EX-99 3 exhibit991.htm EXHIBIT 99.1 NEWS RELEASE

2350 N. Sam Houston Parkway East
Suite 300
Houston, Texas 77032
(281) 618-4700 Fax: (281) 618-4820

NEWS RELEASE

SOUTHWESTERN ENERGY ANNOUNCES RECORD
THIRD QUARTER 2003 RESULTS

High Commodity Prices and Growth in Production Volumes Drive Record Earnings and Discretionary Cash Flow

     Houston, Texas - October 30, 2003...Southwestern Energy Company (NYSE: SWN) today reported net income of $10.9 million, or $.30 per diluted share, for the third quarter of 2003, up from $1.3 million, or $.05 per share, for the same period in 2002. Included in the company's 2003 third quarter results were pre-tax gains of $3.0 million, or $.05 of diluted earnings per share, from the sale of real estate and certain fixed assets. Discretionary cash flow(1) was $29.8 million during the third quarter of 2003, up from $15.7 million in the third quarter of 2002. The increases in earnings and discretionary cash flow resulted primarily from higher realized gas and oil prices and growth in the company's equivalent production which was up approximately 10% compared to the second quarter of 2003 and up 11% compared to the third quarter of 2002.

     Net income for the nine months ended September 30, 2003 was $34.0 million, or $1.01 per share, compared to $9.8 million, or $.37 per share, for the same period in 2002. Discretionary cash flow was $95.0 million for the first nine months of 2003, compared to $58.9 million for the same period of 2002.

     "We are pleased with our results through the first nine months of 2003," stated Harold M. Korell, President and Chief Executive Officer of Southwestern Energy. "We continue to see gains in our production volumes from our drilling program at Overton Field and look for this growth to continue through the remainder of the year. Our drilling program in the Arkoma Basin also continues to be active, particularly in the Ranger Anticline area where we will drill some key wells in the fourth quarter. We remain focused on adding value for each dollar we invest and the combination of our focus on adding value and our expected production growth should lead to continued improved results for the rest of 2003 and into 2004."

Higher Commodity Prices and Production Levels Highlight Quarter

     Operating income for the company's exploration and production segment was $22.3 million for the three months ended September 30, 2003, up from $9.7 million for the same period in 2002. The increase in operating income primarily resulted from higher realized gas and oil prices and higher production volumes.

     Gas and oil production for the three months ended September 30, 2003 was 11.1 billion cubic feet of gas equivalent (Bcfe), up 10% from 10.1 Bcfe in the second quarter of 2003 and 10.0 Bcfe in the third quarter of 2002. The company's production target for the fourth quarter of 2003 is 11.5 - 12.0 Bcfe, in line with its earlier guidance. With the first nine months of 2003 production at 30.0 Bcfe, the company estimates that its full-year production will be approximately 42.0 Bcfe for 2003, compared to 40.1 Bcfe produced during 2002.

     Gas prices realized for the company's production averaged $4.23 per Mcf for the quarter and $4.22 per Mcf for the first nine months of 2003, up 43% and 46%, respectively, from the same periods in 2002. The company realized an average price of $27.17 per barrel for its oil production during the nine months ended September 30, 2003, compared to $20.87 per barrel for the same period of 2002.

     The company's commodity hedging activities lowered its average gas price by $.61 per Mcf for the third quarter and $1.18 per Mcf for the first nine months of 2003. On a comparative basis, the company's hedging activities had the effect of decreasing its average gas price during the third quarter of 2002 by $.03 per Mcf and increasing its average price by $.02 per Mcf during the first nine months of 2002. Southwestern's hedging activities lowered its average oil price by $2.31 per barrel during the third quarter and $2.64 per barrel for the first nine months of 2003. Southwestern currently has approximately 7.5 Bcf of its remaining gas production hedged in 2003 through a combination of fixed-price swaps and collars, 29.2 Bcf hedged in 2004 and 3.0 Bcf in 2005. Additionally, the company has 90,000 barrels of its remaining oil production in 2003 hedged at an average WTI price of $26.73 per barrel and 120,000 barrels of oil hedged at $27.24 in 2004. The table below provides a detailed description of the company's hedge position at September 30, 2003.

