--  Natural gas and crude oil production of 74.3 Bcfe, up 65% over the       same period in 2008   --  Net cash provided by operating activities before changes in operating       assets and liabilities of $325.3 million (a non-GAAP measure       reconciled below), up 13% from the same period in 2008    --  Net earnings of $121.1 million, compared to $136.6 million in the same       period in 2008    

For the second quarter of 2009, Southwestern reported net income of $121.1 million, or $0.35 per diluted share, compared to $136.6 million, or $0.39 per diluted share, for the same period in 2008. Net cash provided by operating activities before changes in operating assets and liabilities (a non-GAAP measure reconciled below) was $325.3 million in the second quarter of 2009, up from $288.2 million for the same period in 2008.

"We continue to make significant progress in the development of our Fayetteville Shale play every quarter, and the second quarter was no exception," remarked Harold M. Korell, Executive Chairman of Southwestern Energy. "Our gross operated production from the Fayetteville Shale reached a significant milestone of 1 Bcf per day in July, compared to approximately 500 MMcf per day this time a year ago. The productivity of our wells also continues to improve as we learn more. While current gas prices remain low, we believe lower industry drilling activity will result in higher prices over the next 18 months. With our focus on value creation and a world-class resource to develop in the Fayetteville Shale, we are well-positioned not only to weather the current low commodity price environment with our strong balance sheet and financial flexibility, but also to benefit greatly when prices return to more normalized levels."

For the first six months of 2009, Southwestern reported a net loss of $311.7 million, or $0.91 per diluted share, which included a first quarter $907.8 million non-cash ceiling test impairment ($558.3 million net of taxes) of the company's natural gas and oil properties resulting from lower natural gas prices. Excluding the non-cash impairment, Southwestern's net income for the first six months of 2009 was $246.6 million (a non-GAAP measure; see reconciliation below), or $0.71 per diluted share, compared to net income of $245.6 million, or $0.71 per diluted share, in the same period in 2008.

Net cash provided by operating activities before changes in operating assets and liabilities (a non-GAAP measure; see reconciliation below), was $697.9 million for the first six months of 2009, up 22% from $571.9 million for the same period in 2008. Excluding the non-cash impairment, the company's financial results have been impacted primarily by the significant growth in production volumes during the first six months of 2009, partially offset by lower realized natural gas prices.

Second Quarter 2009 Financial Results

E&P Segment - Operating income from the company's E&P segment was $174.4 million for the second quarter of 2009, compared to $215.1 million for the same period in 2008. The decrease was primarily due to a 39% decrease in realized natural gas prices and a 22% increase in operating costs and expenses, which was partially offset by a 65% increase in production volumes.

Gas and oil production totaled 74.3 Bcfe in the second quarter of 2009, up from 45.1 Bcfe in the second quarter of 2008, and included 60.6 Bcf from the company's Fayetteville Shale play, up from 29.6 Bcf in the second quarter of 2008. As a result of recent inspections, repairs and maintenance on the Fayetteville Lateral of the Texas Gas Transmission Pipeline (Boardwalk Pipeline), the company has experienced curtailments that have impacted its ability to transport its production from the Fayetteville Shale. Beginning in April 2009, Texas Gas reduced the capacity on, or shut down, the Fayetteville Lateral on several occasions due to various activities, including maintenance and pipeline inspection. These activities, as well as similar repairs to the Greenville Lateral, are expected to continue, resulting in future curtailments. Texas Gas has estimated that it will begin repairs and maintenance on the pipeline in September and that the repairs will be completed in one to five months.

Currently, the company's transportation capacity for its Fayetteville Shale production is sufficient for its wells at a gross operated rate of approximately 1,050 MMcf per day. Southwestern's net share of its gross operated capacity, together with its share of production which is operated by other companies, is approximately 750 MMcf per day. Southwestern estimates that its total gross operated production will be curtailed to approximately 650 MMcf per day, or approximately 450 MMcf per day net, once the repairs to the Fayetteville Lateral Phase 1 facilities begin. In anticipation of these continued pipeline curtailments, Southwestern has revised its previous gas and oil production guidance range for 2009 from 289 to 292 Bcfe to 278 to 288 Bcfe, or approximately 45% over 2008 levels (using midpoints). Of the total 2009 targeted annual production, approximately 227 to 236 Bcf is expected to come from the Fayetteville Shale. This revised production guidance assumes curtailment of portions of the Fayetteville Lateral Phase 1 facilities for 45 to 60 days starting in September and total curtailed volumes for the remainder of the year of approximately 15 Bcf net to Southwestern. Southwestern's production guidance for the remainder of 2009 is shown below:

