EXHIBIT 99.1
Slide Presentation dated March 3, 2005
The following slides were presented March 3, 2005 to investors.
(Cover)
Southwestern Energy Company
March 2005 Update
This left side of this slide contains a picture of a snow-capped volcano. The caption above reads "The Power Within." The Company's formula
is located in the bottom right corner. The top right corner of this slide contains a box with a picture of an oil derrick and "75 years SWN 1929 - 2004."
(Slide 1)
Southwestern Energy Company (NYSE: SWN)
General Information
Southwestern Energy Company is an independent energy company primarily focused on the exploration for and production of natural gas. Our strategy is to add at least $1.30 in discounted value for every dollar invested in a focused exploration and production program in the Arkoma and Permian Basins, East Texas and the onshore Gulf Coast.
Market Data as of February 28, 2005
Shares of Common Stock Outstanding | 36,455,316 |
Market Capitalization | $2,211,000,000 |
Institutional Ownership | 84.2% |
Management Ownership | 7.0% |
52-Week Price Range | $22.65 (3/24/2004) |
| | $61.86 (2/25/2005) |
Investor Contacts
Greg D. Kerley
Executive Vice President and Chief Financial Officer
Phone: | (281) 618-4803 |
Fax: | (281) 618-4820 |
Brad D. Sylvester, CFA
Manager, Investor Relations
Phone: | (281) 618-4897 |
Fax: | (281) 618-4820 |
(Slide 2)
Forward-Looking Statements
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 extent to which the Fayetteville Shale play can replicate the results of other productive shale gas plays, the potential for significant variability in reservoir characteristics of the Fayetteville Shale over such a large acreage position, the timing and extent of the company's success in discovering, developing, producing and estimating reserves, property acquisition or divestiture activities, the effects of weather and regulation on the company's gas distribution segment, increased competition, the impact of federal, state and local government regulation, the financial impact of accounting regulations and critical accounting policies, changing market conditions and prices (including regional basis differentials), the comparative cost of alternative fuels, conditions in capital markets and changes in interest rates, availability of oil field personnel, services, drilling rigs and other equipment, and any other factors listed in the reports filed by the company with the Securities and Exchange Commission (the "SEC"). For additional information with respect to certain of these and other factors, see reports filed by the company with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
(Slide 3)
About Southwestern
| * Focused on domestic exploration and production of natural gas. |
| | * 645 Bcfe of reserves; 92% natural gas; 11.9 R/P at year-end 2004. |
| |
| * Track record of adding significant reserves at low costs. |
| | * Since 1999, we've averaged annual production growth of 10%, reserve growth of 13%, 246% reserve replacement, and F&D cost of $1.28 per Mcfe. |
| | |
| * E&P strategy built on organic growth through the drillbit. |
| | * Over 80% of planned E&P capital allocated to drilling in 2005. |
| | |
* Proven management team has increased Southwestern's market capitalization from $187 million at year-end 1998 to over $2 billion today. |
| |
| * Strategy built on the Formula: |
| | The Right People doing the Right Things, wisely investing the cash flow from the underlying Assets will create Value+. |
(Slide 4)
Current Highlights
2004
* Continued successful development drilling in the Arkoma Basin and East Texas, plus successful exploration results in the Permian Basin. |
* Record production of 54.1 Bcfe, up 31% over 41.2 Bcfe in 2003. |
* Record reserves of 645 Bcfe at year-end 2004, up 28% from 503 Bcfe in 2003. |
* In 2004, we again set new records for net income, operating income and EBITDA(1). |
* Began drilling in Fayetteville Shale play in Arkansas. |
2005 Forecast
* Planned CapEx of up to $353.0 million, up 20% from 2004. |
* Production guidance of 61.0 - 63.0 Bcfe, up 13 - 17% from 2004 production. |
* Plan to significantly accelerate Fayetteville Shale drilling program. |
(1) EBITDA is a non-GAAP financial measure. See explanation and reconciliation of EBITDA on page 31.
(Slide 5)
Proven Track Record
This slide contains bar charts for the periods ended December 31.
| 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005E |
Production (Bcfe) | 32.9 | 35.7 | 39.8 | 40.1 | 41.2 | 54.1 | 61-63E |
Reserve Replacement | 150% | 196% | 224% | 209% | 351% | 388% | |
EBITDA ($MM)(1) | $76.1 | $103.2 | $134.6 | $99.8 | $152.3 | $256.4 | |
F&D Cost ($/Mcfe) | $1.20 | $0.99 | $1.11 | $1.02 | $1.18 | $1.34 | |
Note: Reserve data excludes reserve revisions.
