Southwestern Energy (SWN) 10-Q 29 Apr 10 2010 Q1 Quarterly report Financial data

Document Information

Document Information
	3 Months Ended Mar. 31, 2010
Document Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-31
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1

Entity Information

Entity Information (USD $)
	3 Months Ended Mar. 31, 2010	Apr. 27, 2010	Jun. 30, 2009
Entity Information
Entity Registrant Name	Southwestern Energy Company
Entity Central Index Key	0000007332
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$13,121,603,390
Entity Listing, Par Value Per Share	0.01
Entity Common Stock, Shares Outstanding		346,192,352

Consolidated Statements of Oper

Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Operating Revenues
Gas sales	$479,411	$372,658
Gas marketing	157,673	151,572
Oil sales	3,462	1,182
Gas gathering	25,373	16,563
Other	2,198	(1,158)
Total Operating Revenues	668,117	540,817
Operating Costs and Expenses
Gas purchases - midstream services	157,668	149,180
Operating expenses	36,566	27,172
General and administrative expenses	32,944	23,709
Depreciation, depletion and amortization	139,017	124,228
Impairment of natural gas and oil properties	0	907,812
Taxes, other than income taxes	13,832	9,208
Total Operating Costs and Expenses	380,027	1,241,309
Operating Income (Loss)	288,090	(700,492)
Interest Expense
Interest on debt	13,929	14,185
Other interest charges	439	659
Interest capitalized	(7,860)	(11,160)
Total Interest Expense	6,508	3,684
Other Income	23	365
Income (Loss) Before Income Taxes	281,605	(703,811)
Provision (Benefit) for Income Taxes
Current	0	(35,500)
Deferred	109,837	(235,459)
Total Provision (Benefit) for Income Taxes	109,837	(270,959)
Net income (loss)	171,768	(432,852)
Less: net loss attributable to noncontrolling interest	(29)	(22)
Net Income (Loss) Attributable to Southwestern Energy	$171,797	($432,830)
Earnings Per Share
Net income (loss) attributable to Southwestern Energy stockholders - Basic	0.5	-1.26
Net income (loss) attributable to Southwestern Energy stockholders - Diluted	0.49	-1.26
Weighted Average Common Shares Outstanding
Basic	345,099,247	342,570,995
Diluted	349,397,997	342,570,995

Consolidated Balance Sheets

Consolidated Balance Sheets (USD $)
In Thousands	Mar. 31, 2010	Dec. 31, 2009
Current Assets
Cash and cash equivalents	$13,900	$13,184
Accounts receivable	269,534	263,076
Inventories	24,220	30,009
Hedging asset	194,721	163,069
Other	69,385	95,163
Total current assets	571,760	564,501
Property and Equipment
Gas and oil properties, using the full cost method, including $630.5 million in 2010 and $595.4 million in 2009 excluded from amortization	6,801,571	6,388,022
Gathering systems	595,604	547,637
Other	232,047	218,362
Total property and equipment	7,629,222	7,154,021
Less: Accumulated depreciation, depletion and amortization	3,166,714	3,026,768
Property and equipment, net	4,462,508	4,127,253
Other Assets	97,966	78,496
TOTAL ASSETS	5,132,234	4,770,250
Current Liabilities
Short-term debt	1,200	1,200
Accounts payable	430,463	404,695
Taxes payable	27,506	25,500
Interest payable	9,847	19,775
Advances from partners	56,820	52,406
Hedging liability	11,847	20,052
Current deferred income taxes	68,560	0
Other	11,814	12,788
Total current liabilities	618,057	536,416
Long-Term Debt	1,017,800	997,500
Other Liabilities
Deferred income taxes	859,171	811,902
Long-term hedging liability	2,380	3,057
Pension and other postretirement liabilities	14,607	12,630
Other long-term liabilities	67,834	67,764
Total Other Liabilities	943,992	895,353
Commitments and Contingencies
Equity
Common stock, $0.01 par value; authorized 540,000,000 shares, issued 346,192,064 shares in 2010 and 346,081,210 in 2009	3,462	3,461
Additional paid-in capital	837,751	833,494
Retained earnings	1,586,124	1,414,327
Accumulated other comprehensive income	119,778	84,276
Common stock in treasury, 206,604 shares in 2010 and 203,830 in 2009	(4,457)	(4,333)
Total Southwestern Energy stockholders' equity	2,542,658	2,331,225
Noncontrolling interest	9,727	9,756
Total equity	2,552,385	2,340,981
TOTAL LIABILITIES AND EQUITY	$5,132,234	$4,770,250

