under the Plan but prior to the commencement of Pension payments, the Participant’s Spouse, if any, shall be entitled to receive a survivor’s annuity commencing as of the first day of the calendar month next following the Participant’s date of death or the date on which such Participant would have attained age fifty-five (55), whichever is later, and payable through the first day of the month during which the Spouse’s death occurs. The monthly amount of the survivor annuity provided in this Section shall be an amount equal to the benefit payments such Spouse would have received under the Automatic Option had such Participant elected to receive such option commencing on the first day of the calendar month next following the later of the Participant’s date of death or the date the Participant would have attained age fifty-five (55).

6.4 Definition of Spouse: For the purposes of this Article VI, the definition of Spouse includes only such person to whom the Participant has been legally married for a period of at least one year at the time of his death, and who is of the opposite sex of the Participant.

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6.5 Death Benefits Payable Under the Cabot Corporation Cash Balance Plan and Retirement Income Plan:

(a) Death Benefits Payable under Cabot Corporation Cash Balance Plan. In the event of the death of a Participant who has a benefit as detailed in Exhibit I due to participation in the Cabot Corporation Cash Balance Plan and whose death occurs prior to the commencement of his Pension, his Beneficiary shall be entitled to receive a benefit in the form of a single lump sum benefit calculated as in Section 5.6(b)(2)(i).

If the Beneficiary is the Participant’s Spouse, the Beneficiary may elect to receive, in lieu of such single sum payment, a benefit in the form of an increasing monthly annuity for life (with no survivor benefits). Such benefit shall be calculated as in Section 5.6(b)(2)(iii), based on the Beneficiary’s attained age as of the first of the month coinciding with or immediately following the determination date.

(b) Death Benefits Payable under Cabot Corporation Retirement Income Plan. In the event of the death of a Participant who has a benefit as detailed in Exhibit II due to participation in the Cabot Corporation Retirement Income Plan and whose death occurs prior to the commencement of his Pension, his Spouse shall receive a monthly benefit for his or her lifetime commencing on the first day of the month following the death of the Participant equal to 50 percent of the benefit which would have been payable from the Participant’s Retirement Income Plan annuity commencing at the Participant’s Normal Retirement Date.

If the Participant is not married at the time of his death, no benefit is payable to his Beneficiary attributable to the monthly benefit detailed in Exhibit II.

6.6 Alternate Form of Pension Payment for Spouse: Notwithstanding any other provision of this Plan to the contrary, any Spouse who is or becomes entitled to receive a Pension under the Plan as determined under Section 5.1, which has a single sum present value that does not exceed $50,000 on the date of the Participant’s death, shall be eligible to elect an optional form of Pension payment in accordance with Section 5.6(b)(1) in lieu of the form of Pension payment such Spouse is otherwise entitled.

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ARTICLE VII

CLAIM PROCEDURES

7.1 Presenting Claims for Benefits: A “Claims Administrator” shall be appointed by the Committee or, absent such appointment, shall be the Company’s director of benefits, with such Claims Administrator authorized by the Committee to conduct the initial review and render a decision as provided in this Section for all claims for benefits under the Plan. The Committee shall establish administrative processes and safeguards to ensure that benefit determinations made pursuant to this Section 7.1 are made in accordance with the Plan and have been made and applied consistently to similarly situated claimants. Any Participant, Beneficiary of any deceased Participant, or the authorized representative of such claimant (collectively, the “Applicant”) may submit written application to the Claim Administrator for the payment of any benefit asserted to be due him under the Plan. Such application shall set forth the nature of the claim and such other information as the Claim Administrator may reasonably request. Promptly upon the receipt of any application required by this Section, the Claim Administrator shall determine whether or not the Participant or Beneficiary involved is entitled to a benefit hereunder and, if so, the amount thereof and shall notify the Applicant of its findings.

(a) Non-Disability Claims. Except as provided in Section 7.1(b) below, if a claim is wholly or partially denied, the Claim Administrator shall so notify the Applicant within ninety (90) days after receipt of the application by the Claims Administrator, unless special circumstances require an extension of time for processing the application. If such an extension of time for processing is required, written notice of the extension shall be furnished to the Applicant prior to the end of the initial ninety (90) day period. In no event shall such extension exceed a period of ninety (90) days from the end of such initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Claim Administrator expects to render its final decision. Notice of the Claim Administrator’s decision to deny a claim in whole or in part shall be set forth in a manner calculated to be understood by the Applicant and shall contain the following:

(i) the specific reason or reasons for the denial,

(ii) specific reference to the pertinent Plan provisions on which the denial is based,

(iii) a description of any additional material or information necessary for the Applicant to perfect the claim and an explanation of why such material or information is necessary,

(iv) an explanation of the claims review procedure, including applicable time limits, as set forth in Section 7.2 hereof, and

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(v) a statement of the claimant’s right to bring a civil suit under Section 502(a) of ERISA following a denial on subsequent review.

(b) Disability Claims. If a claim for benefits based upon a Participant’s disability is wholly or partially denied, the Claim Administrator shall so notify the Applicant within forty-five (45) days after receipt of the application by the Claims Administrator, unless special circumstances require an extension of time for processing the application. If such an extension of time for processing is required, the time for processing may be extended for up to 30 days, if the Claim Administrator determines that the extension is necessary due to matters beyond the control of the Claim Administrator or the Plan and notifies the Applicant, before the expiration of the initial 45-day period, of the circumstances requiring the extension of time and the date by which the claim decision is expected to be made. If, before the end of this 30-day extension period, the Claim Administrator determines that, due to matters beyond the control of the Claim Administrator or the Plan, a decision cannot be rendered within that initial 30-day extension period, an additional 30-day extension may apply if the Applicant is given a notice satisfying the requirements set forth above for the first 30-day extension. Any notice of extension must specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues. The Applicant will be given at least 45 days in which to provide the specified information. In the event that the extension is a result of an Applicant’s failure to submit information necessary to decide a claim, the period in which the determination must be made will be tolled from the date on which the notification of the extension is sent to the Applicant until the date the Applicant responds to the request for additional information.

Notice of the Claims Administrator’s decision to deny a claim in whole or in part shall be set forth in a manner calculated to be understood by the Applicant and must contain the information described in clauses (i) through (v) of Section 7.1(a). Additionally, the notice of denial must include:

(i) If any internal rule or guideline was relied on in denying the claim, either the specific rule or guideline, or a statement that such a rule or guideline was relied on in denying the claim and that a copy of that rule or guideline will be provided to the Applicant free of charge on request; and

(ii) If the claim denial is based on an exclusion or limit related to medical necessity or experimental treatment, either an explanation of the scientific or clinical judgment for the determination as applied to the involved claimant’s circumstances, or a statement that such an explanation will be provided to the Applicant free of charge upon request.

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7.2 Claims Review Procedure: Upon the Claims Administrator’s denial, in whole or in part of a benefit applied for under Section 7.1, an Applicant shall have the right by written to appeal such denial as set forth in this Section 7.2. Benefits under the Plan will only be paid if the Committee decides in its discretion that the claimant involved is entitled to them. The Committee shall establish administrative processes and safeguards to ensure that benefit determinations made pursuant to this Section 7.2 are made in accordance with the Plan and have been made and applied consistently to similarly situated claimants. Except as may be otherwise required by law, the decision of the Committee on review of the claim denial shall be binding on all parties when the Applicant has exhausted the claims procedure under this Section 7.2.

(a) Non-Disability Claims – General Rules. If an application filed by the Applicant under Section 7.1(a) above shall result in a denial by the Claim Administrator of the benefit applied for, either in whole or in part, such Applicant shall have the right, to be exercised by written request filed with the Committee within sixty (60) days after receipt of notice of the denial of the application for a review of the application and of the entitlement to the benefit for which the Applicant applied. Such request for review may contain such additional information and comments as the Applicant may wish to present.

The Committee shall reconsider the application in light of such additional information and comments as the Applicant may have presented, and if the Applicant shall have so requested, shall afford the Applicant or his designated representative a hearing before the Committee. Upon request, the Committee shall provide, free of charge, the Applicant or his designated representative with copies of all “relevant documents” (within the meaning of Department of Labor regulation Section 2560.503-1(m)(8)) (“Relevant Documents”) in its possession, including copies of the Plan document and information provided by the Company relating to the Applicant’s entitlement to such benefit.

The Committee shall render a decision and notify the Applicant of the Committee’s determination on review no later than 60 days after receipt of the Applicant’s request for review, unless the Committee determines that special circumstances (such as the need to hold a hearing) require an extension of time for processing the claim. If the Committee determines an extension of time for processing is required, written notice of the extension shall be furnished to the Applicant prior to the termination of the initial 60 day period. In no event, shall such extension exceed a period of 60 days from the end of the initial period. The extension notice shall indicate the special circumstance requiring an extension of time and the date by which the Committee expects to render the determination on review. In the event that the extension is a result of an Applicant’s failure to submit information necessary to decide a claim, the period in which the determination must be made will be tolled from the date on which the notification of the extension is sent to the Applicant until the date the Applicant responds to the request for additional information.

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Notice of the Committee’s final decision shall be furnished to the Applicant in writing, in a manner calculated to be understood by him, and if the Applicant’s claim on review is denied in whole or in part, the notice shall set forth:

(i) the specific reason or reasons for the denial; and

(ii) specific reference(s) to the pertinent plan provision(s) on which the denial is based; and

(iii) the Applicant’s right to receive upon request, free of charge, reasonable access to, and copies of, all Relevant Documents, records and other information to his claim; and

(iv) the claimant’s right to bring a civil action under Section 502(a) of ERISA.

(b) Non-Disability Claims – Special Rules. Notwithstanding any other provision of Section 7.2(a), in the event that the Committee holds regularly scheduled meetings at least quarterly, the provisions of this Section 7.2(b) will apply and control, to the extent that this Section 7.2(b) is inconsistent with the provisions of Section 7.2(a). Specifically, in the event that the Committee holds regularly scheduled meetings at least quarterly, the Committee shall render a determination on review of a non-disability claim no later than the date of the Committee meeting next following receipt of the request for review, except that (i) a decision may be rendered no later than the second following Committee meeting if the request is received within 30 days of the first meeting and (ii) under special circumstances which require an extension of time for rendering a decision (including but not limited to the need to hold a hearing), the decision may be rendered not later than the date of the third Committee meeting following the receipt of the request for review. If such an extension of time for review is required because of special circumstances, written notice of the extension shall be furnished to the Applicant prior to the commencement of the extension. In the event that the extension is a result of an Applicant’s failure to submit information necessary to decide a claim, the period in which the determination must be made will be tolled from the date on which the notification of the extension is sent to the Applicant until the date the Applicant responds to the request for additional information.

