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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 Date of report (Date of earliest event
reported): April 28,
2009 SOUTHWESTERN ENERGY COMPANY (Exact name of registrant as specified in its
charter) Delaware (State or other jurisdiction of incorporation)
2350 N. Sam Houston Pkwy. E., Suite
125, Houston, Texas (281) 618-4700 (Registrant's telephone number, including area
code) Not Applicable (Former name or former address, if changed
since last report) Check the appropriate box below if the Form 8-K
filing is intended to simultaneously satisfy the filing obligation of the
registrant under any of the following provisions: o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant
to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b)) o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
The information in this
Report, including the exhibit, is being furnished pursuant to Item 7.01 of Form
8-K and General Instruction B.2 thereunder. Such information shall not be
deemed "filed" for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or otherwise subject to the liabilities of that section, nor
shall it be deemed incorporated by reference in any filing under the Securities
Act of 1933, as amended. SECTION 7 -
REGULATION FD Item 7.01 Regulation FD Disclosure. Exhibits.
The following exhibit is being furnished as part of this Report. Exhibit Description
SIGNATURES Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: April 28, 2009 By: /s/ GREG D. KERLEY Name: Greg D. Kerley Title: Executive Vice President
and Chief Financial
Officer EXHIBIT
INDEX Exhibit Description Southwestern Energy First Quarter 2009 Earnings Teleconference
Speakers:
Harold
Korell; Chairman and Chief Executive Officer Steve
Mueller; President and Chief Operating Officer Greg
Kerley; Executive Vice President and Chief Financial Officer Harold
Korell Chairman and Chief Executive Officer Good morning, and thank
you for joining us. With me today are Steve Mueller, President of
Southwestern, and Greg Kerley, our Chief Financial Officer. If you have not
received a copy of yesterdays press release regarding our first quarter
results, you can call (281) 618-4847 to have a copy faxed to you. Also, I
would like to point out that many of the comments during this teleconference are
forward-looking statements that involve risks and uncertainties affecting
outcomes, many of which are beyond our control, and are discussed in more detail
in the risk factors and forward-looking statements sections of our Annual and
Quarterly filings with the Securities and Exchange Commission. Although we
believe the expectations expressed are based on reasonable assumptions, they are
not guarantees of future performance and actual results or developments may
differ materially. To begin, we had a very
productive first quarter, despite the effects of the recent decline in natural
gas prices. Our production from the Fayetteville Shale continues to climb as we
move up the learning curve in the play. Our gross operated production from the
play reached approximately 850 MMcf per day at the end of the first quarter,
compared to approximately 400 MMcf per day around this time last year. While we feel confident
that natural gas prices will be higher for the longer-term, the price of gas has
fallen approximately 35% from year-end 2008, thus causing a non-cash impairment
of our oil and gas properties. As a result of the continuing low commodity price
environment, we are reducing our planned capital program for 2009 by an
additional $100 million down to $1.8 billion, which is approximately flat with
our 2008 capital investments. The important thing to
know is that commodity prices move in cycles, and with the decreased drilling
activity in our industry, we are now positioned for an upturn in commodity
prices. With our growing production volumes and financial flexibility,
Southwestern Energy is well-positioned to benefit. I will now turn the
teleconference over to Steve for more details on our E&P and Midstream
activities and then to Greg for an update on our financial results. Then, we
will be available for questions afterward. Steve
Mueller President and Chief Operating Officer Good morning. During the 1st quarter
of 2009, we produced 63.9 Bcfe, up 64% from the 1st quarter of 2008.
Our Fayetteville Shale production was 50.2 Bcf, more than double the 23.6
we produced in the 1st quarter of 2008. We produced 7.8 Bcfe from
East Texas, and 5.8 Bcfe from our conventional Arkoma properties. As we
announced yesterday, we are reducing our expected 2009 capital investment by
approximately $100 million to $1.8 billion due to continued low natural gas
prices. To achieve this capital reduction, we are now planning on exiting
2009 down six rigs, four in our Fayetteville Shale Play, and two in our other
producing areas. Due to our continued strong production performance,
partially offset by our reduced capital budget, we now estimate that our full
year 2009 production will range from 289 to 292 Bcfe, up from 280 to 284 Bcfe.
In the 1st three months
of 2009, we invested approximately $450 million in our exploration and
production business activities and participated in drilling 190 wells. Of
this amount, approximately $366 million, or 81%, was for drilling wells.
