Good morning, and welcome to the FMC Technologies ThirdQuarter 2007 Earnings Release Teleconference. All lines have been placed onmute to prevent any background noise. After the speakers' remarks, there willbe a question-and-answer session. (Operator Instructions). In the event oftechnical difficulties during this call, we will post updates at www.fmctechnologies.com/earnings. Thank you. Your host is Rob Cherry, Director of InvestorRelations. Mr. Cherry, you may begin your conference.

Thank you, operator. Good morning, and welcome to FMCTechnologies third quarter 2007 earnings release conference call. Our pressrelease and financial statements issued yesterday can also be found on ourwebsite. In the event of a disruption of service or technical difficulty duringthis call, information will be posted at our website atfmctechnologies.com/earnings. During our call, we will reference earnings from continuingoperations. In 2006 we disposed of the Floating Systems business and a smallFoodTech product line was divested in the third quarter of 2007. Historicalresults have been revised to reflect these operations as discontinued. I would like to caution you with respect to anyforward-looking statements made during this call. Although theseforward-looking statements are based on our current views and assumptionsregarding future events, future business conditions and the outlook for usbased on currently available information, these forward-looking statements aresubject to certain risks and uncertainties that could cause actual results todiffer materially from those expressed in or implied by these statements. Irefer you to our disclosures regarding risk factors in our annual report andour other SEC filings. I will now turn the call over to Peter Kinnear, FMCTechnologies' President and CEO.

Good morning. Thank you for participating in our thirdquarter 2007 conference call. On the call with me today are Bill Schumann, our CFO; JohnGremp, who heads our Energy Systems Group; and Charlie Cannon, who runs ourFoodTech and Airport Systems. I'll give you some highlights on the thirdquarter and an update on our outlook for 2007. Bill will provide you withadditional details on our financial performance, and then we'll open up thecall for your questions. Before I get into the details on the quarter, if you've seenour press release, we announced our intent to spin-off FoodTech and AirportSystems into a separate publicly traded company in a tax-free distribution toour shareholders. These are very well-managed businesses and industry leadersin their respective markets, but are outside our primary oil field focus. Dueto the growth of our energy businesses over the past several years, they havebecome a smaller part of our total company, and we now feel that they wouldprosper more as an independent company. The company would be focused on the food and airporttransportation markets. It will have its own capital structure more suited toits financial characteristics and will have its own management. Charlie Cannon,the current Senior Vice President for FoodTech and Airport Systems, will be theCEO, and Ron Mambu, FMC Technologies' Vice President and Corporate Controller, willbecome CFO of the new company. This separation will also allow FMC Technologies' managementto focus entire on our rapidly growing energy businesses. As you know, FMCTechnologies was itself a spin-off, and we believe that separate managementfocus will improve the future performance in both companies. We expect thespin-off will be completed by mid 2008. Now let me discuss our third quarter results. Our dilutedearnings per share from continuing operations were $0.60 in the quarter, up 46%from the prior year quarter. Inbound orders for subsea were $766 million,…

Thanks, Peter. Let's look at some of the highlights of ouroperations. Energy Production sales were $684 million in the thirdquarter, up 21% over the prior year quarter, primarily due to the growth of subsea,which was up 17%. Surface wellhead also contributed to the revenue growth, up31% from the prior year quarter. Approximately 80% of surface wellhead salescame from outside North America. Subsea sales were down somewhat from the second quarter.This is due mainly to the weight of newer projects in our backlog and the timingof revenue recognition under our percentage of completion accounting method inthat business. Our projects typically record lower revenue in their earlystages, and the large amount of new projects that are in the early, primarilyengineering phase, led to the slight decline in revenue from the secondquarter. The Energy Production segment generated EBIT of $70.4million in the quarter, up 43% from the prior year quarter. Energy Productionoperating profit margins were 10.3%. We realized a margin improvement in subsea,both over last year and the prior quarter. We continue to expect double-digitmargins in the segment for the full year 2007. Inbound orders in Energy Production were up, with subsea ordersup $190 million from the prior year quarter and up 81% year-to-date. Subseabacklog, as Peter mentioned, was a record $2.6 billion. Energy Processing sales were up 14% over the prior yearquarter, led by the continued demand for our fluid control products. In fact, fluidcontrol revenue, which includes our WECO/Chiksan product line, was up 25% overthe prior year quarter, and grew 11% from the second quarter of this year. The Energy Processing segment generated EBIT of $38 millionin the quarter, up 41% from the prior year quarter. Again, the operatingimprovement from the prior year quarter was the result of higher volume inmargins in our fluid control and measurement businesses. We expect EnergyProcessing…

(Operator Instructions) Our first question comes from the line of Brad Handler, fromWachovia Capital Market.