Consolidated Balance Sheets (Pa

Consolidated Balance Sheets (Parentheticals) (USD $)
In Millions, except Share data, unless otherwise specified	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
Gas and Oil Properties, using the full cost method, Costs Excluded from Amortization	630.5	595.4
Common Stock, Issued, Shares	346,192,064	346,081,210
Common Stock, Authorized, Shares	540,000,000	540,000,000
Common Stock, Par Value	0.01	0.01
Common Stock in Treasury, Shares	206,604	203,830

Consolidated Statements of Cash

Consolidated Statements of Cash Flows (USD $)
In Thousands	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Cash Flows From Operating Activities
Net income (loss)	$171,768	($432,852)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities
Depreciation, depletion and amortization	139,419	124,647
Impairment of natural gas and oil properties	0	907,812
Deferred income taxes	109,837	(235,459)
Other	(3,259)	8,407
Change in Assets and Liabilities
Accounts receivable	(6,458)	44,723
Inventories	11,230	(2,099)
Accounts payable	(8,078)	9,930
Taxes payable	2,006	(11,952)
Interest payable	(9,928)	(9,200)
Advances from partners	4,414	33,479
Other assets and liabilities	6,628	(30,141)
Net cash provided by operating activities	417,579	407,295
Cash Flows From Investing Activities
Capital investments	(442,122)	(480,483)
Other	649	(4,370)
Net cash used in investing activities	(441,473)	(484,853)
Cash Flows From Financing Activities
Payments on revolving long-term debt	(621,600)	0
Borrowings under revolving long-term debt	641,900	0
Change in bank drafts outstanding	4,057	(36,400)
Proceeds from exercise of common stock options	253	3
Net cash provided by (used in) financing activities	24,610	(36,397)
Increase (decrease) in cash and cash equivalents	716	(113,955)
Cash and cash equivalents at beginning of year	13,184	196,277
Cash and cash equivalents at end of period	$13,900	$82,322

Statements of Equity

Statements of Equity (USD $)
In Thousands	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income	Common Stock in Treasury	Noncontrolling Interest	Total
Balance at Dec. 31, 2009	$3,461	$833,494	$1,414,327	$84,276	($4,333)	$9,756	$2,340,981
Balance, Shares Issued at Dec. 31, 2009	346,081
Comprehensive Income (Loss)
Net income (loss)			171,797			(29)	171,768
Change in derivatives				35,311			35,311
Change in pension and other postretirement liabilites				191			191	[1]
Comprehensive income (loss)						(29)	207,270
Stock-based compensation		4,005					4,005
Exercise of stock options, Shares	110
Exercise of stock options	1	252					253
Issuance of restricted stock, Shares	6
Cancellation of restricted stock, Shares	(5)
Treasury Stock - non-qualified plan					(124)		(124)
Balance, Shares Issued at Mar. 31, 2010	346,192
Balance at Mar. 31, 2010	$3,462	$837,751	$1,586,124	$119,778	($4,457)	$9,727	$2,552,385
[1]Net of $0.1 and $0.1 million in taxes for the three months ended March 31, 2010 and 2009, respectively.

Statements of Comprehensive Inc

Statements of Comprehensive Income (Loss) (USD $)
In Thousands	3 Months Ended Mar. 31, 2010		3 Months Ended Mar. 31, 2009
Net income (loss)	$171,768		($432,852)
Change in derivatives
Reclassification to earnings	(29,301)	[1]	(84,553)	[1]
Ineffectiveness	(57)	[2]	(719)	[2]
Change in fair value of derivative instruments	64,669	[3]	169,962	[3]
Total change in derivatives	35,311		84,690
Total Change in value of pension and other postretirement liabilities	191	[4]	196	[4]
Comprehensive income net of tax including portion attributable to noncontrolling interest	207,270		(347,966)
Less: comprehensive income (loss) attributable to the noncontrolling interest	(29)		(22)
Comprehensive income (loss) attributable to Southwestern Energy	$207,299		($347,944)
[1]Net of ($20.8) and ($53.6) million in taxes for the three months ended March 31, 2010 and 2009, respectively.
[2]Net of less than ($0.1) and ($0.5) million in taxes for the three months ended March 31, 2010 and 2009, respectively.
[3]Net of $46.0 and $107.8 million in taxes for the three months ended March 31, 2010 and 2009, respectively.
[4]Net of $0.1 and $0.1 million in taxes for the three months ended March 31, 2010 and 2009, respectively.