Additionally, we invested $51 million in our midstream segment, almost
entirely in the Fayetteville Shale. Fayetteville
Shale Play In the 1st quarter of
2009, we invested approximately $416 million in our Fayetteville Shale play
including both our E&P and midstream activities. At March 31st, our
gross operated production rate was approximately 850 MMcf per day up from 750
Mmcf per day in mid-February. During 2008, the
majority of our gas from the Arkoma Basin was moved to markets in the Midwest,
including through the Fayetteville Lateral portion of the Texas Gas
Transmission, or Boardwalk Pipeline, which was placed in-service on December
24th. On April 1st, both the Fayetteville and Greenville Lateral portion of
the Boardwalk Pipeline was placed in-service and we began transporting a portion
of our gas to Eastern markets. On March 31st, our midstream segment was
gathering approximately 920 MMcf per day through 890 miles of gathering lines in
the Fayetteville Shale play area, up from approximately 470 MMcf per day a year
ago. In April 2009, Texas
Gas announced that there would be temporary reductions on the Fayetteville
Lateral due to various activities, including maintenance and pipeline
inspection. The exact completion date for these activities is unknown, but is
expected to be complete by the end of the third quarter. As a result,
transportation on the Fayetteville Lateral as of April 24, 2009 was
approximately 700,000 MMBtu per day. Our capacity was approximately
500,000 MMBtu per day to Bald Knob, Arkansas including 365,000 MMBtu per day to
Lula, Mississippi. We expect that the remainder of our Fayetteville Shale
production will continue to be transported on other pipelines to Midwest markets
until these issues are resolved. We currently have 19
drilling rigs running here, 15 that are capable of drilling horizontal wells and
4 smaller rigs that are used to drill the vertical portion of the wells. As I
mentioned previously, we are currently planning on releasing four rigs in the
Fayetteville Shale play area this year. This decrease in rig count means
that we now expect to participate in approximately 600 gross wells in 2009
rather than our original plan of 650 wells. This is approximately the same
number of wells that we drilled during 2008. Since 2007, the
continuous improvement of our completion practices have resulted in fairly
steady quarter-over-quarter improvements in average initial production rates of
operated wells placed on production. The significant increase in the average
initial production rate for the 4th quarter of 2008 and the subsequent decrease
for the 1st quarter of 2009 primarily reflected the impact of the delay in the
Boardwalk Pipeline. Initial rates were higher in all of the delayed wells
because wells were shut-in for a longer period of time before being placed on
production. In addition, we generally placed wells with the highest initial
rates on production first throughout the 4th quarter of 2008. As a result, the
remaining backlog of delayed wells that were placed on production in the 1st
quarter of 2009 generally had lower rates, particularly during January and
February. Wells that were placed on production in January and February of 2009
had average initial production rates of 2,806 Mcf per day and 2,749 Mcf per day,
respectively, while wells placed on production during March 2009 had average
initial production rates of 3,375 Mcf per day. For the month of April 2009,
through April 15, we have placed 27 wells on production at an average initial
production rate of 3,763 Mcf per day. We expect that our
average completed well costs in 2009 will be approximately $2.9 million per
well, as lower oilfield service costs are projected to more than offset higher
costs associated with larger completions and longer laterals. Our 1st
quarter wells had 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. Because of the
continued out-performance and our front end loading of drilling in our
Fayetteville Shale Play, we expect production here to be between 238 and 240
Bcfe in 2009. This is up from our previous guidance of 229 to 232 Bcfe.
Haynesville &
Marcellus Ill now move on to two
of our newer areas the Haynesville and Marcellus Shales. The first
horizontal well in our 50/50 joint venture with a private company targeting the
Haynesville/Bossier Shale in Shelby and San Augustine Counties, Texas, the Red
River 877 #1, reached total depth in the 4th quarter of 2008. This well,
which had a completed horizontal lateral of 2,718 feet, was production tested at
a rate of 7.2 MMcfe per day in the first quarter of 2009 and is currently
producing 3.0 Mmcf per day. The second horizontal well, the Red River 164 #1,
has reached total depth with a 3,818 foot lateral, and it is expected to be
completed and tested in the 2nd quarter. Pending further results from these
wells, we may invest more capital in the Haynesville/Bossier Shale play than
previously planned. We currently hold approximately 17,350 net acres in
the East Texas joint venture and a total of 50,110 net acres that we believe may
be prospective in the Haynesville/Bossier Shale. In the Marcellus Shale,
we currently have approximately 138,600 net acres in Pennsylvania where we
believe the shale is prospective. During 2008, we drilled our first four wells
here, including our first horizontal well, on our acreage in Bradford and
Susquehanna Counties. During the 1st quarter we increased our position in the
Marcellus by approximately 23,900 acres. Conventional
Arkoma & East Texas Finally, we
participated in drilling 9 wells in the conventional Arkoma Basin and 11 wells
in East Texas during the first three months of 2009. Nine of the East
Texas wells were James Lime horizontal wells. Production from our Arkoma and
East Texas properties was 5.8 and 7.8 Bcfe, respectively, for the first three
months of 2009, compared to 5.9 and 8.1 Bcfe for the first three months of 2008.
