SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q10-Q/A

Amendment No. 1

For the quarterly period ended March 31, 2004

Commission file number 1-10447

CABOT OIL & GAS CORPORATION

(Exact name of registrant as specified in its charter)

1200 Enclave Parkway, Houston, Texas 77077

(Address of principal executive offices including Zip Code)

(281) 589-4600

(Registrant’s telephone number)

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yesx    No¨

As of October 28, 2003,April 26, 2004, there were 32,493,15732,892,303 shares of Common Stock, Par Value $.10 Per Share, outstanding.

CABOT OIL & GAS CORPORATION

AMENDMENT NO. 1 TO THE MARCH 31, 2004 QUARTERLY REPORT ON FORM 10-Q/A

Explanatory Note

This Amendment No. 1 to the March 31, 2004 quarterly report on Form 10-Q/A (“Form 10-Q/A”) is being filed to amend the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2004, which was filed with the SEC on April 30, 2004 (“Original Form 10-Q”). Accordingly, pursuant to rule 12b-15 under the Securities Exchange Act of 1934, as amended, this Form 10-Q/A contains the complete text of items 1 and 4 of Part I and item 6 of Part II, as amended, as well as certain currently dated certifications. Unaffected items have not been repeated in this Amendment No. 1.

In August 2004 we determined that deferred tax assets and liabilities associated with current and non-current assets and liabilities that had historically been classified in long-term deferred income taxes should instead be classified as current and non-current deferred tax assets and liabilities based on the classification of the related asset and liability for financial reporting purposes. Accordingly, we have revised our consolidated balance sheet to reflect this change in classification. The net effect of these revisions on the Company’s balance sheet at March 31, 2004 was an increase to current assets, non-current assets, total assets, current liabilities, long-term deferred income taxes and total liabilities and stockholders’ equity. Such revisions had no impact on our Consolidated Statement of Operations, Consolidated Statement of Cash Flows, Consolidated Statement of Stockholders’ Equity or Consolidated Statement of Comprehensive Income.

The significant effects of the revisions on our consolidated balance sheet from the amounts previously reported are summarized in the following table (in thousands of dollars):

This amendment does not reflect events occurring after the filing of the Original Form 10-Q, and does not modify or update the disclosures therein in any way other than as required to reflect the amendments as described above and set forth below.

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CABOT OIL & GAS CORPORATION

INDEX TO FINANCIAL STATEMENTS

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

CABOT OIL & GAS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

(In thousands, except per share amounts)

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

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CABOT OIL & GAS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

(In Thousands,thousands, except share amounts)

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

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CABOT OIL & GAS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

(In Thousands)thousands)

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

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CABOT OIL & GAS CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. FINANCIAL STATEMENT PRESENTATION

During interim periods, Cabot Oil & Gas Corporation (the Company) follows the same accounting policies used in its Annual Report to Stockholders and its Report on Form 10-K10-K/A filed with the Securities and Exchange Commission. People using financial information produced for interim periods are encouraged to refer to the footnotes in the Annual Report to Stockholders when reviewing interim financial results. In management’s opinion, the accompanying interim condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.

Our independent accountants have performed a review of these condensed consolidated interim financial statements in accordance with standards established by the American Institute of Certified Public Accountants.Company Accounting Oversight Board (United States). Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meanings of Sections 7 and 11 of the Act.

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on the Company’s financial position, results of operations or cash flows.

Recently Issued Accounting Pronouncements

In June 2001, the FASB approved for issuance Statement of Financial Accounting Standards (SFAS) 143, “Accounting for Asset Retirement Obligations.” SFAS 143 establishes accounting requirements for retirement obligations associated with tangible long-lived assets, including (1) the timing of the liability recognition, (2) initial measurement of the liability, (3) allocation of asset retirement cost to expense, (4) subsequent measurement of the liability and (5) financial statement disclosures. SFAS 143 requires that an asset retirement cost should be capitalized as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. The adoption of SFAS 143 resulted in (1) an increase of total liabilities, because more retirement obligations are required to be recognized, (2) an increase in the recognized cost of assets, because the retirement costs are added to the carrying amount of the long-lived asset,assets, and (3) an increase in operating expense, because of the accretion of the retirement obligation and additional depreciation and depletion. The majority of the asset retirement obligations recorded by the Company relate to the plugging and abandonment of oil and gas wells. The Company adopted the statement on January 1, 2003. The transition adjustment resulting from the adoption of SFAS 143 has been reported as a cumulative effect of a change in accounting principle in January 2003. The impact on the financial statements of adopting SFAS 143 is disclosed in Note 12, “Adoption of SFAS 143, Accounting for Asset Retirement Obligations,” to the financial statements.