Thanks. Good morning.

Good morning, Brad.

I guess I'll just ask, I mean, I think you've given a lot ofinformation about the spin and the logic, and I appreciate that, but I guessI'll just come back to it just to try to get a clear sense for--why now, after,obviously, a number of years of discussion by many interested parties on that?

Good question, Brad. I mean, this has been something thatwe've had under evaluation for long periods of time as to what we should do, andwe've had some discussions with our Board, off and on, about it. And I think wejust reached a position this year where we felt it was an appropriate decisionto make and our Board was very supportive of that. And so that's kind of wherewe ended up.

With the main part of what you mentioned, of course, was theissue of managing, I guess, three very different types of businesses. I guesswhat you're saying is you feel that you personally will have a lot more time tofocus on the Energy business. Is that an important part of the logic?

I think it goes two ways. I think the new management of ourFoodTech and Airport businesses will be much more focused on the spinout ofthose businesses, and I think can add value in that regard. And I think fromthe Energy side, we will be much more focused on our day-to-day Energybusinesses. And so, it's kind of a double-pronged benefit from our standpoint.

And then, I guess, maybe just help me. I know, Bill, youwere trying to give us a flavor for it, I guess, but from a capital structureor capability standpoint, how do the two companies potentially differ?

Well, the combination of FoodTech and Airport is not growingas quickly as the Energy business, maybe that's probably obvious. And we, atleast, initially are planning on starting them with about $200 million of debt,which is roughly two times their EBITDA. So we think that's a more highly leveredcompany, and it will also probably pay a fairly significant dividend, and won'thave significant capital requirements. That's kind of what we were alluding towhen we talked about the capital structure of the new company.

Right. Okay. Well, that helps me understand a little bitbetter. Thanks. I'll turn it back.

The next question comes from the line of Kevin Simpson, fromMiller Tabak.

Good morning, Kevin.

Thanks. And congratulations, I guess, to Charlie for a newCEO role, and to Peter--what looks like a good move into separating the companies.A question on WECO/Chiksan. I was just wondering how good your visibility isinto 2008. It's one of the areas that I'm more cautious on. And I know you'renot into giving guidance yet, Peter, but maybe for next year, but I'm justwondering…

It's a good point.

…you talked about a slowdown, do you have enough visibilityto say that you will have good growth in the first half, and then not so sureon 2H, or can you even say that you might be able to grow throughout next year?

Well, I mean it's an area of that. Certainly, we have someexposure to North American activity and we're watching it very carefully, Kevin,as you can appreciate. With regards to the service company activity, we stillhave pretty strong field orders in terms of spares and repair activity. The multistagefracing activity for tight gas is still pretty active; there are still rigsdoing that. That's a big source of revenue for us. We're a little concerned about the Canadian royalty issue--whathappens there. And as I mentioned in my comments, we anticipate some slowdownin the '08 CapEx by the service companies. And the offset of that is ourinternational activity is quite strong. So, I always say, network. We're stillpretty optimistic that we'll have a pretty good year in '08 for fluid control forChiksan/WECO.

Okay. Can I pin you down, though, does pretty good mean thatyou'll have an up year, or it's going to be an outstanding year in '07?

Yeah. I think, I mean, it will be slower growth. And we'restill doing our budgeting process, Kevin. We haven't finalized all that. So it'skind of premature maybe to make a specific comment at this point.

Okay. And two other questions. One, on subsea. Can we assumethat you'll return to kind of mid-20s type revenue growth for 2008, and that17% is just a function of the percentage of completion issues in early stage ofso many projects?

Yeah. As you know, we have very strong backlog at $2.6billion, with just kind of an unusual quarter where the revenue recognitionwasn't as strong. There are still a number of big projects yet to be decided. Asyou know, this year the order rate for subsea has lagged a little bit. Thereare a number of big projects. Total Usan Nigeria still we thought would happen,and they're close to Total Pazflor 49 wells; Shell's Gumusut in Malaysia isgoing to get decided; Chevron Gorgon in Australia is going to get decided; BP-Block31. All these big projects that probably represent 150 trees--theindustry anticipated those being awarded in 2007. And so, although, it's slippinga little bit, but those projects are still going forward. There's lots ofactivity. As I mentioned, the new deepwater rigs coming out is going to befavorable. So, you could see a dip in order in the number of treesyear-over-year, but we still think it's a very strong segment for us, and we'reinbounding some key projects and really building backlog. So we don't see anyconcerns from that respect.

Okay. And one last one--very big increase on the surfaceside in the quarter--was there anything unusual in the quarter and do you thinkyou can maintain a kind of north of 20% revenue growth rate in that segment ofthe business?