Additionally, no later than five (5) days after the Committee has reached a final determination on review under this Section 7.2(b), notice of the Committee’s final decision shall be furnished to the Applicant in writing, in the manner descried in Section 7.2(a).

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(c) Disability Claims. If an application filed by an Applicant under Section 7.1(b) above shall result in a denial by the Claims Administrator of the disability based benefit applied for, either in whole or in part, such Applicant shall have the right, to be exercised by written request filed with the Committee within one-hundred and eighty (180) days after receipt of notice of the denial of the application, for a review of the application and of the entitlement to the benefit for which the Applicant applied. Such request for review may contain such additional information and comments as the Applicant may wish to present.

The Committee shall reconsider the application in light of such additional information and comments as the Applicant may have presented, and if the Applicant shall have so requested, shall afford the Applicant or his designated representative a hearing before the Committee. Upon request, the Committee shall provide, free of charge, the Applicant or his designated representative with copies of all Relevant Documents in its possession, including copies of the Plan document and information provided by the Company relating to the involved claimant’s entitlement to such benefit. Additionally, the following requirements shall be imposed upon the Committee in reconsidering an Applicant’s request:

(i) The Committee’s review will not give deference to the original claim denial, and the review will not be made by the person who made the original claim denial, or a subordinate of that person;

(ii) In deciding an appeal of any claim denial that is based in any way on a medical judgment, the Committee will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment;

(iii) The health care professional consulted by the Committee will not be an individual who was consulted in connection with the original claim denial or a subordinate of any such individual; and

(iv) The Applicant will be provided the identification of medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the claim denial, even if the advice was not relied upon in making the claim denial.

The Committee shall render a decision and notify the Applicant of the Committee’s determination on review within a reasonable period of time, but not later than 45 days after receipt of the Applicant’s request for review, unless the Committee determines that special circumstances (such as the need to hold a hearing) require an extension of time for processing the claim. If the Committee determines an extension of time for processing is required, written notice of the

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extension shall be furnished to the Applicant prior to the termination of the initial 45 day period. In no event, shall such extension exceed a period of 45 days from the end of the initial period. The extension notice shall indicate the special circumstance requiring an extension of time and the date by which the Committee expects to render the determination on review. In the event that the extension is a result of an Applicant’s failure to submit information necessary to decide a claim, the period in which the determination must be made will be tolled from the date on which the notification of the extension is sent to the Applicant until the date the Applicant responds to the request for additional information.

Notice of the Committee’s final decision shall be furnished to the Applicant in writing, in a manner calculated to be understood by him, and if the Applicant’s claim on review is denied in whole or in part, the notice shall contain the information described in clauses (i) through (iv) of Section 7.2(a). Additionally, the notice of denial shall include:

(v) If any internal rule or guideline was relied on in denying the claim on appeal, either the specific rule or guideline, or a statement that such a rule or guideline was relied on in denying the claim and that a copy of that rule or guideline will be provided to the Applicant free of charge on request; and

(vi) If the claim denial on appeal is based on an exclusion or limit like medical necessity or experimental treatment, either an explanation of the scientific or clinical judgment for the determination as applied to the involved claimant’s circumstances, or a statement that such an explanation will be provided to the Applicant free of charge upon request.

7.3 Disputed Benefits: Benefits under the Plan will be paid only if the Committee decides in its discretion that the applicant is entitled to them. If any dispute shall arise between a Participant or other person claiming under a Participant and the Committee after the review of a claim for benefits, or in the event any dispute shall develop as to the person to whom the payment of any benefit under the Plan shall be made, the Trustee may withhold the payment of all or any part of the benefits payable hereunder to the Participant or other person claiming under the Participant until such dispute has been resolved by a court of competent jurisdiction or settled by the parties involved.

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ARTICLE VIII

PLAN ADMINISTRATION

8.1 Allocation of Responsibility Among Fiduciaries for Plan and Trust Administration: Each Employer, the Board of Directors of the Company, the Committee, as designated pursuant to the terms of the Plan, the Trustee and any other person designated as a Fiduciary with respect to the Plan or the Trust Agreement (hereinafter collectively the “Fiduciaries”) shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under this Plan and/or the Trust Agreement. In general, the Employers shall have the sole responsibility for making the contributions provided for under Section 10.2. The Board of Directors shall have the sole authority to appoint and remove the members of the Committee, and to amend or terminate, in whole or in part, this Plan. The Company shall have the sole authority to appoint and remove the Trustee and to amend or terminate, in whole or in part, the Trust Agreement. The Committee shall have the sole responsibility for the administration of the Plan, and to establish and maintain the funding policy and method of the Plan as provided in Section 8.12. The Trustee shall have the sole responsibility for the administration of the Trust Fund and shall have exclusive authority and discretion to manage and control the assets held under the Trust Fund, except to the extent that the authority to manage, acquire and dispose of the assets of the Trust Fund is delegated to an Investment Manager, all as specifically provided in the Trust Agreement. Each Fiduciary warrants that any directions given, information furnished or action taken by it shall be in accordance with the provisions of the Plan or the Trust Agreement, as the case may be, authorizing or providing for such direction, information or action. Furthermore, each Fiduciary may rely upon any such direction, information or action of another Fiduciary as being proper under this Plan or the Trust Agreement, and is not required under this Plan or the Trust Agreement to inquire into the propriety of any such direction, information or action. It is intended under this Plan and the Trust Agreement that each Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under this Plan and the Trust Agreement and shall not be responsible for any act or failure to act of another Fiduciary. No Fiduciary guarantees the Trust Fund in any manner against investment loss or depreciation in asset value.

8.2 Appointment of Committee: The Plan shall be administered by an Administrative Committee consisting of at least three (3) persons who shall be appointed by and serve at the pleasure of the Board of Directors. All usual and reasonable expenses of the Committee shall be paid by the Trustee out of the Trust Fund. The members of the Committee shall not receive compensation with respect to their services for the Committee. The Board of Directors shall pay the premiums on any bond secured for the performance of the duties of the Committee members described hereunder and shall be entitled to reimbursement by other Employers for their proportionate shares.

8.3 Records and Reports: The Committee shall exercise such authority and responsibility as it deems appropriate in order to comply with ERISA and any governmental regulations issued thereunder relating to records of Participant’s Service, accrued benefits, the percentage of such benefits which are nonforfeitable under the Plan, and notifications to Participants. The Committee shall file or cause to be filed with the appropriate office of the

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Internal Revenue Service, the Department of Labor and/or the Pension Benefit Guaranty Corporation all reports, returns, notices and other information required of plan administrators under ERISA, including, but not limited to, the Plan description and summary Plan description, annual reports and amendments thereof to be filed with the Department of Labor, including requests for determination letters, annual reports and registration statements required by Section 6057(a) of the Code, and including reports and notices of reportable events to the Pension Benefit Guaranty Corporation required by Section 4043 of ERISA. The Committee shall make available to Participants and their beneficiaries for examination, during business hours, such records of the Plan as pertain to the examining person and such documents relating to the Plan as are required by ERISA.

8.4 Other Committee Powers and Duties: The Committee shall have such powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following powers and duties:

(a) To decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder;

(b) To prescribe forms or procedures to be followed by Participants or beneficiaries filing applications for benefits, and for other occurrences in the administration of the Plan;

(c) To receive from the Employers and from Participants such information as shall be necessary for the proper administration of the Plan;

(d) To prepare and distribute, in such manner as the Committee determines to be appropriate, information explaining the Plan;

(e) To furnish the Board of Directors, Employers and Participants, upon request, such annual reports with respect to the administration of the Plan as are reasonable and appropriate;

(f) To appoint or employ individuals to assist in the administration of the Plan and any other agents it deems advisable in carrying out the provisions of the Plan, including legal and actuarial counsel;

(g) To interpret and construe all terms, provisions, conditions and limitations of this Plan and to reconcile any inconsistency or supply any omitted detail that may appear in this Plan in such manner and to such extent, consistent with the general terms of this Plan, as the Committee shall deem necessary and proper to effectuate the Plan; and

(h) To make and enforce such rules and regulations for the administration of the Plan as are not inconsistent with the terms of the Plan.

8.5 Rules and Decisions: The Committee may adopt such rules and actuarial tables as it deems necessary, desirable or appropriate. All rules and decisions of the Committee shall be uniformly and consistently applied to all Employees in similar circumstances. The judgment of

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the Committee and each member thereof on any question arising hereunder shall be binding, final and conclusive on all parties concerned. When making a determination or calculation, the Committee shall be entitled to rely upon information furnished by an Employer, the legal counsel of an Employer, the Actuary for the Plan or the Trustee.

8.6 Committee Procedures: The Committee may act at a meeting or in writing without a meeting. The Committee shall elect one (1) of its members as chairman, appoint a secretary who may or may not be a member of the Committee, and shall advise the Trustee of such actions in writing. The secretary of the Committee shall keep a record of all meetings and forward all necessary communications to the Employers, the Trustee and the Actuary. The Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs. All decisions of the Committee shall be made by the vote of the majority including actions in writing taken without a meeting. A dissenting Committee member who, within a reasonable time after he has knowledge of any action or failure to act by the majority, registers his dissent in writing delivered to the other Committee members, the Employer and the Trustee shall not be responsible for any such action or failure to act.

8.7 Authorization of Benefit Payments: The Committee shall issue directions to the Trustee concerning all benefits which are to be paid from the Trust Fund pursuant to the provisions of the Plan, and warrants that all such directions are in accordance with this Plan. The Committee shall keep on file, in such manner as it may deem convenient or proper, all reports from the Trustee.