In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on the reported results. The Company is evaluating whether to adopt the recognition provisions of SFAS 123, as amended by SFAS 148. The adoption of the recognition provisions would impact the Company’s financial position and results of operations. See Note 1, “Stock Based Compensation,” to the financial statements.

In January 2003, the FASB issued Financial Interpretation No. 46, “Consolidation of Variable Interest Entities —– An Interpretation of Accounting Research Bulletin (ARB)ARB No. 51” (FIN 46 or Interpretation). FIN 46 is an interpretation of ARBAccounting Research Bulletin 51, “Consolidated Financial Statements,” and addresses consolidation by business enterprises of variable interest entities (VIEs). The primary objective of the Interpretation is to provide guidance on the identification of, and financial reporting for, entities over which control is achieved through means other than voting rights; such entities are known as VIEs. The Interpretation requires an enterprise to consolidate a VIE if that enterprise has a variable interest that will absorb a majority of the entity’s expected losses if they occur, receive a majority of the entity’s expected residual returns if they occur or both. An enterprise shall consider the rights and obligations conveyed by its variable interests in making this determination. This guidance applies immediately to VIEs created after JanuaryAt March 31, 2003, and to VIEs2004 the Company did not have any entities that would qualify for consolidation in which an enterprise obtains an interest after that date. However, on October 8, 2003,accordance with the FASB decided to grant a broader deferral of the implementationprovisions of FIN 46. Pursuant to this deferral, public companies must complete their evaluations of VIEs that existed prior to February 1, 2003, andTherefore, the consolidation of those for which they are the primary beneficiary for financial statements issued for the first period ending after December 15, 2003. For calendar year companies, consolidation of previously existing VIEs will be required in their December 31, 2003 financial statements.

There was only one entity that could potentially be a VIE. The Company had a one percent general partner interest in a partnership which held an interest in the Kurten field. However, pursuant to the partnership agreement, the limited partner elected to liquidate the partnership; the liquidation was effective July 31, 2003. See Note 11 for additional information related to the partnership.

In April 2003 the FASB issued SFAS 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities under SFAS 133. The amendments set forth in SFAS 149 require that contracts with comparable characteristics be accounted for similarly. SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003 (with a few exceptions) and for hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively only. The adoption of SFAS 149FIN 46 did not have an impact on the Company’s condensed consolidated financial statements.

In May 2003 the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This Statementstatement was developed in response to concerns expressed by preparers, auditors, regulators, investors, and other users of

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financial statements about issuers’issuers classification in the statement of financial position of certain financial instruments that have characteristics of both liabilities and equity but that have been presented either entirely as equity or between the liabilities section and the equity section of the statement of financial position. This Statementstatement also addresses questions about the classification of certain financial instruments that embody obligations to issue equity shares.

In accordance with SFAS 150 contains guidance which stipulates that companies with consolidated entities that will terminate by a specified date, such as limited-life partnerships, will have to measure the liabilities for the other owners’ interests in those limited-life entities based on the fair values of the limited-life entities’ assets. Period-to-period changes in the liabilities are to be reported in the consolidated income statement as interest costs. As a result of SFAS 150, liability amounts and related interest costs may be significantly greater than the minority interests previously recognized. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this standard did not have a materialan impact on our resultsconsolidated financial statements. In November 2003 the FASB issued FSP 150-3, “Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of operations, financial position or cash flows.

The Company hasWe have been made aware of an issue regarding the application of provisions of SFAS 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets ( SFAS 142 )(SFAS 142) to companies in the extractive industries, including oil and gas companies. The issue iswas whether SFAS 142 requires registrants to reclassify costs associated with mineral rights, including both proved and unproved leasehold acquisition costs, as intangible assets in the balance sheet, apart from other capitalized oil and gas property costs. Historically, the Company and other oil and gas companies have included the cost of these oil and gas leasehold interests as part of oil and gas properties and provided the disclosures required by SFAS No. 69, Disclosures about Oil and Gas Producing Activities ( SFAS 69 ).(SFAS 69). Also under consideration iswas whether SFAS 142 requires registrants to provide the additional disclosures prescribed by SFAS 142 for intangible assets for costs associated with mineral rights.