Well, I mean, we had a very good international activity; evenour North American activity, We've added some technology based in North America, in addition to our surface tree business, in around the fracing dual area treesaver type products. And year-over-year, we get some benefit from theacquisition of Galaxy, which is active in the oilsands.

And so maybe not at this level of year-to-year run rate, butstill your outlook would be for a continued good growth for surface?

Yeah. I mean we're very strong. As Bill mentioned, 80% ofour revenue comes internationally. And the international rig count, I mean, Ithink over the last four or five years has been growing 7% or 8% a year. And wehave very good positions in the Middle East in thosemarkets that are very active.

Okay. Thank you. Good quarter. That's it for me.

Next question comes from the line of Geoff Kieburtz from Citigroup.

Can you hear me okay?

Yeah, Geoff. Good morning. How are you doing?

I'm fine. Operator sounds like she's breaking up a littlebit. Fluid control, could you just remind us outside of WECO/Chiksan, what isincluded in the fluid control segment?

Well, we have our new high pressure pump for the servicecompanies that we've introduced, and that's going well. We're just, as wementioned, introducing that this year. And it's mostly the fittings and valves.We also have some small reciprocating pumps that we make for oil and gas, andwe do some topside manifold work for fluid control. But the bulk of theactivity is the WECO/Chiksan product line.

Okay. So when we hear you say 25% revenue growth in fluid control,we can think that's pretty much the WECO/Chiksan revenue growth.

Yes, that's correct.

Okay. And margins at WECO/Chiksan, what has the trend beenover the past several quarters?

I'll let Bill respond to that.

It moves around a little big, Geoff, but it's been verysteady. As you know, fluid control was kind of high margin business within EnergyProcessing, and it's been steady. What you've seen in the total is, frankly,and I'll have to take the blame for this, I've underestimated--we'veunderestimated--the size of the fluid control business, and that's what'sdriven the margins from 17%-19%. Not necessarily increases in the fluid controlmargin, it's the mix more than it is the actual margin.

Okay. And in an environment where you're expecting thetopline growth to slow, what would you expect margins to do from the currentlevel?

Well, specifically for the fourth quarter, we tend to havemore business coming out of the other businesses within the Energy Processing segment;loading, measurement, material handling. So that will depress margins a bit, absentany anticipated change in fluid control margins. But as we go forward into nextyear; we would expect margins probably to stay approximately the same level.

Okay. And on the margin subject, you mentioned in the subseabusiness that the revenue was affected by the percentage of completionaccounting. How does that affect the margins in the subsea business?

Well, it shouldn't affect it at all. One of the things whenwe start a project, the initial phases are primarily engineering. And so, wedon't accumulate a lot of costs on a project. And then as we get into the kindof middle of the project when we're procuring equipment and taking delivery ofequipment, we kind of have a big ramp-up in costs, and consequently, that's thetime when we're recognizing a lot of revenue quickly. And then towards the end, when it's in assembly and test,again, we're not incurring much costs, and consequently, are not recognized ina lot of revenue. Now over that entire cycle, if we do things perfectly weshould have the same margins.

Okay.

On that particular project.

Okay. That's what I thought. I just wanted to confirm that.And you've mentioned several times in the call this morning the Light WellIntervention, mostly in the context of your capital spending plans. Can youupdate us on what's going on there and what kind of increase in capitalspending you've planned for that?

Geoff, Peter. Earlier this year, we announced two additionalLight Well Intervention Systems; a second one for Statoil and one for BP thatwe were awarded contracts for. But CapEx on each of those systems is around $20million-$25 million, and they'll be ready for deployment mid '08. So that'sramping up now in that capital spending. That's what Bill mentioned. This willbe third contract, again, our strategy to add more value into the subsea arenain terms of doing different activities. And Statoil has an installed base ofover 250 subsea trees, so they're an ideal customer to deploy this technology.

And what should we think about in terms of an annual ratefor revenue or EBIT on the Light Well Intervention Systems?

Yeah, I think, on the revenue side, we're depending on theutilization of the system. These are prices on a day rate basis with someguarantees for activity. But I think they run $8 million-$12 million, in that range,per system per year.

Okay, great. Thanks very much.

Your next question comes from the line of Dan Pickering fromTudor Pickering.

Good morning, guys.

Hi Dan. How are you doing?

Doing just fine. Thank you. Question one about the FoodTechand Airport spinout. You mentioned putting $200 million of debt on it and thenusing that $200 million at the old, if you will, FMC for share repurchase. Isthat going to be basically a mechanical process? Will you be opportunistic onthat share resale? I'm asking because your stock purchase this quarter wasobviously at much lower levels than where we are today.