Summary In summary, we continue
to have solid results in our E&P and Midstream businesses and expect
continued strong results in the remainder of 2009 as demonstrated by our
increase in production guidance. We have decided to reduce our capital
budget by approximately $100 million as we continue to focus on adding value
during this period of reduced product prices. As Harold mentioned, when
commodity prices rebound, we will be well-positioned both financially and
operationally as a growing, low-cost leader. I will now turn it over
to Greg Kerley who will discuss our financial results. Greg
Kerley Executive Vice President and Chief Financial Officer Thank you, Steve, and good morning. As
you have seen from our press release, we had a very good first quarter despite
the significant drop we have experienced in natural gas prices. For
the first quarter of 2009, we reported a net loss of $432.8 million, or $1.26
per share, including a $558 million after-tax ceiling test impairment of our oil
and gas properties. The significant decline in gas prices from $5.71 per
MMBtu at December 31, 2008 for Henry Hub natural gas down to $3.63 at March 31,
2009 led to the ceiling test impairment. Excluding the non-cash
impairment, we recorded earnings of $125.5 million, or $0.36 per share (both
non-GAAP measures reconciled below), which was a 15% increase over the prior
year period. Cash flow from operations before changes in operating assets
and liabilities (a non-GAAP measure reconciled below) was up 31% to $372.6
million as our production growth more than offset lower realized natural gas
prices. Our
average realized gas price during the first quarter was $5.94 per Mcf, 23% lower
than our average price a year ago. Our commodity hedge position increased
our average realized gas price by $2.13 in the first quarter, which helped us
offset some of the effects of lower spot market prices and widening locational
market differentials (or basis) that occurred during the quarter. We
currently have approximately 47% of our 2009 projected natural gas production
hedged through fixed price swaps and collars at a weighted average floor price
of $8.48 per Mcf. We also have basis protected on approximately 131 Bcf of
our remaining 2009 expected gas production through hedging activities and sales
arrangements at a differential to NYMEX gas price of approximately $0.25 per
Mcf. Our detailed hedge position is included in our Form 10-Q filed
yesterday. Operating income for our E&P segment was $179.9 million in the
first quarter of 2009, excluding the impairment charge (a non-GAAP measure
reconciled below), up from $165.7 million in first quarter of 2008. The
increase was driven primarily by the 64% growth in our production volumes which
more than offset the decline in our average realized gas price and higher
operating costs and expenses. Our
lease operating expenses per unit of production were $0.78 per Mcfe in the first
quarter of 2009, compared to $0.77 for the same period in 2008. The modest
increase was the result of higher per unit operating costs associated with the
companys Fayetteville Shale operations, partially offset by the impact that
lower natural gas prices had on the cost of compressor fuel in the first quarter
of 2009. General and administrative expenses per unit of production were
$0.31 per Mcfe in the first quarter of 2009, compared to $0.42 for the same
period in 2008. The decrease was primarily due to the effects of our
increased production volumes which more than offset increased compensation and
related costs primarily associated with the expansion of our E&P operations.
Taxes other than income taxes were $0.13 per Mcfe in the first
quarter of 2009, compared to $0.16 for the same period in 2008, due to changes
in severance and ad valorem taxes that primarily result from the mix of our
production volumes and lower commodity prices. Our
full cost pool amortization rate dropped to $1.82 in the first quarter, down
from $2.30 in the prior year. The decline was due to the combined effects
of our sales of oil and gas properties during 2008, (the proceeds of which were
credited to the full cost pool) and our low finding and development costs.
As a result of the ceiling test impairment charge in the first quarter, we
expect that our amortization rate going forward, with all other related factors
remaining constant, will be reduced by between $0.30 to $0.40 per Mcfe.