If it is ultimately determined In March 2004, the Emerging Issues Task Force (EITF) released a consensus on EITF Issue No. 04-2, “Whether Mineral Rights are Tangible or Intangible Assets,” that stated mineral rights are tangible assets. Additionally, the FASB has issued guidance that would amend SFAS 141 and 142 requires the Company to reclassify costs associated withexclude mineral rights from property and equipment tothe definition of intangible assets, the Company currently believes that its results of operations and financial condition would not be affected, since such intangible assets would continue to be depleted and assessed for impairment in accordance with existing successful efforts accounting rules and impairment standards. In addition, costs associated with mineral rights would continue to be characterized as oil and gas property costs in our required disclosures under SFAS 69.assets.

At September 30,On December 23, 2003, the Company had undeveloped leaseholdsFASB issued SFAS 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” an amendment of approximately $39.1 million that wouldSFAS 87, 88, and 106, and a revision of SFAS 132. This statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS 87, “Employers’ Accounting for Pensions,” SFAS 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The new rules require additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. The required information must be classified on our balance sheet as intangible undeveloped leaseholdsprovided separately for pension plans and developed leaseholds of approximately $354.1 million (net of accumulated depletion) that would be classified as intangible developed leaseholds iffor other postretirement benefit plans. The new disclosures are effective for 2003 calendar year financial statements. See footnote 11 for the Company applied the interpretation currently being discussed.interim disclosures.

Restricted Cash- 8 -

Restricted cash consists of $15.8 million of cash held in an escrow account related to the divestiture of certain non-strategic properties in the East. A gain of $7.0 million was recognized on the sale of these properties. The Company is currently evaluating the potential purchase of other properties. If additional properties are acquired the transaction may be treated as a tax-deferred exchange transaction. For a transaction to qualify for tax-deferred exchange treatment the Company has 45 days to identify a replacement property. Once a replacement property has been identified, the Company has an additional 135 days to close on the property.

Stock Based Compensation

SFAS 123, “Accounting for Stock-Based Compensation”, as amended by SFAS 148, “Accounting for Stock-Based Compensation

— – Transition and Disclosure,” outlines a fair value based method of accounting for stock options or similar equity instruments. The Company has opted to continue using the intrinsic value based method, as recommended by Accounting Principles Board (APB) Opinion 25, to measure compensation cost for its stock option plans. However, the Company is evaluating the adoption of the recognition provisions of SFAS 123, as amended by SFAS 148.

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 123 to stock-based employee compensation.

The assumptions used in the fair value method calculation as well as additional stock based compensation information are disclosed in the following table.

The fair value of stock options included in the pro forma results for each of the periods presented is not necessarily indicative of future effects on Net Income and Earnings Per Share.

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2. Restatement of Financial Statements

In August 2004 we determined that deferred tax assets and liabilities associated with current and non-current assets and liabilities that had historically been classified in long-term deferred income taxes should instead be classified as current and non-current deferred tax assets and liabilities based on the classification of the related asset and liability for financial reporting purposes. Accordingly, we have revised our consolidated balance sheet to reflect this change in classification. Such revisions had no impact on our Consolidated Statement of Operations, Consolidated Statement of Cash Flows, Consolidated Statement of Stockholders’ Equity or Consolidated Statement of Comprehensive Income.

The significant effects of the revisions on our consolidated balance sheet from the amounts previously reported are summarized in the following table (in thousands of dollars):

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3. PROPERTIES AND EQUIPMENT

Properties and equipment are comprised of the following:

Prior to the adoption of SFAS 143 on January 1, 2003, future estimated plug and abandonment costs were accrued over the productive life of certain oil and gas properties when the residual value of well equipment was not sufficient to cover the plug and abandonment liability. The accrued liability for plug and abandonment costs was included in Accumulated Depreciation, Depletion and Amortization.

Total future plug and abandonment costs of $17.1 million and $1.1 million, recorded at December 31, 2002, have been reclassified from Accumulated Depreciation, Depletion and Amortization and Other Accrued Liabilities, respectively, to Other Long-Term Liabilities due to the adoption of SFAS 143 (see Note 12)10). These reclassifications were made to conform to the current period presentation.