Yeah. Dan, we'll try and be opportunistic, but we do want toretire the shares. If we can't be overly opportunistic between now and then,we'll probably do it mechanically.

Okay. All right. And then, Bill or Peter, anyone chime in, whenwe look at the new standalone FoodTech company and Airport, sort of how do youthink about comparable, who do you look at and say these are going to be ourpeers in the marketplace?

Dan, I wish it was real simple. They aren't really anydirect comparable. So as you can imagine, there's no company out there thatcombine food processing and airport systems. But there are a group of kind of pure-playfood service companies. They're a little bit different than our food processingbusiness, the food service. Those would be Middleby and Otis, Aga Foodservice andan Icelandic Company called Morrell. On the airport side, there aren't any public pure-playpublic competitors. But there are a number of diversified companies that seemto have foodservice, food processing, and maybe even some airport equipmentbusinesses, like ITW, Dover, UnitedTechnologies, and Ingersoll Rand, Manitowoc,and even a Dutch company called Stork. If you take a look at that group ofcompanies, you'd probably get an EBITDA range of 8-11, I mean--maybe as low as7 and as high as 12.

Okay. That's helpful. Last question, we look at the subsea business,what sort of incremental margins or incremental profitability do we think aboutfor that business as we step into '08? I mean, we see the aggregate margins forthe business at 10%. How do you think about the incremental margins in thatbusiness?

Well, Dan, we're continuing to build our backlog at highermargins than we've had in the past. And the real challenge for us is to executethose projects. And we've got $2.6 billion of backlog, and I would expect thatto be higher by the end of the year going into 2008. So, we got a challenge ofexecution and leverage, leveraging our SAR infrastructure with more projects. ButI would expect kind of increases in bottomline, EBIT margins on the order ofwhat you've seen over the past couple of years, which is on the order of 1%.

Okay. So your resulting growth in margin ought to continue the100 basis points year trend.

Yeah, I think so. I have the caveat that we haven't reallyrolled up budgets and looked at it from the bottoms up. But that's what wewould expect from the top down.

Okay. Thank you.

Your next question comes from the line of Kurt Hallead, fromRBC Capital Markets.

Hi, good morning.

Morning.

Good morning, Kurt.

Hi. Just wanted to kind of follow-up, I guess there were somedata out this morning by Quest, once again, making some adjustments to theirkind of tree forecast. What kind of credibility do you put in their forecast? AndI know it's pretty much the only thing that's out there, which always makes meskeptical, so I just toss my books. But what's your take on the subsea forecastrelative to what you know is out there?

Yeah. I think they have difficulty, I mean, like anybody inforecasting given the movement of some of these big projects. I think their currentforecast is around 450-500 subsea trees to be ordered in 2007, which is downfrom their initial forecasts, which were probably 550-650 earlier in the year. Now, part of that is these big projects that I mentionedearlier on Total, Lucent, Total Pazflor, Shell Gumusut, Chevron Gorgon and BPBlock 31 that have kind of shifted out of '07 into '08. So it's a timing issue.We have our in-house database and we track all our customers and all projectsthey have. So, Quest is a resource for the industry. But obviously, wesupplement that with our own internal market data and market intelligence as towhat's going on in the marketplace. But their accuracy, Kurt, as you know, hasn'tbeen that great, but its difficult year-over-year to pin each project in whichquarter or which year it's going to fall.

Okay. The other thing I had, for Bill, you referenced, once again,the fact that you have a number of different projects that are in the earlyphases right now along with your revenue. So I guess it would be safe to assumealong those lines that revenue should be accelerating as we move into 2008?

Yeah, it should be. You're right, Kurt.

And then the multiples that you guys used--I guess on the airportequipment business, one of your public competitors last year went private at 8times EBITDA on the airport equipment side. You guys are using somewherebetween 7 and 12 on the EBITDA. That would imply that your Energy multipleprobably is lower than probably what most people are probably thinking outthere right now. Is that 7-12, you gave a few different kind of estimates onthe company, so you wouldn't use like a Tyson or a Hormel or somebody like thatas comp for the food equipment business?

Well, I don't think so, Kurt. We're suppliers to those twocompanies that you mentioned. I think the others are kind of in the foodserviceindustry. They tend to service restaurants and fast-food type establishments. Wetend to have, as customers, large food processing companies. Tyson's, being anexample; Hormel, being an example; Unilever, and others. But I think thecompanies that I mentioned are closer to the kind of business that weparticipate in rather than the food companies.

We're kind of forecasting this isn't going to happen untilthe middle of 2008, and there are a lot of variables that are going to movearound in between in the meantime.

Got you. Okay. Then, just lastly, in terms of your revenueand maybe EBITDA, what's your percent exposure to North American natural gasrelated, and then, more specifically, what's your exposure to North America pressure pumping?