8.8 Payment of Expenses: All expenses incident to the administration, termination or protection of the Plan and Trust, including, but not limited to, actuarial, legal, accounting, Investment Manager and Trustee fees, shall be paid by the Trustee from the Trust Fund and, until paid, shall constitute a first and prior claim and lien against the Trust Fund.

8.9 Application and Forms for Pension: The Committee may require a Participant to complete and file with the Committee an application for Pension and all other forms approved by the Committee, and to furnish all pertinent information requested by the Committee. The Committee may rely on such information so furnished it, including the Participant’s current mailing address.

8.10 Indemnification of Committee: Except to the extent that such liability is created by ERISA, no Participant of the Committee shall be liable for any act or omission of any other member of the Committee, nor for any act or omission on his own part except for his own gross negligence or willful misconduct, nor for the exercise of any power or discretion in the performance of any duty assumed by him hereunder. The Company shall indemnify and hold harmless each member of the Committee from any and all claims, losses, damages, expenses (including counsel fees approved by the Committee) and liabilities (including any amounts paid in settlement with the Committee’s approval but excluding any excise tax assessed against any member or members of the Committee pursuant to the provisions of Section 4975 of the Code) arising from any act or omission of such member in connection with duties and responsibilities under the Plan, except when the same is judicially determined to be due to the gross negligence or willful misconduct of such member.

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8.11 Annual Audit: If required by ERISA or requested by any Fiduciary, the Committee shall engage, on behalf of all Participants, an independent Certified Public Accountant who shall conduct an annual examination of any financial statements of this Plan and Trust Agreement and of other books and records of this Plan and Trust Agreement as the Certified Public Accountant may deem necessary to enable him to form and provide a written opinion as to whether the financial statements and related schedules required to be filed with the Department of Labor and furnished to each Participant are presented fairly and in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding Plan Year.

8.12 Funding Policy: The Committee shall, at a meeting duly called for such purpose, establish a funding policy and method consistent with the objectives of this Plan and the requirements of Title I of ERISA. The Committee shall meet at least annually to review such funding policy and method. In establishing and reviewing such funding policy and method, the Committee shall endeavor to determine the Plan’s short-term and long-term objectives and financial needs, taking into account the need for liquidity to pay benefits and the need for investment growth. All actions of the Committee taken pursuant to this Section 8.12 and the reasons therefor shall be recorded in the minutes of meetings of the Committee and shall be communicated to the Trustee, and any Investment Manager who may be managing a portion or all of the Trust Fund in accordance with provisions of the Trust Agreement.

8.13 Allocation and Delegation of Committee Responsibilities: Upon the approval of a majority of the members of the Committee, the Committee may (i) allocate among any of the members of the Committee any of the responsibilities of the Committee under the Plan and/or (ii) designate any person, firm or corporation that is not a member of the Committee to carry out any of the responsibilities of the Committee under the Plan. Any such allocation or designation shall be made pursuant to a written instrument executed by a majority of the members of the Committee.

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ARTICLE IX

CONTRIBUTIONS TO THE PLAN

9.1 Participant Contributions: No contributions by Participants shall be required or permitted.

9.2 Employer Contributions: Each Employer shall make contributions for the benefit of its Participants in such amounts and at such times as determined by the board of directors of such Employer in accordance with a funding method and policy to be established by the Committee which will be consistent with Plan objectives. Annually, each Employer shall contribute at least the minimum amount required by the minimum funding standards of ERISA as determined by the Actuary. The provisions of this Section 9.2 shall be deemed the procedure for establishing and carrying out the funding policy and method of this Plan. All contributions made by Employers to the Trust Fund shall be irrevocable and shall be used to pay benefits under the Plan or to pay expenses of the Plan and Trust Fund. Notwithstanding anything in the Plan to the contrary, upon an Employer’s request, a contribution which was made by a mistake of fact, or conditioned upon initial qualification of the Plan or upon the deductibility of the contribution under Section 404 of the Code, shall be returned to such Employer within one (1) year after the payment of the contribution, the denial of the initial qualification or the disallowance of the deduction (to the extent disallowed), whichever is applicable.

9.3 Discontinuance or Suspension of Contributions: Upon a complete discontinuance of contributions by formal action of the board of directors of any Employer, or upon a suspension of Contributions to the Trust Fund by any Employer under such circumstances to constitute a complete discontinuance of contributions, the right of each affected Participant to his accrued benefit, to the extent then funded, shall be nonforfeitable and the Plan shall be terminated as to such Employer in accordance with Article XII as of the effective date of such discontinuance or such subsequent date selected by such Employer. If for any year an Employer fails to make a contribution to the Trust Fund in accordance with Section 9.2, and such failure constitutes a suspension of contributions which either affects benefits to be paid or made available hereunder or causes the unfunded past service cost at any time to exceed the unfunded past service cost as of January 1, 1991 (plus any additional past service costs thereafter added by amendment), then in either of such events the Employer shall notify the appropriate District Director of Internal Revenue regarding such suspension and the Pension Benefit Guaranty Corporation as required by ERISA Section 4043 and the regulations thereunder. During any such period of suspension, all other provisions of the Plan shall continue in full force and effect, other than the provisions required for contributions to the Trust Fund in accordance with Section 9.2. Upon a complete or partial termination of the Plan, the right of each affected Participant of the Employer to his accrued benefits to the date of such termination, to the extent then funded, shall be nonforfeitable, and the Employer shall promptly notify the appropriate District Director of Internal Revenue and the Pension Benefit Guaranty Corporation of such event. In the case of a partial termination, the provisions of this Section 9.3 shall apply only to the portion of the Plan so terminated.

9.4 Forfeitures Credited Against Employer’s Contributions: All credits arising as a result of more favorable interest, mortality, turnover or other experience than has been assumed

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in the actuarial determination of cost requirements, and all forfeitures by Participants or beneficiaries of Participants arising from any source whatsoever, shall be applied against the Employer’s contributions to be made pursuant to Section 9.2 hereof in subsequent years in accordance with a method of funding approved by the U.S. Treasury Department, and shall not be applied to increase the benefits that any Participant or the beneficiary of any Participant would otherwise receive under the Plan.

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ARTICLE X

AMENDMENT OF THE PLAN

10.1 Right to Amend Reserved: The Company may, without the assent of any other party, amend, alter or modify this Plan at any time and from time to time in any manner except as hereinafter provided in Section 10.2.

10.2 Limitations on Right to Amend: No amendment to this Plan or the Trust Agreement (including a change in the actuarial basis for determining optional or early retirement benefits) shall be effective to the extent that it has the effect of decreasing a Participant’s accrued benefit. Notwithstanding the preceding sentence, a Participant’s accrued benefit may be reduced to the extent permitted under Section 412(c)(8) of the Code. For purposes of this paragraph, a Plan amendment which has the effect of (i) eliminating or reducing an early retirement benefit or a retirement-type subsidy or (ii) eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment, shall be treated as reducing accrued benefits. In the case of a retirement-type subsidy, the preceding sentence shall apply only with respect to a Participant who satisfies (either before or after the amendment) the pre-amendment conditions for the subsidy. In general, a retirement-type subsidy is a subsidy that continues after retirement, but does not include a qualified disability benefit, a medical benefit, a social security supplement, a death benefit (including life insurance) or a plant shutdown benefit (that does not continue after retirement age). Furthermore, no amendment to the Plan shall have the effect of decreasing a Participant’s vested interest determined without regard to such amendment as of the later of the date such amendment is adopted or becomes effective.

If this Plan is amended and an effect of such amendment is to increase current liability (as defined in Code Section 401(a)(29)(E)) under the Plan for a Plan Year, and the funded current liability percentage of the Plan for the Plan Year in which the amendment takes effect is less than sixty percent (60%), including the amount of the unfunded current liability under the Plan attributable to the amendment, the amendment shall not take effect until the Employer (or any member of a controlled group which includes the Employer) provides security to the Plan. The form and amount of such security shall satisfy the requirements of Code Sections 401(a)(29)(B) and (C). Such security may be released provided the requirements of Code Section 401(a)(29)(D) are satisfied.

No amendment shall directly or indirectly reduce a Participant’s nonforfeitable vested percentage in his benefits under Section 5.5 unless each Participant having not less than three (3) years of Service is permitted to elect to have his nonforfeitable vested percentage in his benefits under Section 5.5 computed under the provisions of Section 5.5 without regard to the amendment. Such election shall be available during an election period which shall begin on the date such amendment is adopted and shall end on the latest of (i) the date sixty (60) days after such amendment is adopted, (ii) the date sixty (60) days after such amendment is effected, or (iii) the date sixty (60) days after such Participant is issued written notice of the amendment by the Committee or the Employer.

The Company specifically reserves the right, however, to make retroactive amendments as may be required by the Commissioner of the Internal Revenue Service to preserve this Plan as a qualified pension plan under Section 401(a) of the Code and to maintain the tax-exempt status of its related Trust under Section 501(a) of the Code.

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10.3 Form of Amendment: Each such amendment shall be evidenced by an instrument in writing of equal formality as this Plan, appropriately authorized by the Board of Directors executed by officers of the Company.

10.4 Merger of Plan with Another Pension Plan: In the event of any merger or consolidation of this Plan with any other pension plan, or in the event of a transfer of the assets or liabilities of this Plan to another pension plan, each Participant in the Plan shall be entitled to receive a benefit if the Plan were to terminate immediately after such merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before such merger, consolidation or transfer if the Plan had then been terminated. In the event of any such merger, consolidation or transfer, the Committee shall report such event to the Pension Benefit Guaranty Corporation within thirty (30) days after the Committee first knew or had reason to know of such event.

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ARTICLE XI

THE TRUSTEE AND THE TRUST FUND

11.1 Trustee: A Trustee has been appointed by the Company. Such Trustee and any successor Trustee shall serve at the pleasure of the Company and shall have such rights, duties and powers as are set forth in the Trust Agreement.

11.2 Trust Agreement: This Plan is a participating Plan under the Trust Agreement, known as the Cabot Oil & Gas Corporation Pension Plan Trust Agreement, effective January 1, 1991, providing for the administration of the Trust Fund by the Trustee. All the terms and conditions of the Trust Agreement, effective January 1, 1991, and as thereafter amended from time to time, are incorporated herein by reference to the extent not inconsistent herewith.