Operating income from our Midstream Services segment grew
significantly in the first quarter of 2009 to $27.4 million, up from $10.2
million in the same period in 2008. The increase was primarily due to
higher gathering revenues and an increase in the margin from our marketing
activities, partially offset by increased operating costs and expenses.
We
ended the first quarter with approximately $80 million of cash on hand, nothing
borrowed on our $1 billion revolving credit facility, and our debt to
capitalization ratio was 25%, even after the ceiling test impairment charge.
Continuing low gas prices have impacted our projected cash flows for 2009
and as a result we have reduced our planned capital investments by approximately
$100 million to end the year with approximately the same debt level as
originally planned. We
believe we are very well positioned to weather the current low commodity price
environment with our strong balance sheet and financial flexibility. That
concludes my comments, so now well turn back to the operator who will explain
the procedure for asking questions. Explanation and
Reconciliation of Non-GAAP Financial Measures We report our financial
results in accordance with accounting principles generally accepted in the
United States of America (GAAP). However, management believes certain non-GAAP
performance measures may provide users of this financial information additional
meaningful comparisons between current results and the results of our peers and
of prior periods. One such non-GAAP
financial measure is net cash provided by operating activities before changes in
operating assets and liabilities. Management presents this measure because (i)
it is accepted as an indicator of an oil and gas exploration and production
companys ability to internally fund exploration and development activities and
to service or incur additional debt, (ii) changes in operating assets and
liabilities relate to the timing of cash receipts and disbursements which the
company may not control and (iii) changes in operating assets and liabilities
may not relate to the period in which the operating activities occurred. Additional non-GAAP
financial measures we may present from time to time are net income attributable
to Southwestern Energy, diluted earnings per share attributable to Southwestern
Energy stockholders and our E&P segment operating income, all which exclude
certain charges or amounts. Management presents these measures because (i)
they are consistent with the manner in which the Companys performance is
measured relative to the performance of its peers, (ii) these measures are more
comparable to earnings estimates provided by securities analysts, and (iii)
charges or amounts excluded cannot be reasonably estimated and guidance provided
by the Company excludes information regarding these types of items. These
adjusted amounts are not a measure of financial performance under GAAP. See the reconciliations
below of GAAP financial measures to non-GAAP financial measures for the three
months ended March 31, 2009 and March 31, 2008. Non-GAAP financial
measures should not be considered in isolation or as a substitute for the
Company's reported results prepared in accordance with GAAP.
3 Months Ended
March 31, 2009 2008 (in
thousands) Net
income (loss) attributable to Southwestern Energy: Net
income (loss) attributable to Southwestern Energy $ (432,830) $ 109,029 Add
back: Impairment
of natural gas and oil properties (net of taxes) 558,305 -- Net
income attributable to Southwestern Energy, excluding
impairment of natural gas and oil properties $ 125,475 $ 109,029
1-08246
71-0205415
(Commission File Number)
(IRS
Employer Identification No.)
77032
(Address of principal executive offices)
(Zip
Code)
EXPLANATORY
NOTE
On April 28, 2009, at
10:00am Eastern, Southwestern Energy Company will host a telephone
conference call for investors and analysts. The prepared
teleconference comments are furnished herewith as Exhibit 99.1.
Number
SOUTHWESTERN ENERGY COMPANY
Number
|
3 Months Ended March 31, | ||
|
2009 |
|
2008 |
|
| ||
Diluted earnings per share: |
|
|
|
Net income (loss) per share attributable to Southwestern Energy shareholders |
$ (1.26) |
|
$ 0.31 |
Add back: |
|
|
|
Impairment of natural gas and oil properties (net of taxes) |
1.62 |
|
-- |
Net income per share attributable to Southwestern Energy shareholders, excluding impairment of natural gas and oil properties |
$ 0.36 |
|
$ 0.31 |
|
3 Months Ended March 31, | ||
|
2009 |
|
2008 |
|
(in thousands) | ||
E&P segment operating income: |
|
|
|
E&P segment operating income (loss) |
$ (727,893) |
|
$ 165,710 |
Add back: |
|
|
|
Impairment of natural gas and oil properties |
907,812 |
|
-- |
E&P segment operating income excluding impairment of natural gas and oil properties |
$ 179,919 |
|
$ 165,710 |
Southwestern Energy Company First Quarter 2009 Earnings Teleconference Transcript
April 28, 2009