Basis of Presentation and New A

Basis of Presentation and New Accounting Standards
	3 Months Ended Mar. 31, 2010
Basis of Presentation and New Accounting Standards	(1) BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS Southwestern Energy Company (including its subsidiaries, collectively, the Company, Southwestern Energy, we, us, its and our) is an independent energy company primarily focused on the exploration and production of natural gas. The Company engages in natural gas and oil exploration and production (EP) and natural gas gathering and marketing (Midstream Services) through its subsidiaries. Southwestern Energys current EP operations are principally focused on the development of an unconventional natural gas play in Arkansas. The Company also is actively engaged in EP activities in Oklahoma, Pennsylvania and Texas and intends to begin an exploration program in New Brunswick, Canada in 2010. Southwestern Energys Midstream Services business is concentrated in the core areas of its EP operations in the United States. The accompanying unaudited condensed consolidated financial statements were prepared using accounting principles generally accepted in the UnitedStates of America (GAAP) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information relating to the Companys organization and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been appropriately condensed or omitted in this Quarterly Report on Form10-Q. The Company believes that the disclosures made are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements contained in this report include all normal and recurring material adjustments that, in the opinion of management, are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented herein. It is recommended that these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2009 (2009 Annual Report on Form 10-K). The Companys significant accounting policies, which have been reviewed and approved by the audit committee of the Companys Board of Directors, are summarized in Note 1 in the Notes to the Consolidated Financial Statements included in the Companys 2009 Annual Report on Form 10-K. The Company evaluates subsequent events through the date the financial statements are issued. On January 1, 2010, the Company implemented certain provisions of Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) Topic 810, Consolidation. The new provisions (a) require a qualitative rather than a quantitative approach to determining the primary beneficiary of a variable interest entity (VIE); (b) amend certain guidance pertaining to the determination of the primary beneficiary when related parties are involved; (c) amend certain guidance for determining whether an entity is a VIE; and (d) require continuous assessments of whether an enterprise is the primary beneficiary of a VIE. The implementation did not have an impact on the Compa

Prepaid Expenses

Prepaid Expenses
	3 Months Ended Mar. 31, 2010
Prepaid Expenses	(2) PREPAID EXPENSES The components of prepaid expenses included in other current assets as of March 31, 2010 and December 31, 2009 consisted of the following: 2010 2009 (in thousands) Prepaid drilling costs $46,988 $53,819 Prepaid insurance 4,303 6,572 Total $51,291 $60,391

Inventory

Inventory
	3 Months Ended Mar. 31, 2010
Inventory	(3) INVENTORY Inventory recorded in current assets includes $3.8 million at March 31, 2010 and $9.2 million at December 31, 2009, for gas in underground storage owned by the Companys EP segment, and $20.4 million at March 31, 2010 and $20.8 million at December 31, 2009, for tubulars and other equipment used in the EP segment. The Company has one natural gas storage facility. The current portion of the gas is classified in inventory and carried at the lower of cost or market. During the first three months of 2009, the Company recorded a $4.3 million non-cash impairment to reduce the current portion of the Companys natural gas inventory to the lower of cost or market. The non-current portion of the gas is classified in property and equipment and carried at cost. The carrying value of the non-current gas is evaluated for recoverability whenever events or changes in circumstances indicate that it may not be recoverable. Withdrawals of current gas in underground storage are accounted for by a weighted average cost method whereby gas withdrawn from storage is relieved at the weighted average cost of current gas remaining in the facility. Other Assets include $26.7 million at March 31, 2010 and $31.2 million at December 31, 2009 for inventory held by the Midstream Services segment consisting primarily of pipe that will be used to construct gathering systems for the Fayetteville Shale play. Tubulars and other equipment are carried at the lower of cost or market and are accounted for by a moving weighted average cost method that is applied within specific classes of inventory items. Purchases of inventory are recorded at cost and inventory is relieved at the weighted average cost of items remaining within a specified class.