11.3 Benefits Paid Solely from Trust Fund: All benefits provided under the Plan shall be paid out of the Trust Fund. The Employers shall not be responsible or liable in any manner for payment of any such benefits, and all Participants shall look solely to the Trust Fund and to the adequacy thereof for the payment of any such benefits of any nature or kind which may at any time be payable hereunder, except to the extent, if any, that the Employers are liable to the Pension Benefit Guaranty Corporation under ERISA.

11.4 Trust Fund Applicable Only to Payment of Benefits: The Trust Fund shall be used and applied only to provide the benefits of the Plan in accordance with the provisions thereof. No part of the corpus or income of the Trust Fund will be used for, or diverted to, purposes other than for the exclusive benefit of Participants, retired Participants and their beneficiaries, or for the payment of reasonable expenses of the Plan, except as provided in Section 12.5.

11.5 Accounting by Trustee: The Trustee shall keep proper accounts of all investments, receipts, disbursements and other transactions effected by it hereunder, and all accounts, books and records relating thereto shall be open for inspection at all reasonable times by the Committee or by any other person designated by the Company, but nothing herein contained shall be construed to require the Trustee to maintain any record of the interests of the individual Participants in the Trust Fund. As of the close of each Plan Year (or more often, if requested by the Company), the Trustee shall prepare and furnish to the Committee, the Employers and the Actuary an annual valuation of the Trust Fund, containing a detailed statement of investments reflecting cost and market values, and a statement of receipts and disbursements of the Trust Fund and other transactions effected by it during such year.

11.6 Authorization to Protect Trustee: Any action by the Company or other Employer pursuant to any of the provisions of this Plan shall be evidenced by an appropriate written instrument or a resolution of its board of directors certified to the Trustee over the signature of its Secretary or Assistant Secretary under its corporate seal or by written instrument executed by any person authorized by said board of directors to take such action, and the Trustee shall be fully protected in acting in accordance with such written instrument or resolution so certified to it.

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11.7 Exemption from Bond: The Trustee shall not be required to give bond or other security for the faithful performance of its duties hereunder unless otherwise required by law.

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ARTICLE XII

TERMINATION OF THE PLAN

12.1 Right to Terminate Reserved: The Company and each other Employer reserves the right to terminate this Plan with respect to its Employees at any time. Any such termination shall become effective when and as the Committee and the Trustee shall have received a written instrument authorizing such termination and executed by the Company or other Employer. If the Plan is terminated by fewer than all Employers, the Plan shall continue in effect for employees of the remaining Employers. Any termination (other than a partial termination which shall occur under circumstances set forth in Treasury Regulation Section 1.411(d)-2(b) or involuntary termination pursuant to ERISA Section 4042) must satisfy the requirements and follow the procedures outlined in ERISA Section 4041 for a “standard termination” or in ERISA Section 4042 for a “distress termination.” Upon a complete or partial termination of the Plan, each affected Participant’s Accrued Pension, based on his Benefit Service and Average Monthly Compensation prior to the date of such termination, shall become fully vested and nonforfeitable to the extent then funded. Any distribution made upon termination of the Plan shall be subject to the distribution limitations otherwise applicable under the Plan, specifically including the consent provisions of Section 5.6.

12.2 Continuance with Successor Employer: Upon an Employer’s liquidation, bankruptcy, insolvency, sale, consolidation or merger to or with another organization that is not an Employer hereunder, in which such Employer is not the surviving company, all obligations of that Employer hereunder and under the Trust Agreement which have not theretofore been funded shall terminate automatically, and the Trust Fund assets attributable to such Employer shall be held or distributed as herein provided, unless the successor to that Employer assumes the duties and responsibilities of such Employer, by adopting this Plan and the Trust Agreement, or by establishment of a separate plan and trust to which the assets of the Trust Fund held on behalf of the employees of such Employer shall be transferred with the consent and agreement of that Employer. Upon the consolidation or merger of two or more of the Employers under this Plan with each other, the surviving Employer or organization shall automatically succeed to all the rights and duties under the Plan and Trust Agreement of the Employers involved and their shares of the Trust Fund shall be merged and thereafter be allocable to the surviving Employer or organization for its Employees and their beneficiaries. Notwithstanding the above provisions of this Section 12.2 to the contrary, not less than thirty (30) days prior to any such merger, consolidation or transfer of Trust Fund assets, the Committee shall file with the Commissioner of Internal Revenue the actuarial statement of valuation required by Section 6058(b) of the Code evidencing compliance with the requirements of Section 401(a)(12) of the Code and Section 10.4 of the Plan.

12.3 Liquidation of Trust Fund: Upon full termination of the Plan with respect to any Employer, a separation of the Trust Fund with respect to Participants of such Employer shall be made as of the effective date of such termination in accordance with the procedures set forth in Section 13.3. Thereafter, each Participant’s Accrued Pension based on his Benefit Service and Average Monthly Compensation prior to the date of termination, to the extent then funded and payable under the following provisions, shall become fully vested and the assets of the Trust Fund attributable to Participants of such terminated Employer shall be allocated, after provision

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is made for the expenses of liquidating the Trust Fund and of terminating the Plan, among Participants receiving or holding the following benefits in the following order:

(a) First, to benefits payable on the termination date:

(i) In the case of the benefit of a Participant or beneficiary which was in pay status as of the beginning of the three-year period ending on the termination date of the Plan, to each such benefit, based on the provisions of the Plan (as in effect during the five-year period ending on such date) under which such benefit would be the least, and

(ii) In the case of a retired Participant’s, a disabled Participant’s or a beneficiary’s benefit (other than a benefit described in subparagraph (i) above) which would have been in pay status as of the beginning of such three-year period if the Participant had retired prior to the beginning of the three-year period and if his benefits had commenced (in the normal form of pension under the Plan) as of the beginning of such period, to each such benefit based on the provisions of the Plan (as in effect during the five-year period ending on such date) under which such benefit would be the least.

For purposes of subparagraph (i) of this paragraph (a), the lowest benefit in pay status during a three-year period shall be considered the benefit in pay status for such period.

(b) Second:

(i) To all other benefits (if any) of individuals under the Plan guaranteed under Title IV - Plan Termination Insurance - of ERISA (determined without regard to Section 4022(b)(5) of ERISA), and

(ii) To the additional benefits (if any) which would be determined under subparagraph (i) above if Section 4022(b)(6) of ERISA did not apply.

For purposes of this paragraph (b), Section 4021 of ERISA shall be applied without regard to subsection (c) thereof.

(c) Third, to all other nonforfeitable benefits under the Plan.

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(d) Fourth, to all other benefits under the Plan.

If the assets available for allocation under paragraph (a) or (b) above are insufficient to satisfy in full the benefits of all individuals which are described in such paragraph, the assets shall be allocated pro rata among individuals on the basis of the present value (as of the termination date) of their respective benefits described in such paragraph. If the assets available for allocation under paragraph (c) or (d) above are not sufficient to satisfy in full the benefits of individuals described in such paragraph, then:

(A) If this paragraph applies except as provided in subparagraph (B) below, the assets shall be allocated to the benefits of individuals described in paragraph (c) above on the basis of the benefits of individuals which would have been described in such paragraph (c) under the Plan as in effect at the beginning of the five-year period ending on the date of Plan termination.

(B) If the assets available for allocation under subparagraph (A) are sufficient to satisfy in full the benefits described in such subparagraph (without regard to this subparagraph), then for purposes of subparagraph (A), benefits of individuals described in such subparagraph shall be determined on the basis of the Plan as amended by the most recent Plan amendment effective during such five-year period under which the assets available for allocation are sufficient to satisfy in full the benefits of individuals described in subparagraph (A) and any assets remaining to be allocated under such subparagraph shall be allocated under subparagraph (A) on the basis of the Plan as amended by the next succeeding Plan amendment effective during such period.

12.4 Distribution of Trust Fund: Any distribution after full termination of the Plan may be made in whole or in part, to the extent that no discrimination in value results, in cash, securities or other assets in kind, or in annuity contracts, as the Committee, in its discretion, acting under the advice of the Actuary, shall determine; provided, however, that in no event shall a distribution be made in a form other than the Automatic Option if such distribution would have been made in such form had the Participant terminated his Service and commenced receiving his Pension immediately prior to the date on which the distribution pursuant to this Section is made. The benefits as apportioned pursuant to Section 12.3 above may be provided:

(a) By the continuation of the Trust Fund for the payment of all or such of the benefits as are within the limits prescribed by the Committee and acceptable by the Trustee;

(b) Through the purchase of annuities from one or more insurance companies with the amount of the benefit determined by a premium equal to the Actuarial Value of each Participant’s benefit;

(c) By distribution in a single sum of the Actuarial Value of each Participant’s benefit; provided, however, that the Participant may elect to receive the single sum (i) as a lump sum payment or (ii) as an immediate annuity in the form of a Single Life Annuity with no survivors or a Joint and Survivor Annuity

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that is a joint and 50 percent survivor level annuity that is the Actuarial Equivalent of the Participant’s single life annuity and with payments to continue after the death of the Participant at 50 percent, 75 percent or 100 percent of such benefit (according to his election); and

(d) By any combination of (a), (b) and (c). In making such distributions, any and all determinations, divisions, appraisals, apportionments and allotments so made shall be final and conclusive and shall not be subject to question by any person. Any annuity contract distributed by the Trustee to a Participant under subparagraph (b) above or under any other provision of this Plan shall bear on the face thereof a designation “Not Transferable,” and such annuity contract shall expressly provide that the contract may not be sold, assigned, discounted or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose to any person other than the issuer thereof. Notwithstanding the foregoing, the Employer or the Committee shall promptly advise the appropriate District Director of Internal Revenue and the Pension Benefit Guaranty Corporation of the termination and shall direct the Trustee to delay the final distribution to Participants until said District Director shall advise in writing that such termination does not adversely affect the previously qualified status of the Plan or the exemption from tax of the Trust under Section 401(a) or 501(a) of the Code and the Pension Benefit Guaranty Corporation has approved the proposed termination distribution or made any appropriate requirements concerning same.