     Lease operating expenses per Mcf equivalent (Mcfe) for the company's E&P segment were $.43 per Mcfe for the third quarter of 2003 compared to $.48 per Mcfe in the third quarter of 2002. The decrease in the 2003 unit rate reflects a larger portion of the company's production being provided from the Overton Field which has lower operating costs. Lease operating expenses increased during the third quarter of 2003 from $.36 per Mcfe in the second quarter of 2003 due primarily to an increase in workover expenses. Taxes other than income taxes increased during the quarter to $.22 per Mcfe, up from $.15 per Mcfe in the same period in 2002, due primarily to higher realized commodity prices. General and administrative expenses for the quarter were $.37 per Mcfe, slightly below the company's guidance provided earlier in the year, compared to $.25 per Mcfe in the same period in 2002. The increase from the prior year was primarily due to increased pension and insurance costs and the quarterly accrual of annual incentive compensation costs. The amortization rate per Mcfe for the company's full cost pool was $1.17 per Mcfe during the third quarter of 2003 compared to $1.16 per Mcfe in the same period in 2002.

Utility Segment Posts Seasonal Operating Loss

     The company's utility systems realized a seasonal operating loss of $3.4 million in the third quarter of 2003, compared to a loss of $2.2 million for the same period in 2002. The comparative decrease in operating income in 2003 was primarily due to higher operating costs and increased pension and insurance costs and the quarterly accrual of annual incentive compensation costs. Operating income for Southwestern's utility systems was $2.5 million during the first nine months of 2003, down from $4.7 million in 2002. Weather in the utility's service territory during the first nine months of 2003 was 4% colder than normal and 13% colder than the prior year.

     In September 2003, the company's utility subsidiary, Arkansas Western Gas Company (AWG), received regulatory approval of a rate increase totaling $4.1 million annually, exclusive of costs to be recovered through its purchase gas adjustment clause. AWG is also entitled to recover additional costs totaling $2.3 million through its purchase gas adjustment clause over a two-year period. The rate increase was effective for all customer bills rendered on or after October 1, 2003.

Marketing and Other Results Contribute to Bottom Line

     The company's marketing operations reported operating income of $.8 million for the third quarter of 2003 and $2.0 million for the nine months ended September 30, 2003, compared to $.5 million and $1.7 million, respectively, for the same periods in 2002. Southwestern's marketing and transportation operations relate primarily to the marketing of its own gas production and some third-party gas that is sold primarily to industrial customers connected to its gas distribution systems.

     The company's results related to its interest in the NOARK partnership was a gain of $1.0 million during the first nine months of 2003 compared to a loss of $.4 million during the first nine months of 2002. The 2003 results include a pre-tax gain of $1.3 million related to the sale of a non-strategic portion of NOARK's pipeline.

     During the third quarter of 2003, the company also recorded a pre-tax gain of $3.0 million reflected in other operating revenues that was recognized from the sale of real estate and certain fixed assets.   

(1) Discretionary cash flow is defined as net cash provided by operating activities before changes in operating assets and liabilities. The company has included information concerning discretionary cash flow primarily because changes in operating assets and liabilities relate to the timing of cash receipts and disbursements which the company may not control and may not relate to the period in which the operating activities occurred. Further, management uses this measure to assess the company's ability to generate cash to fund its exploration and development drilling activities and to service or incur debt. Discretionary cash flow should not be considered in isolation or as a substitute for net cash provided by operating activities prepared in accordance with generally accepted accounting principles. The table below reconciles discretionary cash flow with net cash provided by operating activities as derived from the company's financial information.

3 Months Ended September 30,

9 Months Ended
September 30,

2003

2002

2003

2002

Net cash provided by operating activities

$

24,543

$

26,149

$

94,851

$

68,405

Add back (deduct):

Change in operating assets and liabilities

5,211

  (10,457)

117

(9,456)

Discretionary cash flow

$

29,754

$

15,692

$

94,968

$

58,949

 

Gas Hedges in Place for 2003

Weighted Avg. NYMEX Price

Swaps

Volumes (Bcf)

(per MMBtu)

4th Quarter

2.95

$3.42

NYMEX Floor Price

NYMEX Ceiling Price

Collars

Volumes (Bcf)

(per MMBtu)

(per MMBtu)

4th Quarter

1.02

$3.00

$4.65

1.00

$3.00

$4.75

1.50

$3.25

$5.05

1.00

$4.00

$6.20

Gas Hedges in Place for 2004

Weighted Avg. NYMEX Price

Swaps

Volumes (Bcf)

(per MMBtu)

1st Quarter

1.85

$4.14

2nd Quarter

1.85

$3.92

3rd Quarter

1.75

$3.94

4th Quarter

1.75

$4.03

NYMEX Floor Price

NYMEX Ceiling Price

Collars

Volumes (Bcf)

(per MMBtu)

(per MMBtu)