Well, we've got our wellhead business in Energy Production.That's about little bit less than 20% exposed to North America.In order of magnitude, that's about a $500 million business. Fluid control, itlooks like it will be closer to $300 million this year. We bill 55% domestic inthat business, but a lot of the billings go to company staging grounds to tapein ship international. So our exposure to North Americain that business is probably closer to 40%. Although again, out of the total,those are fairly low numbers of our total exposure to North America,not necessarily gas, but North America.

But the fluid control business, don't remember, 75% of the fluidcontrol business is parts and supporting field activities and 25% is newconstruction. So, as long as there's drilling activity and fracing activity,we've still got a pretty solid base of revenue in North America.The recab's been flat this year, and just because of the complexity of thesefrac jobs, these multistage frac jobs, the equipments, in very severeconditions, it's wearing out quicker. And so we're getting a benefit because ofthe mix of activity in the USmarket that unless you understand the business, you wouldn't necessarily see.

Okay, great. Thank you.

Your next question comes from the line of Rob MacKenzie,from FBR.

Good morning, guys.

Good morning, Rob.

Peter, I want to try and see if you could, in light of the Questdata--the Quest revision--see if you could give us your best guess based on thebook as you see it right now; what industry-wide orders might look like interms of your view right now for '08, and also how FMC stands at this point.

Let me answer the first one. I mean, year-to-date, we've hada pretty good percentage of the market activity. In the quarter, I think wehad, the Quest data just came out, I think we have 47% of the orders, and year-to-date,they're about 43%. Last year, we were targeting around a 40% share. So we'redoing a little bit better than we anticipated. Obviously it's lumpy because ofthe bigger projects you can gain or lose share, depending on individualprojects. We still track. In our time horizon, we track these projectskind of out over the next 15 months. And right now, we have around high 300s interms of potential projects and probably an order value of $6 billion outthere. So, we're still pretty optimistic that '08 is going to be a good year,and we have these five big projects that are yet to be awarded. And some ofthose could fall into the tail end of '07 and some might roll into '08, but we'restill pretty optimistic. Plus our revenue per well or per tree, we're rampingup our activity. So from an FMC standpoint we're probably in pretty good shape for'08.

Okay. And then following up on that, can you give us anupdate on where the bidding process stands on the past four contract right now?

Well, I can tell you that there are three bidders and it's stillin discussion with Total. We, I think we've said publicly before, Total is agood customer of ours. We've done quite a bit of business with Total in Angolaitself. And so, we would anticipate that would help us in this. But it still hasyet to be decided, and Total has to go through the process of getting Senegal'spartners sign off first, and then Senegal'sagreement to proceed with the project. So these things just take a long time,and they seem to sit out there for a number of months before they get decided.

Okay. And then my final question is on subsea processing/separation,I know Petrobras has talked about using that on some wells in Brazil.Can you just give us an update or a feel for how much more interest you've seenin potential projects that are now being talked about with Tordis basicallystarting to come online soon?

Yeah. I would say, in general, I think this will be a good indicationonce Tordis is up and running, maybe get six or nine months under its belt. Ithink this will be a really -- we're very enthused about this because we thinkit will be a showcase to the industry of handling issues like increased waterproduction, water cut in the wells. You talked about Brazil;Brazil has thesame issue. Their wells are now starting to produce a lot of water. They are indeeper depth than the Statoil Tordis project is. So we're going to have to lookat a little bit different types of technologies. But you have to say that this is a pretty good trend for theindustry to start using subsea processing or separation on the seabed andassuming that it proves to be economic and it doesn't have any glitches, we'revery optimistic that we'll see more and more of this as we go forward.

Okay, thanks. I'll turn it back.

The next question comes from the line of Ken Sill, fromCredit Suisse.

Yeah. Good morning, guys.

Good morning, Ken.

So I just wanted to run back by the spend just to make sureI'm hearing what you guys are saying. So, if you look at the FoodTech andAirport Systems blended multiple in, roughly, 8-10, 8-11 times EBITDA, I guessis what you're thinking, and that will get spun out directly to shareholderswith $200 million dividend. Do you think that your, I guess, multiple forwhat's left will actually expand, or do you think that your multiple isprobably going to stay about where it is, or do you have an expectation there?

Well, you're asking us to predict something that it'sobviously kind of difficult to forecast. But the remaining businesses will havea higher growth rate than the current collection. And you would anticipate thatthe margin would expand a little bit based on that. That's our guess right now,Ken.

Yeah. I guess my only concern is you guys are alreadytrading at the highest multiples of any stock out there in the group, but Ithink it does make a lot of sense from a business perspective. And then, whydon't you go back on, you know, everybody is here trying to figure out what '08is, I know it's a little bit early, but essentially you're saying that youthink that the process system margins and that kind of 17% -19% range are goingto be sustainable into '08? Do you have a view on that?

