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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 30,
2010 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 30, 2010 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 2010 Earnings Teleconference
Speakers:
Steve
Mueller; President and Chief Executive Officer Greg
Kerley; Executive Vice President and Chief Financial Officer Steve
Mueller; President and Chief Executive Officer Good morning, and thank
you for joining us. 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. We had a very good
quarter financially. Our earnings and cash flow growth were outstanding, which
highlight the value of our industry-leading low cost structure. However, while
our production grew by 41% during the first quarter, we experienced operational
and weather-related field issues in our Fayetteville Shale play which impacted
our production volumes. As a result, 26 fewer wells were placed on production
than originally scheduled at March 31, impacting our production for the first
quarter by approximately 3 Bcf. We have adjusted our production guidance for the
2nd and 3rd quarters, and remain optimistic that our 4th quarter production
guidance is still achievable at this time. Fayetteville
Shale Play Now, to talk a bit
about each of our operating areas. Earlier this week, our gross operated
production from the Fayetteville Shale reached approximately 1.3 Bcf per day, up
from about 850 MMcf per day a year ago. While it now seems that most of
the issues are now behind us, we did have operational and weather-related field
issues which affected our results during the quarter. Approximately 47% of
the wells placed on production during the quarter were the very first well in a
section and 65% of the wells were along the shallower northern and far eastern
borders of the project. Both the first section wells and shallow well
locations were the highest of any quarter in the companys history by at least
13% and 20%, respectively. As might be expected, the initial rates from the
wells along the edges of our producing areas are less than the central and
deeper areas, but we continue to improve and achieved initial production results
that were better than previous quarter averages for these border areas.
Weather and challenges
encountered in the more remote locations with first wells in new sections
resulted in placing a total of 26 fewer wells on production than what we had
originally anticipated, impacting our production by 3 Bcf during the quarter.
As a result, we have added two additional horizontal drilling rigs during
the first quarter and expect to catch up to our original operated well count by
the third quarter of 2010. We currently are running 24 drilling rigs in
the Fayetteville Shale play area, 16 that are capable of drilling horizontal
wells and 8 smaller rigs that are used to drill the vertical section of the
wells. During the first
quarter, our horizontal wells had an average completed well cost of $2.8 million
per well, average horizontal lateral length of 4,348 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 $3.0 million per well, average horizontal
lateral length of 4,303 feet and average time to drill to total depth of 12 days
from re-entry to re-entry in the fourth quarter of 2009. Wells placed on
production during the first quarter of 2010 averaged initial production rates of
3,197 Mcf per day, down 14% from average initial production rates of 3,727 Mcf
per day in the fourth quarter of 2009. Factors contributing to the
decrease in average initial production rates were the shift of all our operated
wells to green completions and the large number of first wells in new sections
and wells located in the shallower northern and far eastern borders of our
acreage that I discussed earlier. When looking at our results through
April, we have already placed nearly 50 wells on production at an average
initial production rate of approximately 3.6 MMcf per day. Beginning in late 2009,
we began what sometimes is called green completions, whereby wells are placed
directly on production very early in the flowback period so that incremental gas
volumes are captured. As a result of the wells being placed on production
earlier, the initial pressure the well is flowing against is higher and the
recovery of the completion fluids is slower. This will capture more gas
but we estimate initial production rates could be reduced by approximately 5% to
10%. We continue to test
tighter well spacing and, at March 31, we had placed over 375 wells on
production that have well spacing of 700 feet or less, representing
approximately 65-acre spacing or less and have previously concluded that 10 to
12 wells per section is the minimum number of wells needed to efficiently drain
the reserves. The most recent information from this larger group of wells
indicates interference of less than 10% compared to earlier estimates of 10% to
15% from a smaller well set. We continue to focus on optimizing the well
spacing for the play and plan to test over 44 different pilots with well
spacings that will range from 200 to 450 feet apart as part of our 2010 drilling
program. To wrap up our
discussion on the Fayetteville, we are now providing new production data on our
zero-time production plot of wells with drilled lateral lengths over 5,000 feet
as shown in our press release. With over 60 wells included in the sample,
we are encouraged by what we are seeing thus far. East Texas Field In our East Texas
operating areas, production was 9.6 Bcfe, up from 7.8 Bcfe a year ago. We
participated in drilling 11 wells in East Texas during the first quarter, 6 of
which were James Lime horizontal wells, 3 of which were Haynesville horizontal
wells and 2 of which were Pettet horizontal oil wells. Initial production
rates from James Lime wells that were placed on production during the quarter
averaged 6.6 MMcfe per day and we placed one well on production from the
Haynesville Shale during the quarter at an initial production rate of 22.1 MMcf
per day. Initial production rates from 4 Pettet oil wells that were placed on
production during the quarter averaged 292 barrels oil per day, with 2.6 MMcf
per day of associated gas. Conventional Arkoma In our conventional Arkoma Basin
program, we participated in 3 wells and production from the area was 4.9 Bcf,
compared to 5.8 Bcf last year. Appalachia In Pennsylvania, we
have approximately 151,000 net acres in Pennsylvania prospective for the
Marcellus Shale. We are currently drilling our second well for 2010, the
FERGUSON-KEISLING #1-H in Bradford County. We plan to complete both wells
during the second quarter and they could be placed on production as early as
June. At least 15 wells are expected to be drilled by Southwestern in
2010. New Ventures In our New Ventures
program, we announced in March that we had been granted exclusive licenses to
search and conduct an exploration program covering over 2.5 million acres in the
province of New Brunswick, Canada to test new hydrocarbon basins. As the
winner of the bids, our financial commitment over the next three years is
approximately $47 million. More than 80% of the work commitment is
gathering and processing of geochemical, gravity, magnetic and seismic data.