(1) EBITDA is a non-GAAP financial measure. See explanation and reconciliation of EBITDA on page 31.
(Slide 6)
SWN is One of the Lowest Cost Operators
This slide contains a bar graph that compares SWN to its competitors in terms of lifting cost per Mcfe of production (3 year average).
| | | Lifting Cost per Mcfe |
| | | of Production |
| | | (3 year average) |
| | | |
Houston Exploration | | $0.57 |
Burlington Resources | | $0.57 |
| Remington Oil & Gas | | $0.58 |
Southwestern Energy Company | | $0.62 |
EnCana | | $0.70 |
Newfield Exploration | | $0.71 |
Patina Oil & Gas | | $0.71 |
Chesapeake Energy | | $0.74 |
| Cabot Oil & Gas | | $0.76 |
Range Resources | | $0.79 |
Apache | | $0.79 |
Pioneer Natural Resources | | $0.82 |
Anadarko Petroleum | | $0.85 |
| Swift Energy | | $0.89 |
XTO Energy | | $0.89 |
Devon Energy | | $0.90 |
| Cimarex Energy | | $0.90 |
| St. Mary Land & Exploration | | $1.05 |
| Forest Oil | | $1.07 |
| Denbury Resources | | $1.14 |
| Magnum Hunter Resources | | $1.14 |
This slide also contains a bar graph comparing SWN to its competitors in terms of drillbit F&D cost per Mcfe (3 year average).
| | | Drillbit F&D Cost |
| | | per Mcfe |
| | | (3 year average) |
| | | |
XTO Energy | | $0.81 |
Southwestern Energy Company | | $1.11 |
| Burlington Resources | | $1.37 |
| Apache | | $1.37 |
Swift Energy | | $1.48 |
EnCana | | $1.51 |
Anadarko Petroleum | | $1.51 |
Patina Oil & Gas | | $1.52 |
| Cabot Oil & Gas | | $1.63 |
Denbury Resources | | $1.72 |
Range Resources | | $1.79 |
| St. Mary Land & Exploration | | $1.93 |
Forest Oil | | $1.95 |
Chesapeake Energy | | $2.00 |
| Remington Oil & Gas | | $2.07 |
| Houston Exploration | | $2.23 |
Newfield Exploration | | $2.76 |
Pioneer Natural Resources | | $2.98 |
| Cimarex Energy | | $3.01 |
| Magnum Hunter Resources | | $3.03 |
| Devon Energy | | $3.18 |
Source: John S. Herold Database
Note: All data as of December 31, 2001, 2002, and 2003.
(Slide 7)
E&P Focused
This slide contains a map of Arkansas, Louisiana, Oklahoma, Texas and New Mexico with shadings to denote the Arkoma and Permian Basins, the Gulf Coast region and the East Texas region. Lines trace gas distribution pipelines and the Ozark Pipeline.
E&P Segment
| * 2004 Reserves: 645 Bcfe |
| * 92% Natural Gas |
| * 83% Proved Developed |
| * Reserve Life: 11.9 years |
| * 2004 Production: 54.1 Bcfe |
Arkoma
| * Reserves - 247.0 Bcf (38%) |
| * Production - 20.2 Bcf (37%) |
| * Arkoma Conventional: Maintain our strong position through low-risk development drilling. |
| * Arkoma Unconventional: Pursue new Fayetteville Shale play. |
East Texas (Overton)
| * Reserves - 299.1 Bcfe (47%) |
| * Production - 22.2 Bcfe (41%) |
| * Grow through low-risk infill drilling. |
Gulf Coast
| * Reserves - 38.6 Bcfe (6%) |
| * Production - 4.6 Bcfe (9%) |
| * Reduce our high-risk exploration. |
Permian
* Reserves - 60.8 Bcfe (9%) |
* Production - 7.1 Bcfe (13%) |
* Focus on medium-risk exploration. |
Utility Segment
| * 145,000 customers in N. Arkansas |
| * 6th fastest growing region in U.S. |
| * Filed $9.7 MM rate case in Dec. 2004 |
(Slide 8)
Capital Investments
This slide contains a bar chart of Company capital investments, summarized as follows:
| | | | | | | 2005 |
| 2001 | | 2002 | 2003 | 2004 | Plan |
| ($ in millions) |
Utility & Corporate | $7.1 | | $6.9 | $9.3 | $13.0 | $13.7 |
Property Acquisitions | $0.7 | | $0.1 | $ - | $14.2 | $ - |
Cap. Exp. & Other | $9.9 | | $10.9 | $12.4 | $17.9 | $31.0 |
Leasehold & Seismic | $9.8 | | $9.2 | $19.0 | $21.1 | $26.8 |
Development Drilling | $44.2 | | $46.3 | $119.7 | $208.7 | $271.2 |
Exploration Drilling | $20.8 | | $18.7 | $19.8 | $20.1 | $10.0 |
Total | $92.5 | (1) | $92.1 | $180.2 | $295.0 | $352.7 |
This slide also contains a pie chart of Company's planned 2005 capital investments by area of operation, summarized as follows:
| % of Total |
| Capital Investments |
East Texas | 43% |
Arkoma Fayetteville Shale | 29% |
Arkoma | 17% |
| Other E&P | 6% |
Utility | 3% |
Gulf Coast | 1% |
Permian | 1% |
| * E&P capital program heavily weighted to low-risk drilling in 2005: |
| | * Low-risk East Texas ($147.6 MM, 43%) and Arkoma ($59.3 MM, 17%), |
| | * Permian Basin ($4.8 MM, 1%) and Gulf Coast ($4.8 MM, 1%), |
| | * Other Exploration and New Ventures ($22.3 MM, 6%). |
| | |
| * Arkoma Fayetteville Shale (up to $100.2 MM, 29%). |
| | * Currently hold approx. 557,000 net acres in undeveloped play area + 125,000 net acres HBP. |
| | |
| * Over 80% of E&P capital allocated to drilling in 2005. |
(1) Net of $13.5 million reimbursement from Overton Field partnership.
Note that the information contained on this slide constitutes a "forward-looking statement".
(Slide 9)
East Texas - Overton Field
This slide contains a map of Smith County, Texas where the Overton Field is located. Existing wells at year-end 2003 and 2004 and 2005 development well locations are denoted. It is stated that the Overton Field contains 24,400 acres and the South Overton Farm-in Acreage contains 5,800 acres.
* Purchased original 10,800 acres and 16 producing wells for $6.1 million in 2000 (developed at 640-acre spacing). |
|
* Drilled 173 wells in 2001 through 2004 with 100% success. |
|
* Plan to drill 80 wells in 2005, a portion of which will be at 40-acre spacing. |
Overton Field Reserve Potential:
| | Approx. | Reserve |
| Well | Spacing | Potential |
| Count | (Acres) | (Net Bcfe) |
Original Wells | 16 | 640 | 22 |
2001 - 2002 Development | 33 | 365 | 89 |
2003 Development | 57 | 170 | 102 |
2004 Development | 83 | 100 | 142 |
| Planned 2005 Development | 80 | 75 | 95 |
Potential Future Development | | | |
| | Locations @ $5.00 Gas | 37 | 70 | 35 |
| Locations @ $6.00 Gas | 92 | 60 | 84 |
Overton Field 2002-2004 Avg Results:(1)
Reserve Replacement: | | 681% |
LOE Cost (incl. Taxes) ($/Mcfe): | | $0.47 |
F&D Cost ($/Mcfe): | | $0.99 |
(1) Including reserve revisions.
Note that the information contained on this slide constitutes a "forward-looking statement".
(Slide 10)
Overton Field Gross Production
The graph contained in this slide displays the Overton Field gross production rate (MMcfe/d) from the year 2000 to December 2004 and the potential gross production rate for 2004 under both an accelerated drilling program and under an eighteen well per year program.
Overton Net Production:
| Bcfe |
2000 | 0.3 |
2001 | 2.3 |
2002 | 5.9 |
2003 | 13.6 |
2004 | 21.8 |
| 2005 Forecast | 25 - 27 |
Note that the information contained on this slide constitutes a "forward-looking statement".
(Slide 11)
Overton Field - Improved Drilling Results
This slide of drilling days versus depth portrays the improved drilling rate in the Overton Field since its purchase from Fina in 2001. Fina's average drilling rate was 55 days. Upon the Field's purchase in 2001 SWN decreased that rate to 35 days. It was further decreased to 27 days in 2002, 23 days in 2003 and 19 days in 2004.
* Reduced drilling time by >50%. |
|
* Increased initial production by 200%. |
|
* Increased gross reserves by 60% (avg. gross EUR of 2.0 Bcfe per well in 2004) |
Note that the information contained on this slide constitutes a "forward-looking statement".
(Slide 12)
Arkoma Basin
This slide contains a map of Arkansas and Oklahoma with shading to denote the Arkoma Basin. The Ranger Anticline and the area known as the Fairway are further noted. A portion of the Fayetteville Shale play (2) is also noted.
* Conventional Play: |
| * 60+ years of experience in the basin, large acreage position of 483,000 net acres. |
| | * 2005 capital program includes drilling approximately 86 wells. |
| | |
* Fayetteville Shale Play: |
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| * Fayetteville Shale project results to date have been encouraging. Company plans to significantly increase activity in 2005. |
Arkoma Basin 2002-2004 Avg Results:(1)
Reserve replacement: | 191% |
LOE Cost (incl. Taxes) ($/Mcf): | $0.43 |
F&D Cost ($/Mcf): | $0.93 |
Ranger Anticline (inception thru 12/31/04):(1)
Success: | 43/50 |
Net EUR: | 62.8 Bcf |
F&D/Mcf: | $.72 |
(1) Including reserve revisions.
(2) For illustrative purposes only. Shaded area does not delineate actual play area.
Note that the information contained on this slide constitutes a "forward-looking statement".
(Slide 13)
Ranger Anticline
This slide contains a map of the Ranger Anticline prospect with the Company's exploratory and held by production acreage designated with shading. Also shown are SWN's producing wells at 12/31/04, and 2005 proposed wells.
Ranger Anticline (inception thru 12/31/04):(1)
Success: | 43/50 |
Net EUR: | 62.8 Bcf |
F&D/Mcf: | $.72 |
* In July 2004, received approval to downspace field to 560 feet between wells. |
|
* Current acreage position of 7,700 gross developed acres and 43,500 gross exploratory acres. |
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* Average working interest 50% - 100%. |
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* Plan to drill approximately 43 wells in 2005. |
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* Area has significant upside potential. |
Ranger Anticline Potential:
| | Reserve |
| Well | Potential |
| Count | (Net Bcfe) |
Producing Wells at 12/31/02 | 13 | 20 |
Successful Wells in 2003 | 10 | 12 |
Successful Wells in 2004 | 20 | 31 |
| 2005 Drilling Program | 43 | 48 |
| | | |
| | Other Contingent Locations | 133 | 121 |
| TOTAL | 219 | 232 |
(1) Including reserve revisions.
Note that the information contained on this slide constitutes a "forward-looking statement".
(Slide 14)
Arkoma - Fayetteville Shale Play
This slide contains a map of Oklahoma, Arkansas, and portions of Louisiana and Texas. Shading denotes the Fayetteville and Caney Shales in the Arkoma Basin, the Barnett Shale in the Fort Worth Basin and the Frontal Belt area.
* Mississippian-age shale, geologic equivalent of the Caney Shale in Oklahoma and the Barnett Shale in north Texas.
* The shale appears to be laterally extensive, ranging in thickness from 50 to 325 feet, and ranging in depths from 1,500 to 6,500 feet.
* Currently hold approximately 557,000 net acres in undeveloped play area + 125,000 net acres HBP.
* As of February 28, 2005, we had drilled 32 Fayetteville Shale wells in 6 pilot areas.
* 2005 Plan: Invest up to $100.2 million.
Note that the information contained on this slide constitutes a "forward-looking statement".
(Slide 15)
How Have We Been Doing?
Graph shows F&D cost ($/Mcfe), reserve replacement (%) and PVI ($/$) after new management, a new E&P team and a new strategy were implemented in 1997.
| 1997 | 1998 | 1999 | 2000(1) | 2001 | 2002 | 2003 | 2004 |
F&D cost ($/Mcfe) | $2.53 | $1.10 | $1.20 | $.99 | $1.11 | $1.02 | $1.18 | $1.34 |
Reserve replacement (%) | 77% | 129% | 150% | 196% | 224% | 209% | 351% | 388% |
PVI ($/$) | $ .56 | $1.17 | $1.07 | $1.30 | $1.40 | $1.33 | $1.42 | $1.40 |
Note: All metrics calculated exclude reserve revisions.
(1) PVI metrics calculated using pricing in effect at year-end (except for 2000 which was calculated at $3.00 per Mcf natural gas price).
(Slide 16)
Outlook for 2005
| * Production of 54.1 Bcfe in 2004 (31% growth over 2003 volumes). |
| * Production target of 61.0 - 63.0 Bcfe in 2005 (estimated growth of 13 - 17%). |
| 2004 Actual | 2005 Guidance |
| $6.14 Gas | $5.00 Gas | $6.00 Gas |
| $41.36 Oil | $30.00 Oil | $36.00 Oil |
Net Income | $103.6 MM | $86 - $88 MM | $112 - $114 MM |
EPS | $2.80 | $2.30 - $2.35 | $3.00 - $3.05 |
Operating Income | $182.3 MM | $157 - $162 MM | $198 - $203 MM |
Net Cash Flow(1) | $237.7 MM | $225 - $230 MM | $265 - $270 MM |
EBITDA(1) | $256.4 MM | $243 - $248 MM | $283 - $288 MM |
| CapEx | $295.0 MM | 352.7 MM | $352.7 MM |
Note: Per share estimates assume 37.5 million weighted average diluted shares outstanding for 2005.
2004 oil and gas prices represent actual average last-day NYMEX closing prices. 2005 oil and gas prices represent NYMEX price assumptions.
(1) Net Cash Flow is net cash flow before changes in operating assets and liabilities. Net cash flow and EBITDA are non-GAAP financial measures. See explanation and reconciliation of non-GAAP financial measures on pages 30 and 31.
Note that the information contained on this slide constitutes a "forward-looking statement".
(Slide 17)
Gas Hedges in Place Through 2006
This slide contains a bar chart detailing gas hedges in place by quarter for the years 2005 and 2006. A summary of these outstanding gas hedges is as follows:
| | | Average Price per Mcf | Percent |
| Type | Hedged Volumes | (or Floor/Ceiling) | Hedged |
2005 | Swaps | 12.6 Bcf | $5.04 | 20 - 25% |
| Collars | 32.0 Bcf | $4.65 / $8.29 | 50 - 55% |
2006 | Swaps | 5.0 Bcf | $5.89 | - |
| Collars | 26.0 Bcf | $4.77 / $8.80 | - |
Note: Southwestern has approximately 360,000 barrels of oil hedged at a fixed WTI price of $33.17 per barrel in 2005 and 120,000 barrels of oil hedged at a fixed WTI price of $37.30 per barrel in 2006.
Note that the information contained on this slide constitutes a "forward-looking statement".
(Slide 18)
The Road to V+
| * Invest in the Highest PVI Projects. |
| | * Accelerate Overton Development. |
| | * Accelerate Ranger Anticline Development. |
| | |
| * Pursue Fayetteville Shale Potential. |
| | |
| * Maximize Cash Flow. |
| | |
| * Deliver the Numbers. |
| | * Production and Reserve Growth. |
| | * Add Value for Every Dollar Invested. |
| | |
| * Continue to Tell Our Story. |
(Slide 19)
Appendix
(Slide 20)
Financial & Operational Summary
This slide contains a table that summarizes the Company's financial and operational indicators.
| Year Ended December 31, |
| 2004 | 2003 | 2002 | 2001 |
| ($ in millions, except per share amounts) |
| | | | |
Revenues | $477.1 | $327.4 | $261.5 | $344.9 |
EBITDA(1) | 256.4 | 152.3 | 99.8 | 134.6 |
Net Income | 103.6 | 48.9 | 14.3 | 35.3 |
Net Cash Flow(1) | 237.7 | 132.3 | 79.8 | 112.7 |
Diluted EPS | $2.80 | $1.43 | $0.55 | $1.38 |
| | | | | |
Production (Bcfe) | 54.1 | 41.2 | 40.1 | 39.8 |
Avg. Gas Price ($/Mcf) | $5.21 | $4.20 | $3.00 | $3.85 |
Avg. Oil Price ($/Bbl) | $31.47 | $26.72 | $21.02 | $23.55 |
| | | | | |
Finding Cost ($/Mcfe)(2) | $1.34 | $1.18 | $1.02 | $1.11 |
Reserve Replacement (%)(2) | 388% | 351% | 209% | 224% |
(1) Net cash flow is net cash flow before changes in operating assets and liabilities. Net cash flow and EBITDA are non-GAAP financial measures. See explanation and reconciliation of non-GAAP financial measures on pages 30 and 31.
(2) Excluding reserve revisions.
(Slide 21)
Ranger Anticline
This slide contains a vertical cross-section of the Ranger Anticline area with shading to denote upper and lower borum.
| * Thrust faulted/anticlinal Atokan sand play. |
| |
| * Repeat sections of tight gas sands. |
| |
| * Natural fractures enhance productivity. |
(Slide 22)
Focused on Adding Value
| Overton Well | | Ranger Well |
| Typical First Year Economics: | | | | | | |
Gross reserves (Bcfe) | 2.2 | 2.0 | 1.5 | | 1.8 | 1.2 |
| | (per Mcfe) | | (per Mcf) |
| Revenues | $5.00 | $5.00 | $5.00 | | $5.00 | $5.00 |
Production costs | $0.38 | $0.40 | $0.45 | | $0.28 | $0.36 |
Cash netback | $4.62 | $4.60 | $4.55 | | $4.72 | $4.64 |
F&D costs | $0.90 | $1.01 | $1.34 | | $0.80 | $1.20 |
| | | | | | |
| Total Life Economics: | | | | | | |
Completed Well Cost ($MM) | $1.6 | $1.6 | $1.6 | | $1.0 | $1.0 |
Pretax ROR | 42% | 34% | 20% | | 53% | 28% |
Pretax PVI | 2.0 | 1.8 | 1.3 | | 2.5 | 1.6 |
Note: Our ability to achieve our target PVI results are dependent upon the current and future market prices for natural gas and crude oil, costs associated with producing natural gas and crude oil and our ability to add reserves at an acceptable cost.
Note that the information contained on this slide constitutes a "forward-looking statement".
(Slide 23)
U.S. Gas Consumption and Sources
This slide displays U.S. gas production versus U.S. gas consumption from 1975 to the present. Net imports for the same period are also given. U.S. gas production has been basically flat since 1994.
Source: EIA
(Slide 24)
U.S. Gas Production Decline Rate
This graph portrays U.S. natural gas production history. The graph indicates a 30% 2005 decline rate.
| | Production Decline Rate of Base |
1990 | | 17% | |
1991 | | 17% | |
1992 | | 16% | |
1993 | | 18% | |
1994 | | 19% | |
1995 | | 19% | |
1996 | | 20% | |
1997 | | 21% | |
1998 | | 23% | |
1999 | | 23% | |
2000 | | 25% | |
2001E | | 24% | |
2002E | | 27% | |
2003E | | 28% | |
| 2004E | | 29% | |
| 2005E | | 30% | |
Utilizes data supplied by IHS Energy; Copyright 1990 - 2005 IHS Energy
Chart prepared by and property of EOG Resources, Inc.; Copyright 2002 - 2005
(Slide 25)
U.S. Electricity Consumption on the Rise
This line graph shows an increase in U.S. electricity consumption in billion kilowatt-hours per month from 1990 to 2005.
Source: Edison Electric Institute
(Slide 26)
NYMEX Gas Prices
This line graph represents NYMEX gas prices in $/Mcf from 2000 to 2005.
Source: Bloomberg
(Slide 27)
U.S. Gas Drilling
This line graph denotes the number of rigs drilling for gas through the period 1988 to 2005.
Source: Baker Hughes
(Slide 28)
West Texas Intermediate Oil Prices
This line graph shows the price of West Texas Intermediate oil in $/Bbl for the years 2000 to 2005.
Source: Bloomberg
(Slide 29)
Oil and Gas Price Comparison
This line graph compares the prices of Henry Hub natural gas and WTI crude oil in $/MMBtu and $/Bbl, respectively, for the period 1994 to 2005.