Yeah. That's based on fluid control holding up. But we wouldassume that those margins are sustainable, yeah.

And your current guidance is expecting a little bit ofmargin detriment in Q4, because of mix?

Right.

And then if you look at production, you're kind of creepingup there on margin, so 10%-11% this year, and I'm assuming the 100 basis pointscreep you can see that coming in '08 and '09 and beyond because your backlogactually goes out pretty far?

Yeah. We would think I'm just going to stick with '08 rightnow.

Yeah, I understand.

You're right. Our backlog is beginning to stretch out longerthan it has been in the past.

Okay. And then, we still have to deal with the Airport andFoodTech for the next few quarters. So you're expecting them to be upyear-over-year, but do you expect kind of typical seasonality in Q4 for those twobusinesses?

Well, actually, yeah. The Airport business tends to peak inthe third quarter based on deliveries of deicers in advance of the winterseason. The FoodTech businesses have tended to be seasonal in the second andfourth quarters. But this year, we had a big order that we are delivering inthe third quarter. So I wouldn't expect the fourth quarter to show theseasonality in FoodTech it has in previous years, Ken. So we would expect thatfourth quarter, for the combination of those two businesses, probably be flatto down a little bit versus the third quarter.

Okay. That makes sense. And then, obviously, we're allsitting here trying to figure out the slippage on some of the big West Africa projects. At what point do the orders slip so much that youstart pushing revenues from '08 into '09 or is that a big driver what's goingto happen in the near future, what orders come in the next six months?

I don't think it's going to be a big driver. I mean we haveplenty of backlog to work on. And if we slip a little bit into '08, it's notgoing to be a big deal for us.

Yes. So you guys are actually fairly full for '08, givenwhat you've already got on the plate in production systems; is that fair?

Yeah, I mean we have a pretty good workload. I'm not sure…We're not saying we can't take more work.

I wouldn't want to imply that. Okay. So some of these delays,again, it may be an issue of acceleration lever or anything, but it's notreally something that you're expecting is going to impact what's happening in'08. If it slips into '09, that's not a big deal at this stage.

Right, yeah.

Okay. Thank you very much.

And your next question comes from the line of David Anderson,from UBS.

Good morning. I just wanted to kind of go back on the subseaawards. Peter, if I heard you right, I think you were saying that you thoughtawards could actually dip perhaps a little bit this year. With these projectdelays, is there anything from our perspective what do you think is the causeof it? It's certainly not on the manufacturing side. I mean, you guys don'thave any problems in trees and umbilical don't seem to be much of a bottleneck.But what do you think is the cause behind some of these project delays?

Well, I think the international, particularly in West Africa, the international company kind of has to queue its projectup with in competition of other projects as NNPC or Senegaldecides which projects get bought off in which timeframe. So part of it's justthe competitive dynamics of the international oil companies and how they gettheir project approved. I mean, there's lot of things in terms of thetechnology. There are other international partners on the project to getapproved and you got to go to get Senegal. And Senegal and NNPC, as examples, they may not agree withthe local content that the oil company has decided that they want to doin-country, and they may push back, and say, "No, no, you've got to goback and get your vendors to agree to more local content." And that maytake three to four months to get put in place, or five months. I mean, it'sjust a very complicated cycle to get these projects approved. So, I mean, it'sjust the fact, that's just the way it happens.

Now, if right now, let's say we're assuming something on theorder of like a 500 tree market right now, I mean do you think this market cangrow substantially above that over the next couple of years?

Well, I'm still personally pretty optimistic on the outlookgiven the number of new deepwater rigs coming in here. And if you think aboutthe international oil companies looking for new fields, they have kind of focusedin on deepwater where they're finding pretty big finds, and big discoveries. Sothe trend has been very positive over the last number of years. And I mean we had this Gulf of Mexicolease sale 205 that the industry spent $2.9 billion, I think, in leasecommitments. So, I mean, I would say it's still pretty bullish in terms of thesecular trends we've seen will continue.

Okay. And on your subsea backlog, another nice increasesequentially in your $2.6 billion. Can that continue to grow over the nextseveral quarters? Do you expect that to continue to grow, or do you think itkind of flattens out somewhere around here?

Well, it really depends on the timing of when projects getawarded. And we've stated, I think, before Pazflor, just that one project is$800-plus million. So I mean if that comes into the backlog in one specificquarter, you could continue to build backlog.

Okay. Fair enough. And one last question on that spin-off;is your standalone company, is it going to be accretive on return metrics? It'spretty obvious on the growth side, on the margin side; but what about returnmetrics?

I'm not sure I understand the question.

Well, like return on capital. Will your return on capital, beforeand after, does that go up?

Interesting. I haven't looked at it. I believe it does.

Okay. And you sound like we're talking about a couplehundred basis points here or…

Maybe 100.

Okay, great. Thanks, gentlemen.

Next question comes from the line of Jim Crandell, fromLehman Brothers.

Good morning, Jim.

Good morning. Peter, what is the average value of subsea separationunits for the jobs that you've won to date?

Now we really haven't broken out that data, and it reallydepends on the application and the complexity of what's required on the seabed.

Can you give a range?

Well, the only published data and I think the only thing we reallywant to talk about is the value per well. And obviously the value per well hasgone from the $9 million, as I mentioned earlier, the $9 million range in '05to $14 million per inbound order in '06, and year-to-date we're running at $19million. And that adds our mix of subsea processing increases, that's thedriver.

Okay. For Pazflor, at this point, are you and the other twocompetitors you think bidding these subsea separation units and the subsea treestogether?

Yeah. Total, early on they decided that they would put allthe trees and the subsea processing in the package as one bid. And they'restill sticking to that.

Okay. So 49 trees and 3 subsea separation units, I wouldthink would be above $800 million.

Well, that could be the case. We've got local content issues,and it just depends on how much -- obviously, the manufacturing country is moreexpensive for us than manufacturing in an established situation.

This is sort of second hand information, but I just got thisfrom a client, Peter. And if you haven't seen it, it's maybe unfair to ask youto comment. But Quest not only is cutting their '07 estimate, but cut their '08estimate by 23% and cut their '07 to '11forecast by 13%. So, I mean, '08 seems like an unusually large reduction andprobably playing just by the pushing out of the existing contracts. Thecontracts that you would have thought would have appeared in '08, are thedelays of the '07 projects do they have implications for the delays of the '08projects, and have you gotten more cautious as to when these awards will come?

We haven't analyzed all the data. We saw the reduction in '07,which was pretty obvious given that these five big projects have slipped outprobably into '08. Beyond that, I mean, we track our own, as I mentionedearlier, our own database, and Quest does a reasonably good job. It's just hardto predict the timing, and there are new discoveries every day that people havein their portfolio. I think there is 530 odd deepwater discoveries, about 25%are actually in production, some are in the process of bringing on production.This cycle between discovery and startup is a four or five year cycle. So the oil companies, if you look at the five big oil majors,last year, in '06, only two had increasing production. The other thee haddeclining production. So the international oil companies, if they don't plow backand reinvest, I mean they're going to be in a situation where they've gotdeclining revenues and declining production. So it's kind of a Catch-22 forthem. They have to bring on some of these fields. The avenue where they'veturned to is deepwater. So year-over-year you could see changes, but I thinkthat the trend is still very positive for deepwater subsea.

Is there really is the thing that's really causing thedelays, Peter, the government delays, particularly the West African government delays?

Well, that does tend to be the bottleneck. I mean there'ssome inflation in the industry for equipment associated with these deepwaterfields. I mean the rig rates have gone up, the costs for new FPSOs has gone up.Our subsea pricing has gone up. But if you look at the economics, you hearnumbers in the range of $14 to $18 of finding and development costs. If theycan bring a field on for $14 or $18 a barrel and the market price is $70 plus,they're making a lot of money. There's no reason for them not to go forwardwith these projects.

Final question, Peter. If you look back 6-12 months ago overthe projects that you would have thought would be 2008 awards, and I know youput dates on the awards, and you were to look at it now, do you think 25% ofyour potential awards in '08 out into '09; and do you think that the projectsare looking at that kind of delay? Have you pushed back your own internalexpectations for these big projects?

Well, as I mentioned, we track all these projects on ourown, and we obviously deal directly with oil companies and have pretty goodcontact in terms of what's going on. I mean the delays this year have probablybeen a little bit unusual in that some of these we thought would have come onsooner. But I mean, you know, like we did win about like BPs [Car] was, I mean itwas pretty straightforward, Norway came on the radar screen, BP went out forcommercial tender; the Petrobras Cascade project was pretty much on track interms of execution. Another one that got delayed, Chevron Gorgon, for example, theyhad a lot of issues around environmental issues in Australiathat they had to get sorted out before it got sorted out. And that projectseems to be gone. It's not been announced who's going to win it yet, but it wason our radar screen for early '07 decision, it probably got pushed back. Youknow Shell Gumusut, again, that was a lot of internal discussions between Shelland Petronas to get that project sorted out. So it just varies. Some go quicklyand others take a longer time to come to fruition.

Okay. All right. Thank you very much.