The initial phase of the data gathering is planned to start before the end
of 2010. In closing, natural gas
continues to underperform the rest of the commodities and like all of you, we
are carefully watching both the imbalance of supply and demand and the
industrys reaction to that imbalance. We have already made some
adjustments to our capital allocations to emphasize our best projects. We
also remain confidant that our low cost operations, financial strength and
flexibility to pursue our drilling program in the Fayetteville give us staying
power through the tough times and the ability to add significant value for our
shareholders even in the current low gas price environment. I will now turn it over
to Greg Kerley, our Chief Financial Officer, who will discuss our financial
results. Greg
Kerley Executive Vice President and Chief Financial Officer Thank you, Steve, and good morning. As
Steve noted, our financial results for the quarter were excellent, with earnings
up 37% and cash flow up 12%. Our improved results were driven by our strong
production growth, and continue to highlight the high quality of our assets and
our industry-leading low cost structure. We
reported earnings for the first quarter of $172 million, or $0.49 per share,
compared to adjusted earnings in the first quarter of 2009 of $125 million, or
$0.36 per share, (which for comparative purposes exclude a non-cash ceiling test
impairment recorded in 2009). We
also reported discretionary cash flow of $418 million, up 12% from last year and
we were nearly cash flow neutral for the period as our cash generated from our
operating activities funded 94% of the cash requirements for our capital
investments. Our
production totaled 90 Bcfe in the first quarter, up 41% from the prior year
period, and we realized an average gas price of $5.42 per Mcf, down over $0.50
per Mcf from the same period last year. Operating income for our E&P segment was $250 million during
the quarter, up 39% from the same period last year, excluding the non-cash
ceiling test impairment, as the significant growth in our production volumes
more than offset the decline in our average realized gas price. Our
commodity hedge position increased our average realized gas price by
approximately $0.55 per Mcf in the first quarter. We have approximately 48
Bcf of our remaining 2010 projected natural gas production hedged through fixed
price swaps and collars at a weighted average floor price of $8.01 per Mcf. We
recently increased our hedge position in 2011 and also added some hedges in
2012. We hedged an additional approximately 55 Bcf of our 2011 forecasted
gas production through costless-collars at a floor price of $5.00 per Mcf and an
average ceiling price of $6.42 per Mcf and approximately 29 Bcf of our 2012
forecasted gas production at a floor price of $5.50 per Mcf and an average
ceiling price of $6.54 per Mcf. Our
lease operating expenses per unit of production were $0.78 per Mcfe during the
quarter, unchanged from last year. Our
general and administrative expenses per unit of production declined to $0.29 per
Mcfe in the first quarter, down from $0.31 last year, due to our increased
production volumes. Taxes other than income taxes were $0.14 per Mcfe in the quarter,
compared to $0.13 in the prior year. Our
full cost pool amortization rate also declined, dropping to $1.41 per Mcfe in
the quarter, from $1.82 in the prior year. The decline was due to a
combination of the ceiling test impairment recorded in the first quarter of 2009
and our lower finding and development costs. Operating income from our Midstream Services segment increased by
38% in the first quarter to $38 million. The increase was primarily due to
increased gathering revenues related to production growth in the Fayetteville
Shale play, partially offset by increased operating costs and expenses. At
April 25th, our Midstream segment was gathering almost 1.5 billion cubic feet of
natural gas per day through 1,217 miles of gathering lines in the Fayetteville
Shale play, compared to gathering approximately 900 million cubic feet per day a
year ago. We
invested $474 million during the first quarter of 2010, compared to $503 million
in the first quarter of 2009, and drew down our revolver by only $20 million
during the quarter. At March 31, we had $345 million borrowed on our $1
billion credit facility at an average interest rate of 1.3%, and had total debt
outstanding of a little more than $1 billion. This leaves us with a debt
to book capital ratio of 29% and a debt to market capitalization ratio of only
7%. 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, 2010 and March 31, 2009. 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 Mar. 31, 2010 2009 (in
thousands) Net
income (loss) attributable to Southwestern Energy: Net
income (loss) attributable to Southwestern Energy $ 171,797 $ (432,830) 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 $ 171,797 $ 125,475
1-08246
71-0205415
(Commission File Number)
(IRS
Employer Identification No.)
77032
(Address of principal executive offices)
(Zip
Code)
EXPLANATORY
NOTE
On April 30, 2010,
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 Mar. 31, | ||
|
2010 |
|
2009 |
|
| ||
Diluted earnings per share: |
|
|
|
Net income (loss) per share attributable to Southwestern Energy stockholders |
$ 0.49 |
|
$ (1.26) |
Add back: |
|
|
|
Impairment of natural gas and oil properties (net of taxes) |
-- |
|
1.62 |
Net income per share attributable to Southwestern Energy stockholders, excluding impairment of natural gas and oil properties |
$ 0.49 |
|
$ 0.36 |
|
3 Months Ended Mar. 31, | ||
|
2010 |
|
2009 |
|
(in thousands) | ||
E&P segment operating income: |
|
|
|
E&P segment operating income (loss) |
$ 250,431 |
|
$ (727,893) |
Add back: |
|
|
|
Impairment of natural gas and oil properties |
-- |
|
907,812 |
E&P segment operating income, excluding impairment of natural gas and oil properties |
$ 250,431 |
|
$ 179,919 |