12.5 Residual Amounts: In no event shall any Employer receive any amounts from the Trust Fund except that upon termination of the Plan, and notwithstanding any other provision of the Plan, an Employer shall receive such amounts, if any, as may remain in the Trust Fund because of erroneous actuarial computation as defined in U.S. Treasury Regulations and as determined by the Company in its sole discretion.

12.6 Limitations Imposed by Treasury Regulations upon Early Termination of Plan: The Plan shall be operated in compliance with the following:

(a) In the event that the Plan is terminated at any time after the Effective Date, the benefit of any highly compensated employee or any highly compensated former employee is limited to a benefit that is nondiscriminatory under Section 401(a)(4) and any regulations thereunder.

(b) Notwithstanding anything in the Plan to the contrary, the benefits from the Trust Fund for each Participant, whether retired or not, who is among the twenty-five (25) most highly compensated Employees (herein referred to as the “Highly Paid Participant”) shall be limited as follows. The annual payments to a Highly Paid Participant shall be restricted to an amount equal to the payments he would receive under a single life annuity that represents the Actuarial Equivalent of the sum of his accrued benefit and any other benefits he is entitled to receive under this Plan. However, this limitation shall not apply if one of the following conditions is satisfied:

(1) after payment of all benefits (including loans in excess of amounts described in Code Section 72(p)(2)(A), any periodic income, withdrawal values payable to a living employee, and any benefits not provided for by insurance of the employee’s life) to the Highly Paid Participant, the value of Plan assets equals or exceeds 110 percent of the value of current liabilities (as defined in Code Section 412(l)(7)), or

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(2) the value of such benefits for the Highly Paid Participant is less than 1 (one) percent of the value of current liabilities.

In the event of early plan termination, the benefit of any highly compensated active or former Employee is limited to a benefit that is non-discriminatory under Section 401(a)(4). In the event of early plan termination, benefits distributed to any of the 25 most highly compensated active and highly compensated former Employees with the greatest Compensation in the current or any prior year are restricted such that the annual payments are no greater than an amount equal to the payment that would be made on behalf of the Employee under a straight life annuity that is the actuarial equivalent of the sum of the Employee’s accrued benefit, the Employee’s other benefits under the Plan (other than a social security supplement, within the meaning of Section 1.411(a)-7(c)(4)(ii) of the Income Tax Regulations), and the amount the Employee is entitled to receive under a social security supplement.

The preceding paragraph shall not apply if: (i) after payment of the benefit to an Employee described in the preceding paragraph, the value of Plan assets equals or exceeds 110% of the value of current liabilities, as defined in Section 412(l)(7) of the Code, (ii) the value of the benefits for an Employee described above is less than 1% of the value of current liabilities before distribution, or (iii) the value of the benefits payable under the Plan to an Employee described above does not exceed $5,000.

For purposes of this Section, benefit includes loans in excess of the amount set forth in Section 72(p)(2)(A) of the Code, any periodic income, any withdrawal values payable to a living Employee, and any death benefits not provided for by insurance on the Employee’s life.

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ARTICLE XIII

ADOPTION OF PLAN BY OTHER ORGANIZATIONS

13.1 Procedure for Adoption: Any corporation or other organization with employees, now in existence or hereafter formed or acquired, which is not already an Employer under this Plan which is otherwise legally eligible, and, unless otherwise specifically provided, is an Affiliate, may, in the future, with the consent and approval of the Company, by formal resolution or decision of its own board or governing authority, adopt the Plan and the related Trust Agreement, for all or any classification of persons in its employment, and thereby, from and after the specified effective date become an “Employer” as defined in this Plan. Such adoption shall be effectuated by and evidenced by an adoptive instrument executed by the adopting organization and consented to by the Company and the Trustee. The adoption resolution or decision and the adoptive instrument may contain such specific changes and variations in Plan or Trust Agreement terms and provisions as may be acceptable to the Company and the Trustee. The adoption resolution or decision and the adoptive instrument shall become, as to such adopting organization and its employees, a part of this Plan as then amended and the related Trust Agreement. It shall not be necessary for the adopting organization to sign or execute the original or then amended Plan and Trust documents. The effective date of the Plan for any such adopting organization shall be that stated in such resolution or decision and the adoptive instrument, and from and after such effective date such adopting organization shall assume all the rights, obligations and liabilities of an individual Employer entity hereunder and under the Trust Agreement, and shall be included within the meaning of the term “Employer,” as herein defined. Such adopting corporation or other organization shall forthwith obtain a favorable determination letter from the appropriate District Director of Internal Revenue with respect to its participation in the Plan and Trust Agreement. The administrative powers and control of the Company, as provided in the Plan, including the sole right of amendment of the Plan and of appointment and removal of the Committee members, shall not be diminished by reason of the participation of any such adopting organization in the Plan and Trust. Any participating Employer may withdraw from the Plan and Trust at any time without affecting other Employers not withdrawing by complying with the provisions of the Plan and Trust Agreement. The Company may, in its absolute discretion, terminate an adopting Employer’s participation at any time when in its judgment such adopting Employer fails or refuses to discharge its obligations. Notwithstanding any provision in this Plan to the contrary, unless otherwise specifically provided, a corporation or other organization which has adopted this Plan and which is no longer a member of an affiliated service group, a controlled group or a group of trades or businesses of which the Company is a member shall no longer be an Employer under this Plan.

13.2 Effect of Adoption: The following special provisions shall apply to all Employers:

(a) An Employee shall be considered in continuous Service while regularly employed simultaneously or successively by one or more Employers.

13.3 The transfer of a Participant from one Employer to another or to an Affiliate shall not be deemed a termination of Service.

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13.4 Separation of the Trust Fund: A separation of the Trust Fund as to the interests therein of the Participants of any particular Employer may be made at the times and under the circumstances described in Section 12.3, 13.4 or 13.5. In such event, the Trustee shall set apart that portion of the Trust Fund which the Committee shall certify to the Trustee is the equitable share of such Participants pursuant to a valuation and allocation of the Trust Fund made as of the date when such separation of the Trust Fund shall be effective. Such portions of the Trust Fund may in the Trustee’s discretion be set apart in cash or in kind out of the properties of the Trust Fund. That portion of the Trust Fund so set apart shall continue to be held by the Trustee as though such Employer had entered into the Trust Agreement as a separate trust agreement with the Trustee. Such Employer may in such event designate a new trustee of its selection to act as trustee under the Trust Agreement, and shall thereupon be deemed to have adopted the Plan as its own separate plan and shall subsequently have all the powers of amendment or modification of the Plan as are reserved herein to the Company.

13.5 Voluntary Separation: If any Employer shall desire to separate its interest in the Trust Fund, it may request such a separation in a notice in writing to the Company and the Trustee. Such separation must be approved by the Board of Directors shall then be made as of any specified date after service of such notice, and such separation shall be accomplished in the manner set forth in Section 13.3 above.

13.6 Approval of Amendment: Any amendment of the Plan or the Trust Agreement by the Company pursuant to Article X shall be promptly delivered to each other Employer who will be deemed to have consented to such amendment unless it, within thirty (30) days after receipt of the amendment, rejects such amendment and seeks a separation of its interest in the Trust Fund in accordance with the provisions of Section 13.3 hereof.

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ARTICLE XIV

MISCELLANEOUS

14.1 Interest on Deferred Payments: In the event that any portion of a lump-sum benefit provided and payable under this Plan is not paid within sixty (60) days after the termination of employment, Disability or death of a Participant, whichever is applicable, such unpaid portion shall earn interest until paid at a eight and one-half percent (8 ¹/2%) rate of interest.

14.2 Plan Not an Employment Contract: The adoption and maintenance of the Plan shall not be deemed to constitute a contract between an Employer and any Participant, and shall not be deemed to be consideration for, inducement to or a condition of employment of any person. Nothing herein contained shall be construed to give any Participant the right to be retained in the employment of an Employer or to interfere with the right of an Employer to terminate the employment of any Participant at any time.

14.3 Controlling Law: Subject to the provisions of ERISA, as the same may be amended from time to time, which may be applicable and provide to the contrary, this Plan shall be construed, regulated and administered under the laws of the State of Texas.

14.4 Invalidity of Particular Provisions: In the event any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of this Plan but shall be fully severable, and this Plan shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein.

14.5 Non-Alienability of Rights of Participants: Except as otherwise provided below and with respect to certain judgments and settlements pursuant to Section 401(a)(13) of the Code, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the death, contracts, liabilities, engagements or torts of any person, and the same shall not be recognized by the Trustee, except to the extent as may be required by law.

This provision shall not apply to a “qualified domestic relations order” defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Committee under the provisions of the Retirement Equity Act of 1984. Further, to the extent provided under a “qualified domestic relations order,” a former spouse of a Participant shall be treated as the Spouse or Surviving Spouse for all purposes of the Plan. If the Committee receives a qualified domestic relations order with respect to a Participant, the Committee may authorize the immediate distribution of the amount assigned to the Participant’s former spouse, to the extent permitted by law, from the Participant’s Accounts.

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14.6 Copy Available to Participants: A copy of this Plan and the Trust Agreement and of any and all future amendments thereto shall be available to Participants and their beneficiaries for inspection at all reasonable times.

14.7 Evidence Furnished Conclusive: Each Employer, the Committee and any person or persons involved in the administration of the Plan shall be entitled to rely upon any certification, statement or representation made or evidence furnished by an Employee, Participant or beneficiary with respect to his age, or other facts required to be determined under any of the provisions of the Plan, and shall not be liable on account of the payment of any monies or the doing of any act or failure to act in reliance thereon. Any such certification, statement, representation or evidence, upon being duly made or furnished, shall be conclusively binding upon such Employee, Participant or beneficiary but not upon an Employer, the Committee or any other person or persons involved in the administration of the Plan. Nothing herein contained shall be construed to prevent any of such parties from contesting any such certification, statement, representation or evidence or to relieve the Employee, Participant or beneficiary from the duty of submitting satisfactory proof of his age or such other fact.

14.8 Unclaimed Benefits: If at, after or during the time when a benefit hereunder is payable to any Participant, Joint Pensioner or other distributee, the Committee, upon request of the Trustee, or in its own instance, shall mail by registered or certified mail to such Participant, Joint Pensioner or other distributee at his last known address a written demand for his current address or for satisfactory evidence of his continued life, or both, and if such Participant, Joint Pensioner or other distributee shall fail to furnish the same to the Committee within two (2) years from the mailing of such demand, the Committee may, in its sole discretion, determine that such Participant, Joint Pensioner or other distributee has forfeited his right to such benefit and declare such benefit, or any unpaid portion thereof, terminated as if the death of the Participant (with no surviving Joint Pensioner or other distributee) had occurred on the date of the last payment made thereon, or the date such Participant, Joint Pensioner or other distributee first became entitled to receive benefit payments, whichever is later; provided, however, that such forfeited benefit shall be reinstated if a claim for the same is made by the Participant, Joint Pensioner or other distributee at any time thereafter.

14.9 Name and Address Changes: Each Participant and each Joint Pensioner or other beneficiary of a deceased Participant shall at all times be responsible for notifying the Committee of any change in his name or address. If any check in payment of a benefit hereunder (which was mailed to the last address of the payee as shown on the Committee’s records) is returned unclaimed, further payments shall be discontinued until the Committee directs otherwise.

14.10 Facility of Payment: If the Committee receives satisfactory evidence that any person entitled to make any election or to receive any payment of a benefit or installment thereof hereunder is (at the time such election or payment is to be made) physically, mentally or legally incompetent to make such election or to receive such benefit and to give a valid receipt therefor and that an individual or institution is then maintaining or has custody of such person and that no guardian, committee or other representative of the estate of such person has been duly appointed, the Committee may make such election in its complete and absolute discretion or may authorize payment of such benefit to such individual or institution maintaining or having the custody of such person, and the receipt of such individual or institution shall be a valid and complete discharge for the payment of such benefit or installment thereof. Deposit to the credit of a Participant or beneficiary in any bank or trust company shall be deemed payment into his hands.

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14.11 Payments in Satisfaction of Claims of Participants: Any payment or distribution to any Participant or his legal representative, Joint Pensioner or beneficiary in accordance with the provisions of this Plan shall be in full satisfaction of all claims under the Plan against the Trust Fund, the Committee, the Trustee and the Employer.

14.12 Headings for Convenience Only: The headings and subheadings in this Plan are inserted for convenience and reference only and are not to be used in construing this Plan or any provision herein.

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ARTICLE XV

LIMITATION ON BENEFITS

Notwithstanding any provision of this Plan to the contrary, the total Annual Benefit received by an Employee shall be subject to the following limitations:

I. Single Defined Benefit Plan

The normal retirement benefit of any Employee under this Plan cannot exceed the lesser of $160,000 (increased annually for Limitation Years in accordance with Section 415(d) of the Code to reflect cost-of-living adjustments, and specifically being no less than $170,000 by 2009) or one hundred percent (100%) of such Employee’s Average Compensation. For purposes of determining whether an Employee’s benefits exceed these limitations, the following rules shall apply:

1. Adjustment If Benefit Not Single Life Annuity

If the normal form of benefit is other than a single life annuity, such form must be adjusted actuarially to the equivalent of a single life annuity. This single life annuity cannot exceed the maximum dollar or percent limitations outlined above. No adjustment is required for the following: qualified joint and survivor annuity benefits, pre-retirement disability benefits, pre-retirement death benefits and post-retirement medical benefits.

2. Adjustment If Benefit Commences Prior to Age 62

If the benefit of a Participant begins prior to age 62, the dollar limitation applicable to the Participant at such earlier age is an annual benefit payable in the form of a straight life annuity beginning at the earlier age that is the Actuarial Equivalent of the dollar limitation applicable to the Participant at age 62 (adjusted under subsection (4) below, if required). The dollar limitation applicable at an age prior to age 62 is determined as the lesser of (i) the Actuarial Equivalent (at such age) of the dollar limitation computed using the interest rate and mortality table (or other tabular factor) specified in Section 1.1 of the Plan and (ii) the Actuarial Equivalent (at such age) of the dollar limitation computed using a 5 percent interest rate and the Applicable Mortality Table as provided in Section 1.1 of the Plan. Any decrease in the dollar limitation determined in accordance with this paragraph (2) shall not reflect a mortality decrement if benefits are not forfeited upon the death of the Participant. If any benefits are forfeited upon death, the full mortality decrement is taken into account.

3. Adjustment If Benefit Commences After Age 65

If the benefit of a Participant begins after the Participant attains age 65, the dollar limitation applicable to the Participant at the later age is the annual benefit payable in the form of a straight life annuity beginning at the later age that is

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actuarially equivalent to the dollar limitation applicable to the participant at age 65 (adjusted under (4) below, if required). The actuarial equivalent of the dollar limitation applicable at an age after age 65 is determined as (i) the lesser of the Actuarial Equivalent (at such age) of the dollar limitation computed using the interest rate and mortality table (or other tabular factor) specified in Section 1.1 of the Plan and (ii) the actuarial equivalent (at such age) of the dollar limitation computed using a 5 percent interest rate assumption and the Applicable Mortality Table as provided in Section 1.1 of the Plan. For these purposes, mortality between age 65 and the age at which benefits commence shall be ignored.

4. Reduction For Service Less than 10 Years

If the Participant has fewer than 10 years of participation in the Plan, the dollar limitation shall be multiplied by a fraction, (i) the numerator of which is the number of years (or part thereof) of participation in the Plan and (ii) the denominator of which is 10. In the case of a Participant who has fewer than 10 years of service with the Employer, the defined benefit compensation limitation shall be multiplied by a fraction, (i) the numerator of which is the number of years (or part thereof) of service with the Employer and (ii) the denominator of which is 10.

5. Adjustment For Small Benefits

In the case of an Employee whose Annual Benefit is not in excess of $10,000, the benefits payable with respect to such Employee under this Plan shall be deemed not to exceed the limitation of this Section if:

A. The Annual Benefits payable with respect to such Employee under this Plan and all other defined benefit plans of the Employer do not exceed $10,000 for the Plan Year or for any prior Plan Year, and

B. The Employer has not at any time maintained a defined contribution plan in which the Employee participated.

6. Protected Accrued Benefit

Notwithstanding anything in this Article XV to the contrary, the maximum annual benefit for any Participant in a defined benefit plan in existence on July 1, 1982 shall not be less than the protected current accrued benefit, payable annually, as provided for under question T-3 of Internal Revenue Service Notice 83-10, 1983-1 C.B. 536. In the case of an individual who was a participant in one or more defined benefit plans of the Employer as of the first day of the first Limitation Year beginning after December 31, 1986, the application of the limitation of this Article XV shall not cause the maximum permissible amount for such individual under all such defined benefit plans to be less than the individual’s current accrued benefit. The preceding sentence applies only if such defined benefit plans met the requirements of Code Section 415 for all Limitation Years beginning before January 1, 1987.

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II. Two or More Defined Benefit Plans

If the Employer maintains one or more defined benefit plans in addition to this Plan, the sum of the normal retirement benefits of all plans will be treated as a single benefit for the purposes of applying the limitations in Section 15(I). If these benefits exceed, in the aggregate, the limitations in Section 15(I), the normal retirement benefit under this Plan shall be reduced (but not below zero) until the sum of the benefits of the remaining plans satisfy the limitations.

III. Definitions

1. Employer: The Company and any other Employer that adopts this Plan. In the case of a group of employers which constitutes a controlled group of corporations (as defined in Code Section 414(b) as modified by Code Section 415(h)) or which constitutes trades and businesses (whether or not incorporated) which are under common control (as defined in Code Section 414(c) as modified by Code Section 415(h)) or an affiliated service group (as defined in Code Section 414(m)), all such employers shall be considered a single Employer for purposes of applying the limitations of this Section.

2. Excess Amount: The excess of the Employee’s Annual Additions for the Limitation Year over the Maximum Permissible Amount.

3. Limitation Year: The period from January 1 to December 31 each year.

4. Compensation: For purposes of determining compliance with the limitations of Code Section 415, Compensation shall mean an Employee’s earned income, wages, salaries, fees for professional services and other amounts received for personal services actually rendered in the course of employment with an Employer maintaining the Plan, including, but not limited to, commissions paid to salesmen, compensation for services based on a percentage of profits, commissions on insurance premiums, tips and bonuses, and excluding the following:

(a) Employer contributions to a plan of deferred compensation to the extent contributions are not included in gross income of the Employee for the taxable year in which contributed, or on behalf of an Employee to a simplified employee pension plan to the extent such contributions are deductible under Code Section 219(b)(2), and any distributions from a plan of deferred compensation whether or not includable in the gross income of the Employee when distributed (however, any amounts received by an Employee pursuant to an unfunded nonqualified plan may be considered as Compensation in the year such amounts are included in the gross income of the Employee);

(b) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee becomes freely transferable or is no longer subject to a substantial risk of forfeiture;

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(c) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and

(d) other amounts which receive special tax benefits, or contributions made by an Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described under Code Section 403(b) (whether or not the contributions are excludable from the gross income of the Employee).

Notwithstanding anything to the contrary in this definition, Compensation shall include any and all items which may be included in Compensation under Code Section 415(c)(3), including (i) any elective deferral (as defined in Code Section 402(g)(3) and (ii) any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includible in the gross income of the Employee by reason of Code Section 125, 132(f)(4) or 457.

5. Average Compensation: The average Compensation during an Employee’s high three (3) years of service, which period is the three (3) consecutive calendar years (or, the actual number of consecutive years of employment for those Employees who are employed for less than three (3) consecutive years with the Employer) during which the Employee had the greatest aggregate Compensation from the Employer.

6. Annual Benefit: A benefit payable annually in the form of a straight life annuity (with no ancillary benefits) under a plan to which Employees do not contribute and under which no rollover contributions are made.

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ARTICLE XVI

TOP-HEAVY PLAN REQUIREMENTS

16.1 General Rule: For any Plan Year for which this Plan is a Top-Heavy Plan, as defined in Section 16.7, any other provisions of this Plan to the contrary notwithstanding, this Plan shall be subject to the provisions of this Article XVI.

16.2 Vesting Provisions: Each Participant who has completed an Hour of Service after the Plan becomes top heavy and while the Plan is top heavy and who has completed the Vesting Service specified in the following table shall be vested in his accrued benefit under this Plan at least as rapidly as is provided in the following schedule (but in any event no later than in accordance with Article IV):

Vesting Service	Vested Percentage
Less than 2 years	0%
2 but less than 3 years	20%
3 but less than 4 years	40%
4 but less than 5 years	60%
5 years or more	100%

If an account becomes vested by reason of the application of the preceding schedule, it may not thereafter be forfeited by reason of re-employment after retirement pursuant to a suspension of benefits provision, by reason of withdrawal of any mandatory employee contributions to which Employer contributions were keyed, or for any other reason. If the Plan subsequently ceases to be top heavy, the preceding schedule shall continue to apply with respect to any Participant who had at least three years of service (as defined in Treasury Regulation Section 1.411(a)-8T(b)(3)) as of the close of the last year that the Plan was top heavy. For all other Participants, the non-forfeitable percentage of their accrued benefit prior to the date the Plan ceased to be top heavy shall not be reduced, but future increases in the non-forfeitable percentage shall be made only in accordance with Article IV.

16.3 Minimum Benefit Provisions: Each Participant who is a Non-Key Employee, as defined in Section 16.7, shall be entitled to an accrued benefit in the form of a single life annuity (with no ancillary benefits) beginning at his Normal Retirement Date, that shall not be less than his average annual Participant’s Compensation, within the meaning of Section 415 of the Code, for years in the Testing Period multiplied by the lesser of: (a) 2% multiplied by the number of years of Top-Heavy Service or (b) 20%. A Non-Key Employee may not fail to receive a minimum benefit because of a failure to receive a specified minimum amount of Compensation or a failure to make mandatory employee or elective contributions.

“Testing Period” means, with respect to a Participant, the period of consecutive years of Top-Heavy Service, not exceeding five, during which the Participant had the greatest aggregate compensation, within the meaning of Section 415 of the Code, from the Employer. “Top-Heavy Service” means his vesting service credited under Section 2.1. Top-Heavy Service

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shall not include any vesting service before January 1, 1984 or any vesting service that begins after the close of the last Plan Year in which the Plan was a Top-Heavy Plan. Years before and after such excluded periods shall be considered consecutive for purposes of determining the Testing Period.

For purposes of satisfying the minimum benefit requirements of Section 416(c)(1) of the Code and the Plan, in determining Years of Service with the Employer, any service with the Employer shall be disregarded to the extent that such service occurs during a Plan Year when the Plan benefits (within the meaning of Section 410(b) of the Code) no Key Employee or former Key Employee.

16.4 Limitation on Compensation: The annual Compensation of a Participant taken into account under this Article XVI and under Section 1.12 for purposes of computing benefits under this Plan shall not exceed $220,000 for any Plan Year (unless adjusted in the same manner as permitted under Code Section 415(d)). Such amount shall be adjusted automatically for each Plan Year to the amount prescribed by the Secretary of the Treasury or his delegate pursuant to regulations for the calendar year in which such Plan Year commences.

16.5 Coordination With Other Plans: If another qualified employee benefit plan is maintained by a Considered Company which provides contributions or benefits on behalf of Participants in this Plan, such other plan shall be treated as a part of this Plan pursuant to applicable principles prescribed by U.S. Treasury Regulations or applicable IRS rulings (such as Revenue Ruling 81-202 or any successor ruling) to determine whether this Plan satisfies the requirements of Sections 16.2, 16.3 and 16.4 and to avoid inappropriate omissions or inappropriate duplication of minimum contributions. Such determination shall be made, upon the advice of counsel, by the Committee.

In the event a Participant is covered by a defined benefit plan which is top heavy pursuant to Section 416 of the Code, a comparability analysis (as prescribed by Revenue Ruling 81-202 or any successor ruling) shall be performed in order to establish that the plans are providing benefits at least equal to the defined benefit minimum.

16.6 Distributions to Certain Key Employees: Notwithstanding any provision of this Plan to the contrary, the entire interest in this Plan of each Participant who is a 5% owner (as described in Section 416(i)(1) of the Code determined with respect to the Plan Year ending in the calendar year in which such individual attains age 70 ¹/2) shall be distributed to such Participant not later than the first day of April following the calendar year in which such individual attains age 70 ¹/2.

16.7 Determination of Top-Heavy Status: The Plan shall be a Top-Heavy Plan for any Plan Year if, as of the Determination Date, the present value of the cumulative accrued benefits under the Plan (determined as of the Valuation Date) for Participants (including former Participants) who are Key Employees exceeds 60% of the present value of the cumulative accrued benefits under the Plan for all Participants (including former Participants) or, if this Plan is required to be in an Aggregation Group, any such Plan Year in which such Group is a Top-Heavy Group. In determining Top-Heavy status, if an individual has not performed one Hour of Service for any Considered Company at any time during the one-year period ending on the

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Determination Date, any accrued benefit for such individual and the aggregate accounts of such individual shall not be taken into account. The accrued benefit of any employee (other than a Key Employee) shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Aggregation Group or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rate of Code Section 411(b)(1)(C).

For purposes of this Section, the capitalized words have the following meanings:

(a) “Aggregation Group” means the group of plans, if any, that includes both the group of plans that is required to be aggregated and the group of plans that is permitted to be aggregated. The group of plans that is required to be aggregated (the “required aggregation group”) includes:

(i) Each plan of a Considered Company in which a Key Employee is a participant, including collectively bargained plans; and

(ii) Each other plan, including collectively bargained plans, of a Considered Company which enables a plan in which a Key Employee is a participant to meet the requirements of either Code Section 401(a)(4) or 410.

(b) The group of plans that is permitted to be aggregated (the “permissive aggregation group”) includes the required aggregation group and any plan that is not part of the required aggregation group that the Committee certifies as constituting a plan within the permissive aggregation group. Such plans may be added to the permissive aggregation group only if, after the addition, the aggregation group as a whole continues to meet the requirements of both Code Sections 401(a)(4) and 410.

(c) “Considered Company” means the Employer or an Affiliate.

(d) “Determination Date” means for any Plan Year the last day of the immediately preceding Plan Year or in the case of the first Plan Year of the Plan, Determination Date means the last day of such Plan Year.

(e) “Key Employee” means any Employee or former Employee (including any deceased Employee) who at any time during the Plan Year that includes the Determination Date was an officer of a Considered Company having annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), a 5-percent owner of a Considered Company, or a 1-percent owner of a Considered Company having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of the Code. The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

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(f) A “Non-Key Employee” means any Participant (and any Beneficiary of a Participant) who is not a Key Employee.

(g) “Top-Heavy Group” means the Aggregation Group, if, as of the applicable Determination Date, the sum of the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans included in the Aggregation Group plus the aggregate of the accounts of Key Employees under all defined contribution plans included in the Aggregation Group exceeds 60% of the sum of the present value of the cumulative accrued benefits for all employees, excluding former Key Employees as provided in paragraph (i) below, under all such defined benefit plans plus the aggregate accounts for all employees, excluding former Key Employees as provided in paragraph (i) below, under all such defined contribution plans. In determining Top-Heavy status, if an individual has not performed one Hour of Service for any Considered Company at any time during the one-year period ending on the Determination Date, any accrued benefit for such individual and the aggregate accounts of such individual shall not be taken into account. If the Aggregation Group that is a Top-Heavy Group is a permissive aggregation group, only those plans that are part of the required aggregation group will be treated as Top-Heavy Plans. If the Aggregation Group is not a Top-Heavy Group, no plan within such group will be a Top-Heavy Plan.

In determining whether this Plan constitutes a Top-Heavy Plan, the Committee (or its agent) will make the following adjustments:

(i) When more than one plan is aggregated, the Committee shall determine separately for each plan as of each plan’s Determination Date the present value of the accrued benefits (for this purpose using the actuarial assumptions set forth in the applicable plan, and if such assumptions are not set forth in the applicable plan, using the assumptions set forth in this Plan) or account balance. The results shall then be aggregated by adding the results of each plan as of the Determination Dates for such plans that fall within the same calendar year.

(ii) The present values of accrued benefits and the amounts of account balances of an Employee as of the Determination Date shall be increased by the distributions made with respect to the Employee under the Plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting “5-year period” for “1-year period.”

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The accrued benefits and accounts of any individual who has not performed services for a Considered Company during the 1-year period ending on the Determination Date shall not be taken into account.

(iii) Further, in making such determination, such present value or such account shall include any rollover contribution (or similar transfer) as follows:

(A) If the rollover contribution (or similar transfer) is initiated by the employee and made to or from a plan maintained by another Considered Company, the plan providing the distribution shall include such distribution in the present value of such account; the plan accepting the distribution shall not include such distribution in the present value of such account unless the plan accepted it before December 31, 1983.

(B) If the rollover contribution (or similar transfer) is not initiated by the employee or made from a plan maintained by another Considered Company, the plan accepting the distribution shall include such distribution in the present value of such account, whether the plan accepted the distribution before or after December 31, 1983; the plan making the distribution shall not include the distribution in the present value of such account.

(h) In any case where an individual is a Non-Key Employee with respect to an applicable plan but was a Key Employee with respect to such plan for any prior Plan Year, any accrued benefit and any account of such Employee shall be altogether disregarded. For this purpose, to the extent that a Key Employee is deemed to be a Key Employee if he met the definition of Key Employee within any of the four preceding Plan Years, this provision shall apply following the end of such period of time.

(i) “Valuation Date” means for purposes of determining the present value of an accrued benefit as of the Determination Date the date determined as of the most recent Valuation Date which is within a 12-month period ending on the Determination Date. For the first plan year of a plan, the accrued benefit for a current employee shall be determined either (i) as if the individual terminated service as of the Determination Date, or (ii) as if the individual terminated service as of the Valuation Date, but taking into account the estimated accrued benefit as of the Determination Date. The Valuation Date shall be determined in accordance with the principles set forth in Q.&A. T-25 of Treasury Regulations Section 1.416-1.

(j) For purposes of this Article, “Compensation” shall have the meaning given to it in Section 15(III)(4) of the Plan.

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IN WITNESS WHEREOF, Cabot Oil & Gas Corporation has executed these presents as evidenced by the signatures of its duly authorized officers, in a number of copies, all of which shall constitute but one and the same instrument, which may be sufficiently evidenced by any such executed copy hereof, this      day of             , 2006, but effective as of January 1, 2006.

CABOT OIL & GAS CORPORATION
By
	Vice President

ATTEST:
[SEAL]
THE STATE OF TEXAS	§
	§
COUNTY OF HARRIS	§

BEFORE ME, the undersigned authority, on this day personally appeared                     ,                      of CABOT OIL & GAS CORPORATION, known to me to be the person and officer whose name is subscribed to the foregoing instrument, and acknowledged to me that the same was the act of the said CABOT OIL & GAS CORPORATION, and that he executed the same as the act and deed of such limited partnership for the purposes and consideration therein expressed and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this      day of             , 2006.

Notary Public, State of Texas

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EX-21.1

Exhibit 21.1

SUBSIDIARIES OF CABOT OIL & GAS CORPORATION

Big Sandy Gas Company

Cabot Oil & Gas Marketing Corporation *

Cody Energy, LLC

Cody Oil & Gas, Inc.

Cody Texas, LP

Cranberry Pipeline Corporation *

Cabot Petroleum Canada Corporation

Cabot Oil & Gas Holding Company

* Denotes significant subsidiary.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (File Nos. 333-68350 and 333-83819) and Form S-8 (File Nos. 333-37632, 33-53723, 33-35476, 33-71134, 333-92264, 333-123166 and 333-135365) of Cabot Oil & Gas Corporation of our report dated February 28, 2007 relating to the financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

February 28, 2007

EX-23.2

Exhibit 23.2

February 20, 2007

Cabot Oil & Gas Corporation

1200 Enclave Parkway

Houston, TX 77077-1607

Re:	Securities and Exchange Commission
	Form 10-K of Cabot Oil & Gas Corporation

Gentlemen:

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-68350 and 333-83819) and Form S-8 (File Nos. 333-37632, 33-53723, 33-35476, 33-71134, 333-92264, 333-123166 and 333-135365) of Cabot Oil & Gas Corporation of our report dated February 6, 2007, regarding the Cabot Oil & Gas Corporation Proved Reserves and Future Net Revenues as of December 31, 2006, and of references to our firm which report and references are to be included in Form 10-K for the year ended December 31, 2006 to be filed by Cabot Oil & Gas Corporation with the Securities and Exchange Commission.

Miller and Lents, Ltd. has no financial interest in Cabot Oil & Gas Corporation or in any of its affiliated companies or subsidiaries and is not to receive any such interest as payment for such report. Miller and Lents, Ltd. also has no director, officer, or employee employed or otherwise connected with Cabot Oil & Gas Corporation. We are not employed by Cabot Oil & Gas Corporation on a contingent basis.

Very truly yours,

MILLER AND LENTS, LTD.

/s/ R. W. Frazier

R. W. Frazier

Senior Vice President

EX-31.1

Exhibit 31.1

I, Dan O. Dinges, certify that:

1. I have reviewed this annual report on Form 10-K of Cabot Oil & Gas Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: February 28, 2007

/s/ Dan O. Dinges

Dan O. Dinges

Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Scott C. Schroeder, certify that:

1. I have reviewed this annual report on Form 10-K of Cabot Oil & Gas Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: February 28, 2007

/s/ Scott C. Schroeder

Scott C. Schroeder

Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) (the “Act”), each of the undersigned, Dan O. Dinges, Chief Executive Officer of Cabot Oil & Gas Corporation, a Delaware corporation (the “Company”), and Scott C. Schroeder, Chief Financial Officer of the Company, hereby certify that, to his knowledge:

(1) the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 28, 2007	/s/ Dan O. Dinges
	Dan O. Dinges
	Chief Executive Officer
	/s/ Scott C. Schroeder
	Scott C. Schroeder
	Chief Financial Officer

EX-99.1

Exhibit 99.1

February 6, 2007

Cabot Oil & Gas Corporation

1200 Enclave Parkway

Houston, TX 77077-1607

Re:	Reserves and Future Net Revenues
	As of December 31, 2006
	SEC Price Case

Gentlemen:

At your request, we reviewed the estimates of proved reserves of oil, natural gas liquids, and gas and the future net revenues associated with these reserves that Cabot Oil & Gas Corporation, hereinafter Cabot, attributes to its net interests in oil and gas properties as of December 31, 2006. Cabot’s estimates, shown below, are in accordance with the definitions contained in Securities and Exchange Commission Regulation S-X, Rule 4-10(a) as shown in the Appendix.

Reserves and Future Net Revenues as of December 31, 2006

Reserve Category	Net Reserves		Future Net Revenues
	Liquids, MBbls.	Gas, MMcf	Undiscounted, M$	Discounted at 10% Per Year, M$
Proved Developed	5,895	996,850	4,189,777	1,756,096
Proved Undeveloped	2,077	371,443	1,175,012	254,132
Total Proved	7,972	1,368,293	5,364,789	2,010,228

We made independent estimates for all the proved reserves estimated by Cabot. Based on our investigations and subject to the limitations described hereinafter, it is our judgment that (1) Cabot has an effective system for gathering data and documenting information required to estimate its proved reserves and to project its future net revenues, (2) in making its estimates and projections, Cabot used appropriate engineering, geologic, and evaluation principles and techniques that are in accordance with practices generally accepted in the petroleum industry, and (3) the results of those estimates and projections are, in the aggregate, reasonable.

All reserves discussed herein are located within the continental United States and Canada. Gas volumes were estimated at the appropriate pressure base and temperature base that are established for each well or field by the applicable sales contract or regulatory body. Total gas reserves were obtained by summing the reserves for all the individual properties and are therefore stated herein at a mixed pressure base.

Cabot Oil & Gas Corporation	February 6,2007
	Page 2

Cabot represents that the future net revenues reported herein were computed based on prices for oil, natural gas liquids, and gas as of Cabot’s fiscal year end, December 31, 2006, and are in accordance with Securities and Exchange Commission guidelines. The present value of future net revenues was computed by discounting the future net revenues at 10 per cent per annum. Estimates of future net revenues and the present value of future net revenues are not intended and should not be interpreted to represent fair market values for the estimated reserves.

In conducting our investigations, we reviewed the pertinent available engineering, geological, and accounting information for each well or designated property to satisfy ourselves that Cabot’s estimates of reserves and future production forecasts and economic projections are, in the aggregate, reasonable. We independently selected a sampling of properties in each region and reviewed the direct operating expenses and product prices used in the economic projections.

In its estimates of proved reserves and future net revenues associated with its proved reserves, Cabot has considered that a portion of its facilities associated with the movement of its gas in the Appalachian Region to its markets are unusual in that the construction and operation of these facilities are highly dependent on its producing operations. Cabot has deemed the portion of the cost of these facilities associated with its revenue interest gas as costs that are attributable to its oil and gas producing activities, and accordingly, has included these costs in its computation of the future net revenues associated with its proved reserves.

Reserve estimates were based on decline curve extrapolations, material balance calculations, volumetric calculations, analogies, or combinations of these methods for each well, reservoir, or field. Reserve estimates from volumetric calculations and from analogies are often less certain than reserve estimates based on well performance obtained over a period during which a substantial portion of the reserves were produced.

In making its projections, Cabot estimated yearly well abandonment costs except where salvage values were assumed to offset these expenses. Costs for any possible future environmental claims were not included. Cabot’s estimates include no adjustments for production prepayments, exchange agreements, gas balancing, or similar arrangements. We were provided with no information concerning these conditions, and we have made no investigations of these matters as such was beyond the scope of this investigation.

The evaluations presented in this report, with the exceptions of those parameters specified by others, reflect our informed judgments based on accepted standards of professional investigation but are subject to those generally recognized uncertainties associated with interpretation of geological, geophysical, and engineering information. Government policies and market conditions different from those employed in this study may cause the total quantity of oil, natural gas liquids, or gas to be recovered, actual production rates, prices received, or operating and capital costs to vary from those presented in this report.

In conducting these evaluations, we relied upon production histories, accounting and cost data, and other financial, operating, engineering, and geological data supplied by Cabot. To a lesser extent, nonproprietary data existing in the files of Miller and Lents, Ltd., and data obtained from commercial services were used. We also relied, without independent verification, upon Cabot’s representation of its ownership interests, payout balances and reversionary interests, the current prices, and the transportation fees applicable to each property.

Cabot Oil & Gas Corporation	February 6, 2007
	Page 3

Miller and Lents, Ltd. is an independent oil and gas consulting firm. No director, officer, or key employee of Miller and Lents, Ltd. has any financial ownership in Cabot. Our compensation for the required investigations and preparation of this report is not contingent on the results obtained and reported, and we have not performed other work that would affect our objectivity. Production of this report was supervised by an officer of the firm who is a professionally qualified and licensed Professional Engineer in the State of Texas with more than 20 years of relevant experience in the estimation, assessment, and evaluation of oil and gas reserves.

If you have any questions regarding this evaluation, or if we can be of further assistance, please contact us.

Very truly yours,
MILLER AND LENTS, LTD.
By	/s/ James A. Cole
	James A. Cole
	Senior Consultant
By	/s/ Carl D. Richard
	Carl D. Richard
	Senior Vice President

Appendix

Proved Reserves Definitions

In Accordance With

Securities and Exchange Commission Regulation S-X

Proved Oil and Gas Reserves

Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements but not on escalations based upon future conditions.

1. Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes (a) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any, and (b) the immediately adjoining portions not yet drilled but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir.

2. Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the proved classification when successful testing by a pilot project or the operation of an installed program in the reservoirs provides support for the engineering analysis on which the project or program was based.

3. Estimates of proved reserves do not include the following:

a. Oil that may become available from known reservoirs but is classified separately as indicated additional reserves.

b. Crude oil, natural gas, and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics, or economic factors.

c. Crude oil, natural gas, and natural gas liquids, that may occur in undrilled prospects.

d. Crude oil, natural gas, and natural gas liquids, that may be recovered from oil shales, coal, gilsonite, and other such sources.

Depending upon their status of development, proved reserves are subdivided into proved developed reserves and proved undeveloped reserves.

Proved Developed Oil and Gas Reserves

Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery should be included as proved developed reserves only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.

Proved Undeveloped Oil and Gas Reserves

Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir.