HOUSTON, Oct. 30 /PRNewswire-FirstCall/ -- Southwestern Energy Company (NYSE: SWN) today announced financial and operating results for the third quarter of 2008. Highlights include:

    -- Record production of 52.8 Bcfe, up 76% over the same period in 2007
    -- Record net income of $218.2 million, up 328% from the same period in
       2007
    -- Record net cash provided by operating activities before changes in
       operating assets and liabilities from continuing operations (a non-GAAP
       measure reconciled below) of $312.1 million, up 98% from the same
       period in 2007

For the third quarter of 2008, Southwestern reported net income of $218.2 million, or $0.63 per diluted share, up from $51.0 million, or $0.15 per diluted share, for the same period in 2007. Results during the third quarter of 2008 include an after-tax gain on sale from the company's utility assets of $35.5 million, or $0.10 per diluted share. Net cash provided by operating activities before changes in operating assets and liabilities (a non-GAAP measure; see reconciliation below), was $312.1 million for the third quarter of 2008, up from $157.7 million for the same period in 2007. The company's third quarter financial results were driven primarily by the positive effect on earnings of the significant growth in production volumes from Southwestern's Fayetteville Shale play and higher realized natural gas prices.

'This was a great quarter for Southwestern Energy,' stated Harold M. Korell, Chief Executive Officer of Southwestern. 'Our financial results were outstanding and in our Fayetteville Shale play we continue to see significant improvements in well performance as we implement new completion techniques across the play. As a result, gross operated daily production volumes have risen to approximately 600 MMcf per day at September 30, up from about 260 MMcf per day a year ago.'

'I am also very pleased to report that our financial position and balance sheet are both in great shape,' Korell continued. 'At the end of the quarter, we had over $425 million of cash and cash equivalents on hand, had reduced our debt-to-total capitalization ratio to 25% down from 37% at the end of 2007, and our $1 billion unsecured credit facility was completely undrawn. We expect to end the year with one of the strongest balance sheets in our history. While we understand that these are uncertain times in our economy, we believe that Southwestern Energy, with our low cost operations and the financial strength and flexibility to pursue highly accretive drilling programs, is well-positioned to add significant value for our shareholders.'

Net income for the nine months ended September 30, 2008 was $463.7 million, or $1.34 per diluted share, up from $149.5 million, or $0.43 per diluted share, for the same period in 2007. Net income for the first nine months of 2008 includes an after-tax gain on sale from the company's utility assets of $35.5 million, or $0.10 per diluted share. Net cash provided by operating activities before changes in operating assets and liabilities (non-GAAP; see reconciliation below) was $884.1 million for the first nine months of 2008, up from $446.9 million for the same period in 2007.

In the second quarter of 2008, the company completed the sale of 55,631 net acres, or approximately 6% of its total net acres in the Fayetteville Shale play, for approximately $518.3 million. Production from the acreage sold was approximately 10.5 MMcf per day at the time of the sale. Effective July 1, 2008, the company closed the previously announced sale of its utility, Arkansas Western Gas Company (AWG), to SourceGas, LLC. Southwestern received $223.5 million and, in order to receive regulatory approval for the sale and certain related transactions, paid $9.8 million to AWG for the benefit of its customers. The company recorded a pre-tax gain on the sale of $57.3 million in the third quarter of 2008. As a result of the sale of the utility, the company is no longer engaged in natural gas distribution operations. Additionally, the company sold various oil and gas properties in the Gulf Coast and the Permian Basin for approximately $240 million in the aggregate, with approximately $21 million expected to be collected in the fourth quarter of 2008. Proceeds from the sales of oil and gas properties are credited to the full cost pool. These announced sales represent all of the company's planned 2008 divestitures and, once all have closed, are expected to result in gross proceeds of approximately $1.0 billion.

Third Quarter 2008 Financial Results

E&P Segment -- Operating income from the company's E&P segment was $280.6 million for the third quarter of 2008, up 216% from $88.9 million for the same period in 2007. The increase in revenues resulting from the growth in production volumes and higher gas prices was partially offset by increased operating costs.

Southwestern's natural gas and crude oil production totaled 52.8 Bcfe for the third quarter of 2008, up 76% from 30.0 Bcfe for the third quarter of 2007. The increase resulted from increased production from the Fayetteville Shale play which totaled 37.2 Bcf for the third quarter of 2008, compared to 14.7 Bcf for the same period in 2007.

Southwestern has increased its production guidance for the fourth quarter of 2008 to 53.0 to 55.0 Bcfe, up from 50.0 to 52.0 Bcfe. Southwestern's total oil and gas production guidance for 2008 of 190.0 to 192.0 Bcfe represents an increase of approximately 68% over the company's 2007 oil and gas production. Of this total, approximately 127.0 to 130.0 Bcf is expected to come from the Fayetteville Shale. The company's fourth quarter production guidance includes the effect of its oil and gas property sales and its anticipated restrictions on Fayetteville Shale production due to the delay in the completion of the Fayetteville Lateral portion of the Texas Gas Transmission Pipeline (Boardwalk). The Fayetteville Lateral, which was originally anticipated to be in-service in the third quarter of 2008, is now expected to be completed late in the fourth quarter.

Southwestern's average realized gas price was $8.56 per Mcf for the third quarter of 2008, including the effect of hedges, compared to $6.66 per Mcf for the third quarter of 2007. The company's commodity hedging activities decreased its average gas price by $0.26 per Mcf during the third quarter of 2008, compared to an increase of $1.17 per Mcf during the third quarter of 2007. As of October 24, 2008, Southwestern had NYMEX fixed price hedges in place on notional volumes of 11.5 Bcf of its fourth quarter 2008 gas production at an average price of $8.39 per MMBtu and collars in place on notional volumes of 17.0 Bcf of its fourth quarter 2008 gas production at an average floor and ceiling price of $7.76 and $10.70 per MMBtu, respectively. Late in the third quarter of 2008, locational basis differentials on Centerpoint East began widening above historical averages as a result of the delay in the construction of the Boardwalk Pipeline. The continued delay of the pipeline could further adversely impact locational differentials for production from the Arkoma Basin. As of October 24, 2008, the company has basis protected on approximately 43 Bcf of its fourth quarter 2008 expected gas production, through financial hedging activities and physical sales arrangements, at a differential to NYMEX gas prices of approximately $0.90 to $1.00 per Mcf.

Southwestern's average realized oil price was $125.33 per barrel for the third quarter of 2008, compared to $72.52 per barrel for the third quarter of 2007. For calendar year 2008, the company has not hedged any of its expected crude oil production.

Lease operating expenses for the company's E&P segment were $0.96 per Mcfe for the third quarter of 2008, compared to $0.67 per Mcfe for the third quarter of 2007. The increase was driven by higher per unit costs associated with gathering and compression costs in the company's Fayetteville Shale operations, including the impact of higher natural gas prices on the cost of compression fuel. Southwestern's fourth quarter operating cost guidance ranges between $0.92 and $0.97 per Mcfe.

General and administrative expenses for the company's E&P segment were $0.33 per Mcfe for the third quarter of 2008, compared to $0.46 per Mcfe for the third quarter of 2007. The decrease was primarily due to the effects of increased production volumes which more than offset increased incentive compensation, payroll and related costs associated with the expansion of the company's E&P operations due to the Fayetteville Shale play. Southwestern's fourth quarter general and administrative expense guidance ranges between $0.32 and $0.37 per Mcfe.

Taxes other than income taxes were $0.15 per Mcfe for the third quarter of 2008, compared to $0.11 per Mcfe for the third quarter of 2007, primarily due to the change in the mix of the company's production volumes. Southwestern's fourth quarter guidance for taxes other than income taxes ranges between $0.15 and $0.20 per Mcfe.

The company's full cost pool amortization rate was $1.86 per Mcfe for the third quarter of 2008, compared to $2.56 per Mcfe for the third quarter of 2007. The decline in the average amortization rate was primarily the result of sales of oil and gas properties in the second and third quarters of 2008, the proceeds of which were credited to the full cost pool. The amortization rate is impacted by timing and amount of reserve additions and the costs associated with those additions, revisions of previous reserve estimates due to both price and well performance, write-downs that result from full cost ceiling tests, proceeds from the sale of properties that reduce the full cost pool and the levels of costs subject to amortization. The future full cost pool amortization rate cannot be predicted with accuracy due to the variability of each of the factors discussed above, as well as other factors.

Midstream Services -- Operating income for the company's midstream services segment, which is comprised of natural gas marketing and gathering activities, was $18.3 million for the third quarter of 2008, up from $4.1 million for the third quarter of 2007. The increase in operating income was primarily due to higher gathering revenues and an increase in the margin from gas marketing activities, partially offset by increased operating costs and expenses. At September 30, 2008, Midstream Services was gathering approximately 675 MMcf per day through 793 miles of gathering lines in the Fayetteville Shale play area, up from approximately 250 MMcf per day a year ago. Gathering volumes, revenues and expenses for this segment are expected to continue to grow as reserves related to the company's Fayetteville Shale play are developed and production increases.

During the third quarter of 2008, production restrictions in the Fayetteville Shale began to arise due to the delay in the completion of the Fayetteville Lateral of the Boardwalk Pipeline. Due to construction difficulties, the Fayetteville Lateral, which was anticipated to be in-service by late in the third quarter, is now anticipated to be in-service late in the fourth quarter. Midstream Services has 500,000 MMBtu per day of initial firm capacity on the Boardwalk Pipeline, increasing to 800,000 MMBtu per day by 2010.

On September 30, 2008, a subsidiary in the midstream services segment signed a precedent agreement with Fayetteville Express Pipeline LLC, a joint venture of Kinder Morgan and Energy Transfer, under which the subsidiary has committed up to 1,200,000 dekatherms per day of firm capacity after the pipeline is in-service, which is expected to be in late 2010 or early 2011.

First Nine Months of 2008 Financial Results

E&P Segment -- Operating income for the E&P segment was $661.4 million for the first nine months of 2008, up from $244.5 million for the first nine months of 2007. The increase was primarily due to a 74% increase in production volumes and higher realized natural gas prices.

Gas and oil production totaled 137.0 Bcfe for the first nine months of 2008, compared to 78.7 Bcfe for the first nine months of 2007. The increase was due to increased production from the company's Fayetteville Shale play. Net production from the company's Fayetteville Shale play was 90.4 Bcf for the first nine months of 2008, compared to 33.6 Bcf for the first nine months of 2007.

Southwestern's average realized gas price was $8.19 per Mcf, including the effect of hedges, for the first nine months of 2008 compared to $6.75 per Mcf for the first nine months of 2007. The company's hedging activities decreased the average gas price realized for the first nine months of 2008 by $0.64 per Mcf, compared to an increase of $0.62 per Mcf for the first nine months of 2007.