InAs part of the current quarterCody acquisition, the Company recordedacquired an interest in certain oil and gas properties in the Kurten field, as general partner of a partnership and as an operator. Prior to the liquidation of the partnership and the divestiture of the Company’s interest in the field, it had an interest of approximately 25%, including a one percent interest in the partnership. The liquidation and divestiture was effective July 31 and November 1, 2003, respectively. The divestiture yielded proceeds of $7.6 million and resulted in a pre-tax non-cashgain of $1.8 million. Under the partnership agreement, the Company had the right to a reversionary working interest that would have brought its ultimate interest to 50% upon the limited partner reaching payout. Under the partnership agreement, the limited partner had the option to trigger a liquidation of the partnership. Effective February 13, 2003, the Kurten partnership commenced liquidation at the limited partner’s election. In connection with the liquidation, an appraisal was obtained to allocate the interest in the partnership assets. Based on the receipt of the appraisal in February 2003, the Company would not receive the reversionary interest as part of the liquidation. Due to the impact of the loss of the reversionary interest on future estimated net cash flows of the Kurten field, the limited partners decision and the Company’s decision to proceed with the liquidation, it performed an impairment review which resulted in a charge of approximately $87.9 million. This impairment charge of $5.9 million related to a fieldis reflected in the East which had capitalized costs that exceededfirst quarter 2003 Statement of Operations as an operating expense but did not impact the future undiscountedCompany’s cash flows. See Note

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3.	ADDITIONAL BALANCE SHEET INFORMATION

4. ADDITIONAL BALANCE SHEET INFORMATION

Certain balance sheet amounts are comprised of the following:

4.	LONG-TERM DEBT

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5. LONG-TERM DEBT

At September 30, 2003,March 31, 2004, the Company had $15 milliondid not have any debt outstanding under its credit facility, which provides for an available credit line of $250 million. The available credit line is subject to adjustment from time to time on the basis of the projected present value (as determined by the bank’s petroleum engineer) of estimated future net cash flows from certain proved oil and gas reserves and other assets of the Company. The revolving term under this credit facility presently ends in October 2006 and is subject to renewal. At September 30, 2003, the Company had $235 million of credit available on the revolving credit facility.

In addition to the credit facility, theThe Company has the following debt outstanding:

6. EARNINGS PER 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 outstanding stock options and stock awards outstanding at the end of the applicable period were exercised for common stock.

The following is a calculation of basic and diluted weighted average shares outstanding for the three and nine months ended September 30, 2003March 31, 2004 and 2002:2003:

The EPA notified the Company in February 2000 of its potential liability for waste material disposed of at the Casmalia Superfund Site (“Site”), located on a 252-acre parcel in Santa Barbara County, California. Over 10,000 separate parties disposed of waste at the Site while it was operational from 1973 to 1992. The EPA stated that federal, state and local governmental agencies along with the numerous private entities that used the Site for disposal of approximately 4.5 billion pounds of waste would be expected to pay the clean-up costs, which are estimated by the EPA to be $271.9 million.7. COMMITMENTS AND CONTINGENCIES

A group of potentially responsible parties, including the Company, formed a group, called the Casmalia Negotiating Committee (“CNC”). The CNC had extensive settlement discussions with the EPA and entered into a consent decree requiring the CNC to pay approximately $27 million toward Site clean up in return for a release from liability. On January 30, 2002, the Company placed $1,283,283 in an

escrow account, representing its volumetric share of the CNC/United States settlement. The consent decree was approved by the court on August 14, 2003 and the funds in the escrow account were paid to the government on September 8, 2003. The settlement has resolved all federal claims against the Company for response costs and releases the Company from all response costs related to the Site, except for future claims against the Company for natural resource damage, unknown conditions, transshipment risks and claims by third parties. Most of the CNC, including the Company, have purchased insurance designed to protect the Company from these liabilities not covered by the consent decree.

The State of California, a third party, has asserted a claim against the CNC and other companies alleged to have waste at Casmalia for costs the State incurred and will incur at the site. The CNC has presented the claim to its insurer. The ultimate disposition of this claim is unknown. However, given the size of the State’s claim and the number of parties allegedly responsible, the Company’s share of this claim is not expected to be material.

With the entry of the consent decree and the purchase of the insurance, any potential material claims against the Company related to Casmalia have been resolved and the Company does not plan to report on this Site in future disclosures.

Wyoming Royalty Litigation

In June 2000, the Company was sued by two overriding royalty owners in Wyoming state court for unspecified damages. The plaintiffs have requested class certification under the Wyoming Rules of Civil Procedure and allegealleged that the Company has improperly deducted costs of production from royalty payments to the plaintiffs and other similarly situated persons. Additionally, the suit claimsclaimed that the Company has failed to properly inform the plaintiffs and other similarly situated persons of the deductions taken from royalties. At a mediation held in April 2003, the plaintiffs in this case claimed total damages of $9.5 million plus attorney fees. Settlement discussions continue betweenThe Company was able to settle the parties.case and the State District Court Judge entered his order approving the settlement in the fourth quarter of 2003. The settlement was for a total of $2.25 million. The class included all private fee royalty and overriding royalty owners of the Company in the State of Wyoming except those in the suit discussed below and one owner who opted out of the settlement. It also includes provisions for the method of valuation of gas for royalty payment purposes going forward and for reporting of royalty payments which should prevent further litigation of these issues by the class members.