                                1st      2nd      3rd        4th   Full-Year                              Quarter  Quarter   Quarter   Quarter    2009                               Actual   Actual  Estimate  Estimate  Estimate                               ------   ------  --------  --------  --------   Previous Guidance (Bcfe)   60 - 61  70 - 71   75 - 76   80 - 81  289 - 292    Revised Guidance (Bcfe)     63.9     74.3     66 - 68   74 - 82  278 - 288   

Including the effect of hedges, Southwestern's average realized gas price in the second quarter of 2009 was $5.01 per Mcf, down from $8.17 per Mcf in the second quarter of 2008. The company's commodity hedging activities increased its average gas price by $2.11 per Mcf during the second quarter of 2009, compared to a decrease of $1.83 per Mcf during the same period in 2008.

Disregarding the impact of commodity price hedges, the company's average price received for its gas production during the second quarter of 2009 was approximately $0.60 per Mcf lower than average NYMEX spot prices, compared to approximately $0.92 per Mcf lower during the second quarter of 2008. The company believes that average basis differentials going forward will generally approximate those experienced in the second quarter of 2009, but will be volatile due to the Boardwalk Pipeline repairs discussed above. As of July 30, 2009, the company had protected approximately 50 Bcf of its third quarter 2009 expected gas production from the potential of widening basis differentials through hedging activities and sales arrangements at an average basis differential to NYMEX gas prices of approximately $0.35 per Mcf, excluding transportation charges and fuel charges. As of that same date for the fourth quarter of 2009, the company had protected approximately 30 Bcf at an average basis differential to NYMEX gas prices of approximately $0.35 per Mcf, excluding transportation and fuel charges. The company typically sells its natural gas at a discount to NYMEX spot prices due to locational basis differentials, transportation charges and fuel charges.

Lease operating expenses per unit of production for the company's E&P segment were $0.73 per Mcfe in the second quarter of 2009, down from $0.95 per Mcfe in the second quarter of 2008. The decrease primarily resulted from the impact that lower natural gas prices had on the cost of compressor fuel in the second quarter of 2009.

General and administrative expenses per unit of production were $0.34 per Mcfe in the second quarter of 2009, down from $0.41 per Mcfe in the second quarter of 2008. The decrease was primarily due to the effects of the company's increased production volumes which more than offset increased compensation and related costs primarily associated with the expansion of the company's E&P operations due to the Fayetteville Shale play.

Taxes other than income taxes per unit of production were $0.08 per Mcfe in the second quarter of 2009, compared to $0.16 per Mcfe in the second quarter of 2008, primarily due to changes in severance and ad valorem taxes that result from the mix of the company's production volumes combined with lower commodity prices.

The company's full cost pool amortization rate decreased to $1.46 per Mcfe in the second quarter of 2009, compared to $2.01 per Mcfe in the second quarter of 2008. The decline in the average amortization rate was primarily the result of the $907.8 million non-cash ceiling test impairment recorded in the first quarter of 2009. 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, impairments 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 gathering and marketing activities, was $27.8 million for the three months ended June 30, 2009, up from $15.0 million in the same period in 2008. The increase in operating income was primarily due to the increase in gathering revenues from the company's Fayetteville Shale play, partially offset by increased operating costs and expenses. At June 30, 2009, the company's midstream segment was gathering approximately 1,060 MMcf per day through 960 miles of gathering lines in the Fayetteville Shale play area, up from approximately 600 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.

First Six Months of 2009 Financial Results

E&P Segment - Excluding the non-cash ceiling test impairment, operating income from the company's E&P segment was $354.4 million for the six months ended June 30, 2009 (a non-GAAP measure; see reconciliation below), compared to $380.8 million for the same period in 2008. The decrease was primarily due to lower realized natural gas prices and increased operating costs and expenses which were partially offset by higher production.

