Oct. 29, 2009 (PR Newswire) -- HOUSTON, Oct. 29 /PRNewswire-FirstCall/ -- Southwestern Energy Company (NYSE: SWN) today announced its financial and operating results for the third quarter of 2009. Highlights include:

--  Natural gas and crude oil production of 73.2 Bcfe, up 38% over the same
period in 2008
--  Net cash provided by operating activities before changes in operating
assets and liabilities of $331.8 million (a non-GAAP measure reconciled
below), up from $312.1 million in the same period in 2008
--  Net earnings of $118.3 million, compared to $218.2 million in the same
period in 2008

--  Revised fourth quarter 2009 production guidance range to 86-89 Bcfe, up
12% from midpoints of previous guidance

For the third quarter of 2009, Southwestern reported net income of $118.3 million, or $0.34 per diluted share, compared to $218.2 million, or $0.63 per diluted share, for the same period in 2008. Net income for the third quarter of 2009 declined due to significantly lower natural gas prices, which were only partially offset by higher production volumes. Results for the third quarter of 2008 also included an after-tax gain on the sale of the company's utility assets of $35.4 million, or $0.10 per diluted share. Net cash provided by operating activities before changes in operating assets and liabilities (a non-GAAP measure reconciled below) was $331.8 million in the third quarter of 2009, up from $312.1 million for the same period in 2008.

"We had a solid quarter despite depressed natural gas prices which were at a seven-year low and the various curtailment issues we experienced related to maintenance and repairs of the Boardwalk Pipeline," remarked Harold M. Korell, Executive Chairman of Southwestern Energy. "We do not expect these factors to weigh as heavily in the fourth quarter of 2009, as the Boardwalk Pipeline was placed on-line sooner than we had expected and as gas prices appear to be moving higher than they have been over the past nine months. As a result of the Boardwalk Pipeline being back on-line, we were able to reach another milestone last week when we surpassed 1 Bcfe of net production per day as a company. As we look ahead, we see continued profitable growth in our production and reserves which, coupled with our low cost structure, will create tremendous value for Southwestern Energy and its shareholders."

Third Quarter 2009 Financial Results

E&P Segment - Operating income from the company's E&P segment was $172.0 million for the third quarter of 2009, down from $280.6 million for the same period in 2008. The decrease was primarily due to a 41% decrease in realized natural gas prices and a 12% increase in operating costs and expenses, which were partially offset by a 38% increase in production volumes.

Gas and oil production totaled 73.2 Bcfe in the third quarter of 2009, up from 52.8 Bcfe in the third quarter of 2008, and included 58.8 Bcf from the company's Fayetteville Shale play, up from 37.2 Bcf in the third quarter of 2008. Beginning on October 8, 2009, the Fayetteville Lateral of the Texas Gas Transmission Pipeline (Boardwalk Pipeline) was placed back into service after being shut down since September 1, 2009 due to maintenance and pipeline inspection. The Greenville Lateral of the Boardwalk Pipeline was also placed back into service in October after this shut down.

As a result of the repairs, the company is now able to transport all of its current production from the Fayetteville Shale and, at October 24, 2009, was producing at a gross operated rate of approximately 1,230 MMcf per day. Southwestern has revised its previous gas and oil production guidance range for 2009 from 278 to 288 Bcfe to 297 to 300 Bcfe, up approximately 53% over 2008 levels (using midpoints), due to the company's significant production growth from the Fayetteville Shale play and as a result of the pipeline repairs being completed faster than the company had anticipated. Of this total for 2009, approximately 243 to 245 Bcf is expected to come from the Fayetteville Shale play. 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    Actual   Estimate   Estimate
------    ------    ------   --------   --------
Previous Guidance (Bcfe) 60 - 61   70 - 71   66 - 68    74 - 82  278 - 288
Revised Guidance (Bcfe)   63.9      74.3      73.2      86 - 89  297 - 300

Including the effect of hedges, Southwestern's average realized gas price in the third quarter of 2009 was $5.06 per Mcf, down 41% from $8.56 per Mcf in the third quarter of 2008. The company's commodity hedging activities increased its average gas price by $2.21 per Mcf during the third quarter of 2009, compared to a decrease of $0.26 per Mcf during the same period in 2008. Southwestern has approximately 33 Bcf of its remaining 2009 projected natural gas production hedged through fixed price swaps and collars at a weighted average floor price of $8.41 per Mcf.

Disregarding the impact of commodity price hedges, the company's average price received for its gas production during the third quarter of 2009 was approximately $0.54 per Mcf lower than average NYMEX spot prices, compared to approximately $1.42 per Mcf lower during the third quarter of 2008. As of October 27, 2009, the company had protected approximately 50 Bcf of its fourth 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 $0.25 per Mcf, excluding transportation charges and fuel charges. As of that same date for the first quarter of 2010, the company had protected approximately 45 Bcf at an average basis differential to NYMEX gas prices of approximately $0.20 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. The company pays third-party transportation charges which typically range from $0.15 to $0.32 per MMBtu and fuel charges which range from 0.25 to 2.25%.

Lease operating expenses per unit of production for the company's E&P segment were $0.76 per Mcfe in the third quarter of 2009, down from $0.96 per Mcfe in the third quarter of 2008. The decrease primarily resulted from the impact that lower natural gas prices had on the cost of compressor fuel in the third quarter of 2009.