Gas and Oil Properties

Gas and Oil Properties
	3 Months Ended Mar. 31, 2010
Gas and Oil Properties	(4) GAS AND OIL PROPERTIES The Company utilizes the full cost method of accounting for costs related to the exploration, development and acquisition of natural gas and oil reserves. Under this method, all such costs (productive and nonproductive), including salaries, benefits and other internal costs directly attributable to these activities are capitalized and amortized on an aggregate basis over the estimated lives of the properties using the units-of-production method. These capitalized costs, less accumulated amortization and related deferred income taxes, are subject to a ceiling test that limits such pooled costs to the aggregate of the present value of future net revenues attributable to proved natural gas and oil reserves discounted at 10 percent plus the lower of cost or market value of unproved properties. Any costs in excess of the ceiling are written off as a non-cash expense. The expense may not be reversed in future periods, even though higher natural gas and oil prices may subsequently increase the ceiling. Full cost companies must use the average price for the first-day-of-the-month during the previous 12 months, including the impact of derivatives qualifying as cash flow hedges, to calculate the ceiling value of their reserves. Using the average price for the first-day-ofthe-month during the previous 12 months for Henry Hub natural gas of $3.99 per MMBtu and $66.13 per barrel for West Texas Intermediate oil, adjusted for market differentials and the impact of derivatives qualifying as cash flow hedges, the Companys net book value of natural gas and oil properties did not exceed the ceiling amount and did not result in a ceiling test impairment at March 31, 2010. Cash flow hedges of gas production in place increased the ceiling value by approximately $166.0 million at March 31, 2010. Excluding the benefit of those cash flow hedges at March 31, 2010, unamortized costs would have exceeded the ceiling value by $106.5 million. Decreases in market prices as well as changes in production rates, levels of reserves, evaluation of costs excluded from amortization, future development costs and production costs could result in future ceiling test impairments. At March 31, 2009, the ceiling value of the Companys reserves was calculated based upon the March 31, 2009 quoted market prices of $3.63 per Mcf for Henry Hub natural gas and $46.00 per barrel for West Texas Intermediate oil, adjusted for market differentials. At March 31, 2009, the net capitalized costs of our gas and oil properties exceeded the ceiling by approximately $558.3 million (net of tax) and resulted in a non-cash ceiling test impairment in the first quarter of 2009.

Earnings Per Share

Earnings Per Share
	3 Months Ended Mar. 31, 2010
Earnings Per Share	(5) EARNINGS PER SHARE The following table presents the computation of earnings per share for the three months ended March 31, 2010 and 2009: For the three months ended March 31, 2010 2009 Net income (loss) attributable to Southwestern Energy (in thousands) $171,797 $(432,830) Number of common shares: Weighted average outstanding 345,099,247 342,570,995 Issued upon assumed exercise of outstanding stock options 4,014,914 Effect of issuance of nonvested restricted common stock 283,836 Weighted average and potential dilutive outstanding(1) 349,397,997 342,570,995 Earnings per share: Net income (loss) attributable to Southwestern Energy stockholders basic $0.50 $(1.26) Net income (loss) attributable to Southwestern Energy stockholders diluted $0.49 $(1.26) (1) Options for 448,933 shares and 4,698 shares of restricted stock were excluded from the calculation for the three months ended March 31, 2010 because they would have had an antidilutive effect. Due to the net loss for the three months ended March 31, 2009, options for 6,475,824 shares and 306,614 shares of restricted stock were antidilutive and excluded from the calculation.

Derivatives and Risk Management

Derivatives and Risk Management
	3 Months Ended Mar. 31, 2010
Derivatives and Risk Management	(6) DERIVATIVES AND RISK MANAGEMENT The Company is exposed to commodity price risk which impacts the predictability of its cash flows related to the sale of natural gas and oil. The primary risk managed by the Companys use of certain derivative financial instruments is commodity price risk. These derivative financial instruments allow the Company to limit its price exposure to a portion of its projected natural gas sales. At March 31, 2010 and December 31, 2009, the Companys derivative financial instruments consisted of price swaps, costless-collars and basis swaps. A description of the Companys derivative financial instruments is provided below: Fixed price swaps The Company receives a fixed price for the contract and pays a floating market price to the counterparty. Floating price swaps The Company receives a floating market price from the counterparty and pays a fixed price. Costless-collars Arrangements that contain a fixed floor price (put) and a fixed ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, the Company receives the fixed price and pays the market price. If the market price is between the call and the put strike price, no payments are due from either party. Basis swaps Arrangements that guarantee a price differential for natural gas from a specified delivery point. The Company receives a payment from the counterparty if the price differential is greater than the stated terms of the contract and pays the counterparty if the price differential is less than the stated terms of the contract. GAAP requires that all derivatives be recognized in the balance sheet as either an asset or liability and be measured at fair value. Under GAAP, certain criteria must be satisfied in order for derivative financial instruments to be classified and accounted for as either a cash flow or a fair value hedge. Accounting for qualifying hedges requires a derivatives gains and losses to be recorded either in earnings or as a component of other comprehensive income. Gains and losses on derivatives that are not elected for hedge accounting treatment or that do not meet hedge accounting requirements are recorded in earnings. The Company utilizes counterparties for its derivative instruments that it believes are credit-worthy at the time the transactions are entered into and the Company closely monitors the credit ratings of these counterparties. Additionally, the Company performs both quantitative and qualitative assessments of these counterparties based on their credit ratings and credit default swap rates where applicable. However, the events in the financial markets in recent years demonstrate there can be no assurance that a counterparty will be able to meet its obligations to the Company. The balance sheet classification of the assets related to derivative financial instruments are summarized below at March 31, 2010 and December 31, 2009: Derivative Assets March 31, 2010 December 31, 2009 Balance Sheet Classification Fair Value Balance Sheet Classification Fair Value (in thousands) Derivatives designated as hedging in

Fair Value Measurements

Fair Value Measurements
	3 Months Ended Mar. 31, 2010
Fair Value Measurements	(7) FAIR VALUE MEASUREMENTS The carrying amounts and estimated fair values of the Companys financial instruments as of March 31, 2010 and December 31, 2009 were as follows: March 31, 2010 December 31, 2009 Carrying Fair Carrying Fair Amount Value Amount Value (in thousands) Cash and cash equivalents $13,900 $13,900 $13,184 $13,184 Total debt $1,019,000 $1,075,606 $998,700 $1,031,826 Derivative instruments $216,611 $216,611 $151,716 $151,716 The carrying values of cash and cash equivalents, accounts receivable, accounts payable, other current assets and current liabilities on the unaudited condensed consolidated balance sheets approximate fair value because of their short term nature. For debt and derivative instruments, the following methods and assumptions were used to estimate fair value: Debt: The fair values of the Companys 7.5% Senior Notes due 2018, 7.35% Senior Notes due 2017, 7.125% Senior Notes due 2017 and 7.15% Senior Notes due 2018 were based on the market for the Companys publicly-traded debt as determined based on yield of the Companys 7.5% Senior Notes due 2018, which was 6.1% at March 31, 2010 and 6.7% at December 31, 2009. Borrowings under the Companys unsecured revolving credit facility of $344.8 million at March 31, 2010 and $324.5 million at December 31, 2009 approximate fair value. Derivative Instruments: The fair value of all derivative instruments is the amount at which the instrument could be exchanged currently between willing parties. The amounts are based on quoted market prices, best estimates obtained from counterparties and an option pricing model, when necessary, for price option contracts. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the tables below, this hierarchy consists of three broad levels: Level 1 valuations - Consist of unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. Level 2 valuations - Consist of quoted market information for the calculation of fair market value. Level 3 valuations - Consist of internal estimates and have the lowest priority. Pursuant to GAAP, the Company has classified its derivatives into these levels depending upon the data utilized to determine their fair values. The Companys Level 2 fair value measurements include fixed-price and floating-price swaps and are estimated using internal discounted cash flow calculations using the NYMEX futures index. The Companys Level 3 fair value measurements include costless-collars and basis swaps. The Companys costless-collars are valued using the Black-Scholes model, an industry standard option valuation model, and takes into account inputs such as contract terms, including maturity, and market parameters, including assumptions of the NYMEX futures index, interest rates, volatility and credit worthiness. The Companys basis swaps are estimated using internal discounted cash flow calculations based upon forward commodity price curves.

Debt

Debt
	3 Months Ended Mar. 31, 2010
Debt	(8) DEBT The components of debt as of March 31, 2010 and December 31, 2009 consisted of the following: March 31, December 31, 2010 2009 (in thousands) Short-term debt: 7.15% Senior Notes due 2018 $1,200 $1,200 Long-term debt: Variable rate (1.296% at March 31, 2010) unsecured revolving credit facility 344,800 324,500 7.5% Senior Notes due 2018 600,000 600,000 7.35% Senior Notes due 2017 15,000 15,000 7.125% Senior Notes due 2017 25,000 25,000 7.15% Senior Notes due 2018 33,000 33,000 1,017,800 997,500 Total debt $1,019,000 $998,700 Senior Notes and Subsidiary Guarantees The indentures governing the Companys senior notes contain covenants that, among other things, restrict the ability of the Company and/or its subsidiaries ability to incur liens, to engage in sale and leaseback transactions and to merge, consolidate or sell assets. All of the Companys senior notes are guaranteed by its subsidiaries SEECO, Inc. (SEECO), Southwestern Energy Production Company (SEPCO) and Southwestern Energy Services Company (SES). These guarantees may be unconditionally released in certain circumstances. All of these guarantees are currently in place. Please refer to Note 15, Condensed Consolidating Financial Information for additional information. Credit Facility On February 9, 2007, the Company amended its unsecured revolving credit facility (as further amended, the Credit Facility) with a syndicate of banks for which JPMorgan Chase Bank acts as the Administrative Agent. The Credit Facility expires in February 2012 and has a borrowing capacity of $1.0 billion, which may be increased to up to $1.25 billion at any time upon the Companys agreement with its existing or additional lenders. The interest rate on the Credit Facility is calculated based upon the Companys debt rating and is currently 87.5 basis points over the current London Interbank Offered Rate (LIBOR). The Credit Facility is currently guaranteed by the Companys subsidiaries, SEECO, SEPCO and SES and requires additional subsidiary guarantors if certain guaranty coverage levels are not satisfied. The Credit Facility also contains covenants which impose certain restrictions on the Company. Under the credit agreement, the Company must keep total debt (as defined in the Credit Facility) at or below 60% of its total capital (as defined in the Credit Facility), must maintain a certain level of stockholders equity (as defined in the Credit Facility), and must maintain a ratio of earnings before interest, taxes, depreciation and amortization (as defined in the Credit Facility) to interest expense of 3.5 or above. There are also restrictions on the ability of the Companys subsidiaries to incur debt. At March 31, 2010, the Company was in compliance with the covenants of its debt agreements. The credit status of the financial institutions participating in the Companys Credit Facility could adversely impact its ability to borrow funds under the facility. While the Company believes all of the lenders under the Credit Facility have the ability to provi

Contingencies and Commitments

Contingencies and Commitments
	3 Months Ended Mar. 31, 2010
Contingencies and Commitments	(9) Contingencies and Commitments Commitments In the first quarter of 2010, the Company was awarded exclusive licenses by the Province of New Brunswick in Canada to conduct an exploration program covering approximately 2.5 million acres in the province. The licenses require the Company to make certain capital investments in New Brunswick of approximately CDN $47 million in the aggregate over the next three years. In order to obtain the licenses, the Company provided promissory notes payable on demand to the Minister of Finance of the Province of New Brunswick with an aggregate principal amount of CDN $44.5 million. The promissory notes secure the Company's capital expenditure obligations under the licenses and are returnable to the Company to the extent the Company performs such obligations. If the Company fails to fully perform, the Minister of Finance may retain a portion of the applicable promissory notes in an amount equal to any deficiency. The Company intends to begin the exploration program in 2010 and, as of March 31, 2010, no liability has been recognized in connection with the promissory notes. Environmental Risk The Company is subject to laws and regulations relating to the protection of the environment. The Companys policy is to accrue environmental and cleanup related costs of a non-capital nature when it is both probable that a liability has been incurred and when the amount can be reasonably estimated. Management believes any future remediation or other compliance related costs will not have a material effect on the financial position or reported results of operations of the Company. Litigation The Company is subject to litigation and claims that have arisen in the ordinary course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. In the opinion of management, the results of such litigation and claims currently pending will not have a material effect on the financial position or reported results of operations of the Company.

Interest and Income Taxes

Interest and Income Taxes
	3 Months Ended Mar. 31, 2010
Interest and Income Taxes	(10) INTEREST AND INCOME TAXES Interest payments of $23.9 million and $23.4 million were made for the three months ended March 31, 2010 and 2009, respectively. No federal income tax payments were made for the three months ended March 31, 2010 and 2009.

Pension Plan and Other Postreti

Pension Plan and Other Postretirement Benefits
	3 Months Ended Mar. 31, 2010
Pension Plan and Other Postretirement Benefits	(11) PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS The Company has defined pension and postretirement benefit plans which cover substantially all of the Companys employees. Net periodic pension and other postretirement benefit costs include the following components for the three months ended March 31, 2010 and 2009: Pension Benefits For the three months ended March 31, 2010 2009 (in thousands) Service cost $1,774 $1,287 Interest cost 812 718 Expected return on plan assets (876) (702) Amortization of prior service cost 86 83 Amortization of net loss 202 212 Net periodic benefit cost $1,998 $1,598 Other Postretirement Benefits For the three months ended March 31, 2010 2009 (in thousands) Service cost $272 $174 Interest cost 49 34 Amortization of transition obligation 16 16 Amortization of prior service cost 4 3 Amortization of net loss 5 2 Net periodic benefit cost $346 $229 The Company currently expects to contribute $9.6 million to the pension plans and $0.1 million to the postretirement benefit plan in 2010. As of March 31, 2010, there have been no contributions to the pension plans and the postretirement benefit plan. The Company maintains a non-qualified deferred compensation supplemental retirement savings plan (Non-Qualified Plan) for certain key employees who may elect to defer and contribute a portion of their compensation, as permitted by the plan. Shares of the Companys common stock purchased under the terms of the Non-Qualified Plan are presented as treasury stock and totaled 206,604 shares at March 31, 2010 compared to 203,830 shares at December 31, 2009.

Equity

Equity
	3 Months Ended Mar. 31, 2010
Equity	(12) EQUITY On April 8, 2009, the Companys Board of Directors approved and the Company entered into, a Second Amended and Restated Rights Agreement (Rights Agreement), dated as of April 9, 2009, between the Company and Computershare Trust Company, N.A., which amended, restated, superseded and replaced the Amended and Restated Rights Agreement dated as of April 12, 1999, as amended. The Rights Agreement extends the term of the agreement until April 8, 2019 and amends each Right (which initially represented the right to purchase one share of the Common Stock) to represent the right to purchase, when exercisable, a unit consisting of one one-thousandth of a share (Unit) of Series A Junior Participating Preferred Stock, par value $0.01 per share (Series A Preferred Stock) at a purchase price of $150.00 per Unit (Purchase Price), subject to adjustment. In connection with the Rights Agreement, the Board of Directors approved the Certificate of Designation, Preferences and Rights (Certificate of Designation) establishing the Series A Preferred Stock, which was filed with the Secretary of State of the State of Delaware on April 9, 2009, and reserved 1,000,000 shares for issuance under the Rights Agreement. Pursuant to the Certificate of Designation, when issued, each share of the Series A Preferred Stock entitles the holder thereof to 1,000 votes, subject to adjustment, on all matters submitted to a vote of the stockholders of the Company. Except as otherwise set forth in the Certificate of Designation or provided by law, the holders of shares of the Series A Preferred Stock and the holders of shares of the Common Stock will vote together as one class on all matters submitted to a vote of stockholders of the Company. On February 24, 2010, the Company's Board of Directors approved, and the Company and Computershare Trust Company, N.A., as rights agent, entered into, an amendment to the Rights Agreement pursuant to which the final expiration date of the rights (each as defined in the Rights Agreement) was advanced from April 8, 2019 to February 26, 2010. As a result of the amendment, the rights are no longer outstanding or exercisable.

Stock-Based Compensation

Stock-Based Compensation
	3 Months Ended Mar. 31, 2010
Stock-Based Compensation	(13) STOCK-BASED COMPENSATION The Company recognized the following amounts in employee stock-based compensation costs for the three months ended March 31, 2010 and 2009: For the three months ended March 31, 2010 2009 (in thousands) Stock-based compensation cost general and administrative expense $2,297 $2,152 Stock-based compensation cost capitalized 1,708 1,511 As of March 31, 2010, there was $33.5million of total unrecognized compensation cost related to the Companys unvested stock option and restricted stock grants. This cost is expected to be recognized over a weighted-average period of 2.7 years. The following table summarizes stock option activity for the first three months of 2010 and provides information for options outstanding as of March 31, 2010. Weighted Average Number Exercise of Options Price Outstanding at December 31, 2009 5,649,233 $11.59 Granted 30,915 44.65 Exercised (110,319) 2.30 Forfeited or expired (4,317) 35.89 Outstanding at March 31, 2010 5,565,512 $11.94 Exercisable at March 31, 2010 4,717,941 $7.66 The following table summarizes restricted stock activity for the three months ended March 31, 2010 and provides information for unvested shares as of March 31, 2010. Weighted Average Number Grant Date of Shares Fair Value Unvested shares at December 31, 2009 794,529 $33.70 Granted 8,670 43.98 Vested (46,346) 28.10 Forfeited (5,325) 35.05 Unvested shares at March 31, 2010 751,528 $34.16

Segment Information

Segment Information
	3 Months Ended Mar. 31, 2010
Segment Information	(14) SEGMENT INFORMATION The Companys reportable business segments have been identified based on the differences in products or services provided. Revenues for the EP segment are derived from the production and sale of natural gas and crude oil. The Midstream Services segment generates revenue through the marketing of both Company and third-party produced gas volumes and through gathering fees associated with the transportation of natural gas to market. Summarized financial information for the Companys reportable segments is shown in the following table. The accounting policies of the segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of the 2009 Annual Report on Form 10-K. Management evaluates the performance of its segments based on operating income, defined as operating revenues less operating costs and expenses. Income before income taxes, for the purpose of reconciling the operating income (loss) amount shown below to consolidated income before income taxes, is the sum of operating income (loss), interest expense and interest and other income (loss). The Other column includes items not related to the Companys reportable segments including real estate and corporate items. Exploration And Midstream Production Services Other Total (in thousands) Three months ended March 31, 2010: Revenues from external customers $485,071 $183,046 $ $668,117 Intersegment revenues 6,998 448,597 246 455,841 Operating income 250,431 37,624 35 288,090 Interest and other income (loss)(1) (45) 68 23 Depreciation, depletion and amortization expense 132,707 6,161 149 139,017 Interest expense(1) 2,300 4,208 6,508 Provision for income taxes(1) 96,765 13,059 13 109,837 Assets 4,245,617 (2) 772,040 114,577 (3) 5,132,234 Capital investments(4) 411,433 49,266 12,926 473,625 Exploration And Midstream Production Services Other Total (in thousands) Three months ended March 31, 2009: Revenues from external customers $372,562 $168,135 $120 $540,817 Intersegment revenues 5,523 225,339 112 230,974 Operating income (loss) (727,893) (5) 27,362 39 (700,492) Interest and other income(1) 363 2 365 Depreciation, depletion and amortization expense 120,131 3,926 171 124,228 Impairment of natural gas and oil properties 907,812 907,812 Interest expense(1) 3,243 441 3,684 Provision (benefit) for income taxes(1) (281,339) 10,365 15 (270,959) Assets 3,506,323 (2) 525,331 196,922 (3) 4,228,576 Capital investments(4) 450,403 50,921 1,868 503,192 (1) Interest income, interest expense and the provision (benefit) for income taxes by segment are allocated as they are incurred a

Condensed Consolidating Financi

Condensed Consolidating Financial Information
	3 Months Ended Mar. 31, 2010
Condensed Consolidating Financial Information	(15) CONDENSED CONSOLIDATING FINANCIAL INFORMATION The Company is providing unaudited condensed consolidating financial information for SEECO, SEPCO and SES, its subsidiaries that are guarantors of the Companys registered public debt, and for its other subsidiaries that are not guarantors of such debt. These wholly owned subsidiary guarantors have jointly and severally, fully and unconditionally guaranteed the Companys 7.35% Senior Notes and 7.125% Senior Notes. The subsidiary guarantees (i) rank equally in right of payment with all of the existing and future senior debt of the subsidiary guarantors; (ii) rank senior to all of the existing and future subordinated debt of the subsidiary guarantors; (iii) are effectively subordinated to any future secured obligations of the subsidiary guarantors to the extent of the value of the assets securing such obligations; and (iv) are structurally subordinated to all debt and other obligations of the subsidiaries of the guarantors. The Company has not presented separate financial and narrative information for each of the subsidiary guarantors because it believes that such financial and narrative information would not provide any additional information that would be material in evaluating the sufficiency of the guarantees. The following condensed consolidating financial information summarizes the results of operations, financial position and cash flows for the Companys guarantor and non-guarantor subsidiaries. CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (Unaudited) Parent Guarantors Non-Guarantors Eliminations Consolidated (in thousands) Three months ended March 31, 2010: Operating revenues $ $642,827 $67,322 $(42,032) $668,117 Operating costs and expenses: Gas purchases midstream services 158,016 (348) 157,668 Operating expenses 58,159 19,845 (41,438) 36,566 General and administrative expenses 28,125 5,065 (246) 32,944 Depreciation, depletion and amortization 132,375 6,642 139,017 Taxes, other than income taxes 12,589 1,243 13,832 Total operating costs and expenses 389,264 32,795 (42,032) 380,027 Operating income 253,563 34,527 288,090 Other income (loss) (47) 70 23 Equity in earnings of subsidiaries 171,797 (171,797) Interest expense 2,874 3,634 6,508 Income (loss) before income taxes 171,797 250,642 30,963 (171,797) 281,605 Provision for income taxes 97,761 12,076 109,837 Net income (loss) 171,797 152,881 18,887 (171,797) 171,768 Less: Net loss attributable to noncontrolling interest (29) (29) Net income (loss) attributable to Southwestern Energy $171,797 $152,910 $18,887 $(171,797) $171,797 Three months ended March 31, 2009: Operating revenues $ $524,829 $43,053 $(27,065) $540,817 Operating costs and expenses: Gas purchases midstream services