1st Quarter

1.00

$3.25

$4.75

1.00

$3.75

$4.55

1.50

$4.00

$6.50

1.00

$4.00

$6.90

1.00

$4.00

$8.50

2nd Quarter

1.00

$3.25

$4.75

1.00

$3.75

$4.55

1.50

$4.00

$6.50

1.00

$4.00

$6.90

1.00

$4.00

$8.50

3rd Quarter

1.00

$3.25

$4.75

1.00

$3.75

$4.55

1.50

$4.00

$6.50

1.00

$4.00

$6.90

1.00

$4.00

$8.50

4th Quarter

1.00

$3.25

$4.75

1.00

$3.75

$4.55

1.50

$4.00

$6.50

1.00

$4.00

$6.90

1.00

$4.00

$8.50

Gas Hedges in Place for 2005

Weighted Avg. NYMEX Price

Swaps

Volumes (Bcf)

(per MMBtu)

2nd Quarter

1.00

$4.51

3rd Quarter

1.00

$4.49

4th Quarter

1.00

$4.74

Oil Hedges in Place for 2003

Weighted Avg. NYMEX Price

Swaps

Volumes (Bbls)

(per Bbl)

4th Quarter

90,000

$26.73

Oil Hedges in Place for 2004

Weighted Avg. NYMEX Price

Swaps

Volumes (Bbls)

(per Bbl)

1st Quarter

30,000

$28.80

2nd Quarter

30,000

$27.50

3rd Quarter

30,000

$26.65

4th Quarter

30,000

$26.00

     Southwestern's executive management team will host a teleconference call on Friday, October 31st at 11:30 a.m. Eastern to discuss the company's third quarter 2003 results. The toll-free number to call is 800-289-0573 and the reservation number is 722662. The teleconference can also be heard "live" over the Internet at the company's website: http://www.swn.com

     Southwestern Energy Company is an independent energy company primarily focused on the exploration for and production of natural gas. Additional information on the company can be found on the Internet at http://www.swn.com.

Contacts:

Greg D. Kerley

Brad D. Sylvester, CFA

Executive Vice President

Manager, Investor Relations

and Chief Financial Officer

(281) 618-4897

(281) 618-4803

     All statements, other than historical financial information, may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include, but are not limited to, the timing and extent of changes in commodity prices for gas and oil, the timing and extent of the company's success in discovering, developing, producing, and estimating reserves, property acquisition or divestiture activities that may occur, the effects of weather and regulation on the company's gas distribution segment, increased competition, legal and economic factors, governmental regulation, the financial impact of accounting regulations and critical accounting policies, changing market conditions, the comparative cost of alternative fuels, conditions in capital markets and changes in interest rates, availability of oil field services, drilling rigs, and other equipment, as well as various other factors beyond the company's control, and any other factors listed in the reports the company has filed with the Securities and Exchange Commission. A discussion of these and other factors affecting the company's performance is included in the company's periodic reports filed with the Securities and Exchange Commission including its Annual Report on Form 10-K for the year ended December 31, 2002.

Financial Summary Follows

# # #

OPERATING STATISTICS (Unaudited)

Page 1 of 5
Southwestern Energy Company and Subsidiaries                        
                         
   

      Three Months

    

     Nine Months

  

Periods Ended September 30

    2003

   2002

   2003

   2002

Exploration & Production

Production

Affiliated gas sales (MMcf)

972

696

4,428

3,875

Unaffiliated gas sales (MMcf)

9,269

8,275

23,173

23,455

Total gas production (MMcf)

10,241

8,971

27,601

27,330

Oil production (MBbls)

136

165

400

543

Total equivalent production (MMcfe)

11,053

9,961

29,999

30,588

Commodity Prices

Average realized gas price per Mcf

$4.23

$2.96

$4.22

$2.89

Average realized oil price per Bbl

$26.46

$22.65

$27.17

$20.87

Operating Expenses per Mcfe

Lease operating expenses

$0.43

$0.48

$0.40

$0.43

Taxes, other that income taxes

$0.22

$0.15

$0.24

$0.17

General & administrative expenses

$0.37

$0.25

$0.40

$0.27

Full cost pool amortization

$1.17

$1.16

$1.17

$1.16

Marketing

Gas volumes marketed (MMcf)

12,220

11,582

30,943

36,221

Gas Distribution

Deliveries (Bcf)

Sales and end-use transportation

3.1

3.2

17.6

17.2

Off-system transportation

-

1.3

0.1

2.0

Average number of customers

137,123

134,807

138,782

136,456

Average sales rate per Mcf

$11.00

$8.39

$7.77

$6.57

Heating weather - degree days

43

14

2,597

2,291

                          - percent of normal

102%

-

104%

91%

 