General and administrative expenses per unit of production were $0.38 per Mcfe in the third quarter of 2009, compared to $0.33 per Mcfe in the third quarter of 2008. The increase was primarily due to the increased payroll and other employee-related costs primarily associated with the expansion of the company's operations due to the Fayetteville Shale play, including a $5.4 million increase in incentive compensation that was accrued during the quarter, which were partially offset by the effects of the company's increased production volumes.

Taxes other than income taxes per unit of production were $0.10 per Mcfe in the third quarter of 2009, compared to $0.15 per Mcfe in the third quarter of 2008, primarily due to lower commodity prices and changes in severance and ad valorem taxes that result from the mix of the company's production volumes.

The company's full cost pool amortization rate decreased to $1.43 per Mcfe in the third quarter of 2009, compared to $1.86 per Mcfe in the third 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 the 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 $25.1 million for the three months ended September 30, 2009, up from $18.3 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 October 26, 2009, the company's midstream segment was gathering approximately 1,304 MMcf per day through 1,091 miles of gathering lines in the Fayetteville Shale play area, up from approximately 675 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 Nine Months of 2009 Financial Results

For the first nine months of 2009, Southwestern reported a net loss of $193.5 million, or $0.56 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 nine months of 2009 was $364.8 million (a non-GAAP measure; see reconciliation below), or $1.06 per diluted share, compared to net income of $463.7 million, or $1.34 per diluted share, in the same period in 2008. Excluding the non-cash impairment, the company's financial results have been impacted primarily by lower realized natural gas prices during the first nine months of 2009, partially offset by significant growth in production volumes.

Net cash provided by operating activities before changes in operating assets and liabilities (a non-GAAP measure; see reconciliation below), was $1.03 billion for the first nine months of 2009, up 16% from $884.1 million for the same period in 2008.

E&P Segment - Excluding the non-cash ceiling test impairment, operating income from the company's E&P segment was $526.4 million for the nine months ended September 30, 2009 (a non-GAAP measure; see reconciliation below), compared to $661.4 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 211.4 Bcfe in the first nine months of 2009, compared to 137.0 Bcfe in the first nine months of 2008, and included 169.6 Bcf from the company's Fayetteville Shale play, up from 90.4 Bcf in the first nine months of 2008.

Southwestern's average realized gas price was $5.31 per Mcf, including the effect of hedges, in the first nine months of 2009 compared to $8.19 per Mcf in the first nine months of 2008. The company's hedging activities increased the average gas price realized during the first nine months of 2009 by $2.15 per Mcf, compared to a decrease of $0.64 per Mcf during the first nine months of 2008. Disregarding the impact of hedges, the average price received for the company's gas production during the first nine months of 2009 was approximately $0.77 per Mcf lower than average NYMEX spot prices, compared to approximately $0.90 per Mcf lower than NYMEX spot prices during the first nine months of 2008.

Lease operating expenses for the company's E&P segment were $0.76 per Mcfe in the first nine months of 2009, down from $0.90 per Mcfe in the first nine 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 nine months of 2009.

General and administrative expenses were $0.34 per Mcfe in the first nine months of 2009, compared to $0.38 per Mcfe in the first nine months of 2008. The decrease was primarily due to the effects of the company's increased production volumes which more than offset the effects of increased payroll, incentive compensation and other employee-related costs primarily associated with the expansion of the company's operations due to the Fayetteville Shale play. Southwestern added 227 new employees during the first nine months of 2009.

Taxes other than income taxes were $0.10 per Mcfe during the first nine months of 2009, compared to $0.15 per Mcfe during the first nine months of 2008, primarily due to lower commodity prices and the change in the mix of the company's production volumes.

The company's full cost pool amortization rate decreased to $1.56 per Mcfe in the first nine months of 2009, compared to $2.03 per Mcfe in the first nine 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 $80.3 million in the first nine months of 2009, compared to $43.4 million in the first nine 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 - In the first nine months of 2009, Southwestern invested approximately $1.4 billion, compared to approximately $1.3 billion during the first nine months of 2008, which included $1.2 billion invested in its E&P business and $167 million invested in its Midstream Services activities. Of the approximately $1.2 billion invested in its E&P business, $1.0 billion was invested in its Fayetteville Shale play, $123 million in East Texas, $35 million in its conventional Arkoma Basin program and $35 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 nine months of 2009, Southwestern placed a total of 324 operated wells on production in the Fayetteville Shale play, all of which were horizontal wells fracture stimulated using slickwater.

At October 24, 2009, the company's gross production rate from the Fayetteville Shale play was approximately 1,230 MMcf per day, up from approximately 600 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 October 24, 2009.

(Photo: http://www.newscom.com/cgi-bin/prnh/20091029/DA01641-a)

During the third 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 4,100 feet and average time to drill to total depth of 12 days from re-entry to re-entry. This compares to 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 in the second 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 550 wells (80% operated).

Since 2007, improvements in the company's completion practices and longer lateral lengths have resulted in quarter-over-quarter improvements in average initial production rates of operated wells placed on production. During the third quarter of 2009, Southwestern placed three wells on production with initial production rates over 6.0 MMcf per day.