Gas and oil production was 138.2 Bcfe in the first six months of 2009, compared to 84.1 Bcfe in the first six months of 2008, and included 110.8 Bcf from the company's Fayetteville Shale play, up from 53.2 Bcfe in the first six months of 2008.

Southwestern's average realized gas price was $5.44 per Mcf, including the effect of hedges, in the first six months of 2009 compared to $7.95 per Mcf in the first six months of 2008. The company's hedging activities increased the average gas price realized during the first six months of 2009 by $2.12 per Mcf, compared to a decrease of $0.87 per Mcf during the first six months of 2008. Disregarding the impact of hedges, the average price received for the company's gas production during the first six months of 2009 was approximately $0.87 per Mcf lower than average NYMEX spot prices, compared to approximately $0.66 per Mcf lower than NYMEX spot prices during the first six months of 2008.

Lease operating expenses for the company's E&P segment were $0.76 per Mcfe in the first six months of 2009, down from $0.87 per Mcfe in the first six months of 2008. The decrease was primarily the result of the impact that lower natural gas prices had on the cost of compressor fuel in the first six months of 2009.

General and administrative expenses were $0.32 per Mcfe in the first six months of 2009, compared to $0.42 per Mcfe in the first six months of 2008. The decrease was primarily due to the effects of the company's increased production volumes which more than offset increased compensation and related costs primarily associated with the expansion of the company's E&P operations due to the Fayetteville Shale play.

Taxes other than income taxes were $0.10 per Mcfe during the first six months of 2009, compared to $0.16 per Mcfe during the first six months of 2008, primarily due to the change in the mix of the company's production volumes combined with lower commodity prices.

The company's full cost pool amortization rate decreased to $1.63 per Mcfe in the first six months of 2009, compared to $2.15 per Mcfe in the first six months of 2008, primarily due to the $907.8 million non-cash ceiling test impairment recorded in the first quarter of 2009 and the sale of natural gas and oil properties in 2008, as the proceeds were credited to the full cost pool.

Midstream Services - Operating income for the company's midstream activities was $55.2 million in the first six months of 2009, compared to $25.2 million in the first six months of 2008. The increase in operating income was primarily due to increased gathering revenues and an increase in the margin from gas marketing activities related to the Fayetteville Shale play, partially offset by increased operating costs and expenses.

Capital Investments - For the first six months of 2009, Southwestern invested a total of $959.4 million, compared to $825.4 million during the first six months of 2008, which included $852.5 million invested in its E&P business and $102.5 million invested in its Midstream Services activities. Of the $852.5 million invested in its E&P business, approximately $700.7 million was invested in its Fayetteville Shale play, $74.0 million in East Texas, $32.4 million in its conventional Arkoma Basin program and $31.8 million in New Ventures. The company expects that its total capital investments for the full year of 2009 to be approximately $1.8 billion.

E&P Operations Review

Fayetteville Shale Play - For the first six months of 2009, Southwestern placed a total of 231 operated wells on production in the Fayetteville Shale play, all of which were horizontal wells fracture stimulated using slickwater.

At June 30, 2009, the company's gross production rate from the Fayetteville Shale play was approximately 990 MMcf per day, up from approximately 500 MMcf per day a year ago. The graph below provides gross production data from the company's operated wells in the Fayetteville Shale play area through June 30, 2009.

(Photo: http://www.newscom.com/cgi-bin/prnh/20090730/DA54480-a)

During the second quarter of 2009, the company's horizontal wells had an average completed well cost of $2.9 million per well, average horizontal lateral length of 4,123 feet and average time to drill to total depth of 11 days from re-entry to re-entry. This compares to an average completed well cost of $3.1 million per well, average horizontal lateral length of 3,874 feet and average time to drill to total depth of 12 days from re-entry to re-entry in the first quarter of 2009. The company currently has 17 drilling rigs running in its Fayetteville Shale play area, 13 that are capable of drilling horizontal wells and 4 smaller rigs that are used to drill the vertical portion of the wells. The company currently expects its gross well count in the play during 2009 to be approximately 575 wells (75% operated).

Since 2007, the continuous improvement of the company's completion practices have resulted in quarter-over-quarter improvements in average initial production rates of operated wells placed on production. Results from the company's drilling activities from 2007 through 2009, by quarter, are shown below.