Your next question comes form the line of Joe Gibney, fromCapital One Southcoast.

Good morning, guys. How are you?

Good morning, Joe.

Most of my questions have been answered. Just wanted tofollow-up on one minor one, just wanted to check on the status of the Malaysianfacility expansion, if you could just give us an update on the timing andprogress there? And also, Peter, if you could touch a little bit on how quicklyyou have to add people to meet the large growth demands we've had recently, anypersonnel constraints that you see over the next year, obviously, as you buildyour backlog and capacity?

Just let me answer Malaysiafirst. The plant was finished towards the end of '06 and we got it operationalprobably in the first quarter of this year. So it's manufacturing product forour customers in the Far East. The staffing level isprobably a couple hundred people in the plant already. So we're in pretty goodshape for Malaysia,and it's turned out to be a real nice facility for us. On the people side, I mean the market is still very tightfor experienced people in terms of project managers, project engineers,offshore service technicians in that arena it's still pretty tight. We'vebrought on a lot of new grad mechanical engineers over the last number of yearsto help supplement our activity in terms of manpower and capabilities. And thesupply base is still pretty tight too. So, I mean, executing our projects isnot easy. It takes a lot of hard work and effort to make all that happen.

Thanks, guys. I'll turn it back.

We have follow up question from the line of Geoff Kieburtzfrom Citigroup.

Thanks. Just wanted to come back on the backlog. Can youtell us out of the $3.7 billion backlog, how much is expected to be realized asrevenue in '08 and how much '07, '08, and I guess, I don't know if you canbreak down '09?

Geoff, this is Bill. We're going to realize about 30% of itin '07, and obviously, some of the remaining goes into '09. I don't happen tohave the number on that. But hopefully, we'll get some more backlog that we canexecute in '08 also.

Okay.

I think the good number is about 30% of it.

And would that apply to the subsea backlog as well or wouldthose numbers be any different?

It's not quite that high on subsea, but as 2.6 of the 3.7, it'sgot to be pretty significant.

So a little bit under 30% in '07, any difference in the '09and beyond?

Well, I think the subsea backlog is the only backlog we havethat stretches to '09. But again, I don't have a real number on that. I justknow we have some in '09.

And given these delays, do your bids for these variousprojects have a time limitation on them? Is there a point at which if adecision hasn't been made you effectively withdraw your bid?

Yes, we have a [validity] date that expires. And dependingon the circumstances, obviously, we will reprice it, yes. And we have costinflators in the seas in our contracts. So normally, when we have a bid, Geoff,that may be outstanding for nine months, we kind of pre-escalate the costs thatwe get in and we pre-escalate it and we bid on that basis. So we're protectedwith some through the process into the award.

Okay. Are there any bids that are kind of coming up to thatexpiration date?

Yeah. But I mean we always have some that come up to theexpiration date. But I don't think we want to be specific on that.

Okay. All right. Thank you.

And your final question comes from the line of Brad Handlerfrom Wachovia Capital Market.

Thanks for letting me back on. A follow up about processingplease, the Cascade and Chinook fields, that was originally intended to, or Ithink maybe you thought it was going to be a separation, it was going toinclude separation and it wound up just being boosting, if I have it right. Towhat extent is that a phenomenon that is likely to recur, maybe in other words,is it downsizing of the processing needs? Maybe it's just about adding somecolor as to that project and maybe how some of the others are progressing thatway?

This is John. On Cascade, it has to do with gas volume fraction,the amount of gas versus liquid. In the case of Cascade, the gas level was lowenough. They didn't need to separate before they boosted production. I don'tbelieve it ever envisioned separation, maybe in the early days there were some separationcomponent, but it has to do with the gas volume, gas liquid ratio. And so the case of Shell Perdido and BC-10 they have ahigher level of gas. They need to separate some of that gas out, so they canutilize the pumps to boost it. That's the technical reason why one processingsystem includes separation and the other doesn't.

Okay. That's helpful. So my guess is then you'd steer me notto make some conclusions that were broader than specific answer as to whetheror not separation is as likely to be as large or anything along those lines?

Well, I think that goes back to Peter's point. Depending onthe solution that you're trying to solve, the processing can be very complexlike in the Tordis field where you've got liquid gas separation, water, oilseparation, sand, it's very complex. And then you've got Cascade which isrelatively simple. So you have to be careful on the assumptions on processing.

Fair enough. Okay. That helps. Thanks.

And that was the final question. Do you have any closingremarks?

Yes. Thank you, operator. This concludes our third quarterconference call. A replay of our call will be available on our websitebeginning at 2:00 pm Eastern DaylightTime today. If you have any further questions, please feel free to contact me. Thank you for joining our call today.

And this concludes today's conference call. You may nowdisconnect