STATEMENT OF OPERATIONS (Unaudited)

Page 2 of 5

Southwestern Energy Company and Subsidiaries

Three Months

Nine Months

Periods Ended September 30

2003

2002

2003

2002

(in thousands, except share/per share amounts)

Operating Revenues

Gas sales

$

52,994

$

35,656

$

179,987

$

140,248

Gas marketing

10,113

10,018

34,386

31,948

Oil Sales

3,582

3,728

10,862

11,327

Gas transportation and other

4,379

1,689

10,975

5,230

71,068

51,091

236,210

188,753

Operating Costs and Expenses

Gas purchases - utility

3,496

3,198

32,743

31,770

Gas purchases - marketing

9,025

9,287

31,433

29,414

Operating expenses

9,949

9,698

28,243

28,292

General and administrative expenses

7,937

5,527

23,483

17,351

Depreciation, depletion and amortization

14,896

13,323

40,965

41,061

Taxes, other than income taxes

3,058

2,064

9,016

7,132

48,361

43,097

165,883

155,020

Operating Income

22,707

7,994

70,327

33,733

Interest Expense

Interest on long-term debt

4,324

5,510

13,326

16,209

Other interest charges

350

287

1,072

945

Interest capitalized

(457)

(364)

(1,323)

(1,015)

4,217

5,433

13,075

16,139

Other Income (Expense)

(476)

(124)

883

(598)

Income Before Income Taxes, Minority Interest & Accounting Change

18,014

2,437

58,135

16,996

Minority Interest in Partnership

(469)

(366)

(1,843)

(1,128)

Income Before Income Taxes & Accounting Change

17,545

2,071

56,292

15,868

Provision for Income Taxes - Deferred

6,667

797

21,391

6,109

Income Before Accounting Change

10,878

1,274

34,901

9,759

Cumulative Effect of Adoption of Accounting Principle

-

-

(855)

-

Net Income

$

10,878

$

1,274

$

34,046

$

9,759

Basic Earnings Per Share:

Income Before Accounting Change

$0.31

$0.05

$1.07

$0.39

Cumulative Effect of Adoption of Accounting Principle

-

-

(0.03)

-

Net Income

$0.31

$0.05

$1.04

$0.39

Diluted Earnings Per Share:

Income Before Accounting Change

$0.30

$0.05

$1.04

$0.37

Cumulative Effect of Adoption of Accounting Principle

-

-

(0.03)

-

Net Income

$0.30

$0.05

$1.01

$0.37

Weighted Average Common Shares Outstanding

Basic

35,090,330

25,306,920

32,786,030

25,195,812

Diluted

36,028,157

26,096,616

33,582,506

26,029,923

 

BALANCE SHEETS (Unaudited)

Page 3 of 5

Southwestern Energy Company and Subsidiaries

September 30,

2003

2002

(in thousands)

ASSETS

Current Assets

$ 79,859

$ 58,053

Investments

13,814

15,138

Property, Plant and Equipment, at cost

1,421,801

1,293,675

Less: Accumulated depreciation, depletion and amortization

691,921

646,547

729,880

647,128

Other Assets

14,899

17,491

$ 838,452

$ 737,810

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities

$ 115,929

(1)

$ 62,785

(1)

Long-Term Debt

225,000

353,200

Deferred Income Taxes

140,143

118,577

Other Liabilities

22,842

10,246

Commitments and Contingencies

Minority Interest in Partnership

12,894

12,818

Shareholders' Equity

Common stock, $.10 par value; authorized 75,000,000 shares, issued 37,225,584 shares   3,723   2,774  

Additional paid-in capital

121,130

19,059

Retained earnings

232,034

193,436

Accumulated other comprehensive income (loss)

(13,222)

(9,794)

343,665

205,475

Less:  Common stock in treasury, at cost, 1,623,454 shares in 2003 and 2,013,825 shares in 2002   18,196   22,434  
  Unamortized cost of restricted shares issued under stock incentive plan, 495,416 shares in 2003 and 420,083 shares in 2002   3,825   2,857  

321,644

180,184

$ 838,452

$ 737,810

(1) Current liabilities include $37.0 million in 2003 for debt outstanding under the Company's revolving credit facility. Also included are $16.2 million in 2003 and $13.9 million in 2002 related to the Company's hedging activities. These amounts were recorded under the provisions of SFAS No. 133.