Source: Bloomberg
(Slide 30)
Explanation and Reconciliation of Non-GAAP Financial Measures: Net Cash Flow
Net cash provided by operating activities before changes in operating assets and liabilities is presented because of its acceptance as an indicator of an oil and gas exploration and production company's ability to internally fund exploration and development activities and to service or incur additional debt. The company has also included this information because changes in operating assets and liabilities relate to the timing of cash receipts and disbursements which the company may not control and may not relate to the period in which the operating activities occurred. Net cash provided by operating activities before changes in operating assets and liabilities should not be considered in isolation or as a substitute for net cash provided by operating activities prepared in accordance with generally accepted accounting principles. Forecasting changes in operating assets and liabilities would require unreasonable effort, would not be reliable and could be misleading. Therefore, the reconciliation of the company's forecasted net cash provided by operating activities before changes in operating assets and liabilities has assumed no changes in assets and liabilities. The first table below reconciles actual net cash provided by operating activities before changes in operating assets and liabilities with net cash provided by operating activities as derived from the company's financial information.
| | 12 Months Ended December 31, |
| | 2004 | | 2003 | | 2002 | | 2001 |
| ($ in thousands) |
Net Cash provided by operating activities before changes in operating assets and liabilities | $237,706 | | $132,327 | | $79,775 | | $112,697 |
Add back (deduct): | | | | | | | |
Change in operating assets and liabilities | 191 | | (23,228) | | (2,201) | | 31,886 |
Net cash provided by operating activities | | | | | | | |
| 2005 Guidance |
| | NYMEX Commodities Price Assumptions |
| $5.00 Gas | | $6.00 Gas |
| $30.00 Oil | | $36.00 Oil |
| | (in millions) |
Net cash provided by operating activities | $225-$230 | | $265-$270 |
Add back (deduct): | | | |
Change in operating assets and liabilities | -- | | -- |
Net cash provided by operating activities before changes in operating assets and liabilities | $225-$230 | | $265-$270 |
(Slide 31)
Explanation and Reconciliation of Non-GAAP Financial Measures: EBITDA
EBITDA is defined as net income plus interest, income tax expense, depreciation, depletion and amortization. Southwestern has included information concerning EBITDA because it is used by certain investors as a measure of the ability of a company to service or incur indebtedness and because it is a financial measure commonly used in the energy industry. EBITDA should not be considered in isolation or as a substitute for net income, net cash provided by operating activities or other income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of the company's profitability or liquidity. EBITDA as defined above may not be comparable to similarly titled measures of other companies. Net income is a financial measure calculated and presented in accordance with generally accepted accounting principles. The table below reconciles historical EBITDA with historical net income.
| 12 Months Ended December 31, |
| 2004 | | 2003 | | 2002 | | 2001 | | 2000 | | 1999 |
| | | | | | | | | | | |
Net income | $103,576 | | $48,897 | | $14,311 | | $35,324 | | $20,461 | (1) | $9,927 |
Depreciation, depletion and amortization(2) | 76,065 | | 57,762 | | 55,352 | | 53,641 | | 46,622 | | 42,387 |
Net interest expense | 16,992 | | 17,311 | | 21,466 | | 23,699 | | 24,689 | | 17,351 |
Provision for income taxes | 59,778 | | 28,372 | (3) | 8,708 | | 21,917 | | 11,457 | | 6,449 |
EBITDA | $256,411 | | $152,342 | | $99,837 | | $134,581 | | $103,229 | (1) | $76,114 |
(1) 2000 amounts exclude unusual items of $109.3 million for the Hales judgment and $2.0 million for other litigation.
(2) Depreciation, depletion and amortization includes the amortization of restricted stock issued under the company's incentive compensation plan.
(3) Provision for income taxes for 2003 includes the tax benefit associated with the cumulative effect of adoption of accounting principle.
The table below reconciles EBITDA with 2005 forecasted net income assuming different NYMEX price scenarios and their corresponding estimated impact on the company's results for 2005, including current hedges in place, as of February 28, 2005:
| |
| NYMEX Commodity Price Assumptions |
| $5.00 Gas | | $6.00 Gas |
| $30.00 Oil | | $36.00 Oil |
| ($ in millions) |
Net income | $86 - $88 | | $112 - $114 |
Add back: | | | |
Provision for income taxes - deferred | 53 - 54 | | 69 - 70 |
Interest expense | 22 - 23 | | 21 - 22 |
Depreciation, depletion, amortization | 87 - 89 | | 87 - 89 |
EBITDA | $243 - $248 | | $283 - $288 |