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In January 2002, 13 overriding royalty owners sued the Company in Wyoming federal district court. The plaintiffs in the federal case have made the same general claims pertaining to deductions from their overriding royalty as the plaintiffs in the Wyoming state court case but have not asked for class certification. That case is on hold awaiting a Wyoming Supreme Court decision on two certified questions.

Although management believes that a number of the Company’sour defenses are supported by Wyoming case law, two letter decisions handed down by state district court judges in other cases do not support certain of the defenses. The decisions have notIn one of the cases the case has been reduced to formal orders and itsettled so no order will be entered. In the other case a generic order has been entered adopting the letter decision by reference. It is not known what effect, if any, the decisionsdecision, will have on the pending cases.case. In addition, in 2000 a district court judge’s decision supported the Company’s defenses, of the Company, and that decision was recently orally confirmed by another state district court judge. Accordingly, there is a split of authority concerning the interpretation of the reporting penalty provisions of the Wyoming Royalty Payment Act, which will need to be resolved by the Wyoming Supreme Court.

In the Company’s federal case,As noted above, the judge agreed to certify two questions of state law for decision by the Wyoming State Supreme Court. The Wyoming State Supreme Court has agreed to decide both questions, and these decisions should dispose of important issues in these cases.the pending federal case. The federal judge refused, however, to certify a question relating to the issue of the proper calculation of damages for failure to provide certain information required by statute on overriding royalty owner check stubs that had been decided adversely to the Company’sour position in the state district court letter decision. After the federal judge’s refusal to certify this issue, the plaintiffs reduced the damages they were claiming. Based upon the plaintiffs expert witness report filed in March 2003, the plaintiffs are now claiming $21 million in total damages which can be broken down into $15.7 million for alleged violations of the check stub reporting statute and the remainder for all other damages. In the opinion of our outside counsel,

Brown, Drew & Massey, LLP the likelihood of the plaintiffs recovering the stated damages for violation of the check stub reporting statute is remote.

The Company is vigorously defending both cases. The Companythe case. It has a reserve that management believes is adequate to provide for thesethe potential liabilitiesliability based on its estimate of the probable outcome of these matters.this case. Should circumstances change, the potential impact may materially affect quarterly or annual results of operations and cash flows. However, management does not believe it would materially impact our financial position.

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 under the West Virginia Rules of Civil Procedure and allege that the Company failed to pay royalty based upon the wholesale market value of the gas produced, that the Company hasit had taken improper deductions from the royalty and have failed to properly inform the plaintiffs and other similarly situated persons of deductions taken from the royalty. The plaintiffs have 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 the 1995 Columbia Gas Transmission Corporation bankruptcy proceeding.

The Company hadhas removed the lawsuit to federal court; however, in February 2003, wethe Company received an order remanding the lawsuit back to state court. Discovery and pleadings necessary to place the class certification issue before the court have been ongoing. TheA hearing on the plaintiffs’ motion for class certification hearing was held on October 20, but2003, and proposed findings of fact and conclusions of law were submitted to the court has not yet ruled on the plaintiff’s motionDecember 5, 2003. The trial is currently scheduled for class certification; dispositive motions to be filed by December 1; and trial to be held March 29, 2004. Based on the current status of discovery, the dispositive motion and trial dates are likely to be continued to a later date.January 18, 2005.

The investigation into this claim continues and it is in the discovery phase. The Company is vigorously defending the case. The Company has reserves itmanagement believes are adequate to provide for these potential liabilities based on itsmanagements estimate of the probable outcome of this matter. Should circumstances change, the potential impact may materially affect quarterly or annual results of operations and cash flows. However, management does not believe it would materially impact the Company’sour financial position.