STATEMENTS of CASH FLOWS (Unaudited)        

Page 4 of 5

Southwestern Energy Company and Subsidiaries

    Nine Months
Periods Ended September 30   2003   2002

(in thousands)

Cash Flows From Operating Activities

Net Income

$

34,046

$

9,759

Adjustments to reconcile net income to net cash provided by operating activities:

     Depreciation, depletion and amortization

43,130

42,864

     Deferred income taxes

21,391

6,109

     Ineffectiveness of cash flow hedges

(779)

-

     Gain on sale of property and equipment

(2,991)

-

     Equity in (income) loss of NOARK partnership

(1,026)

400

     Minority interest in partnership

342

(183)

     Cumulative effect of adoption of accounting principle

855

-

     Change in operating assets and liabilities

(117)

9,456

Net cash provided by operating activities

94,851

68,405

Cash Flows From Investing Activities

Capital expenditures

(121,723)

(67,829)

Distribution from NOARK partnership

2,500

-

Proceeds from sale of property and equipment

3649

-

Increase in gas stored underground

(5,423)

(1,072)

Other items

499

(291)

Net cash used in investing activities

(120,498)

(69,192)

Cash Flow From Financing Activities

Issuance of common stock

103,085

-

Payments on revolving long-term debt

(229,700)

(144,400)

Borrowings under revolving long-term debt

149,300

147,600

Change in bank drafts outstanding

1,056

(7,623)

Proceeds from exercise of common stock options

1,586

2,077

Net cash provided by (used in) financing activities

25,327

(2,346)

Increase (decrease) in cash

(320)

(3,133)

Cash at beginning of year

1,690

3,641

Cash at end of period

$

1,370

$

508

 

SEGMENT INFORMATION (Unaudited)

Page 5 of 5

Southwestern Energy Company and Subsidiaries

Exploration

Marketing,

and

Gas

Transportation

Production

Production

and Other

Eliminations

Total

(in thousands)

Quarter Ending September 30, 2003

Revenues

$

46,877

$

16,069

$

58,642

$

(50,520)

$

71,068

Gas purchases

-

8,448

54,451

(50,378)

12,521

Operating expenses

4,720

5,248

-

(19)

9,949

General and administrative expenses

4,094

3,662

304

(123)

7,937

Depreciation, depletion & amortization

13,307

1,554

35

-

14,896

Taxes, other than income taxes

2,461

577

20

-

3,058

Operating Income (Loss)

$

22,295

$

(3,420)

$

3,832

$

-

$

22,707

Capital Investments

$

45,898

(1)

$

1,731

$

181

$

-

$

47,810

(1)

Quarter Ending September 30, 2002

Revenues

$

30,325

$

13,063

$

33,748

$

(26,045)

$

51,091

Gas purchases

-

5,490

32,906

(25,911)

12,485

Operating expenses

4,801

4,912

-

(15)

9,698

General and administrative expenses

2,444

2,899

303

(119)

5,527

Depreciation, depletion & amortization

11,851

1,431

41

-

13,323

Taxes, other than income taxes

1,524

574

(34)

-

2,064

Operating Income (Loss)

$

9,705

$

(2,243)

$

532

$

-

$

7,994

Capital Investments

$

25,559

$

1,450

$

46

$

-

$

27,055

Nine Months Ending September 30, 2003

Revenues

$

130,102

$

94,213

$

156,683

$

(144,788)

$

236,210

Gas purchases

-

58,082

150,403

(144,309)

64,176

Operating expenses

12,062

16,295

-

(114)

28,243

General and administrative expenses

11,959

10,924

965

(365)

23,483

Depreciation, depletion & amortization

36,238

4,622

105

-

40,965

Taxes, other than income taxes

7,135

1,813

68

-

9,016

Operating Income

$

62,708

$

2,477

$

5,142

$

-

$

70,327

Capital Investments

$

121,130

(1)

$

6,671

$

477

$

-

$

128,278

(1)

Nine Months Ending September 30, 2002

Revenues

$

90,161

$

78,403

$

98,608

$

(78,419)

$

188,753

Gas purchases

-

43,408

95,738

(77,962)

61,184

Operating expenses

13,187

15,207

-

(102)

28,292

General and administrative expenses

8,162

8,739

805

(355)

17,351

Depreciation, depletion & amortization

36,379

4,560

122

-

41,061

Taxes, other than income taxes

5,335

1,787

10

-

7,132

Operating Income

$

27,098

$

4,702

$

1,933

$

-

$

33,733

Capital Investments

$

63,394

$

4,210

$

225

$

-

$

67,829

(1) Exploration and Production capital expenditures for 2003 include $6.6 million of accrued, non-cash expenditures.