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Texas Title Litigation

On January 6, 2003, the Company was served with Plaintiffs’ Second Amended Original Petition inRomeo Longoria, et al. v. Exxon Mobil Corporation, et al. in the 79th79^th Judicial District Court of Brooks County, Texas.Texas The plaintiffs allege that they are the rightful owners of a one-half undivided mineral interest in and to certain lands in Brooks County, Texas. As Cody Energy, LLC, the Company acquired certain leases and wells from Wynn-Crosby 1996 Ltd. in 1997 and 1998 and the Company subsequently acquired a 320 acre lease from Hector and Gloria Lopez in 2001. The plaintiffs allege that they are entitled to be declared the rightful owners of an undivided interest in the surface and 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, conversion, all for unspecified actual and exemplary damages. The trial date of May 19, 2003 has beenwas cancelled and a new trial date has not been set. The Company has not had the opportunity to conduct discovery in this matter. The Company estimates that production revenue from this field since its predecessor, Cody Energy, LLC,LCC, acquired title and since the CompanyCabot acquired its lease is approximately $12$13 million. The carrying value of this property is approximately $35$34 million. Co-defendants Shell Oil Company and Shell Western E&P have filed a motion for summary judgment seeking dismissal of plaintiffs’ causes of action on multiple grounds. The Company was in the process of joining in that motion, when the plaintiffs’ attorneys asked permission from the Court to withdraw from the representation. The Court granted that request, and new attorneys for some, but not all of the plaintiffs have recently entered the case. We expect that theThe motion for summary judgment will be reset for hearing infiled by the next several months, at which timedefendants has been denied by the Company will join in the motion. Court.

Although the investigation into this claim has just begun, the Companyis continuing, management intends to vigorously defend the case. Management cannot currently determine the likelihood or range of any potential outcome.

8.	DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY

8. 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. At September 30, 2003,March 31, 2004, the Company had 3127 cash flow hedges open: 10eight natural gas price collar arrangements and 2119 natural gas price swap arrangements. Additionally, the Company had five crude oil financial instruments and one natural gas financial instrument open at September 30, 2003,March 31, 2004, that did not qualify for hedge accounting under SFAS 133. At September 30, 2003,March 31, 2004, a $16.2$56.9 million ($10.035.2 million net of tax) unrealized loss was recorded to Other Comprehensive Income, along with a $19.8$67.1 million derivative liability and a $2.4 million derivative receivable.liability. The change in derivative fair value for the current and prior periods have been included as a component of Natural Gas Production and Crude Oil and Condensate revenue, as appropriate. This classification is a modification of prior period disclosures that segregated the ineffective portion of cash flow hedges and the mark-to-market value changes on instruments that do not qualify for hedge accounting as the Change in Derivative Fair Value on the Statement of Operations.

Unrealized income related to the change in fair value of derivative instruments of $1.2 million ($0.7 million for gas and $0.5 million for oil) is reflected in the respective Net Operating Revenues line item for the three-month period ending September 30, 2003. For the nine-month period ending September 30, 2003 an unrealized charge of $0.3 million is reflected in natural gas production revenue and unrealized income of $0.3 million is reflected in crude oil and condensate revenue. For the nine-month and three-month periods ending September 30, 2003, the company has reflected realized charges of $48.3 million ($45.4 million for gas and $2.9 million for oil) and $8.6 million ($7.9 million for gas and $0.7 million for oil), respectively, in the respective Net Operating Revenue line items.

Assuming no change in commodity prices, after September 30, 2003March 31, 2004 the Company would reclassify to earnings, over the next 12 months, $8.5$30.1 million in after-tax expenditures associated with commodity derivatives out ofderivatives. This reclassification represents the net after-tax $10.0 million recorded in other comprehensive incomeliability associated with open positions at September 30, 2003.March 31, 2004 related to remaining anticipated 2004 production and a portion of anticipated 2005 production.

From time to time the Company enters into natural gas and crude oil swap arrangements that do not qualify for hedge accounting in accordance with SFAS 133. These financial instruments are recorded at fair value at the balance sheet date. At September 30, 2003,March 31, 2004, the Company had five open crude oil swap arrangements and one natural gas swap arrangement with an unrealized net loss of $0.4$6.5 million related to the crude oil positions and $0.2an unrealized net loss of $1.4 million recognizedrelated to natural gas positions. These amounts are reflected in the respective line items of Net Operating Revenue, respectively.Revenues.

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9.	COMPREHENSIVE INCOME

9. COMPREHENSIVE INCOME

Comprehensive Income includes Net Income and certain items recorded directly to Stockholders’ Equity and classified as Other Comprehensive Income. The following table illustrates the calculation of Comprehensive Income for the nine-monththree month periods ended September 30, 2003March 31, 2004 and 2002:2003: